Who's The Boss? Association Board Or Management Company
By Christopher Carter - Real Estate Broker Associate
July 13, 2023
It is essential for everyone buying into (or already living in) a Florida Condominium Building or residential community governed by an Owners Association to fully understand the relationship between their Boards and their Management Companies. Today's discussion applies to Associations in which membership is mandatory (and attached to) buying and owning in a residential condominium building or an HOA community. These Associations are regulated by Florida Statutes and each one's Governing Documents are recorded with the local County.
Many new owners and seasonal residents are realizing they are not familiar with how their Associations function and are regulated. Some admit they have never even looked through their Governing Documents.
After the catastrophic structural failure and deadly collapse of Champlain Towers South Condominium Building in June 2021, the interaction and dynamics between Association Boards and their managers or Management Companies have come under close examination.
Short answer: The Board of Directors has final authority over the manager and Management Company. Now let's discuss why.
The Florida Condominium Act (Florida Statutes Chapter 718) and Homeowners Association Act (FS Chapter 720) place fiduciary duty on Board members to always act in the best interest of the Association as a whole, placing the financial and administrative well-being of owners above the personal interests and opinions of individual Directors. This means that Board members must make decisions and conduct Association business for the greater benefit of all Association property owners. Directors accept this fiduciary responsibility when they are elected or appointed to a seat on the Association's Board.
Florida Condominium and Homeowners Board members (Directors) are unpaid owner-members in the Association who have voluntarily run for a seat on the Board and been elected under the provisions of the Condominium or Homeowners Association Act and the Association’s own Governing Documents.
The elected Board must function as a group. Individual Directors cannot make decisions regarding Association business on their own. All decisions that legally or financially affect the Association must be made during a properly noticed and conducted Board of Directors meeting. (Pretty much everything that comes up has a legal or financial effect on the entire Association.)
The Condominium and Homeowners Association Acts allow (do not require) Boards to contract with property managers and management companies to help the Board maintain the property and assist in its administration. Here in Florida, managers and Management Companies working for COA’s and HOA’s must have valid Community Association Manager or Community Association Management Firm licenses issued by the Department of Business & Professional Regulation (DBPR).
Managers and Management Companies are expected to provide the professional services outlined in their contracts with the Association, though do not have the same fiduciary relationship with owners as do elected Board members. Managers and companies work for the entire Association, taking their guidance and instruction from the Board.
When an Association decides to hire an individual licensed manager and maintenance staff as employees, the Association is responsible for withholding taxes, Social Security contributions, and other employment costs. Under this arrangement, the manager and staff answer directly to the Association's Board of Directors.
When an Association decides to contract with a licensed Management Company to oversee administration and maintenance, one of the company's licensed managers is assigned to the Association. In this case, the Property Manager is an employee of the Management Company and the company is a contracted vendor to the Association, providing the professional services agreed to in the management contract. Under this arrangement, your Association's Property Manager may also be the Property Manager for a few other Associations at the same time (this is called being a portfolio manager).
There are advantages and disadvantages to each of these arrangements. When considering which may be best for your Association, it is critical to receive input from the Association's attorney and accountant.
As long as their own Governing Documents and State law are properly followed, it is up to each Owners Association and their Board to decide whether they prefer to “self manage” (Board directly runs Association business without a manager) or pay a licensed manager / Management Company to help them with the ongoing operation, administration, and maintenance of the property and community.
Hiring a management company or manager does not relieve the Board of its own responsibility and obligation to maintain Association property and common elements, and to conscientiously direct Association finances and governance.
Examples of services that managers and Management Companies provide to Boards and Associations include:
• Processing owners' payments
• Arranging and overseeing property maintenance
• Scheduling Association meetings
• Monitoring compliance with regulations and procedures
• Managing Association financial accounts (under Board direction and oversight)
• Communicating Association business to all owners
Without a manager or Management Company, the Board is responsible for carrying out all these operational tasks.
Therefore, all Florida COA’s and HOA’s must have a Board of Directors, though there does not have to be a manager or management company unless the Association decides it wants one.
In practice, Associations are NOT advised to "self manage" (no manager at all). There are FAR too many critical details involved with the efficient operation and governance of a residential Owners Association for untrained, unlicensed owners and Board members to properly address without professional assistance.
Problems arise when Boards either intentionally or unknowingly give managers and management companies too much authority and independent decision-making ability. Boards doing this can be thought of as abandoning their statutory and ethical Directors' responsibilities by trying to transfer them to third-party management.
Depending on the severity and the outcome under this type of circumstance, property owners may be able to bring charges of breach of fiduciary duty against the Board.
Directly related to this is when Boards do not keep a close enough eye on what managers and Management Companies are doing. A prime example is the 2021 Collier County case in which a licensed Community Association Management Firm was charged with embezzling millions of dollars from the accounts of about 35 different COAs’ and HOA’s. In my opinion, this theft could have easily been prevented through proper Board oversight of manager / Management Company function and Association finances. This appears to have been a fiduciary breach (or negligence) by multiple Associations' Boards which resulted in a third-party's criminal behavior and significant loss of owners' money.
There we are - a quick overview of the relationship between Association Boards and managers / Management Companies.
As mentioned in multiple previous Association-related articles - the keys to owning and living in a Florida Association-governed building or community are education and participation. Use what we have discussed today to better understand and become more involved in your own COA or HOA.
Editor's Note: Christopher Carter is NOT an attorney. He does not give legal advice. For interpretation and application to specific circumstances of anything you read in this article, you must speak with a Florida-Licensed attorney.
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