Management Articles

Fire Power
From time to time, the Board faces the unpleasant task of removing a director from the Board for cause. The causes can be many but common ones are failing to attend meetings, disruptive behavior, inciting riots in the community and generally undermining the Board effort.

Since directors are not paid, removing one may be unnecessarily prolonged because "no one will volunteer to take his place", "he’s just that way" or some other such justification. But a poisoned well needs fresh water, the sooner, the better. Prolonging the problem may cause another worthy director to get frustrated and resign.

So, if you have a problem director, first determine if the problem is fatal or curable, with emphasis on "curable". Directors don’t grow on trees and it’s often easier to rehabilitate who you have than to seek out a replacement. And replacements often have their own downsides. Take this approach:

Be Direct. Speak to the person in person. No letters, Post Its, e-mails or v-mails. Make an appointment at a neutral location (for coffee, lunch, etc.). Discuss the problems, offer a chance at confession and get a commitment to change.

Inquire. Determine if there are forces affecting performance. Look for things that are correctable. Missed meetings may be a simple schedule conflict which the Board can bend on. Or it may be marital problems that aren’t easily resolved. What "it" is determines the course of correction. But the goal should always be to find a way for the director to continue serving.

Edification. Disruptive or contentious directors are not always aware of their interference. Edifying the offender may be usable news. Some people are blunt, loud, intimidating and not really intending to offend. Help them understand from an outside observer’s point of view the problems such behavior causes.

Accountability. Some bad behavior is planned and intended to impose will. Identify it and hold the offender accountable. Make the point that self serving behavior doesn’t meet the standard of a "fiduciary" acting in the best interests of other. Put it in those terms and you might change behavior.

Get Commitment. If you manage to come to an understanding about making things right again, ask for a specific commitment to make the change permanent. If that commitment is made, express your thanks that an agreeable compromise was reached that allowed the director to continue on as a productive member.

In most cases, this interview and sorting out process will lead to problem resolution. In most cases, you will have a penitent director committed to doing better. But some will not. If you have Johnny Rebel on your hands, ask for a resignation and thank him for his contribution. Recognize his efforts in the next newsletter and the board meeting minutes. This will demonstrate respect and will go a long way toward diffusing possible retribution by the outgoing director. While the Board has fire power, let it be used with grace and compassion. A neighbor is on trial and while that neighbor may not work out as a director, he is entitled to respect as a community member. BACK

Manager Key Indicators
HOA managers partner with the Board. The Board has the ultimate authority to enact policy, file lawsuits, sign contracts, enforce rules and collections, hire and fire the manager. But usually, these tasks are assigned to the manager for execution. Good teamwork and communication will make this partnership work best.

Professional HOA managers perform many functions based on contract and routine. Like most professions, some are better at it than others. The scope of work is daunting and challenging. The job can be like juggling bobcats and chainsaws. The HOA manager’s day is packed with nonstop activity which can run the gamut of topics and intensity. From the routine to the extraordinary, it’s all in a day’s work. And this activity doesn’t end at 5 pm. There are the night meetings and after hour emergencies. It’s a 24/7 job.

HOA managers are a special breed. But there are character traits and ways of doing business that make some HOA managers much more effective than others. The following key indicators touch on significant aspects that make or break the effective HOA manager (or HOA management company). Check the appropriate boxes as they apply to your manager:

Communicates openly and honestly with the Board? YES NO

Responds to information and maintenance requests promptly? YES NO

Reasonably accessible by phone and email? YES NO

Prepared for Board and Owner meetings? YES NO

Vigorously pursues delinquent homeowner fees? YES NO

Produces complete, readable and timely financial reports? YES NO

Obtains at least three qualified proposals for large renovation projects? YES NO

Regularly attends HOA continuing education programs? YES NO

Knowledgeable about construction and maintenance management? YES NO

Spends HOA funds prudently without sacrificing quality and workmanship? YES NO

Uses only licensed, bonded and insured service providers? YES NO

Consistently acts with the HOA’s best interests in mind? YES NO

Good understanding of HOA governing documents? YES NO

Has a proactive management style? YES NO

Has conflicts of interest with vendors or maintenance providers? YES NO

Profits from service providers services? YES NO

Is the HOA receiving the benefits of volume purchasing? YES NO

A specialist in HOA management? YES NO

Total __YES __NO (Just to make sure you were paying attention, two of the questions had NO answers.) Total the YES and NO checks and compare your score:

YES=14-18 You have a great manager. Hang on like grim death.
YES=9-13 Manager needs improvement. Discuss weak points and agreement to change. Success likely.
YES=4-8 Discuss weak points and get agreement to change. Watch closely. Success questionable.
YES=0-3 May Day! May Day! Bail out before impact!

Good Manager/Board relations are clearly more complicated than a Key Indicator Checklist but the topics raised in the checklist can often make or break that relationship. Heed the warnings before it’s too late. BACK

Rental Restrictions
The trend of owners renting their homes/units brings with it a number of issues that often need to be addressed by the homeowners association (HOA). For example, many owners disfavor rentals within the HOA as there is a perception that renters will not take care of the property in the same way an owner would, because a tenant is not "invested". Other owners fear that if the HOA becomes more of a rental community, resale values will suffer and lenders will be hesitant to offer financing. Finally, owners who rent are, in some cases, not diligent in providing their tenants with copies of the HOA rules and regulations which can lead to tenant violations, as well as friction between tenants and resident owners.

In an effort to address these concerns, many HOA boards and managers are exploring the merits of adopting rental restrictions. At first pass, rental restrictions may seem like a simple matter of deciding the percentage or number of units/homes that can be rented. However, adopting rental restrictions brings with it many other issues and concerns that should be considered carefully.

Obtaining the Vote. The most difficult hurdle in implementing rental restrictions is obtaining the approval of a sufficient number of owners which often requires a super majority vote of 2/3rds or more. As an initial matter, obtaining 67% or more on any measure can be a difficult task, but especially on an issue as potentially contentious as rental restrictions. Before taking time and incurring attorney costs to draft rental restrictions, the board should survey the owners to see if there is support for this type of restriction.

Managing the Leases. Assuming that the owners are on board with the idea, the board needs to consider the significant time involved in administering and enforcing rental restrictions. For example, to function effectively, the board needs to be provided copies of all leases and lease renewals or amendments. The board then needs to organize the leases and keep track of which leases terminate when and which tenants are coming and going. This may require keeping track of dozens of leases. Professional managers may be willing to assume the task but most will charge to do it.

Enforcement. In smaller projects, it is relatively easy for the board to keep tabs on who is living in the various units or homes. In larger HOAs, the board has to rely on the willingness of landlord owners to follow the rental restrictions or other owners to alert the board to violations. This is a hit and miss proposition. Once a violation is documented, how does the board deal with it? If an owner has leased a unit/home in violation of the rental restriction, the board will have to deal with both the tenant and the owner to resolve the issue. The board needs to be careful not interfere with the tenant's legal rights under the lease while enforcing the rental restriction against the owner.

Prioritizing Leases. The board will need to determine a system for prioritizing the requests of owners who wish to lease their unit/home. Proposed rental restrictions will need to "grandfather" existing leases that are then counted towards the maximum number or percentage of rentals. In some cases, once the existing leases are counted, either the maximum will have already been reached, or there may only be space for a handful of additional rentals before reaching the limit. In the event that there are available leases, the board will need to determine how to allocate this availability among the owners. Going forward, the board will also need to devise an equitable means of prioritizing those owners who wish to rent their unit/home, but cannot do so because the maximum rental has been achieved.

Access to the Rental Rotation. A related issue that can be tricky is how a board handles existing leases that either expire or turn over. Should an owner lose the ability to re-rent because an existing lease expired or the existing tenant moved out? Or, should owners who have existing leases be given a certain window of time in which to re-rent their unit/home before they forfeit the right? Failure to set out a clear policy from the start can lead to serious complaints of unfairness from owners who feel "locked out" by existing rentals that continuously re-rent without affording other owners the possibility of getting into the rental rotation.

Hardship Exceptions. A hardship clause allows the board to grant exceptions to the rental restrictions even if the maximum number of rentals is already reached. Typically, a board would grant a hardship exception in the event of an owner's death or extended illness, financial hardship, relocation for work or school, deployment to military service or other exceptional circumstances. Hardship exceptions are usually limited to six or twelve months in length and a board may require pre-approval of a tenant and perhaps professional management of the lease.

Financing Limits. A factor that a condominium association should keep in mind is FHA loan underwriting guidelines. FHA is a significant source for condo loans and it has a special set of underwriting rules which includes the percentage of non-owner occupied units. If a condominium exceeds these limits, the whole condo project will not qualify for FHA loans and greatly restrict the ability of owners to sell or refinance their units. FHA underwriting standards change from time to time so the board should obtain the current standards when considering rental restrictions.

This article raises just a few of the important elements that a board should consider before jumping into rental restrictions. Failure to think through all of the ramifications can lead to frustration among owners and major headaches for the board. With proper planning, well-drafted rental restrictions can be a useful tool to manage the number of tenants in an HOA while still maintaining an attractive and well-managed community.

By Chris Scott BACK