Best practice: Governance for community associations11th Feb 2019
Estate managers, HOAs, bodies corporate and other community associations are responsible for managing huge swathes of land and property worth millions of rands, and are responsible for ensuring that the homes of hundreds, perhaps thousands, of people remain a safe and uplifting place to stay. This requires high levels of integrity and unimpeachable governance.
Governance and resident involvement
Minimally, a quality community association should comply with all of the following statements:
- There is a functioning board that meets regularly and that is carrying out its duties and responsibilities.
- The board has disclosed to the owners all association information that is required by law and the governing documents, including the articles of association.
- The association’s legal documents, resolutions, books of accounts and records are open to inspection by owners on reasonable notice during regular business hours.
- Owners may attend board meetings, except when the board meets in an executive session.
- The board provides for due process for owners in association-related matters, and encourages the use of alternative dispute resolution.
- The board conducts, and produces minutes of, all meetings.
- Election procedures conform to the governing documents and applicable law, with information regarding the process available to all owners.
- A system is in place to respond to owners’ requests for association-related matters.
- A system is in place for property inspections and monitoring to ensure proper maintenance and appearance, both current and preventive.
- The board communicates with the owners periodically to provide information concerning the association and to get feedback.
- There exists a mechanism and procedure for assuring residents’ obligations to adhere to the governing documents, and a confidential and safe forum for the resolution of disputes.
- Management is licensed, certified or holds appropriate credentials evidencing its competence to manage the community.
- Appropriate insurance is maintained by the association.
- A system is in place to administer property damage and personal injury claims.
- The board budgets for ongoing education of members of the board, particularly for newly elected or appointed members.
A policy governance model
Boards should delegate the day-to-day operations to staff so that they can focus on the bigger picture – the longer-term needs of the organisation. The book of governance establishes the board as a legislative body, and the manager as the executive. The function of the board of directors is to set policy. The function of the manager is to carry it out, thereby creating a more efficient community association. The book of governance should contain a vision statement, mission statement and all policies.
Transition from developer control
The first opportunity that owners will have to become involved in their community association is during the process in which the association transitions from developer control. The following is a basic model for transferring control from the developer to the association.
- Shortly after 25% of new owners in a building settle, a resident orientation is held and owners are encouraged to participate in the committee structure. Five committees should be established – Activities, Budget and Finance, Building and Grounds, Communications, and Rules.
- When the settlements are nearing 35% to 45%, the developer holds an election to place at least two owners on the board. This prepares owners to accept responsibility for the community’s management sooner than required by law.
- The developer establishes an ad hoc engineering committee to select an independent engineering firm to evaluate the building for warranty purposes. Generally, a reserve study is performed at the same time as the engineering study to ensure that the developer has provided enough funds to leave the association in good standing.
- By the time it is legally required to place owners on the board (50% or 75% of sales), many of the unit owners will have already been trained and educated on matters of budget, building structure and so forth.
Some of the ways to ensure resident involvement include:
- publishing a resident handbook with all relevant information and contact details
- using newsletters, flyers and signs to promote community events, inform residents about community activities, and keep them abreast of financial and other managerial decisions
- one-on-one meetings with residents
- sending thank you notes, not just requests and demands
- using friendly terminology, e.g. pool and tennis court rather than amenities; resident rather than tenant or occupant; or call a work order a service request – but first check that the relevant documents don’t require you to use specific terminology.
Community associations function very much like a government, including having the authority to enact and enforce ‘laws’. But some residents do not abide by the rules, so conflict arises. Boards must resolve this conflict while balancing the resident’s rights with their obligation to enforce the articles.
Ways to resolve conflict
ARC recommends the following progression of steps to resolve conflict:
- Start with a casual conversation. Perhaps the resident is unaware of the rule or is already correcting it. Get information, gauge the resident’s attitude, and offer to help.
- Send a friendly letter stating the rule that has been violated, and why it’s important for all residents to observe the rules. Be positive, and again offer to help.
- Send a second letter. Be business-like and firm, and cite the specific section of the rules that has been violated. Give the resident a date by when the problem must be corrected, and grant a reasonable amount of time. Explain what will happen if the problem isn’t resolved by the specified date.
- Send official notification that the association is about to take action. Schedule a hearing when the resident may address the association. Be willing to negotiate a date and time that allows the resident to attend.
- Conduct a fair hearing and treat the resident with respect. Avoid a confrontational situation. Allow the resident to bring witnesses or counsel to the hearing, and let them know when they can expect a decision. The panel hearing the case may comprise members of the board or rules committee, the managing agent, or some combination of these. In some serious cases, association counsel may be invited to observe.
- After the hearing the board will decide how to proceed. The board should be willing to compromise on a solution that achieves the desired result. For example, the board may grant an extension of time to comply with the rule, suggest an alternative solution, suspend privileges, impose monetary penalties, or some combination of these.
- Allow the resident to appeal the decision to a body made up of suitably qualified people who were not part of the original hearing.
- Pursue alternative dispute resolution options if the association and the resident cannot resolve their differences.
Dispute resolution is less costly and more productive than litigation. It is comprised of three phases: negotiation, mediation and arbitration. In negotiation, the parties identify the issues, educate one another about their needs and interests, propose settlement options, and bargain over the final resolution. In mediation, a neutral mediator facilitates the negotiation between the association and resident to help them agree on a solution that is acceptable to each of them. In arbitration, a neutral arbitrator hears both sides of the case and renders a decision based on evidence and testimony. An arbitrator’s decision is as legal and binding as a court decision; however, the process is much less formal and far less expensive.
Ways to minimise rule violations
It is always preferable to minimise rule violations, thereby preventing the need for conflict resolution. Some ways of doing this include:
- educating residents about the rules, and why they are important
- enforcing rules consistently and even-handedly
- intervening as early as possible before the the violation becomes serious
- confirming the association’s commitment to alternative dispute resolution
- establishing a policy that outlines how the association will resolve conflicts.
Upon request, ARC can supply templates for use in preparation for mediation.