Community associations were created in this country out of economic need: affordable housing for the masses that embraced the dream of home-ownership. It was functional. The economically motivated creation was followed by a “social experiment” ambience that offered us all a chance to recreate our own little communities and mini-governments. As soon as the developer left, condominiums were embraced by society as a social phenomenon and one of the biggest hurdles faced was getting board members to refocus on the fact that they were running a small business. Not just any small business, but one that was responsible for their own home as well as hundreds of neighborhood homes. That struggle continues as newly elected board members are shocked to find out that they have something called “fiduciary” responsibility.
Clearly the third stage of development for community associations is the move from social experiment back to a business orientation. How does this evolution impact you, the board member? As an unpaid volunteer fiduciary, the courts viewed your actions in the most lenient manner. Board members were often found free of any personal liability for their poor decisions as long as they made some kind of reasonable effort to “do the right thing.” They were not subject to the same criteria of business judgement that any paid staff person or executive might be held to. Their public spirit was rewarded with a very liberal view from the bench insofar as liability went. Certainly sounds appropriate. Here you are volunteering 10-20 hours a month of your personal time for the good of the community and you end up getting sued for $2 million because the roofer you hired turned out to be a con-man. Not really fair. BUT.
Though you are not responsible, who pays the price?
The entire association does. Not a happy alternative. Currently there is a legal trend emerging that says that board members will be held to the same “good business judgement” standards that other business executives are held to. Volunteer status does not mitigate the burden they carry or their fiduciary responsibility.
As this trend grows in popularity, would it not make sense to reevaluate the position of board members? Will the trend reverse itself again? Possibly, but not probably. The idea of holding individuals responsible for their actions is not a passing fad. This evolution of the industry is likely to develop rapidly and probably reach an extreme situation where board members are frightened off because of all the personal judgements against them. As things usually happen, the pendulum will shift back to a more middle-of-the-road position. In any event, you should anticipate more board member liability.
The great social experiment of our era continues to mature. Is it a social experiment, a business experiment or a hybrid? “Governance” has become the mantra. The transitional nature of most boards is a major hurdle.
Should we anticipate the creation of the paid professionally trained board member? Would you welcome the idea of one of your neighbors understanding the nuances of 3rd party contracts, property insurance, legal liabilities, and finance steering your neighborhood for a fee? Would you then need a professional property manager? Would we be creating a new career for retirees? Is this an opportunity for a young mother confined to the home because of child-rearing responsibilities to earn a legitimate income? The opportunity to have professionally trained and experienced board members dealing with the needs of the community has to be a positive one. Professional property managers need not worry. There’s plenty of responsibility to go around.