In last month's Newsletter, we discussed whether an individual owner sitting as a Member of the Board of Directors assumes personal risks associated with actions taken by the Board.   This edition continues with that theme by discussing the benefits and protections afforded to Associations by retaining a qualified expert when needed.

Have your Board Members ever asked you as a professional property manager whether a tree looks dangerous?  Have they asked you whether or not a retaining wall looks like it may be leaning a bit too far?  Have you been asked for advice on detailed topics like complex financial investing?

While property managers are experts in the field of property management, which encompasses many topics, managers are often asked for advice on complex issues outside their scope of expertise.  At those times, you may wish to advise the Board to seek the advice of a qualified expert in the field at issue, such as attorneys, engineers, accountants or other professionals.

There are many benefits to obtaining the advice of a qualified expert.  The Board is obtaining important information that will allow it to fulfill its fiduciary duty and make the best decision possible on behalf of the Association.  Further, as we discussed in the August edition of the Newsletter, a decision based upon the advice of a qualified expert protects the Association generally and the individual Board Members specifically from allegations or lawsuits alleging that they have failed to meet their fiduciary obligations.  And finally, an insurance company will have greater difficulty denying coverage in the event that a lawsuit is filed, when the Board has relied upon the advice of a qualified expert.

Often the authority to consult experts is granted by the Association's governing documents and, in the event they do not, both the Uniform Planned Community Act, at Sections 5302 and 5303, and the Uniform Condominium Act, at Sections 3302 and 3303, specially provide the Board with this power.  This power is retroactive and, as such, most likely applies to all Associations regardless of the date on which they were created.

We hope that this Newsletter is helpful to you and we welcome your feedback and suggestions, particularly on topics that you would like to see featured in a future edition.  Thank you.

With autumn fast approaching, many Community Associations are beginning preparations for their annual meeting and many face the reoccurring problem of a lack of candidates willing to run for the Board of Directors.  One concern which may keep unit owners from running, and which is often shared by sitting Board Members, is personal exposure to liability for actions taken by the Board.

As a general rule, Board Members are well protected against personal liability which may arise from actions they take while discharging their fiduciary duties as Board Members.  The sources of this protection often include the Association's governing documents, Pennsylvania law, including the Uniform Planned Community Act and the Uniform Condominium Act, and federal law, including the Volunteer Protection Act of 1997.

As permitted by Section 5302 of the Pennsylvania Uniform Planned Community Act and Section 3302 of the Pennsylvania Uniform Condominium Act, the governing documents of many Associations require that the Association defend and indemnify its Board Members.  The Governing Documents may also require that the Association secure Officers' and Directors' insurance.  Furthermore, pursuant to Sections 5303 and 3303 of these Acts, Board Members have no personal liability so long as they discharge their duties in good faith, exercising care to make informed decisions and act in the best interests of the Association.  Finally, some additional protection may be provided by the federal Volunteer Protection Act which offers protection, with some exceptions, to volunteers acting within the scope of their volunteer responsibilities.

Of course, the laws and governing documents cannot offer protection for actions that are criminal, such as embezzlement, or intentionally wrongful acts.  One of the best protections against personal liability is to consult the opinion of an expert when required.  We will discuss the Board's power to consult experts in more detail in our next Newsletter.  Ultimately, so long as Board Members make informed decisions and act in the best interests of their Association, the risk of personal legal liability is minimal and should not deter volunteers from running for election to the Board of Directors.

Swimming pools are certainly popular with property owners in condominium and homeowners' associations - especially those with small children. However, the tragedy of a preventable drowning death and the resulting civil liability for such an event could have a devastating impact on a community.  Condominium and homeowners' association boards should ensure that their pools and spas are safe before allowing the summer fun to start.  This article presents some essential practices that may keep you out of legal trouble.

Condominium and homeowners' associations that have a pool or spa should have a process in place to evaluate whether they are in compliance with recently enacted federal law relating to pools and spas, as well as municipal ordinances and the Association's rules and regulations which may set additional standards.

The Virginia Graeme Baker Pool and Spa Safety Act (the "Act") was enacted by Congress and signed by the President in late 2007.  The goal of this legislation was to improve pool and spa safety by reducing the risk that powerful suction could trap a person underwater.  The Act applies to all "public pools and spas" which term is defined by the Act to include pools and spas that are open exclusively to residents of residential real estate developments or other multi-family residential areas.  Condominium and homeowners' associations are included within this general definition and, therefore, must comply with the Act's provisions.

The Act requires the installation of certain types of anti-entrapment drains and/or devices over pool and spa drains.  The law also requires barriers to protect small children from gaining unsupervised access to a pool or spa.  Seasonal pools and spas that are currently closed must be in compliance with the Act on the day that they reopen in 2009.  Municipalities may also set their own standards, including chemical guidelines, inspections, record keeping, and equipment and fencing requirements.

A thorough inspection of the pool, the surrounding areas and all pool equipment should be done before opening each year and a record should be made and retained of that inspection.  In order to deal with the myriad of legal and regulatory requirements relating to pools and spas, the Association may want to appoint a pool committee to be responsible for reviewing and updating the Association's rules, rule distribution, administering periodic inspections and overseeing the pool contractor.  We recommend having a manual that dictates the responsibilities of the pool committee and/or board member liaison to the pool contractor.  The Association should also consult with legal counsel periodically to ensure that their rules comply with the Fair Housing Act requirements relative to protected classes, such as handicapped persons or familial status.

Following these guidelines will hopefully lead to a safer and fun-filled summer.

An ongoing concern in many communities is the inability to establish quorum for purposes of election meetings or the conduct of other association business.  As a result, our firm is often faced with the question of whether the association can accept "mail-in" or "absentee" ballots (collectively "absentee ballots").

An absentee ballot allows the casting of a vote by a unit owner directly without requiring the unit owner's attendance in person or by proxy at a meeting.  Neither the Pennsylvania Uniform Condominium Act nor the Pennsylvania Uniform Planned Community Act specifically authorizes absentee ballots.  Therefore, absentee ballots may only be used where specifically authorized by the association's governing documents.  An association's use of absentee ballots without specific authorization in the governing documents may invite potential challenges to the establishment of quorum at the meeting, the validity of any business conducted therein and the election of the association's board.  If specifically authorized, associations must be careful to confirm that absentee ballots are also valid toward the establishment of quorum.  If not specifically authorized, the association may vote to amend their governing documents to permit the use of absentee ballots for voting and quorum purposes.

In lieu of an amendment, the association may want to consider the use of a directed proxy.  A directed proxy allows an absentee unit owner to appoint another person to cast his or her vote as specifically designated on the directed proxy form.  The association may use a directed proxy provided it is not specifically prohibited by the association's governing documents and otherwise complies with all proxy requirements set forth therein and in the Acts.  The use of a directed proxy essentially accomplishes the same result as an absentee ballot with the added benefit of establishing quorum.

Prior to utilizing either of the options described above, an association's governing documents need to be carefully reviewed to determine whether the association may utilize an absentee ballot and/or whether there are any restrictions against or specific requirements for the use of a directed proxy.

You may be aware that incorporated community associations are required to have a registered office address on file with the Pennsylvania Department of State Corporation Bureau.  However, you may not regularly have the occasion to update those addresses.  While it may seem like a small matter, allowing the registered office address to become outdated could result in significant problems for a community association.

The purpose of a registered address is to provide the official address at which the association receives important documents, such as the service of legal papers which may involve, among other things, notices of lawsuits or foreclosures within the association community.  An association's legal rights could potentially be jeopardized by an outdated address since the association may not receive important documents delivered to an outdated address with sufficient time to adequately protect its legal rights.

Additionally, Pennsylvania law requires that any change in the registered office address be filed with the Corporation Bureau. An association may select any address which will ensure timely delivery of important documents, such as the business address of its property management company or an outside office, if available. Regardless of which address is chosen, the important issue is to ensure that the association will receive documents delivered to that address so the association will have an opportunity to take any action necessary to preserve its legal rights.

Should you have any questions regarding this important issue, we recommend that you contact your association's legal counsel. Ultimately, the problems that can arise from an outdated registered office address are relatively easy to avoid. Thank you for subscribing to our newsletter and we welcome your comments and suggestions.

Associations will often focus on the event of transition - that being the election at which time control of the association is turned over from a Declarant run Board of Directors to a Board where the majority of the  Members are elected by the unit owners other than the Declarant.  While this event is an important step in transition, it is only the beginning of the process of transition.

Following this key election, Board Members typically find themselves with a host of responsibilities from governing the association, focusing on budgetary and contractual matters, working with the management company and reviewing and understanding the governing documents.  It is imperative that Boards be educated from the beginning regarding the transition process, including, but certainly not limited to:

1.         Hiring key professionals:

            -  Accountant to work with the Association and the Declarant in completing a transition audit;

            -  Engineer to create a property transition report and reserve study;

            -  Insurance agent to ensure proper coverage as required under the governing documents; and

            -  Legal counsel to help understand the responsibilities of the Declarant under the governing documents and approved plans, an explanation of certain statutory warranties provided under state law; and to insure that the Declarant's responsibilities are fully met within the required timeframe.

2.         Understanding the role of the local municipal government in approving the development and their continuing role with escrow accounts, punch lists, and ensuring completion of certain public improvements.

3.         Understanding the importance of the association's governing documents and either following the documents as drafted or beginning the process of reviewing provisions which should be added, deleted or modified.

Educating new Board Members right from the beginning on the transition process will help ensure that communities start off on the right foot and avoid having to play catch up.  If you are working with a newly elected unit owner controlled Board and would like to schedule a transition meeting with legal counsel, please call Adam Marcus at 610-565-4660.

America's growing population of individuals age 55 and over, has resulted in a proliferation of age restricted communities.  It is important for these communities to ensure that they are in compliance with applicable laws and regulations in order to maintain their "55 or older" exemption.

Under the Fair Housing Act, as amended by the Housing for Older Persons Act, a community can qualify for the housing-for-older-persons exemption, and refuse occupancy to residents that fail to meet the age restrictions, provided that three requirements are met:

1.      At least 80% of the occupied units are occupied by at least one person who is 55 years of age or older. There is often a misconception that ownership of dwellings in adult communities is subject to the applicable age restrictions. To the contrary, only occupancy is restricted under the law. It is important to note, however, that state legislation, local zoning ordinances and an Association's governing documents may impose age restrictions which are more restrictive than federal guidelines so long as they meet the federal exemption requirement.

2.      The housing community must publish and adhere to policies and procedures that demonstrate an intent to operate as 55 or older housing. Some factors that are considered relevant are:

          - Is the housing community described as an age 55 or older housing community in advertising and to prospective residents?

          - Does the housing community maintain and consistently apply procedures used for verifying age and occupancy?

          - Do all lease provisions, rental agreements, rules, regulations, covenants and/or deeds indicate that the community is 55 or older housing?

3.       A procedure for age verification should be developed and followed.  The community must compile a list of occupants and verify the ages of the occupants.  A variety of documents are considered reliable as age verification documentation, including a birth certificate, a driver's license or a passport.  The community should re-survey its lists of residents at least every two years to ensure that the 80% requirement, or higher standard set forth in the Declaration is met.

The drafting, interpretation and enforcement of age restrictions can be challenging.  While there is no guaranteed insulation from lawsuits, a 55+ housing community is well advised to have its policies and procedures reviewed by competent legal counsel.  With competent advice, you will be in the best position to meet any potential legal challenge to the age restriction.

Under both the Pennsylvania Uniform Condominium Act and the Pennsylvania Uniform Planned Community Act, an Association has the right to foreclose upon the Association's statutory lien in a manner similar to a mortgage foreclosure.  The provisions set forth in both of these Acts are retroactive and, therefore, apply to all condominiums and planned communities in Pennsylvania.

While the foreclosure process may be complex, it can be a useful tool under certain circumstances. Foreclosure may be an appropriate remedy where an Association has exhausted all other remedies, where collection efforts have been frustrated and/or past due assessments are significant.  Therefore, careful consideration should be given to the facts of each case in order to determine if foreclosure is an appropriate remedy.  The analysis includes a determination of the equity in the property and the priority of the Association's statutory lien in connection with any other liens, judgments, or mortgages against the property.  In addition, the Association's potential ownership of the property raises a host of other considerations which must also be addressed, including:  Is the Association responsible to satisfy the first mortgage lien or tax liens, if any, against the property?  What is the condition of the property?  Will an action in ejectment be necessary to evict the current occupant of the property?  What are the Association's responsibilities in terms of any prior liens to which the property remains subject?

We recommend a careful review of all of these issues by the Association's Board and legal counsel to determine if foreclosure is an appropriate remedy.