When good intentions go bad21st Sep 2019
Sometimes, good intentions go bad. When things go wrong, there are always lessons to be learned. Read on.
Not all decisions are easy. Be careful not to ignore a problem and hope it will go away. In this litigious world, if you have a question, seek advice. Surround the board with competent advisors. This will make your job easier. What follows are eight real-life examples of situations faced by boards of directors.
To save money and time, the board hires a board member to install windows at a 50-unit complex. The job is estimated to cost R300,000. The final bill comes in at R375,000. The special levy amount of R3,000 per unit is not enough. The board must ask for more money. Irate members investigate what happened, and discover that the board did not get external companies to bid for the job, which means there was a conflict of interest. Home owners sue the board for breach of fiduciary duty and negligence.
- What went wrong? The board had been self-managed for 15 years, and was not aware that it was doing anything wrong. Prudent business practice would be to obtain three bids for the job, and to stay away from hiring a board member to do the work.
- Lesson to be learned: Board members must educate themselves concerning HOA issues, and must be aware of current issues facing boards, what to look out for, and how to avoid mistakes like this one.
An estate has private streets that intersect with public streets. At one such intersection a car was making a right-hand turn. The line of sight of the driver was blocked by a tree and bushes growing on the corner. The car hit a 10-year-old child on a bicycle. The child died of multiple head and internal injuries.
- What went wrong? The board did not have regular landscape walk-throughs to view the property.
- Lesson to be learned: Do periodic, regularly scheduled landscape walk-throughs to discover any situation that needs attention. Particularly, view landscape areas that impair driving or create visibility hazards. Correct them immediately as a matter of safety. Maintain adequate insurance. Consult a knowledgeable insurance broker.
A home owner complains of inadequate barriers in and around the play park. Young children can easily escape the reach of parents and wander into the street. The board ignores the complaints, or does not act to investigate or remedy the situation. A young toddler runs out of the park, wanders into the street and suffers permanent, serious injury. The HOA gets sued for R2 million, and settles for R1 million.
- What went wrong? The board should listen to homeowner complaints, and investigate them to determine if they are legitimate, and then take steps to remedy the situation. The excuse that there was no money to install a fence around the play park did not fly with the parents of the seriously injured child. The HOA’s insurance was later cancelled, and costs for the new insurance was three times the previous instalments.
- Lesson to be learned: Do an annual risk management survey. Evaluate potential risks around the HOA, and take steps to alleviate them and maintain adequate insurance.
A freehold development has 200 single-family houses. The HOA owns the roads. The estate is 30 years old. Sidewalks are uneven because of trees. A person trips, and falls on the uneven sidewalk, breaking her ankle. The board says the HOA is not responsible, and that it doesn’t have the money to fix the sidewalks. The victim sues.
- What went wrong? The board failed to maintain the sidewalks. The board was negligent in its duty to maintain the common area.
- Lesson to be learned: Maintain the common area. Deferred maintenance can create risks that are not worth it. If there is insufficient money, bite the bullet and specially assess.
The board of directors removes a tree in front of a unit without previously informing the home owner. The home owner claims their right to privacy has been violated.
- What went wrong? The home owner felt slighted by the board’s action, and felt the board should have notified them of the planned action. The home owner believed that the right to privacy was a property right.
- Lesson to be learned: Although the board had the authority to take out the tree, the board should have notified the home owner before removal, so that their position could be stated. Remember: the board must maintain public relations, so that home owners do not feel at the mercy of the board.
Board member ‘X’ is incommunicado for weeks. Other board members want to replace him, as they do not like him. Board member ‘X’ resumes communication, and insists that he remain on the board. The board refuses. Turmoil and dissent ensue, leading to recall.
- What went wrong? The board should have read its governing documents to ascertain the procedure for declaring a vacancy.
- Lesson to be learned: Before any action is taken, consult your governing documents and the law that governs your non-profit corporation. Follow the procedure that is required; do not make exceptions.
A developer, who built 200 homes in 2007, is confronted by the board because the windows leak. The developer convinces the board not to sue him, and assures them that he will repair the windows, but he does not. The board eventually filed a law suit in 2018. The law suit is dismissed.
- What went wrong? The board trusted the developer to do the repairs, but the developer strung the board along until the five-year statute of
- Lesson to be learned: When you have construction defects, you must be aware of compliance with the statute of limitations in order to sue; consult an experienced attorney to guide you through this complex series of laws.
A townhouse complex encircles a pool that is surrounded by an iron fence with a locked gate. A pregnant mother is in the garage with a 20-month-old baby. The phone rings, so the mother goes into the house. The baby crawls under the fence and falls into the pool.
A neighbour sees this from the second storey, runs down to the pool, by which stage the mom has discovered that the baby is gone. Both the neighbour and the mother have forgotten their keys and cannot get in. The neighbour climbs the fence to rescue the baby, but cannot get out of the pool area, because he does not have a key. The baby dies, and the parents sue.
- What went wrong? The fence surrounding the pool had enough space underneath for a baby to crawl under. A locked gate that requires a key from the inside is dangerous.
- Lesson to be learned: Check fences around pools or other potentially dangerous areas for safety, and strictly adhere to safety codes. Ensure that gates to pool areas can easily be opened from the inside with a latch or an escape bar.
The HOA has the duty to enforce the rules. It also has a fiduciary duty towards its members. This means that it must act in the best interests of its members and the association.
Enforcement of rules must be uniform and fair. Do not let emotions get in the way of reasoned decisions. Review your association for risks, and take steps to alleviate them. Listen to home owners’ concerns. Do not fall into the trap of tabling items on the agenda because you do not want to make difficult decisions. Someone has to make those decisions. Avoid problems. Be creative in problem solving. Know your governing documents. Know your community. Be sensitive to what the home owners want. Know your procedures. Follow them. Establish priorities. Be informed.