The plan typically involves a prospective course of action that is…questionable. The question is some form of “can we do that?” All too often the answer is “no!” and that’s when I find out the plan was actually something the board did last month. Apparently the operating theory here is that it is easier to repent than to get permission!
In all seriousness, though, HOA directors often find themselves asking “can we do that?” when the answer is not actually clear, or what seems to be a clear answer legally doesn’t make much sense from a practical standpoint. Here are typical examples: Can we accept less than full payment from a homeowner who is delinquent on their assessments? Can we grant an owner an exception to a rule right after we fined his neighbor for violating that same rule? Do we really have to give proper notice of our board meetings, since nobody ever shows up anyway?
Sometimes the board’s decisions are mandated by law or the association’s governing documents, but not always. How can a board know when it must follow a particular course of action and when it has some discretion? As always, the answers to many questions depend on the specific situation, but there are some fundamental principles that can help you figure out what to do if you are wondering whether you are on shaky ground. With any board action, the issue lurking in the shadows is fiduciary duty. Both the Oregon Planned Community Act and the Oregon Condominium Act refer to the Oregon Non-Profit Corporation Act to define the relevant duties. Association directors owe fiduciary duties of good faith, fair dealing, and loyalty to the association, and must discharge those duties in the manner the director reasonably believes to be in the best interest of the association. So, it is never permissible to take any action you do not reasonably believe to be in the best interest of the association – and doing something that is prohibited by law or by the association’s governing documents is never in the best interest of the association.
With fiduciary duty in mind, to answer “can we do that?” boards must look to the Association’s governing documents and the relevant statutes (in general, this means either the Planned Community Act or the Condominium Act). If your documents or a statute dictate that the association or the board “shall” take a particular action, then you have no choice but to do it. On the other hand, if the governing documents or a statute indicate that the association or board “may” do something, it is optional. When a course of action is optional, or it is not addressed at all by the association’s governing documents or a statute, the board must resort to making its decision with its fiduciary duties as a guide.
An association’s maintenance responsibility is a good example of something the association, through the board, “shall” do. A typical maintenance provision in an association’s documents will state that the association “shall” maintain the common property or common elements to a certain standard, and that such maintenance “shall” be a common expense of the association. Because the documents use the word “shall,” the board can’t decide to skip all maintenance this year to save money, and if funds are short a special assessment may be in order to ensure the required maintenance gets done.
Trickier examples arise in the enforcement context. An association’s governing documents might state that the board “shall” enforce the rules and regulations, but what does “enforce” mean exactly? Boards occasionally want to grant an exception to an owner for rule violation, or might want to turn a blind eye to infractions they deem unimportant. Although there are certain situations when a board can, and sometimes must, grant an exception to a covenant or rule (when an owner requests an accommodation for a disability, for example), association rules should always be enforced fairly and consistently. Even if the board thinks it is best to sometimes ignore a rule, that decision is likely to be deemed unreasonable because of potential consequences such as providing future violators with defenses to enforcement based on inconsistent enforcement. In such situations, adherence to a well-drafted enforcement resolution and schedule of fines is critical.
Also in the enforcement realm, boards often look for wiggle room during the collections process. A collections resolution might state that the association “shall” file suit against an owner whose dues are sufficiently delinquent. Sometimes, though, the board may feel that a particular owner is more likely to pay their debt if approached with a more sympathetic attitude. At other times, an owner may be on the brink of foreclosure or bankruptcy, and the board may want to accept an amount less than the total debt rather than push a lawsuit and risk coming out empty-handed. In these situations, the board does typically have some discretion. When it comes to dollars and cents, it is easier to determine what course of action is in fact best for the association. While consultation with legal counsel to determine the risks of any course of action is always needed, if the board has grounds to believe that forgoing a lawsuit, or settling for a particular amount, is the best way to recover the most money, it has the authority to make that decision.
There are countless other situations in which HOA boards find themselves wondering where the bounds of their authority lie. Sometimes, remembering your fiduciary duty is enough to resolve a question. More often, however, legal advice is necessary and boards should proceed with caution anytime they steer into uncharted waters.
In all seriousness, though, HOA directors often find themselves asking “can we do that?” when the answer is not actually clear, or what seems to be a clear answer legally doesn’t make much sense from a practical standpoint. Here are typical examples: Can we accept less than full payment from a homeowner who is delinquent on their assessments? Can we grant an owner an exception to a rule right after we fined his neighbor for violating that same rule? Do we really have to give proper notice of our board meetings, since nobody ever shows up anyway?
Sometimes the board’s decisions are mandated by law or the association’s governing documents, but not always. How can a board know when it must follow a particular course of action and when it has some discretion? As always, the answers to many questions depend on the specific situation, but there are some fundamental principles that can help you figure out what to do if you are wondering whether you are on shaky ground. With any board action, the issue lurking in the shadows is fiduciary duty. Both the Oregon Planned Community Act and the Oregon Condominium Act refer to the Oregon Non-Profit Corporation Act to define the relevant duties. Association directors owe fiduciary duties of good faith, fair dealing, and loyalty to the association, and must discharge those duties in the manner the director reasonably believes to be in the best interest of the association. So, it is never permissible to take any action you do not reasonably believe to be in the best interest of the association – and doing something that is prohibited by law or by the association’s governing documents is never in the best interest of the association.
With fiduciary duty in mind, to answer “can we do that?” boards must look to the Association’s governing documents and the relevant statutes (in general, this means either the Planned Community Act or the Condominium Act). If your documents or a statute dictate that the association or the board “shall” take a particular action, then you have no choice but to do it. On the other hand, if the governing documents or a statute indicate that the association or board “may” do something, it is optional. When a course of action is optional, or it is not addressed at all by the association’s governing documents or a statute, the board must resort to making its decision with its fiduciary duties as a guide.
An association’s maintenance responsibility is a good example of something the association, through the board, “shall” do. A typical maintenance provision in an association’s documents will state that the association “shall” maintain the common property or common elements to a certain standard, and that such maintenance “shall” be a common expense of the association. Because the documents use the word “shall,” the board can’t decide to skip all maintenance this year to save money, and if funds are short a special assessment may be in order to ensure the required maintenance gets done.
Trickier examples arise in the enforcement context. An association’s governing documents might state that the board “shall” enforce the rules and regulations, but what does “enforce” mean exactly? Boards occasionally want to grant an exception to an owner for rule violation, or might want to turn a blind eye to infractions they deem unimportant. Although there are certain situations when a board can, and sometimes must, grant an exception to a covenant or rule (when an owner requests an accommodation for a disability, for example), association rules should always be enforced fairly and consistently. Even if the board thinks it is best to sometimes ignore a rule, that decision is likely to be deemed unreasonable because of potential consequences such as providing future violators with defenses to enforcement based on inconsistent enforcement. In such situations, adherence to a well-drafted enforcement resolution and schedule of fines is critical.
Also in the enforcement realm, boards often look for wiggle room during the collections process. A collections resolution might state that the association “shall” file suit against an owner whose dues are sufficiently delinquent. Sometimes, though, the board may feel that a particular owner is more likely to pay their debt if approached with a more sympathetic attitude. At other times, an owner may be on the brink of foreclosure or bankruptcy, and the board may want to accept an amount less than the total debt rather than push a lawsuit and risk coming out empty-handed. In these situations, the board does typically have some discretion. When it comes to dollars and cents, it is easier to determine what course of action is in fact best for the association. While consultation with legal counsel to determine the risks of any course of action is always needed, if the board has grounds to believe that forgoing a lawsuit, or settling for a particular amount, is the best way to recover the most money, it has the authority to make that decision.
There are countless other situations in which HOA boards find themselves wondering where the bounds of their authority lie. Sometimes, remembering your fiduciary duty is enough to resolve a question. More often, however, legal advice is necessary and boards should proceed with caution anytime they steer into uncharted waters.
