What Documents Do New Managers Get?

QUESTION: Our homeowners association is just going into its second year. We have been frustrated with our management company’s lack of follow-up. This is the company that we inherited from our developer, and they have given us excuses instead of leadership in dealing with the developer. Our new board will probably vote to change management companies next month.

What documents and records can we expect to have transferred to the new management company? Do the association’s records and files belong to the management company or to the association?

ANSWER: All of the association’s documents, records and files, including contracts, financial statements and correspondence, belong to the association. Personnel records should be turned over to the association if employees work directly for the association rather than the management company.

You will probably find that the current management company will request that someone from the association board of directors be present for the transfer of records. Most management companies will have a release form that lists the documents that are being transferred. Reputable management companies will be very efficient and cooperative during the transition process.

Although you didn’t ask for my advice about changing management companies, I would suggest that you have a face-to-face meeting with the owner of the current management company to discuss your concerns.

During the development phase, the management company is often perceived as being on the side of the developer. However, the developer who serves on the initial board of directors and the manager must act in the best interests of the association, even if the management company is a division of the developer’s company.

Terminating the current management company should be your last resort. Transition to a new company is not always smooth, and there are bound to be some problems while the new company is becoming familiar with the association’s procedures and its members, contractors and vendors.

If you do change management companies, an audit should be performed by an independent certified public accountant. Ask for the accountant’s advice regarding the mangement transition. I recommend closing any bank accounts that have the current management company’s personnel as signatories, leaving just enough funds to cover any outstanding checks that haven’t cleared the bank.

Auditor’s Financial Statement Always Late

Q: I know that California law requires that homeowner associations distribute a copy of the annual financial statement within 120 days after the close of the fiscal year. Our association’s board of directors has not complied with this for the last two years. They blame the delay on the auditor, and distribution has been from one to three weeks late. The board’s attitude is, “It’s no big deal.” How important is it that this deadline be respected?

A: The law that you refer to affects associations that have an annual gross income exceeding $75,000. There is no penalty, though an owner could file a civil action against a board that does not comply with the law. In my opinion, being one to three weeks late does not show a flagrant disregard for the law.

I would tend to be more critical of the auditor who accepted the job and then could not complete it within the legal time limit. Boards should make this deadline a part of the terms of the contract with the auditor. Since this seems to be a major concern to you, why not volunteer to serve on the audit committee next year and see to it that this report is distributed on time?

Buyer Should Examine All Legal Documents

Q: We are thinking about selling our house and purchasing a condominium. We would like to see the legal documents and rules and regulations before we buy, but our real estate agent says that we will receive them at the close of escrow. Is there any way that we can review these documents prior to purchasing?

A: Yes, you should not be shy about demanding to see the declaration of covenants, conditions and restrictions (CC&Rs;), the bylaws, rules and regulations, board meeting minutes, financial statements, annual budget and reserve study. Your real estate agent’s response was definitely incorrect. The escrow closing is not the proper time to receive this important information.

If you sign a purchase agreement prior to receiving the documents that you request, the contract should include a clause that gives you 10 days after receiving the documents to review the information. You have the right to cancel the contract if the legal documents and related information do not meet with your approval.

Small Complex Means Many Board Duties

Q: I am considering buying a condominium and have wondered about the merits of a small association of three to six units versus a large association. I would like to have your opinion.

A: If you decide to purchase in a small association be prepared to volunteer your time as a working board member. What do I mean by a working board member? In a large association, serving on the board may involve merely coming to a board meeting once a month to vote on policies and procedures while a management company is responsible for the financial operation, maintenance and day-to-day affairs of the association.

In a small, self-managed association, each owner should be willing to participate in the work of the association, including the accounting, maintenance, record-keeping, insurance and other operations. Read the legal documents that state the powers and duties of the board and make sure that you are willing to participate in some way.

In many very small associations, one overworked individual often does all the work, from replacing light bulbs to overseeing contractors, and continues to do it simply because none of the other owners will volunteer.

Serving as a board member in any size association is a big responsibility because of the financial decisions, insurance obligations, rule enforcement and record-keeping that are required. In a large association, there is a likelihood fo having more volunteers who are willing to serve, whereas in a small one, it is very difficult to find volunteers, and they quickly tire of the job because of the greater burden of hands-on participation without professional management.

Board Should Hire Lawyer to Update Rules

Q: Our association’s documents need to be updated. We do not want to pay attorney’s fees. Where can we purchase a model set of CC&Rs; that correlates with current laws? Would we be able to obtain another association’s documents that we could adapt for our association?

A: I am not aware of any “boiler-plate” documents that you could copy, and I certainly would not recommend that approach. The amendment process is one that requires the expertise and guidance of an attorney who is knowledgeable about all the recent changes in community association law. For example, there have been recent changes in federal law which make restrictions against children illegal.

Associations that wish to amend their documents should first determine that it will be possible to get the approval fo the required percentage of owners. After the board has determined the changes that are necessary, then consult with your attorney who will prepare the wording of the proposed changes and assist with the notification of members for the vote. If the amendment is approved, it must be recorded with the county.

I do not understand why association boards are unwilling to consult with attorneys when the need arises. Board members are not expected to know all the answers. They should be willing to pay for expert help which will often prevent costly problems arising at a later date. By relying on professionals, the board is reducing their liability.

If you are concerned about the cost, discuss this during the initial consultation and see if the attorney will do the work for a flat fee or at least give you a “not-to-exceed” estimate of the total cost. Request a monthly billing statement so that you can keep track of the cost as the work progresses.

Hickenbottom is past president of the Greater Los Angeles chapter of the Community Associations Institute (CAI), a national nonprofit research and educational organization. She welcomes readers’ questions, but cannot answer them individually. Readers with questions or comments can write to her in care of “Condo Q&A;,” Box 5068, Thousand Oaks, Calif. 91360.