Virginia Condominium & Homeowners Association Lawyer

Q.        Our HOA is considering installing a playground at a cost of $25,000. We need to have a vote of the homeowners to have an assessment to pay for it. Some owners don’t think we need it and are trying to get votes byraising the issue of liablility for injuries that could occur.  Our insurance company, after reviewing the playground design, has informed us that the extra cost will be $100 per year. The questions that are being raised now pertain to what happens if a liability judgment is obtained against the HOA that exceeds the liability insurance?  Is the HOA (and thus the homeowners) responsible for raising the additional funds?  Are homeowners at risk of losing their homes in such an instance? 

A.        The installation of a playground is predictably controversial but seems appropriate if the community has a significant number of families with children.  The cost at $25,000 seems reasonable to us.  Your question focuses on what happens if a judgment is obtained by a person injured by the equipment you are installing and that judgment exceeds your insurance coverage.  First, you should inquire of your insurance advisor as to the amount of insurance you should have based on claims histories relative to play areas and risk analysis on these facilities done by insurance company risk experts.  You should then get that advice in writing for your minutes of your meeting where you discuss it.  Once obtained, you should follow that advice.

Q. I am a member of the nominating committee for my association and we are about to elect our first Board of Directors. We are committed to doing the best job we can and want to elect the best people. Can you give us some guidance on how we can accomplish this?

A.  An effective board of directors requires a team of effective board members. When selecting individuals for the board of directors for your Association, we suggest you look for people with the following qualities:

• Integrity.  Board members must be committed to an "above-board" organization that complies with all laws on all governmental levels and the association’s documents.
• Dedication.  Board members must attend Board meetings and other Association events faithfully. They need to communicate with staff members and residents, and sound out problems that need fixing or issues that must be addressed.

Q.        Our new condominium board has just finished an inspection of all of our property. We had not been impressed with the condition of the property and a commitment to better maintenance was part of our theme in getting elected.  The prior board minutes show that there was little discussion of maintenance and there is no schedule of work to be done.  What steps should be taken to deal with this situation? We need to do it without raising the money by special assessment.

A.        You will need to set up a maintenance program covering the buildings, grounds, equipment and any recreational items. A good maintenance program requires the community association's Board of Directors to follow these steps:

Q. As a Board member of a community association, I am concerned about the security of our money. We have accumulated a fair amount in our reserves. While we have confidence in our manager, I still feel a need to have some comfort that our owner funds are safe. What standards are there for insurance coverage for people who handle association money? Is there a special kind of insurance?

A. A community association can suffer serious losses if employees or volunteers misappropriate association funds and, although it is rare, it has happened. The Virginia legislature adopted some new requirements in the Virginia Condominium Act this year that all associations and their management companies are required to follow.  These new requirements became effective July 1, 2007 and include:

Q:  Elections are coming up in our self managed association. From some of our discussions it seems that everyone doesn’t agree on how to use proxies. What suggestions can you give us to have a smooth and successful election process?  Who can hold a proxy for a member?  Does it have to be a board member or an officer of the association? What can we do if we don't have a quorum of members?  Can you count the proxies toward a quorum?

A:  These are important and frequent questions and a good understanding of the process and proxies is important. 

First, to have an election you need candidates. Often that is a problem for associations and one reason that some are putting in limits on the number of units that can be rented.  Generally absentee owners are not particularly active in the association's affairs.  You should start "recruiting" candidates for board positions months in advance of elections. You need to let your members know that the board is looking for interested homeowners to serve on the Board or as committee members.  Ask members who may be interested to come to a board meeting and, after the meeting, familiarize them with board or committee participation requirements.

Q.        We have a resident who attends every board of directors meeting. While the Board welcomes all of the owners and encourages them to attend, this guy seems to think our meetings are his stage. He constantly interrupts speakers, attempts to make motions from his chair and generally is obnoxious to everyone. Is there anything we can do to get him to behave or exclude him from meetings – he is preventing us from making progress on several issues.

A.        If there ever was a situation that demands courtesy and respect it is the community association meeting. For many people, homes are emotional issues, and as a result, many owners do not always act rationally when dealing with issues that affect their homes. Also, many folks are not accustomed to dealing with issues affecting their homes in cooperation with a large group of other owners.

Q.        I have heard that homeowner association board members have a “fiduciary duty”. What exactly is it? Is it spelled out in the law? What sort of actions would violate that duty?

A.        A fiduciary duty arises out of a relationship in which one person or entity is entrusted to make decisions for, and control the interests of, another person or persons. For example, the common estate planning device of a trust sometimes provides for a qualified individual or bank to be the trustee and control the funds within the trust. In such a relationship the trustee would be a fiduciary and have fiduciary duties to the beneficiaries of the trust. Boards of directors owe a fiduciary duty to the association’s members. Most jurisdictions have either enacted statutes or have specific case law that establishes directors of nonprofit and non-stock corporations as fiduciaries.  In Virginia, there is a statute on this topic in the Virginia Nonstock Corporation Act. Many associations are incorporated as non-stock corporations.

Q.        Our Board is responsible for a $450,000 annual budget. We are concerned that we may need to be spending more time overseeing our manager with regard to financial matters in order to fulfill our responsibilities as a board. What guidelines can you give us on this topic? What laws govern us on financial responsibility?

A.        As associations grow in size and sophistication, their funds become more vulnerable to market loss and theft. Though many associations are adopting policies to protect their investments from market loss, not all associations adequately protect their funds from theft--an oversight that could cost thousands of dollars.

An association's size often affects the manner in which board members and managers protect its funds.  For example, small associations often use volunteer board members to run the association. They do not hire staff members or an outside management company. Therefore, volunteer officers are responsible for all of the association's fiscal matters. These associations depend on the honesty and integrity of the volunteers to protect funds.

Q.        I live in an association which is still under developer control. There are many things the community wants to do but can’t because we have no real contact with the developer. I realize that we will have to wait to do some of the items, but I want to make sure when the transition happens we know what to do. Please give us some guidance.

A.        Having a successful transition from developer control to owner control in a homeowners association or a condominium association is not necessarily a difficult process. It does requires open lines of communication and information, common sense, perseverance, and some smart, energetic people who aren't afraid of making a commitment to their community for a couple of years.

Q.      We were elected last year after the developer turned over the association to us, but we don’t think we have all the info that the developer should have furnished, such as plans for the clubhouse, paint color information and information on all the assessments collected from each owner. Is there a law that states what records we should get from the developer?

A.      During the development period, the Developer should be operating the association and maintaining proper records, financial and otherwise. The answer to your question is covered in Section 55-79.74G of the Virginia Condominium Act and Section 55-509.2 of the Virginia Property Owners Association Act (the POAA).   

Q.        I am a new resident in Hampton Roads and have never been through a hurricane season. I am also a new member of the Board of Directors of my Association. Can you recommend the steps that will help us prepare for any possible storm?

A.        Welcome to Hampton Roads. The good news is that over the years we have been fortunate as we have avoided the type of damage that has been seen in Florida and the Gulf Coast. That is not to say we haven’t had some serious damage as a result of hurricanes and “nor ‘easters”, but we have suffered far less than some other areas.

Association residents must take special precautions to prepare for a storm. A well-executed disaster plan will minimize injury and damage and promote a speedy recovery. Planning begins by understanding the Association’s responsibilities. This requires a review of the recorded documents.

Q.        I have recently taken over as president of our condominium association, having served on the board for a couple of years. We are not professionally managed. One of the issues I want to address is the way meetings are held.  Our last president, not wanting to spend more time than necessary away from his family, held the meetings at his house in the family room on Wednesday evenings and sometimes served dessert. It was very hospitable, but meetings seemed to drag on for over two hours. What suggestions do you have for the best way to have the most efficient meeting possible and meet all of our legal responsibilities to the members?

A.        Your question certainly illustrates some of the “don’ts” in terms of conducting association board meetings. A board meeting is not a social gathering, it is a business meeting. Board meetings conducted in an unbusinesslike manner often frustrate the best board members and sometimes cause them to resign, which then leads to undersized and unproductive boards. Here are some pointers on conducting board meetings:

Q.  Our Board is not happy with the job being done by our current landscaper and we have been trying to work with him; so, we are getting ready to hire a new contractor for our Association. What guidelines should we follow to be sure that we are getting the most for the money we are going to spend since it is a major budget item?

A. First we will specifically address requirements for your landscaping contract. The specifications for getting bids and drafting your contract should include the following:

·        Frequency of cuts – Do not use the term “as needed” it should be specific such as every 7 days from April 1 through November 30.

·        Weeding – Address whether or not the beds are hand weeded, sprayed or both.

·        Mulching – Address type and frequency.

·        Clean up – This could mean blow off the walks or it could mean raking any loose debris – you should specify.

·        Fertilizer and Weed treatment – Here you would specify the type and frequency with which both types of chemicals are applied.

Q:      We are a self managed association and members often ask for copies of records such as financial data and minutes of meetings. Often they ask for minutes before they are approved. One request is for our contract with the landscaper. We don’t feel that all these requests are appropriate. 

A.      This is a recurring topic of questions and has been the subject of several amendments to the statutes. Obviously it is a popular topic. The pertinent Code Sections are Section 55-79.74 of the Condominium Act and Section 55-510 of the Property Owners Association Act. Homeowners are generally asking for records for genuine reasons. The Virginia legislature has been under constant pressure from a variety of constituents to insure more openness on the part of boards – both as to meetings and records. It is important to understand what you are required to do to respond to a request for records – and it’s not immediate copying and provision of the copies to the member either on demand or within 24 hours. First of all you may require the request to be in writing stating a proper purpose related to the person’s membership in the association, and not for commercial purposes. Second, the statute grants a right of examination at a reasonable time and upon 5 days written notice identifying the purpose of the request and the specific books andrecordsrequested. Upon examination, copies can be requested and a charge can be made for the copies reflecting a reasonable cost of materials and labor. The time for providing the requested copies will vary depending on the volume and available staff. Many times the requesting party is asking for a specific document and can describe in detail what he wants (e.g. last year’s minutes of the annual meeting of members). There is no purpose in requiring him to come to the physical location of the document to obtain a copy.

Q.        Our HOA board is trying to get its arms around architectural controls and standards. Our Declaration says that we can require homeowners to have any exterior modifications approved by the architectural standards committee. We do not have any architectural guidelines to go by so each application is looked at without reference to any particular standard, although past committee members have tried to be consistent. This seems like the wrong way to go about it. In fact, some of the fence applications would not be necessary if we just had some drawings showing what fence styles were automatically approved. Is that permitted? What suggestions do you have for getting some uniformity and more efficiency in our architectural regulation?

A.        Most recorded covenants for associations require the members to seek pre-approval from the association before making any changes to the exterior appearance of the property. This is generally done through an architectural standards committee appointed by the Board of Directors. Because of the creativity of homeowners, architectural committees are frequently confronted with applications which request approval for changes for which there are no specific written standards or guidelines. Often members rightfully complain that there are no written standards to guide the board and, in those cases, the homeowners will sometimes question the integrity of the process and allege that the decision in his or her case was arbitrary. The Virginia Supreme Court has held that as long as the committee acts consistently and fairly, it is empowered to make decisions based on reasonable criteria (whether in the covenants, guidelines or just consistent with a uniform scheme of development established within the community). 

Q.        We are retiring to the Hampton Roads area and are thinking of buying a smaller home. Because we do not want to do a lot of exterior maintenance, one of our considerations is a condominium.   We are concerned it may not suit us because we would live so close to our neighbors, as well as under the community's rules. Do you think we should consider buying a condominium?

A.        The answer to your question is yes.

First, remember that a condominium is not a type of housing but simply a form of ownership. Your choices include condominium flats, townhouses, single-family detached homes and even trailer parks. Typically condominium ownership means you own your "home" or "living space" the same as you would a traditional single‑family home and you own all the common elements 'together" with the other owners. The common elements differ from community to community and sometimes you do own some yard area as part of your “unit”. Generally common elements include the exterior walls, the roof, parking lot, grounds and any recreational facilities.

Q. Our association has had a do nothing board for several years. We recently had an election and most of the board has been replaced. We are facing neglected maintenance issues and collection issues. As the new President of our association I am concerned that our new board meets all its responsibilities.  Is there somewhere I can get information or courses that can help me? We would welcome any suggestions.

A. We applaud your volunteerism and desire to get your association on the right track. There are a number of resources that are available to association board members. We have seen that some of the most frequent complaints from owners in associations is lack of action or secretive actions by their boards. Under current statutes governing the operations of community associations, it is not proper to conduct business “behind closed doors”, unless it specifically qualifies for executive session discussion which is outlined in the statutes mentioned below.

Q.        We are having a problem that we are not quite sure how to address concerning the installation of satellite dishes. Some owners are putting them on the front part of their roofs and other places which are unsightly.  We are a homeowners’ association of about 200 homes and want to make sure we have the authority to control the installation of satellite dishes. Can you give us some guidance?

A.        Satellite dishes have long been a source of contention and confusion in homeowners’ associations and condominiums. Prior to 1996 many associations did not allow satellite dishes of any type unless they were part of a common system owned by the homeowners’ association. This was also true for most condominiums. However, in 1996 the FCC (Federal Communication Commission) passed regulations that require associations to allow satellite dishes in HOAs and in condominiums under certain circumstances.

Q. I am the President of a 6-unit condominium and recently one of our owners said we are required to do a Reserve Study. Does VA law require the board to conduct a reserve study or just to have a reserve? If yes, how often? We are a small association with minimal maintenance and common property. We'd rather handle this ourselves but we obviously also want to follow the law.

A. Thank you for bringing up this topic – it is quite timely as you will see. Further, even though you are a small condominium association, the Association is probably responsible for replacing almost all components of the building(s) which are of significant value to the owner, so your reserves are as important as any larger association.

Both the Condominium Act (§55-79.39 et seq.) and the Property Owners’ Association Act (§55-514.1 et seq.) require that Associations conduct a reserve study at least every five (5) years to determine the necessity and amount of reserves required to repair, replace and restore the capital components; review the results of that study at least annually to determine if reserves are sufficient; make any adjustments the board of directors deems necessary to maintain reserves, as appropriate; and provide a copy or summary of the reserve study report to prospective purchasers.  Since these provisions went into effect on July 1, 2002, the last possible date that an association can do the study and be in compliance with the law is July 1, 2007.

Q.:       I am a member of an HOA and I have submitted a community request form to have the exterior wood trim of my home repaired or replaced. I have a vinyl and brick townhouse, but the exterior trim is all wood and parts are starting to rot. In my request form I have provided pictures of the rotting wood and areas needing repair. Our association is responsible for all exterior maintenance and replacements, including the roof. I am now being told by the Board of Directors that they will only pay $400 to $600 and the rest will have to be paid by me. This boils down to a special assessment.  Is this practice legal and if it is, did it have to go before the community for a vote? Can the Board impose this change in policy by themselves?

A.:       You pose an interesting question involving the limits of the power of the Board of Directors. The first place to start to determine the propriety of the action of the board is your recorded association Declaration and Amendments to that Declaration. 

HOA declarations generally spell out the maintenance responsibilities which are often divided between the association and the homeowners in an HOA. HOAs vary in the manner in which maintenance responsibilities are addressed, especially in townhome style communities.   Some communities require that the homeowner handle all of the exterior maintenance, but require that approval be obtained for any changes to color or materials to be applied to the exterior before work can begin.   Other communities place the entire responsibility for exterior maintenance, including landscape maintenance, on the association. Others fall somewhere in between these two concepts. In recent years it has become more popular to put the responsibility on the association so as to insure regularity and uniformity of repair work which generally enhances the appearance of the neighborhood and the value of the properties in it. 

Q. I know that you have addressed this issue in the past, but I have a new twist for you. We have several homeowners that have installed their holiday decorations and are now asking permission to keep them up beyond the first of the year as they have family who will be returning from military or government service overseas after January 1. Do you have any suggestions for the policy we need to adopt?

A.  This has always been one of those no‑win situations. Regardless of how the Board of Directors for your Association resolves this issue, some residents will disagree with the decision. That said, we will try and address the broader issue of decorations as well as your specific question. There are several steps the board should take in developing a reasonable and enforceable policy.

Q.        I reside in a large homeowners association with a Board of Directors that are questionable at best. Our Bylaws and resolution documents state that we are to have a Board of no less than 5 people. At this time there are 3. There have been people that have volunteered to the Board but were not chosen because they ask too many questions, or they were not liked by the current Board. They have hired a manager that has no management experience. We are self-managed and we were supposed to receive a copy of the budget by mail by November 1, and we are hearing that the HOA’s finances are in a mess and we have not passed our budget because of the mess. There is no response to our calls or emails to the management or the Board. Our community newsletter has stopped, so we know nothing about what is happening. If you start to ask questions at meetings, you are asked to leave or they will call the police. I am concerned about the legality of their actions and do not know where to turn. Who can we call to help our community?

A.        You have certainly presented a myriad of problems that would virtually bring any progress in your association to a standstill. We will try to break down the issues and make a few suggestions that might be helpful.

Q. I have a few questions regarding storm water basins within developments. Our subdivision was established in 1995 and at that time the City was just starting to implement measures to comply with the Chesapeake Bay Preservation Act. The City required new subdivisions to implement storm water retention measures. The subdivision plat shows the ponds on individual lots. In order to ensure these ponds were maintained, the Declarant implemented Homeowner Declarations stating the ponds and embankments are designated as Common Areas and are to be maintained by the Association. Does the homeowner have any real claim to these areas since they are essentially required by law to be in place? Could the lot owner fill in the part of the bond on his property? If the Association is responsible for them as Common Area, shouldn’t they provide liability insurance to protect all members? Finally, is there any reprieve for the owner for the taxes which they must pay on the property?

A.  You pose some good questions that we have heard before about drainage facilities, which are usually referred to as BMPs (a term we could explain, but it wouldn't clear up much!). For purposes of this answer let's just call them ponds. Without examining your documents we cannot provide finite answers and your documents do sound a bit unusual. Usually it is clear that the ponds are situated on various lots as shown on the subdivision plat or they are on common areas, often designated as preservation areas. The maintenance issue is most problematic when the ponds are located on parts of several lots with no indication of who is to do what. This has not been the methodology of the cities in the past seven years or so; rather, the ponds are generally designated as common areas and there is a plat notation on the subdivision plat which requires the formation of a homeowners association (HOA) to maintain the pond and the area around it. 

Q.  I have a question concerning certain issues within the election process. We elect three board members to a governing board each year. We take nominations from the floor only and allow those present to cast their vote for the appropriate number of the nominees. Our problem is (and there could be more) that many of the nominees decline being nominated and some or all of the persons voted for decline to be board members. Also, what happens if all the current board members quit and we cannot get any replacements? We tried to get professional management help, but a management company we consulted said we are too small for them to consider.

A.  We think the answer lies in changing from nominating only from the floor to using a nominating committee. 

You'll want to begin the process at least 60 days before the annual meeting. The nominating committee should complete its’ work at least 30 days before the annual meeting.

Q.        I have heard that Congress passed a law about the display of the American Flag that impacts homeowners associations. Does this new law override the association's rules about flags?

A.        It is a fact that there is a new federal law concerning the right to display the American Flag which impacts all community associations; however, this law does not extend to other flags and, further, the new law does not negate the association’s ability to create rules regarding the display of the American Flag.

Q.        I am a homeowner in an HOA that recently emerged developer control. Some of the homeowners have added fences, above ground pools and large sheds without getting approval from the Association.  Many of these changes do not appear to meet the standards that I was told were part of our documents. The Association says it has little or no authority to enforce the rules. How do I get the Board and the management company to enforce the rules?

A. The first step is to determine exactly what the architectural guidelines are and what powers the Association has to enforce the rules. Usually an Association's declaration establishes a committee and grants it powers and duties of the Board of Directors. The first place to look for the powers of a committee is in the policy resolution passed by the Board of Directors. Generally, this will be the procedure your committee should follow.

Q:       We will be having our annual elections in October. Last year we didn't know most of the candidates were who were on the ballot. It seems that there must be a preferred way to run these HOA elections. Can you give us some pointers on elections so that we can improve our process?

A:       Thanks for bringing up this important topic. Nothing is more important in community governance than having an active and effective board of directors. The board is the key governing body that is required to make decisions affecting the whole community from managing the funds to hiring vendors for the various tasks required to keep the community facilities in top condition. You certainly want the most qualified people who are willing to step forward and volunteer for the position. Here are a few tips for having a successful election.

Q. As the new President of my Association, I need to start the budget process. Who should prepare the budget? Can you give me some guidelines on making a budget and any pitfalls we need to be aware of?

A. The development of a budget is essential to the operation of a healthy association. It is the Board of Directors’ responsibility to establish the budget; however, a Finance or Budget Committee can be used to come up with a proposed budget for the Board to review.  In a few older associations the budget must be approved by the owners. Without an accurate budget, the association will soon find itself in financial hot water. The Board of Directors, based on the budget, is responsible for establishing the level of the assessment.

Q.        After the effects of Hurricane Katrina last year, our board became concerned about what responsibilities we have for our residents in times of disaster? Can we be held liable if someone refuses to evacuate? What steps should we take to protect the property?

A.        The areas of responsibility differ for a homeowners association and a condominium. Because of the nature of ownership, the responsibilities of the condominium are probably greater. While both associations have a responsibility to preserve and protect the commonly owned property, there is little that a Board can do in a homeowners association where owners insure and maintain their own residences.

Q:        Our HOA board has been in place, with a few exceptions, for about 10 years. The same people keep running and getting elected and the same things don’t get done year after year. The only people who get elected who are new have a single agenda of their own and aren’t really there to serve the community.  Also, the board holds some meetings at which there is no owners’ forum.  How do we stop this abuse of power?

A:        The only reason these folks are elected is because the members voted them into office. Presumably the majority of the voting members think they are doing a good job. On the other hand, perhaps those perennial board members are simply proficient at collecting proxies from apathetic owners who are their friends and supporters.

Community associations have often been called “mini governments”. The “elected officials” are empowered to make rules and decisions that affect the lives of all who live in the community.  In associations, as in governments, there are checks and balances. There are bylaws which spell out the ability of the members to remove a director who is not doing a proper job. Additionally, at each election there is the possibility of removing those directors who are not doing the will of the members and replacing them with new candidates.

Q.        Our condominium association has been in turmoil over the last year, trying to resolve a number of issues, including pool expenses and new roofs.  Now there is a group of owners who want to remove the board of directors. Are there some ways to tell if the Board is out of control?

A.        There are 10 basic questions to ask when assessing a board’s performance.

1-     Does the board announce the time and place of the meetings?

Under the Virginia Condominium Act, an association must provide notice to the owners of the meetings of the board of directors in a manner “reasonably calculated to be available to a majority of the unit owners”. The notice must include the date, time and place of the meeting, but is not required to state the agenda.

Q: As a board member of a 180 unit condominium association, I am trying to figure out how we can have our upcoming annual meeting if we don't get a quorum of members present. Our bylaws say we have to have fifty percent of our owners present in person or by proxy to have a quorum for a meeting. That is 90 members. We did not achieve that number last year and could not have the meeting and elect new directors. What can we do to have a successful meeting?

A: There are a couple things we can suggest. First, check your documents to see if you have a provision whereby the quorum requirement is reduced for a subsequent meeting called within a short time for the same purpose when a quorum is not achieved. Some documents reduce the requirement by as much as one half.

Q. Our association has decided to make a change in management. Can you give us some guidance on what steps to take to make sure it goes as smooth as possible?

A. There can come a time when an association or its professional management firm decides to end their relationship. If you are a member of the association's board of directors, this can be a difficult time. Transitions generally go a lot smoother for all three parties; the Association, the in-coming management firm and the out-going management firm if everyone observes these six basic principles as proposed by W. Stephen Castle, President of a professional association management firm and former President of Community Associations Institute (CAI):

Q. Our association has two owners who failed to pay a $3,500.00 special assessment. Fortunately, we recorded liens against all owners. Everyone was given 90 days to come up with the funds. These folks haven’t even contacted us or responded to our letters. I have heard that we can foreclose on our lien. What is involved in this process? Can the association bid at the sale?

A. This is a great question because there are clear rights now in the Virginia statutes regarding foreclosure on liens for assessments; however, exercising those rights requires some serious homework before “pushing the button to launch.”

Basically, foreclosure on an assessment lien upon a default by the unit owner is a process very similar to a foreclosure on a deed of trust held by a mortgage lender. The “executive summary” version of the process is that the owner is notified that the foreclosure is imminent and given a final date for payment which is not less than 60 days from the date notice is given. If payment in full is not received (or other arrangements satisfactory to the board are not made), then a sale date is established and advertisement in the newspaper is initiated. All junior lienholders holding notes must also be notified so they have a chance to bid at the sale to protect their interests.

Q. In your last column, you talked about risk management and said that you would discuss it further in a later column. Could you do that in your next column so that we, as owners, can get a complete picture?

A. Sure, we are glad to follow up and discuss risk management. Simply put, risk management is the process of making and carrying out decisions that minimize the adverse effects of accidental losses. It involves five steps:

 Identifying exposures to loss
 Examining alternative techniques
 Selecting the best techniques
 Implementing the chosen techniques
 Monitoring and improving the risk management program

Q: Our board is struggling with our insurance renewal. We are trying to save some money on premiums and a couple of the members are saying we are foolish to spend money on directors and officers liability insurance. What are we getting for our money and what are the different coverages that should be included? Do you think we really need this coverage?

A: We certainly encourage you to obtain directors and officers liability coverage, which is generally referred to as a D & O policy. This policy will protect the board members, officers, employees and committee members for actions, or failures to act, and decisions they make regarding management of the association. While suits against boards are rare, when they are filed it is generally an expensive experience.

Q. I am getting ready to retire and I am considering buying a condominium unit and have looked at several older complexes and some that are brand new. Are there any tips you can give me on what to look at before I make a decision?

A. When looking at the new complexes, the primary document you will want to review is the public offering statement and all of its attachments. State law requires that condominium developers keep the public offering statement current and give you a copy when you sign a contract to purchase. You will then have ten (10) days to review the documents and make a final decision.

Q. I live in a condominium that is approaching the 10 year mark. Although it is not an old condominium, it is aging and the appliances and fixtures inside of units are aging. Many of our buildings are stacked one on top of the other so that a major failure above, such as a hot water heater, would likely affect unit(s) below. We do have a clause in our Bylaws which states that the Master Policy deductible could be passed to the Homeowner of the Unit where the damage initiated if the majority of the Board rules that the damage was caused by negligence, misuse or neglect of the owner. While the insurance deductible is a factor, another prime concern is the quality of life for those suffering damage from causes which might well have been avoided had preventative maintenance/replacement been done.

What approach could you recommend that would address maintenance of fixtures/appliances inside of units, e.g. recommended inspections on a timed basis or replacements on a timed basis? Would the absence of such inspections or replacements constitute neglect? Should the Board adopt a resolution to further expound on some of these issues?

A. There are many condominiums like yours which were built 10 to 20 years ago and are now "showing their age" - both on the exterior and the interior. There always seems to be more focus on the exterior and most associations now have built up some reserves (albeit many do not have enough) to replace or renovate their common elements. However many boards do not focus on the effects of age on the water heaters, hoses and other devices that carry water inside of units and the building's common elements which, upon breaking, can have a devastating effect on units lying below the unit or area in which the break occurs. The person who drafted your documents had more foresight than most when writing the provision which allows the board to require payment of the association's deductible by a neglectful owner.

Q. I am a new member of my community association's Board of Directors and I am trying to do what's right to do a good job. I need a copy of the Condominium Act and the Property Owners Association Act. Can you tell me what the Acts cover and where I can get a copy? Any other suggestions you have would also be appreciated.

A. You are taking the right first step in becoming educated about the community you are leading. You can acquire a copy of either the Virginia Condominium Act or the Virginia Property Owners Act from www.cai-valac.org. Look under the Statutes link. If your association is incorporated you will also want to download the Virginia Nonstock Corporation Act while you are on the site. If you would rather have printed copies, contact the Department of Professional and Occupational Regulation Post Office Box 11066, Richmond, Virginia 23230.

Q. Our 10 year old clubhouse apparently has some settlement problems that started several years ago. No Boards had done any study of the cause until last Fall. It is going to cost about $35,000.00. They say we do not have money in reserve to take care of this expense. Is the board of directors responsible for failure to fund proper reserves? Is the Board liable to the other members?

A. It appears that something major is occurring with the Clubhouse the significance of which could not have been reasonably anticipated until a couple of years ago. Of course, an earlier study of the problem would have been appropriate and may have allowed for collection of funds over a period of a couple of years to remedy the problem.

Q. Because of some recent decisions by the Board of Directors of the condominium I live in, some of us are wondering if the Directors should be putting more association matters to a vote of the unit owners. It doesn't seem fair that the Board of Directors can decide to eliminate a service or make other important decisions without the owners' consent. How can we determine what decisions our board is authorized to make without consulting us?

A. As a rule, the Board of Directors of a community association has the authority to make decisions on the use of the common area, to set the assessments and to do all things necessary for the operations of the condominium. The Board oversees and has to approve all of these items unless the governing documents specify that the owners have to approve a particular action, such as the election of Directors, amending the bylaws or declaration and selling part of the common area. Generally, the scope of the board's powers is fairly broad.

Board decisions are measured against a standard known as the “business judgment rule”. The Board must ask themselves this question: Is the decision one that a prudent businessperson, having gathered all the pertinent facts, would reasonably make under the circumstances? If the answer to that question is yes, generally the Board’s decision will withstand legal scrutiny.

Q: We have some unruly tenants in a couple of our condominium units and the absentee owners don't seem to be too concerned when we send them letters. What can we do to these tenants to get them to live by the rules and respect the property and rights of other residents? Can we enforce the lease when the unit owner fails to do so?

A: This is a question we hear frequently and it does demonstrate a difficult legal problem. The problem, of course, is that in most cases the Association has no legal relationship with the tenant. The tenant has a lease with the unit owner. Many condominium documents or the rules of the Association provide that leases must contain certain provisions which will give the Association some authority over the tenants if there are breaches of the rules. Many Associations have developed a lease addendum which is provided to all unit owners to use in the event that they decide to lease their units. A rule should be passed by the board requiring, under penalty of fine, the use of the addendum if a unit owner is going to enter into a lease. Further, to put more teeth into the rule, an amendment to the documents should be considered, which would provide that the association will be able to recover attorney’s fees and court costs from any unit owner who fails to use the addendum and the association is forced to initiate a nuisance suit or other litigation due to the improper conduct of the unit owner's tenant.

Q: Many homeowners seem to be unaware of the law requiring them to provide disclosure documents to their buyer. Sometimes, it is only a few days before closing when buyers request the resale certificate. As association secretary, I have to get the documents prepared. What can be done to correct this? Whose responsibility is it to comply with the law?

A: For many years the Condominium Act and the Virginia Property Owners Association Act have required disclosure of association information. Several people are responsible for compliance with that law. These are the real estate agents, attorneys and the seller.

A community association has fourteen (14) days to provide a disclosure packet from the time the request is received with a check. Therefore, a seller or his agent must ask the association for the packet as soon as the contract is signed. After receiving the information on dues, rules, the budget and other matters, the buyer must quickly decide whether to cancel the contract based on information contained in the packet. When the packet is requested at the last minute, there is no real opportunity to review the information, so the purpose of disclosure is defeated and both the buyer and seller are put at a great disadvantage. As a result of such delay the buyer is often committed to going through with the deal, even if he or she is unhappy with the contents and facts revealed therein. In essence, the buyer may be forced to give up certain rights because the professionals involved in the sale failed to perform their tasks in a timely manner. In 2002, the Virginia General Assembly passed a new law allowing associations to charge a rush fee not exceeding $25.00 for furnishing the packet within three days or less from the receipt of the request. If special mailing is requested and you wish to accommodate, you may also charge the actual cost you incur to do so.

Q: I live in a 60 unit condominium and some of us think the board has too much power over money matters. They get to approve the budget and make special assessments for unforeseen expenses without owner consent. Some of these were unforeseen because prior boards didn't do their homework. We want to put some limits on the board’s powers, such as a cap on annual assessment increases. What are the usual powers of the board regarding money and how can we go about limiting them?

A: It is a common occurrence that owners are concerned about the power of the board of directors over their money and it is certainly one of the primary areas of responsibility of the board. There are also lots of other board responsibilities, like common area maintenance, risk management through insurance, and enforcement of the covenants. Under the law, your board of directors has a fiduciary responsibility to the unit owners which means that they must always be looking out for the welfare of all the owners and cannot make decisions which benefit one group of owners over another, especially themselves. While is seems elementary, owners must sometimes be reminded that directors are owners as well, and any decisions they make, financial or otherwise, affect them equally with all owners - it is not an "us and them" situation. Also, they are not permanently elected to he board; if the majority of owners are dissatisfied with the board's (or a board member's) performance those individuals can be replaced at the next election.

Q. I have recently been elected Secretary of my association. I want to make sure I do a proper job of keeping the minutes and records of the association. Should I make an audio recording of the meetings? Can you provide a checklist for me to follow?

A. The primary function of the Secretary is to maintain the records of the association, with the exception of the financial accounts. This includes all of the minutes, any resolutions adopted by the Board of Directors, correspondence, contracts and notices. The best way to accomplish that is by having an organized filing system.

Q: In our condo one of the unit owners has had a persistent leak from some plumbing pipes that the board, through our contractors, has been battling for a couple of years, but the leaks are causing some mold that was discovered recently when part of the ceiling and some wallboard was removed. Now the unit owner is saying that she is suffering respiratory problems because of the mold and is threatening to sue the association. What action should we take? How likely is she to succeed with a law suit?

A. The mold topic is a good one to discuss because it is fraught with misunderstanding by many who have to deal with it. Since we live in a coastal area there is frequent water infiltration into structures of all types through various components due to wind driven rain. Of course, there are other sources such as leaks in water and drain pipes. Even though we have been exposed to mold for hundreds of years mold litigation has increased dramatically over the past few years and is a popular topic in legal seminars.

Q. I have just been appointed the chairman of my community association's finance committee. Can you give me some guidelines on putting together my association’s annual operating budget? I read your column about reserves – how does that get included in the budget?

A. Assuming your association’s budget runs with the fiscal year, you are probably starting later than we would recommend, but there is no reason you can’t catch up and still have a well prepared budget. Unless you are dealing with older documents that require you to limit the amount of the assessment increase or obtain the owners approval of the budget, the process is very straightforward and logical.

Q: Our condominium seems to be continuing to attract investor buyers. Out of 64 units, we have 14 rentals. The renters don’t seem to abide by the rules to the same degree as owners and the owners who rent don’t participate in meetings or volunteer for community work, so we view this trend as not a good one for the community. Can we restrict our owners from renting?

A: This is a question that is frequently asked because it seems, to many people, that it should be an “inalienable right” of ownership that you can rent your property, but that is not true in a community association. When you “sign on” to participate in a community association by accepting a deed subject to the restrictions of record, you give up certain rights and submit to the will of the majority on most aspects of community living. Consequently, if the required number of owners is willing to sign off on an amendment, everyone must comply.

Q. Considering the recent Hurricane Katrina, I am very concerned with what insurance coverages we have and what happens with our association property, versus our own property, after the storm if we have damage. Can you give us some guidance as to what to expect?

A. The first thing we need to do is clarify what Master Insurance coverages the association has and what is and is not insured under the Master Policy.

Most homeowner’s associations have property coverages that include all of the buildings and structures owned by the association. This generally means the clubhouses, signs, fences and the like. Homeowner’s associations generally do not provide any insurance for the individual dwellings or the homeowner’s personal property. If you live in this type of association you definitely need to talk with your insurance agent to decide what coverages and amounts are appropriate to your situation. If damages occur to the common areas, then the association will handle both the insurance claim and the rebuilding as needed. If the damage is to your home, then it would be your responsibility to handle the insurance claim and the necessary repairs.

Q: My association has only three board members and two of them just resigned saying they didn’t have time any more. We are a self managed association with 34 homes and a fair amount of common area and a swimming pool. Being on the board is a lot of work and I am afraid of not getting any volunteers. What can be done if no one comes forward? I cannot run this association alone.

A: Your situation is not entirely unique and it seems fewer citizens want to make time to serve their communities as board members in community associations or in other civic endeavors. Congratulations to you for “hanging in there”! We do have a few suggestions that we hope will be successful for you.

First of all, there is a need to groom future leaders by involving homeowners in smaller projects and creating a strong committee structure. Also good communication through a newsletter or other media (web site) and regular association sponsored social events can help get neighbors in touch with each other and the community’s needs. Your pool facility sounds like it would offer a great opportunity for social activities. This can help thwart feelings of apathy toward the governance of the community.

As the sole remaining board member it is your duty to seek out two more volunteers as best you can. If there is not a list of functions and duties of board members in your community you may need to create one so that any “recruits” can be easily familiarized with their potential roles as board members. It may be that the list is shorter than they imagine and there aren’t as many meetings as they may think. There are resources available to you through an organization called the Community Associations Institute which has a Southeastern Virginia Chapter. Check it out on line at www.sevacai.org. This organization’s goal is to be a resource to folks like you who are charged with governing a community association. CAI has classes and seminars year round concerning all aspects of community association governance, including insurance matters, renovation issues, accounting, rules enforcement, and running meetings.

Q. I am considering buying a new home and have looked at several. One is in a condominium. I really do not understand what is meant by unit, common element and limited common element. Can you explain the difference? What impact do the definitions have on my maintenance responsibilities?

A. The easy part is in defining the terms. The hard part is applying those definitions.

Common Element: means all those portions of the property that are owned by all of the unit owners as a group and which are for the use of all of the owners.

Limited Common Element: means a portion of the common elements so designated in the declaration as being reserved for the use of a certain unit or several units to the exclusion of other units.

Unit: means a portion of the condominium designed and intended for individual ownership and use.

It is important when you are considering purchasing a condominium that you review the declaration and determine exactly how each of these terms are defined in that specific condominium. In almost all associations the streets, the sidewalks and the recreational facilities are all common elements. In other associations the common elements will include the roofs, exterior siding and trim and other parts of the buildings, including interior load bearing walls.

Q: Our six year old association is having some problems with compliance by homeowners who ignore the notices from the architectural standards committee about the condition of their property or additions to the yard area and fences. I am fairly new to the neighborhood and to the board of directors. Recently I told the other board members that I didn't receive anything as a new member of the community concerning the expectations, rules or guidelines about this topic. We agreed it was a problem, but no one is doing anything about it. Maybe if you will give us some suggestions we can overcome our inertia. What steps should we take?

A: It sounds like you are in a homeowners association of single family homes that is not professionally managed and may not be communicating well with the homeowners - especially new members of the association. Good initial communication on architectural standards is essential to successful enforcement and voluntary compliance. It is pretty basic that if one doesn't know there are rules, one has a good chance of violating at least one of them.

Most modern Declarations of Covenants for subdivisions contain a few restrictions on exterior changes, but many times these are somewhat vague and require refinement by the board of directors. There is generally authority granted to the board to create architectural guidelines which enhance, and do not conflict with, the recorded covenants. Where such authority is not granted, an amendment by the homeowners may be in order. The documents provided and recorded by the developer often are not tailored to each individual community to the degree necessary to provide a good foundation for covenant enforcement after the subdivision is built out. For that reason, we encourage all communities, especially new communities, to review their declarations, rules and architectural guidelines to identify areas needing modification, deletion or improvement. Some older communities will find that a review every five years will result in discovery of a number of items which need to be changed or deleted.

Q. I am having a major problem with my association. In the last 5 years we have had three special assessments to cover major repairs. I thought the Board of Directors had to do something called a reserve study to avoid these types of problems. How can we go about avoiding these kinds of unexpected expenses?

A. The answer to your question is very simple. Yes, the board should have an independent reserve study done and see that it is fully funded and periodically updated. Two parts of this statement are important.

The reserve study should be performed by qualified, independent and experienced professionals. By this we mean either architects or engineers who have experience in the reconstruction of properties. It is generally beyond the ability of most boards and managers to perform the necessary detailed inspection and have access to the cost data to do a proper reserve study. There are companies that offer you a check sheet and for a fee will calculate your reserve requirements. This is totally inadequate, because it doesn’t adequately address your specific issues based on a forensic examination of the property. Association managers should also not be asked, or expected, to do reserve studies for the same reason.

Our association has a swimming pool which is fairly popular with our owners, many of whom have small children. We are concerned about safety and legal liability and whether or not we are protected by our rules and our insurance policy. What are the essential practices and rules that will keep us out of legal trouble? How much do we have to worry about our insurance company saying "sorry, you're not covered for that"?

A: You are surely right to be concerned about these risks because every year associations are the target of claims for injuries in and around the swimming pool. Our sources tell us that about 70% of associations have pools and it is well known that the real estate/development community believes they are an essential amenity to insure strong buyer interest. We have seen some associations close and remove pools due to inadequate use so as to eliminate a significant expense and risk, however many pools, like yours, are a desirable and highly utilized feature of the community.

Boards of directors must recognize that pools are dangerous in various ways and seek to establish rules and practices that will minimize the risks. This is essential to be exercising adequate fiduciary responsibility which will avoid legal liability in the event of a bad accident. The various municipalities set their own standards in many ways, including chemical requirements, self inspection, record keeping, equipment, fencing and city inspections. These regulations only establish minimum requirements but go a long way toward eliminating substantial risk. You may have special circumstances which require a greater level of care, such as an inordinately high number of young children. This may dictate having more lifeguards or longer lifeguard hours. You must also insure that depths are indicated along the side of the pool.

Q. I have recently been elected to the Board of Directors of our association and I am concerned that our board meetings are entirely too long. It seems that we have more of a conversation with board members and homeowners all talking and little if any progress being made. Can you help with a few ideas that might get us on the right track?

A. The problem you describe arises too frequently. It happens for three basic reasons: the lack of understanding of the members of the purpose of the board of directors meeting, the unfamiliarity with meeting protocol and a lack of control by the chairperson. We find that many homeowners do not understand how community associations are governed.

The solution is fairly simple. First, homeowners, when attending a board of directors meeting, need to understand that it is not a general membership meeting. It may be helpful for the Chairperson to explain the structure and protocol periodically at the beginning of a board meeting. Except for a period set aside for homeowner comments, non-board members should refrain from trying to speak on issues unless recognized by the chairperson for a particular purpose. The board should set aside 15 minutes or more at the beginning of the meeting for homeowner input, then politely remind them that the remainder of the meeting is a business meeting of the board and that, as owners, they will not be voting or speaking on any issues.

Second, the chairperson needs to control the meeting using several techniques. The most important of these is by using Robert’s Rules of Order for conducting the meeting. Almost all association documents state that meetings will be held in accordance with parliamentary procedure. Both the Community Associations Institute and the National Association of Parliamentarians have booklets that offer guidelines on these procedures. This doesn't mean that these guidelines must be followed to the letter, but understanding the principles set out in these booklets are essential to successful meetings.

Q: We are a self managed association and election time is coming up. It seems that something gets fouled up technically each year...especially with the use of proxies. What tips can you give us to have a smooth and successful election process? Who can hold a proxy for a member? Does it have to be a board member or an officer of the association? What can we do if we don't have a quorum of members? Can you count the proxies toward a quorum?

A: These are important questions and some of them are likely on the minds of other homeowners anticipating elections.

First, to have an election you need candidates. Often that is a problem for associations and one reason that some are putting in limits on the number of units that can be rented. Generally absentee owners are not particularly active in the association's affairs. You should start "recruiting" volunteers for board positions as much as six months in advance of elections. You need to let your members know that the board is looking for interested homeowners to serve on the Board or as committee members. Ask members who may be interested to come to a board meeting and, after the meeting, familiarize them with board participation requirements.

Second, appoint a nominating committee to seek out qualified candidates and meet with them about the needs and expectations of board service. The nominating committee is tasked with coming up with at least the number of candidates necessary to full the seats being vacated....hopefully more. The names selected by the nominating committee are presented to the Board as a slate of possible board members to be placed on the ballot. No one intending to run for office should serve on the nominating committee.

Q: I am just beginning my second year as a condo association board member. I served on an HOA board several years ago when I lived in a large planned development. I now see that people run for the board for varying reasons...some of them not the correct ones. I believe a lot of people really think you should run for the board in order to achieve your own personal agenda. Others want to serve their community, but don't have any idea what they are doing or how a board functions. Some of these people are "take charge" type people who end up getting elected president. That can really be a problem. Can you give some guidelines and standards for service on the board of directors?

A: This is a good observation on your part and we can affirm that you have identified a couple of reasons some boards have trouble functioning most effectively.

Board members who act inappropriately alienate other board members and other association members which leads to a negative attitude on the part of the homeowners toward the board. So it is important to take steps to encourage constructive behavior. Of course, education is the key for most people who are new to service on the board of an organization. There are many ways to obtain this education and it is not expensive. Hopefully, your community is a member of the Community Associations Institute. This is an organization established primarily to educate and be a resource for those involved in community association governance. The organization has a local chapter that sponsors numerous educational events throughout the year. The local chapter's executive director can be contacted at 558-8128 and the chapter's website is www.sevacai.org.

The first place to look for standards is state law. Most community associations are nonstock corporations under Virginia law. The statutes governing such corporations impose certain standards of conduct on board members including: (1) "a director shall discharge his duties as a director in accordance with his good faith judgment of the best interests of the corporation", and (2) he shall rely on reports, opinions and data supplied by third party experts, unless he has a good reason not to do so, and (3) a director is not liable for action taken if he performs his duties in compliance with the state law.