Whether you are a planned community, condominium or mixed use association, all communities share five traits for success. These five characteristics, when employed together, allow a community to operate at its highest level of efficiency and efficacy, benefiting everyone involved – the board, homeowner and management.
1. A Functioning Board of Directors
Because all five characteristics are affected by board actions and decisions, an effective board is set as the first priority. The most critical component of an effective board is knowledge. Board members must have a working knowledge of their community’s governing documents if they are to make informed decisions during meetings. The board meeting is not a “discussion forum” or “planning session”; it is a business meeting. It is imperative that board meetings are efficient and productive. The majority of official business is conducted during the board meeting. It is also an opportunity for homeowners to see their board in action. A disorganized meeting can create a negative perception of a board’s efficacy. A board meeting does not need to be long or arduous in order to be productive. Just as much work can be accomplished in shorter meetings, especially when board members are prepared and ready to make decisions. Encourage shorter members by creating and sticking to a timed agenda and limiting owner participation to a reasonable and respectful amount of time. An organized, shorter meeting may also be a great recruiting tool for new volunteers and help boards retain current members. The key is for every board member to do his or her homework, reading the meeting material ahead of time and asking questions before the day of the meeting.
2. A Relationship Between the Board and Management
The board is the ultimate decision-making authority, and the managing agent is the indispensable vehicle they utilize to implement and facilitate their vision. By understanding and leveraging the nature of this relationship, communities are well on their way to success. The managing agent serves as a repository of industry-related experience and information. As such, he or she is a professional service provider that brings stability and continuity to the community, and affects all aspects of the community’s operations. The instrument that establishes the contractual relationship between the board and the management company is the management agreement. Most misunderstandings between a board and the manager occur because one, both or neither party fully understand the terms of the agreement. Boards and management should review the management agreement to ensure both are on the same page at all times. For examples, a common point of contention with boards and managers may be expenditures the manager can make without board approval. The five typical community expenditures – budgetary, unexpected operational, emergency, reserve, and discretionary expenditures – should be addressed within the management agreement.
3. Communication Between All Parties
The number one complaint received from owners is that the association does not adequately communicate with residents. Communication and transparency are essential for a successful community. Without it, people may feel left in the dark, which can cause discord among board members and homeowners, and the management company.
4. Financial Integrity
The first thing new boards must learn is their fiduciary duty, a term often thrown around, and all too often misunderstood and misapplied. Fiduciary duty means that the board has an ethical and legal obligation to make decisions in the best interests of the entire association. Board members should never use their position to take advantage of the association and they must act reasonably in all their decision-making processes. The Business Judgment Rule, defined by Smith v. Van Gorkom Del. (1985) as “a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company”, is cited as a useful tool for board members to use when making community decisions. Fiduciary duty also encompasses the necessity for an acceptable working budget; preparing for, attending and participating in board and annual meetings; fairly and uniformly enforcing the governing documents; avoiding conflicts of interests; being a role model to the community’s residents; and promoting an understanding and acceptance of the reserve accounts among the members.
5. Community Governance
Finally, a successful community is effectively governed. A community association’s governing documents are structured to be a representative form of government, but governing by polls is the greater good of the community.