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Association Boards Need to Ensure Management Legal agreements Include Fiduciary Clauses
Simply by: Charles H Maness, MSACC, Principal and Managing Broker regarding M Management LLC DBA M Broker Services and Accountant and Principal for your Tax Advisers LLC
www.mbrokerageservices.com
www.thetaxadvisers.com

Conflict of interests involving condominium boards along with management often center on if the management company has outside influences that affects the fiduciary relationship involving broker and customer. For example, new condominium associations are governed by the builder or developer for a specific period of time or right up until a certain number of devices are sold. The designer or developer normally makes the choice for the first management company. The relationship involving the builder and designer is well resting with the management referral this also referral action typically and directly issues with the company fiduciary accountability to the board and the association as a whole.
Let?s examine a recent scenario that will led into the eliminating a management company regarding perceived conflicts of interest. Management was contracted through the builder while the contractor had control of Organization. Do you see the turmoil of interest building?

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The builder had numerous defects in the roof structure construction causing significant water intrusion problems. The builder didn?t want to spend extra funds to make repairs to the roofing method. Management recommended that the association accept a roofing manufacturer?s warranty vs. incurring the best suit on replacement of the defective roofing. Was this a bargain between parties or was this in which the conflict of interest in fact crossed the line.
Your management company should have excused their recommendation as well as referred the association and builder for you to legal counsel or settlement. By making the recommendation on the association to accept a manufacturer?s warranty in lieu of a replacement from the defective roofing system, the manager didn?t provide a fiduciary duty to the association. The association needed to be aware outcomes of their decision to accept a warranty to their long term ability to litigate. They also must be aware that the justify was issued without having third-party assurances and warranties. Essentially, the guarantee was only as good as your builder?s word.

Why has been the recommendation a fiduciary violation for the management company? Your management company recommendation and association acceptance started out the Statute involving Limitation for fit against the builder along with the warranty failed to supply assurances that future repairs would be recognized. If Management had called both parties to a lawyer or arbitration, every single parties counsel would have provided full disclosures of the legal pitfalls and benefits to each party. In essence, the violation deprived the connection of such counsel and so they specifically relied on the particular management?s recommendation. The recommendation and reliance thereof caused the actual breach of fiduciary duties.
Should the association sue the management company? Indeed, is the answer; however, the Statute of Limitations furthermore started for management if the recommendation was approved or relied on from the Board? In order to recover, the Board needs to show damages from the reliance and that your breach of fiduciary obligation was the causative realtor for the damage. Your Statute of Limitations will depend on hawaii statute. In this case, a couple of years was the law.
What damages you may ask? Between three as well as five after the violation and warranty, the builder relocated to another state and sealed his company. Your association began experiencing leaks shortly soon after from the failed roofing system and yes, you?ve got it- the builder was long gone. The useful management agent recommended that this board not presume a suit regarding breach of warrantee as the company ended up being closed and the potential for financial recovery would be minimal. This advice has been somewhat correct in terms of incorporated businesses without personal guarantee; even so, the association failed to consider that the management realtor was the one who encouraged the warranty on the association and that your agent was protecting their own liability coverage.
So to emphasize the main element components here, the association placed too much trust and addiction to the management and their providers. As a result of that trust and reliance, the actual association was forced to invest in a new six to eight digit roof. Also, the management contract did not provide any promises in the fiduciary relationship along with the indemnification clause essentially still left no recourse for matches against the management company. About further inspection, the Board failed to check with corporate counsel to analyze or approve the agreement. This was a valuable session for the association; even so, the costs for the session were extremely painful.
Be wary of any management business that does not recommend that the Board have counsel to review contracts. If your management company recommends the legal professional group, have the attorney to give the relationship in writing that he or she will be working on their benefit in the contract review. Always insist on some sort of remediation when coming across builder issues or another conflicts of interest. The particular remediation contractor should not be recommended by the management company or the builder/developer. An independent celebration should be insisted on by the Association. Usually ensure that the management company supplies fiduciary assurances with a fiduciary dedication in writing.
If you would like additional information or a consultation on professional management services, go to Charles H. Maness, Managing Specialist or Kristen E. Richbourg, ESQ, Business Attorney at M Management LLC DBA M Brokerage Companies website: http://www.mbrokerageservices.com
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Source: http://thedaytimes.com/2012/09/home-real-estate-condominiums-2/

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