Enforcing Covenants, Rules and Regulations in Condos and HOAs–The Concepts of Waiver and Selective Enforcement

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Posted on April 30, 2011 by Ryan Poliakoff

I wanted to talk a bit this week about two concepts that are pretty universal throughout the country–those of waiver and selective enforcement of covenants and rules.  I am going to concentrate a bit on the way Florida handles these issues, but readers from everywhere should find the concepts similar.

Every shared ownership community (a condo, co-op or HOA) has covenants and rules that must be followed by the unit owners and residents–this is part and parcel of living in an SOC.  Those rules are either found in the declaration of condominium, the declaration of covenants, conditions and restrictions, or in the rules and regulations promulgated by the board.

The issue that arises in every community, however, is do those rules need to be applied to everyone, equally?  Board members are understandably reluctant to enforce a relatively minor rule against a neighbor who is otherwise perfect when it comes to other important aspects of community living (such as paying their fair share of the maintenance and contributing to the neighborhood).  And if the rules aren’t applied equally, what happens to them?

This is where the concepts of waiver and selective enforcement come into play, and you will usually find them in your state statutes or in the case law that has been developed by the courts.  Selective enforcement means that you cannot selectively enforce a rule against one resident and ignore the same violation by another resident, or the enforcement is invalid.  That is, if your board has ignored a beautiful parrot that is owned by a sweet retiree who lives alone, they can’t then attempt to enforce the same “no bird” rule against another owner, just because that other owner is a less attractive violator.  If they try, the second violator may challenge the enforcement, claiming that it was “selective”–that the board selected certain residents to enforce the rule against, and not others.  In most legal systems, that’s not allowed.  It’s even a defense against many of our state and federal laws.

The second concept, waiver, is more universal.  If a board ignores a rule violation that is open and obvious for a significant amount of time, they have then “waived” the right to enforce the rule against that unit owner, and then, by extension, against anyone in the community.  So if the retiree with the parrot has been regularly seen with her bird walking around the grounds, and if the board has never cited the person with a rule violation, they cannot then enforce that rule against another owner, as they have waived the right to enforce that rule. And even if the violation is not open and obvious, most states have a limitation (called a “statute of limitations”) that says that, after a certain amount of time, covenant violations that have been ignored cannot be enforced for any reason, even if they were not open and obvious (in Florida, that time period is 5 years).

So what’s a board to do?  First of all, these principles are exactly why, even though it is not always the most pleasant task, it is a board’s responsibility to enforce every rule against every violator every time–or risk waiving the right to enforce the rule.  If the board has any interest in enforcing a rule against any owners or residents, it must enforce that same rule every time against everyone who violates it.  Only if the board absolutely knows that it NEVER wants to enforce a rule can it ignore it entirely.  And, even if a board were to do so, it would arguably be violating it’s duty to the association to follow and enforce the covenants of the community (although, it’s interesting to note that there is a movement in certain states to allow some flexibility in this practice–essentially, to allow a board to legally ignore a rule it does not want to enforce).

So let’s assume, then, that a board has accidentally selectively enforced a rule, or waived enforcement of that rule, and that the board (or an entirely new board) wants to begin enforcing it again.  Well, there’s a procedure for doing exactly that.  The board would have to announce to the entire membership that, from a point in time forward, they intend to begin strictly enforcing the rule–and then they need to start doing so.  But what happens to all of the current and past violators?  They would then be “grandfathered” into the rule, and allowed to violate it–at least as to the specific violation that has been occurring (but not new violations that occur in the future).

Let’s look at a couple of examples of this principle.  Say that a new board were to be elected in the community we discussed above, where a resident had been keeping a bird openly for many years.  This new board wants to begin strictly enforcing it’s no-bird policy.  The board would send a letter to all owners notifying them of their intention to enforce the rule, and asking anyone currently violating the rule to register their “violation” (in this case, ownership of a bird) so that it can be grandfathered.  Then those people would be allowed to keep the birds they already have in their homes–but they would NOT be allowed to keep new birds, or to replace a bird that passes away.  The grandfathering is only good for that specific, currently occurring violation.  And people have tried to get around this rule in creative ways–in one property, a woman whose grandfathered dog passed away purchased a new dog and dyed its hair to match that of the older dog, to try to pass it off as the same dog.  Didn’t work.

Now, this policy applies to other types of violations as well.  Let’s assume that a resident has screened in his patio, in violation of the covenants of his HOA.  The board ignores this violation, and it is eventually waived (and, by the way, we’re assuming that the violation is not a local code violation, which raises other issues).  When the board later decides to cure their waiver, this screened in porch would be grandfathered into the rule, and would be allowed to remain.  However, if the owner ever wanted to screen in his back porch, that would not have to be allowed–it is only the specific violation that is being grandfathered in.

So the concepts of waiver and selective enforcement are critical for every board member to understand–if you, as a board, intend to enforce the rules of your community, you must enforce them consistently, against every person, no matter the situation or any extenuating circumstances (absent, of course, federal or state legal issues, such as a requirement to allow owners to keep support animals).  As a board member, I regularly hear from owners who are surprised and annoyed to find that our board is not willing to make exceptions for them, even when those exceptions are reasonable–but the law doesn’t allow exceptions.  It’s sometimes hard to understand, and harder to accept, but that’s just the way it works.  The rules are designed to prevent boards from playing favorites, but it also has the negative consequence of making enforcement of the rules completely inflexible.

Posted in Shared Ownership Guide

Portfolio Management–How it Works for HOAs

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Posted on April 16, 2011 by Ryan Poliakoff

One of the most consistently misunderstood concepts in property management that I see is the basic understanding of so-called “portfolio management”–the use of a single property manager to manage a number of different communities, usually unrelated to one another.  For many small communities, and especially HOAs, this is the only affordable way to secure a professional property manager.  But it’s important that board members understand the concept of portfolio management, and how it’s intended to work.

Many smaller communities do not have enough day-t0-day work to justify the use of a full-time, on site property manager.  So the alternative option that has been developed by management companies is the portfolio manager–a professional manager who handles multiple properties, spending her days juggling multiple issues of multiple clients.  But for many neighborhoods, this is the only affordable way to have a professional property manager service their community.

The problem that occurs most frequently is that HOA boards sign a contract for portfolio management, but then expect the same level of service they would get from a full-time manager, including instantaneous response to questions or issues.  But a quick lesson in management economics will explain why this type of response isn’t always possible, and demonstrate exactly what boards can expect when they enter into a portfolio management arrangement (regardless of what is promised by the management company).

Let’s assume that a competent portfolio manager can make $60,000 per year, a reasonable number in many markets.  The cost to the property management business is far higher–they have to pay taxes like fica, insurances (liability, worker’s compensation), health insurance, and office overhead.  That $60,000 per year manager is really costing the business at least $100,000.

So let’s assume that your community has signed a portfolio management contract with a management company, and you are paying $20,000 per year for that service, which also includes full accounting support and collections.  How much of that manager’s time can you reasonably expect to be getting, and still allow the management company to make money?  No more than a fifth, certainly, and that’s totally ignoring the cost of accounting functions.  If a typical manager works a 50 hour week, you should expect to be getting 8-10 hours of property management service, at most, per week to allow the management company to, frankly, operate without going out of business.

Now, many, if not most, management companies will never bother to explain these economics to their clients.  They sell portfolio management because it’s affordable, and because it’s appropriate for a large percentage of small communities, but they never bother to temper expectations in any amount.  So boards often enter into these contracts assuming that they are essentially getting full-time, full-service property management for a tiny fraction of the price of hiring a full-time, on site manager.  But basic logic tells us that such a system can’t possibly be sustainable for the company.  So whether or not they’re telling you that the manager’s time will not exclusively be spent on your property, it won’t.  It can’t, or the management company will simply go out of business, unable to sustain its costs of operations.

Unfortunately, management companies are put in a very difficult double bind.  If they are the honest one that, up front and in the contract, admits that they are not providing full-time service, their contract will often be passed over for a contract that ignores this truism.  But the fact that another management company has failed to expressly limit the client’s expectations to full-time service does not change the basic economics–you cannot get a full-time property manager and full accounting services for $20,000 per year.  It doesn’t matter what the contract says, it doesn’t matter what the company promises–it’s basic math.

So what can a board expect, and how can a board make portfolio management work for them?  A good portfolio manager (which is it’s own specialty, really) is an expert juggler.  He or she should be able to prioritize every issue that comes in from every property, and make sure that they are all handled in a reasonable timeframe–emergencies are treated as emergencies, longer term projects might be put on the burner to simmer for a while.  But there’s no reason that a portfolio manager can’t complete all of the work needed for a smaller community or HOA in a competent and timely manner.  It does, however, require some understanding and reason on the part of the board.  It’s not fair to call your portfolio manager and ask them to drop everything they are doing for every client and deal with a whim of the board that has no actual time pressure.  It’s all a question of communication.  If something is genuinely an emergency, then tell the manager it’s an emergency.  But if it’s not, trust your manager to use her best judgment to determine when and how to complete the project, within a reasonable time frame.  It’s important to accept that, without a full-time manager, projects may take slightly longer to complete, but they will get done–it just takes a little patience.

Portfolio management can be an excellent solution for a large percentage of properties–it reduces the cost of professional management dramatically, and in communities where issues are sporadic it’s really the only economically feasible way to afford a manager.  But don’t be fooled by management companies who promise full-time, on demand management for a fifth of the price of having someone on-site.  There is just no possible economic way to make that work, and you can be assured that, if you expect to get this kind of service, you’re simply going to end up disappointed.  Accept portfolio managers for what they are–competent, professional property managers who are experts at prioritizing the needs of multiple clients and making sure that your property is managed properly and effectively at a very reasonable cost.

Posted in Back to Basics, Condo Associations, Condo Management, HOAs, Homeowner's Association, Shared Ownership Guide Tagged , , ,

Protecting the Earth and Sending Wall-E Home–A Lesson in HOA Activism

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Posted on April 9, 2011 by Ryan Poliakoff

This week we have a guest blog from my brother, Keith Poliakoff.  Keith is a government lobbyist, and the below article describes his fight against a concrete, construction and demolition recycling plant planned near a number of HOAs.  It’s a good lesson in what HOAs can do when they band together.

Indian River Commission Unanimously Rejects Application
to Place a Construction Debris Processing Facility Nearby Residential Communities

Although Wall-E was incredibly popular Pixar film, when a developer attempted to use the name for his concrete crushing, mulch, general construction, and demolition recycling plant (A-1 Walee), he received much more than a day at the movies.  Instead, his under the radar application was met head on by more than 1,200 homeowners who discovered only two weeks earlier that a nine acre construction debris processing facility had been slated to be built less than a half mile from their homes, and get this, on land owned by the family of the Indian River County Tax Collector.

After the Planning and Zoning Board approved the item without any notice, in just 14 short days the community leaders banned together, created their own website, and hired the Becker & Poliakoff (B&P) Government Team to devise a full blown stellar attack to oppose the item at the County Commission’s quasi-judicial hearing.

First, B&P suggested that a new corporation be formed to allow all of the communities to be heard under one voice.  Although the name Eve, Wall-E’s counterpart, had been taken, B&P formed the South County Preservation Society, LLC, and the presidents of all of the neighboring HOA’s became the new company’s board of directors.  Thereafter, B&P reviewed the application, the code, and hired the necessary experts to defeat the application.

On March 22, 2011, Wall-E’s seedling grew into one of the largest grass roots efforts in Indian River County history.  More than four hundred residents, who were seeing and wearing red flooded the Commission chambers in opposition to the project.

The Applicant and County staff testified that this use is harmonious with its agricultural land use and zoning.  In essence, the Applicant argued, with a straight face, that because the concrete or wood to be processed at its factory could come from or could be used in agriculture, that it was certainly an agricultural use.  Ironically, this argument could have been taken directly from Wall-E’s Captain who stated “Earth is amazing! These are called “farms”. Humans would put seeds in the ground, pour water on them, and they grow food – like, pizza!”

To bolster its proposition, the applicant presented some of the most interesting expert testimony we have ever heard.  They called up a property appraiser who testified that this use would not devalue the neighboring residential lots.  His evidence was not based on comparable values, but solely on “what he heard” at the Commission meeting.  The applicant also called up a geologist, who presented two kitchen glasses filled with concrete rock, which upon closer examination actually contained contaminants.  I am sad to say that none of the experts, when asked, agreed to smell the rocks to see if they contained harmful chemicals.

The best expert award for 2011, will undoubtedly go to the gentleman who claimed to be a “Certified Visual Examiner Expert”.  Apparently, he had such good eyesight that he could see particulates that no one else could see.  When asked if he had x-ray vision that could see if the particulates were contaminating the ground water he responded “no”, but he proudly answered “yes”, when asked if he would be able to determine if someone is blowing smoke.  Although unintended by the applicant, this line of testimony gave a much needed fodder after six hours of straight testimony.

After concluding a barrage of cross-examination questions to discredit the applicant’s witnesses, B&P,  began to present its case, which the applicant’s attorney referred to as a “shock and awe” campaign.

The B&P team presented unrefuted evidence that this use was incompatible with the surrounding area.  Expert after expert, including a civil engineer, environmental engineer, general contractor, medical doctor and even an organic farmer, presented hard evidence that this type of use would be incompatible and potentially dangerous to the surrounding community.

After two more hours of testimony, eight hours in total, it took the Commission less than 5 minutes to deliberate and to unanimously conclude that this use was not compatible with surrounding land uses, that it would create adverse impacts on public health, safety and general welfare, and that it would not promote orderly development.

As for the result, it is best expressed by the client who wrote:

“Your firm has always been professional, efficient, and has done a great job whenever called upon by our board of directors (foreclosures, covenant/restriction enforcement, etc).

We had a major issue arise here in Indian River County 3-4 weeks ago. The Planning & Zoning Commission of IRC had already passed and recommended to have a recycling/debris crushing facility be built in an agriculture/residential area where over 1,200 homes would be within .07 mile away from this “heavy industrial” type of facility (special exception).

Once I found out about their intention, we quickly gathered 13 HOA presidents from our area together to see if we could stop this project from being built so close to our homes.

On March 8th I contacted Keith Poliakoff of your Land Use and Zoning division and briefed him of our issue here in Vero Beach. Keith Poliakoff along Marcie Nolan and Michelle Klymko from that day forward took on our challenge and in only 14 days put together an amazing “presentation” in court on March 22 that was so overwhelming to the five IRC commissioners that they voted 5-0 to not allow this A1 Walee Recycling Plant to be built.

Keith and Marcie’s presentation (video attached below) is “beyond words.”  They made quite an impact on the commissioners and the over 400 homeowners (dressed in red) who were present in court that day.  Over 4,000 residents in this south county area of Vero Beach owe a great deal of gratitude to your attorneys who represented us. They preserved our property values from dropping, our quality of life, and let IRC staff realize that we would just not roll over and let this facility be built without a fight.

Below is the website that also has a lot of information that kept homeowners informed all along the way the last 3-4 weeks of our fight. There are also comments posted.

http://saynowaytowalee.wordpress.com/”

Congratulations to the residents of South County, who united and made a difference.  As stated by Wall-E’s Captain “We’ll see who’s powerless now!”

If you are interested in watching any part of the hearing, go to http://www.ircgov.com/ and click on the March 22, 2011 meeting link.

Posted in HOAs, Homeowner's Association, Politics Tagged , , ,

Can a Condo or HOA File for Bankruptcy? A Primer.

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Posted on April 2, 2011 by Ryan Poliakoff

Bankruptcy!  We all tend to view bankruptcy as the bottom of the well–the worst possible financial outcome for any business or person.  But how many of us know what bankruptcy really means, and can a condo or HOA declare itself bankrupt?

Years ago, the idea of a shared ownership community filing for bankruptcy was nearly unheard of–now, it’s become an almost regular occurrence.  As an SOC is essentially a taxing authority, so the idea that they would be unable to pay their bills wasn’t really a prominent concern.  But as the market, and the economy, has regressed, more and more communities are unable to pay their bills at a maintenance level that can be supported by owners.  An increasing percentage of condos and HOAs are finding themselves scrambling for options, with the ghost of bankruptcy looming overhead.

First, a basic question–what is bankruptcy?  Bankruptcy is a legal process whereby an individual or business files for protection from paying some or all of its debts with a federal bankruptcy court, who then determines which debts get paid, how much, and when.  Basically, it’s a surrender.  The business or individual, overloaded with debt that it cannot repay, asks the court to step in and help it pay its bills.  It’s really that simple.

There are two types of bankruptcy–liquidation and reorganization.  You’ve probably heard them referred to as Chapter 7 and Chapter 13, but there are other types as well.  A Chapter 7 bankruptcy, a liquidation, occurs when the business is really in dire straits, and the court needs to sell off some of the company assets to pay off debtors.  A Chapter 13 bankruptcy, which is one of several types of reorganizations, requires that the individual or business has at least some source of income that would allow it to pay off its debts over time.  The debtor proposes a repayment plan to the court of how it intends to pay off its debt over a period of 3 to 5 years.  Basically, it’s a court-ordered renegotiation of all of the debt held by a business.

Now of course, bankruptcy is a pretty extreme measure, and it’s not looked upon favorably by lenders.  But sometimes bankruptcy is the only option that would allow a business to survive financially under the weight of overwhelming debt.  So the question becomes, is it ever appropriate for an SOC to file for bankruptcy protection, and what happens to the association’s assets?

First, an SOC cannot file for Chapter 7, liquidation bankruptcy.  They can, however, file for a reorganization, usually using Chapter 11 (similar to Chapter 13, but it has a higher debt ceiling).  The intent of the bankruptcy is to get an automatic stay on all debts while the association formulates a reorganization plan that will allow it to recover financially.

That said, bankruptcy is not a silver bullet.  For one thing, as it involves lawyers and courts, it is expensive to the association–easily mid-5 figures for a full process.  I know that’s a bit counter-intuitive, but the purpose of a bankruptcy of this type isn’t to simply swipe a wand and say “poof, you owe no money!”  It’s a genuine business reorganization.  As part of this process, there are new debts (legal fees and court costs) that will need to be paid.

Now, filing for bankruptcy puts a hundred different eyes on the board of directors that is running the association.  The court and all creditors will be closely watching every single act and expenditure to determine whether they are reasonable and fall within the reorganization plan.  The association will need to provide regular operating reports to the court to prove that it can carry itself forward, and any evidence of improper actions would subject the association to the control of a trustee appointed by the court.

If the bankruptcy goes smoothly, the association can come out of protection in as little as a year, and be back on its way to a healthier financial future.

So if you hear that your association is considering bankruptcy, don’t panic–it doesn’t mean that the entire world has been lost.  There is a light at the end of the tunnel, but remember that tunnel can be long and expensive.  So don’t jump into such a decision lightly, but understand that it exists to help associations who really are in dire straights and have no other financial options.

Posted in Bankruptcy, Condo Associations, Finance, HOAs, Homeowner's Association, Shared Ownership Guide Tagged , , ,

Contractor Workers’ Comp and Insurance Requirements for Condos and HOAs

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Posted on March 19, 2011 by Ryan Poliakoff

I wanted to talk a bit this week about protecting your association when you have contractors or vendors on the property.  There’s a lot of confusion in this area, especially when it comes to workers’ compensation insurance.  What proof of insurance should your association require of any contractor who works on the property?  Remember, rules that might work for you at a personal, home level do not necessarily work when you are concerned about protecting a large corporation.

First, and I hope this doesn’t come as a surprise to anyone, you should never hire any contractor who does not carry insurance.  A contractor’s lack of insurance is a guarantee that, if and when something goes wrong, that liability will fall on the association.  Instead, every single vendor who works on your property should be required to not only carry insurance (a million dollar liability policy is the gold standard, but the exact amount required should be determined by your local laws, your documents and prudent board policy depending on the size of your community and the scope of work involved), but also both the association and the management company should be listed as “additional insureds” on the contractors policy.  Additional insureds are those people who, despite not owning the policy, are protected if something goes wrong.  Now, this kind of protection isn’t hard for the contractors to get–it’s a simple as them calling their own insurance agent and asking for the two parties to be listed as additional insureds, and then providing copies of those certifications.

The more complex issue involves workers’ compensation insurance.  Workers’ compensation is an insurance program governed by state laws that mandate that certain employers carry insurance to protect workers if they are injured on the job.  Workers’ comp provides injured employees with wage protection and medical benefits, and in exchange for that the worker is precluded from suing their employer for negligence.  If you work for someone, you are probably covered by workers’ compensation.  Each state’s law varies a bit, but it is typically required that most employers carry workers’ compensation insurance.  In return, employees are precluded from suing their employer if they get injured–they must collect from the workers’ comp policy.

The very important quirk in workers’ compensation, at least as far as shared ownership communities are concerned, involves workers’ compensation exemptions.  Certain businesses, especially small businesses and independent contractors, are exempt from state requirements that they carry workers’ comp.  The important thing to understand, however, is that these exemptions are not protections for employers, clients or workers–they are simply rules that say that certain employers do not need to carry the insurance.

Now, there is a cost associated with workers’ compensation.  And so you’ll often find that small vendors and independent contractors are able to provide your association with cheaper bids on contracts, simply because they do not have to absorb the cost of the insurance.  But what does that mean for your community?

What it means is that, if you hire a vendor that does not carry workers’ compensation, and one of their employees is injured on their property, that worker is going to sue the association for damages.  So that lawsuit, and the increased insurance premiums that result, goes directly onto the association’s own liability insurance.  Basically, if you hire a vendor that does not carry workers’ compensation, you are saying that the reduced cost of the contract is worth increased liability for the association.  And honestly, it almost never is.  If your association gets sued, and if you have to refer that lawsuit to your insurance carrier, you can guarantee that your premiums for the next year will rise, and that it will create an ongoing issue for the association.  But if you instead had hired a contractor that carried the insurance, that injured worker would have been precluded from suing the association for negligence.  That’s why workers’ comp is so important.

So again, when you are considering vendors for your community, having a workers’ comp exemption does not mean that the association is protected in any way–it simply means that that employer is not mandated by the state to carry insurance.  But, as a responsible corporation, you should still insist that the association only hire vendors who carry the insurance, or understand that any accidents or problems that occur will go directly onto your liability policy.  My recommendation to associations is that they should always hire contractors who not only carry significant liability policies, and insist that they be named as additional insureds on that policy, but also that they should reject any vendors who do not carry workers’ compensation insurance, whether or not that vendor is exempt from state requirements to carry it.  The association’s concern is not whether or not the state requires insurance–it’s whether the vendor is actually insured.  Insist that you vendors all carry both types of insurance, and you will help to protect your association against costly and unnecessary lawsuits.

Posted in Condo Associations, Condo Management, HOAs, Homeowner's Association, Insurance, Liability Tagged , , , ,

A La Carte, or All In? A Discussion of the Pros and Cons of All-Inclusive Management Contracts for Condos and HOAs

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Posted on March 12, 2011 by Ryan Poliakoff

This week I wanted to talk a bit about an issue that will face every board member at one time or another–is your association better off choosing an all-inclusive management provider, one that can provide multiple services like landscaping, maintenance, security, valet or even construction management, or should you choose a management contract that covers only the pure management of the association, and farm out all other business to different vendors?

Various advocacy associations for shared ownership have at times recommended to their members that they should be wary of full-service contracts, but their justifications usually revolve around a nebulous idea of “not getting cheated.”  But the truth is that there CAN be significant benefits to “all in” contracts as well, both for your association and for board members, so I wanted to touch on some of these variables and present the argument for multi-service contracts, or at least explain when they can, depending on the service provider and their relationship with the community, be beneficial.

A paramount responsibility for any board member is to ensure that their association is well managed and maintained, and for a fair price.  But does that automatically mean that your best deal will be to have as many as a dozen different providers contract for each individual service provided to the association?  Common sense dictates that it does not.  The concern, generally, is that a single management company, providing multiple services, may prevent an association from getting a fair deal on their services, and that they may be unintentionally overpaying for services because of a lack of bidding for the contract.

But consider the flip side–a company that provides multiple services to a single association can often make less profit on each individual service because of economies of scale.  That is, they have a single point of administration and a single source of overhead.  They may actually be able to bid a far cheaper price for all services, as they can afford to make less on each element.  Plus, if a single company provides multiple services for an association, their customer response, and their risk of losing that contract, is multiplied dramatically.  Some lesser companies might slack on a management contract with low profitability, hoping to hold it as long as they can and move on to the next property–but if they are also providing landscaping, janitorial, front desk support and pool service?  Loss of that contract might be catastrophic.

Allowing a management company to provide multiple services to an association also doesn’t, in any way, preclude a bidding process for those services.  If you are concerned about self-dealing, simply insist that the bids be handled just like any other large project–a specification of work should be prepared and sent to each bidder, and those bidders, including the management company, may present their best bid on the project to the board.

But ultimately, the key element in any multi-service contract is trust.  Do you trust the management company you’re working with?  Have they provided you with excellent service?  Is their staff responsive, and is their principal available to you to discuss problems and concerns?  If your board likes the company, and has a good relationship with them, why wouldn’t you want those people handling MORE of your property’s needs, especially if they can provide them at less cost?  Is it really better to choose a different provider simply for the sake of saying that you shouldn’t “put all of your eggs in one basket?”

I actually have heard this “egg” argument quite a bit, so much so that it’s become kind of a rote statement from concerned owners.  But let’s examine the reality, at least in large communities.  There are dozens upon dozens of management companies willing to manage SOCs.  Almost any one of them can come in and take over a property in 30-days time.  The exact same can be said of landscaping providers, pool cleaners, security companies and valet providers.  It is simply not hard to not only find new providers, but to mobilize them quickly enough to ensure that there will never be an interruption of service at your property.

And consider, for a moment, the practicalities of having multiple service providers.  Assume that you are having problems with your landscaping–the New Guineas are failing.  It’s a small property.  Your property manager calls the independent landscaping company.  She reaches a person who promises to put the property on the schedule for a service.  The company shows up an decides not to touch the flowers.  So the manager calls again, this time asking for someone higher up in the company to complain.  That person apologizes and promises to fix the problem.  Three days later they come out, commiserate with the manager and promise to send out a crew to replace the flowers.  The next week the crew comes out and replaces the exact flowers that were a problem, but by then there are other flowers that are also losing their blooms.  The board, unhappy, asks the manager to put the contract out to bid.  The manager prepares a specification and solicits proposals from landscaping vendors, which are considered at the next board meeting.  Now the landscaping company gets word that their contract is in trouble, and they step in and promise to make things better–so the bid process is put on hold.  And the whole process starts over again.

Instead, what if your management company IS the landscaping provider, as well?  The manager is unhappy with some flowers–she can usually get an immediate response, because she knows exactly who to call, and who she needs to pressure up the chain.  And if that doesn’t work, either she or the board can call an executive of the company and threaten to remove ALL business if the landscaping problem is not immediately fixed.  But frankly, the problem is unlikely to ever get to that level, because the hammer wielded over the management provider is HUGE!  Any reputable multi-service provider knows that a very large, profitable multi-piece contract is at risk, and they will bend over backwards to make things right.  This is simply the nature of business.

Now, there’s no question that there are single service providers who provide fantastic customer service in all areas, and who are a pleasure to work with.  But consider that when you spread your contracts among a dozen providers, you are multiplying the chance that any single provider will be unsatisfactory or difficult to work with, and making your manager’s job that much harder.  If you can find a single provider that does a great job, and is trustworthy and responsive, the benefits of NOT allowing them to bid on multiple services are greatly reduced.  And frankly, if you don’t trust or like your management company, then why are you with them in the first place?

Here’s something else to think about–with some very large management companies, you may actually be contracting with a single provider, even if you think that business has gone to other providers.  The concept of “sister companies” has become more common, as if a sibling relationship is more palatable to board members than direct ownership.  But is it really different to hire two companies, both owned by a giant conglomerate, rather than a single company that admits to providing all services?  Should it make you feel better that the management company has spun off their landscaping division into a different corporation?  Clearly it does assuage some board members, or companies wouldn’t bother.  Personally, I don’t see how it changes the basic calculation–if the company is great, I’d want them to do everything, and if it’s not, I don’t want them to do anything.  And yes, some companies may be good at one thing, and not at another, and that’s a good reason to use different vendors.  But if there IS a provider that does excellent work in multiple facets of business, why wouldn’t you want them servicing all of your needs?

I have spoken with board members who feel that this issue is a no-brainer in both directions.  Some automatically reject the notion of multi-service contracts, because they don’t want to be tied into a single provider.  Others would rather trust a single provider with all of their services, because they want their manager to have more skin in the game.  The truth is, there’s no single answer on this question, and for some communities having a multi-service provider may not make sense.  However, you shouldn’t reject the idea of a multi-service contract on nebulous ideas or catchphrases.  Consider all of the variables–is your property well managed?  Do you like your day-t0-day manager?  Do you like the principals of the company?  Are they responsive to your needs?  Do they do professional work?

If the answers to those questions is “yes,” then isn’t that what you would look for in any service provider?  Food for thought.

Posted in Condo Associations, Condo Management, HOAs, Homeowner's Association Tagged , , , ,

FHA Confirms that ADA Rules Regarding Service Animals Do Not Apply to FHA/Condos and HOAs

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Posted on March 5, 2011 by Ryan Poliakoff

In September of 2010, I wrote an article about the fact that the ADA (Americans with Disabilities Act) had been amended to specify that emotional support animals are NOT service animals for purposes of the ADA, and that compliance with the ADA does not require making accommodations for these types of animal companions.  In the article, I opined that lawyers would borrow these new definitions to argue their FHA (Fair Housing Act) cases, specifically that emotional support animals, pets with no specific training as service animals but that simply provide support to their owners, were not a reasonable accommodation under the FHA, and therefore could be banned from no-pet properties.  Mind you, before I get in trouble here, I wasn’t arguing whether or not that SHOULD be the case–it was simply an academic discussion of the law.

Well that question is now moot, because the department of housing and urban development has issued a memo clarifying that the ADA definitions are not to be construed as affecting the FHA.  The memo recognizes that emotional support animals, as well as animals other than dogs, have been found to fall within the reasonable accommodation standard of the FHA, and that is still the case, even though the DOJ has amended their own definitions otherwise.  Now, this may seem incongruous–you have two different branches of the federal government, one of which that says, for purposes of determining what accommodations must be made in public places, emotional support animals need not be accommodated; and another branch of the government saying, they don’t care, for purposes of determining whether accommodations must be provided to housing residents, the previous rules still apply, and the ADA is irrelevant.  And, truth be told, it IS irrelevant, and they are different agencies.  They have the right to make their own rules, and it’s easily argued that what’s allowed in a public place, like a supermarket, is different than what is allowed in someone’s home.

Part of the FHA’s argument is that, under the ADA, there is no reasonable accommodation standard–animals are either service animals, or they are not, and the ADA definitions draw a bright line.  But under the FHA, pets must first be shown to afford the resident an equal opportunity to enjoy the facilities, and then that there’s a reasonable nexus between the disability and the service provided by the animal.  That is, the agency wouldn’t necessarily say that a cat is a reasonable accommodation for a visually impaired person, but there would be a totally different calculation for someone suffering from depression.  They’re saying that their standard, and tests, are different, and that the ADA definitions should not be construed as having any affect on their own processes.

So, now we officially have two completely different standards.  Your attorney should know what’s going on, but it might be worthwhile to forward the FHA’s memorandum, just in case.

Posted in ADA, Condo Associations, Condo Rules, FHA, HOAs, Homeowner's Association, Pets Tagged , , , , , , ,

The Power of The People–Using Condo, Co-Op and HOA Clout to Your Advantage

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Posted on March 1, 2011 by Ryan Poliakoff

Hi everyone, just got back from vacation, sorry for the blogging break!  I never feel comfortable announcing a vacation to the Internet beforehand, just doesn’t seem prudent…  In any event I’m back home and back on the job.  Today’s blog will be a bit shorter, but I’ll make sure to do two full blogs this week to catch us up.  Look for another post this Saturday, on schedule.  But for tonight…

I often reference Habitat Magazine, one of the biggest and best publications about shared ownership, especially in the New York City area.  Habitat recently published the following article about how a group of condo and co-op board presidents and residents used their clout to protest New York City’s plan to raise their tax valuations.

The article explains that some areas of the outer boroughs of New York, and especially Queens, have seen a proposed triple-digit percentage increase in their property valuation for tax purposes.  The city claims that the valuation is accurate, and is a quirk of the properties being undervalued in the past.  Residents counter that common sense dictates that property values in the borough have remained flat or even decreased, and that there is no possible rationale for the huge increase in assessed value, other than as a way to combat the city’s budgetary shortfall.

So to get the attention of the city’s finance commissioner, a group of presidents and residents staged a protest and held a public meeting, and it worked–with the help of their councilman the group was able to gain an audience with the commissioner, David Frankel, to air their grievances.  The meeting was described as positive, and the commissioner agreed to review the valuations, although he unsurprisingly did not commit to any changes.

However, the moral and important part of this story is that shared ownership communities, simply by their nature, have a lot of clout, and you should never discount using that clout to your advantage when working with government officials.  SOCs represent large collections of voters that tend to have similar goals and issues, and organizing a neighborhood’s worth of condos, co-ops and HOAs can quickly and easily build enough person-power to get the attention of even the most jaded politician.  Ultimately, representatives care about elections, and the loudest and best-organized group often gets to control decisions that are made by our government, from the local level all the way up to state or federal office.  So remember that, in addition to being your home and your neighborhood, your SOC can also be a pretty influential political group as well–don’t be afraid to organize your community and assert its power when issues arise that affect unit owners.  You may find that you can get a lot more done as a group than could ever be done individually.

Enjoy the article, and look for our regular schedule to resume this Saturday!

Posted in Condo Associations, HOAs, Homeowner's Association, Politics, Shared Ownership Guide Tagged , , , , ,

Landscaping Primer–How Frequently Should Grass Be Cut?

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Posted on February 12, 2011 by Ryan Poliakoff

I want to talk this week about grass–now don’t get too excited!  I’m talking about the kind you walk on, the kind that makes up the bulk of every HOA in the country.  But specifically, let’s talk a bit about southern grass, and particularly St. Augustine.

St. Augustine is a grass that is prevalent in the southern states, particularly in Florida, Texas and the Carolinas.  You also can find St. Augustine in southern California.  St. Augustine is a warm weather grass that thrives in high temperatures.

When I review landscaping contracts I tend to see specifications for grass cutting that are almost always too frequent.  Mow schedules of 40 times per year are very common, and I’ve even seen as many as weekly.  It’s understandable that a condo or HOA board would want to cut their grass as often as possible, because it would seem, to a layperson, that frequently mowed grass makes for a beautiful community.   However, let me try to convince you otherwise.

Grass is a plant. It may not be big and lush like a bush or a tree, and it may not have pretty colors like a New Guinea or an Impatien, but it’s a growing, living thing, nonetheless.  Just like other plants, grass needs to bloom, and seed, and be properly fed to live and thrive.

When you cut grass constantly, you are preventing that grass from blooming.  You are impeding the natural reseeding process that occurs to keep your grass thick.  You also make it more prone to diseases that can turn the grass brown and burn it out.

The University of Florida guidelines for cutting St. Augustine grass state that grass should be kept at a finish length of 3-4 inches.  Additionally, no more than 1/3 of the blade should be cut at any one time.  So if you are looking for a finish height of 4 inches (a nice, thick lawn) you shouldn’t cut that grass until it is 6 inches high, and then you should not cut off more than 2 inches of blade.  Those blade clippings will then provide nutrients that help the grass thrive.

Additionally, how frequently you cut your grass ties directly into your fertilization schedule.  If you are fertilizing three or four times per year, which is a common schedule, it is very unlikely that your grass is growing fast enough to tolerate a weekly cutting schedule.  Even at 40 cuts per year (every other week in the winter and every week in the summer) that grass would have to be fertilized around six times per year to have the type of explosive growth that would comply with the University of Florida cutting standards.  And that’s a lot of fertilizer–any more than that and you run into risks of nitrogen burn, out of control weed growth and encouraging other diseases.

Put more simply, if you are fertilizing your grass three times per year, your grass cannot possibly be growing fast enough to cut 40 times per year and still maintain a finish height of 3-4 inches without cutting off more than a third of the blade.  A more appropriate cutting schedule is 30-32 times per year–once per month in the winter and 3 times per month in the summer.  That fertilization and cutting schedule is appropriate, and will ensure that your grass looks its best.  If you are dead set on cutting more frequently, prepare to pay more for fertilizer, or you run the risk of ruining your lawn.

Now, those are the scientific facts–why is this relevant for condos and HOAs?  Board members are regularly called upon to review landscaping bids and contracts–in fact, it’s probably one of the universal issues for any shared ownership community.  And most board members, having no reason to be knowledgeable about the science behind lawn maintenance, feel as laypeople that more is better.  They will often either insist upon frequent mowing, or simply think that the cheaper bid, which offers the most cuts, is the best.

But frankly, this kind of analysis is a recipe for disaster.  A good landscaper, one who values the condition of your plants, will warn you that your mowing schedule is too aggressive, or that to accommodate that schedule you at least need to invest in a lot more fertilization.  In fairness, when a landscaper is bidding on a project, and when that specification calls for a specific number of cuts, it takes a lot to ignore that specification and give the client what they need, rather than what they think they want.  But when you’re comparing landscaping bids, don’t think that just because you’re getting more, you’re getting a better deal.  A company that is willing to take your money without question at the risk of burning out your lawn is not in it for the long haul.

Now, let me point out one thing–the calculations above do vary tremendously on location, temperature and other factors, and it shouldn’t be taken as gospel.  But it is a fair guideline to consider.  I’m mostly just pointing out the basic principle that, when it comes to landscaping, more is not always better.

Your best bet, instead, is to find a trustworthy landscaper, have them prepare an appropriate specification, and then to have all of your bidders prepare proposals to that exact specification.  And if the bidding companies propose cutting your lawn 40-50 times per year, make sure to ask the appropriate questions.  How much fertilizer is being used?  Will the rate of growth accommodate the University of Florida specifications for cutting?  Will the frequent cutting harm your grass?  The answers to those questions will tell you a lot about the bidder and their landscaping philosophy.

Grass, like all plants, is a living creature that needs to grow and reproduce to look its best.  So give your grass some space, let it grow, and you can expect it to look a lot better.

Posted in Condo Associations, HOAs, Homeowner's Association, Landscaping Tagged , , , , , , ,

Back to Basics: What is a Director or Officer of a Condo or HOA, and What Do They Do?

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Posted on February 6, 2011 by Ryan Poliakoff

Hello again!  This week, I wanted to talk a bit about what it means to be a board member of a shared ownership community (a condo, co-op or HOA).  Why do we have boards, and what are officers and directors supposed to do?

The difference between an SOC and a traditional neighborhood is that in an SOC there is property that is owned commonly by all owners, either directly (as in a condo), or through a master association (as in an HOA).  Someone has to maintain that property and make decisions about how it is to be used.  That “someone” is a mandatory membership association, of which all owners are automatically members.  Most often, that association is formed as a corporation—a business, just like any big company, though it can sometimes be a trust.  But the main difference between a corporation like Microsoft and your HOA is that SOC corporations are generally not for profit (note, by the way, that doesn’t mean it’s a charity–you can have a non-profit corporation that is not a charity, it’s just a company that doesn’t expect to make a profit).

Like any corporation, your community is run by both directors and officers.  The directors are other unit owners, elected in a general election held each year, that serve on a “board of directors” (which is also why they are called “board members”) to make policy decisions for the association.  These are the people who are allowed to determine your budget, how you spend money, how the common elements are used and what new rules are required to keep the property operating efficiently.  Board members are volunteers—in most larger communities they may not be compensated for their work.  Essentially, they are your neighbors who have offered and have been elected to serve your community, on their own time.  Board members serve at the pleasure of the owners—a majority of owners can always recall the board and elect a new board at any time.  Because board members represent the owners, they have certain “fiduciary duties” they must fulfill, mainly a duty to use their best judgment to do what is in the best interest of the association.

The officers of the corporation are the people who are elected or appointed by the board to oversee the day-to-day operations of the association for them.  These would be your president, vice-president, secretary and treasurer, but can include others, such as a parliamentarian (a person who is charged with keeping order at meetings).  Depending on the laws that govern your particular association, and your documents, the officers of the association do not also have to be board members.  They can be, and they are 99% of the time, but they are actually separate roles with different duties.  And in large business corporations, officers and directors are almost always separate people.

Each officer has a different area of purview—the president is in charge of overseeing day-to-day operations, the treasurer handles finances and the secretary is the communications guru.  In small communities these officers may actually do the work of the association (the president meets with vendors, the treasurer keeps the books), but in the vast majority they direct the work of employees that are hired to do the very complex business of running a corporation—either a licensed property manager and a bookkeeper, or a management company with a host of different service categories.  Officers serve at the pleasure of the board of directors, who can generally elect to remove and replace them at any time.

So notice how this all comes together—the owners elect directors, board members who determine policy; and the board elects officers to direct that policy and ensure that it’s carried out properly.  The directors serve at the pleasure of the owners, the officers serve at the pleasure of the board members.  Simple!

Note also, though, what this means for the majority of people service as directors or officers—your role is to guide the association, both in terms of policy and instructing staff, but it is not generally your responsibility or job to actually run your association.  You are not intended to be the person writing violations, or chasing kids out of the gym.  These things, along with keeping books, overseeing vendors and dealing with emergencies, are usually best handled by a paid, full-time employee.  Notice that property managers, in many states, must be trained and licensed—it’s a complex, difficult job.  It’s not one that can be accomplished effectively by a part-time volunteer.  Community associations operate the most effectively when every sticks to their specific jobs—directors make policy decisions (always at board meetings that are open to the other members), officers implement that policy by directing employees, and the actually property manager handles the day-to-day operations.  If you follow this basic structure, your SOC will be a well-oiled machine in no time at all!

Posted in Back to Basics, Board Elections, Condo Associations, HOAs, Homeowner's Association, Shared Ownership Guide Tagged , , , , , ,