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Why every Association needs a good Fine & Enforcement Policy

7/1/2012

 
By providing rules and regulations on everything from pets to holiday decorations to fitness center protocol, the governing documents of an Association represent the overall standard for what is expected from unit owners while living within an Association.  What happens when a unit owner violates the governing documents?  Does your Association have a clear and well-articulated policy outlining exactly what recourse the Association has against an offending unit owner?  Oftentimes I am asked why a Fine and Enforcement Policy is needed when the Association's governing documents state that the Association is entitled to issue "fines".  Ultimately, a good Fine and Enforcement Policy will help the Association ensure that the governing documents are uniformly and consistently enforced.  This in turn will help protect the Association from claims of discrimination or selective enforcement.

A Fine and Enforcement Policy is designed specifically to provide a procedure for the Association to follow in each instance where a violation of any portion of the governing documents occurs.  The Policy is intended to consolidate provisions that are often scattered throughout the governing documents into one concise location.  The policy will help ensure that your Association does not make the mistake of imposing a fine without first providing the unit owner with notice and an opportunity to be heard.  The policy provides specific notices, time frames and enforcement procedures while also potentially allowing the Association (where allowed under the governing documents) to restrict access to certain amenities or other privileges.  Furthermore, the policy may identify interest on past due balances and, if desired, provide for a specific fining schedule for individual occurrences as well as per diem fines for continuing violations.

It is important that each Association have a Fine and Enforcement Policy that is tailored to their specific governing documents since each Association is unique.  When effectively drafted, a Fine and Enforcement Policy becomes an important tool in Court when necessary to collect any outstanding fines or charges from unit owners.  Overall, instituting a well-drafted Fine and Enforcement Policy may significantly limit the amount of hurdles an Association will have to jump over in the future. 

Does your Association maintain an adequate and consistent Fine & Enforcement Policy?

6/1/2011

 
All Associations should have a separate Fine & Enforcement Policy in place to provide for notification of violations and for informing unit owners of specific fines and the appeals process for receiving a notice of violation. Implementing a Fine & Enforcement Policy encourages unit owners to comply with the Association's governing documents and provides for the uniform enforcement of the Association's documents.

The Pennsylvania Uniform Planned Community Act and the Pennsylvania Uniform Condominium Act both allow for Associations to impose and collect fines in the same manner as assessments. Notice of a violation with the opportunity to be heard by the Association must first be provided to the violator. Failure of the violator to pay the fine may result in a lien against the unit. The Association, if it wishes, may then proceed with filing a lawsuit against the violator for failure to pay the fine. When applicable, the Association may collect reasonable attorneys' fees and costs from the violator for the costs associated with the violation.

A Fine & Enforcement Policy that is separate and apart from the Association's other governing documents can outline with greater specificity and supplement what may already be provided for within the Association's Declaration. In most cases, such a Policy provides an outline of fees that the Association may impose upon a unit owner for failure to comply with the Association's governing documents. The Policy may also outline a specific notice and appeal process for the Association to abide by when enforcing its documents. Not only does having such a Policy assist the Association in enforcing its governing documents uniformly, it provides notice to the unit owners that certain actions may be taken by the Association for failure to comply with the governing documents. A separate Fine & Enforcement Policy can assist Associations in ensuring greater compliance of their governing documents as well as the implementation of uniform enforcement procedures.

If you have any questions about preparing a Fine & Enforcement Policy specific to your Associations please feel free to contact us.

Nominations from the floor?

11/1/2010

 
It is finally the evening of your Association's annual meeting to elect members to the Board of Directors. You have been working hard to assure that tonight will go off smoothly and without a hitch.  You sent your request for nominations out to the entire community along with the notice of the meeting weeks ago.  You have received the candidate bio sheets and provided them to all of the members of the community along with a second notice of the meeting.  You have even prepared absentee ballots (if specifically authorized by your documents) or directed proxies identifying the names of the candidates.

Now, just as the candidates are introducing themselves, someone stands up and asks, "are nominations from the floor allowed?"  All eyes turn toward you.  What do you do?  First and foremost, you turn to your Association's Governing Documents to determine whether they specifically provide for nominations to be submitted from the floor at the election meeting.  Often times, the language concerning nominations may be very complicated and you may wish to seek an opinion from your Association's legal counsel prior to the election so that you have a clear understanding of this issue.  Often times, however, the documents are silent regarding this issue, which is the reason that this subject has been selected for our November Newsletter.

We recommend that the Board of Directors establish a Policy concerning the acceptance of nominations from the floor when the documents are silent on this issue.  This Policy should be established by the Board of Directors and adopted by a Resolution of the Board.  In this way, the Board of Directors may avoid the appearance of a conflict of interest when determining whether to accept nominations from the floor.

Your Policy may take into account the number of vacant seats as compared to the actual number of candidates running.  For example, you may only wish to accept nominations from the floor when the number of vacant seats is equal to or less than the number of candidates running.  If you would like us to review your Association's Governing Documents to help determine whether nominations are required to be accepted from the floor or to help develop a Policy for your Association, simply contact our office.  As most election meetings occur at the end of the year, now is the ideal time to take care of this housekeeping matter to assure that all of your hard work at the next election meeting pays off. 

Specialized questions may require specialized knowledge: The benefits of obtaining expert advice

10/1/2009

 
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.

What Have I Gotten Myself Into Now? (Personal Liability for Board Actions)

8/1/2009

 
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.

Should absentee ballots be absent from Association meetings?

5/1/2009

 
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.

Transition from Declarant: the Event vs. the Process

3/1/2009

 
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.

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