Legal review of new contracts

The root cause of nearly all HOA problems is the boards' failure to seek timely legal advice. There is a name for those board members: they are called "Defendants."

I would guess that no one on your board is an attorney and it sounds like you are the only current member with any high-level business experience. I ran into the same nonsense on my board where every member except myself was a retired blue-collar worker whose only previous experience with attorneys was when they were assigned public defenders. All they could see was an expense so they tried to negotiate their own contracts with disasterous results.

I wish I had some solution to the problem but I do not. All I can do is express my sympathies for your situation.

I would not suggest legal review would be required for a contract with your MC.
In 25 years serving we have never sought a legal review of any contract big or small.

My question how long have you used the services of this MC? Are you happy with their performance? If so why is this a "new" contract rather than simply a renewal?

Has the MC presented you with a new contract for renewal? If so have you compared the two?

We hired our current MC 9 years ago at that time they presented us with their basic service contract we (I) went through this document page by page line by line and changed, removed or added when it served our property's interests.

For the most part this type of contract is in plain English and rather than legal issues I would search for changes that might be made that improve service, eliminate things you don't require, and customize this contract to suit the needs of your Board and community.
I would also compare what is in the current contract that has worked or not worked and add or delete these clauses as needed.

I agree with Mel. Of course if your BOD members do not know what "whereas" means....LOL

Our HOA doesn't believe in contracts. You might check with your licensing board/common interest development related organizations for suggestions on what to look for in contracts. That would be free, but it would require a line-by-line reading of the contract.

Our HOA CC&R requires 3 bids on any contract of $500 or more.

I agree with Larry--that you should have the contract reviewed by your HOA attorney. There issues of liability, workers comp, indemnification, as you point out, and a suitable "out" clause. Other less important topics are the maximum number of Board mtngs. the PM will attend per month and if held in the evening(s), what about overtime pay?

All of our major contracts are reviewed by our HOA attorney.

John,

You laugh but in our HOA we tried to pass a new rule that followed the formal resolution layout with "Whereas" clauses, and we had a long argument about why we were including obvious facts in the document.

It's not a matter of smarts -- it's experience dealing with management issues. If you take "blue collar" to refer to individual contributors and "white collar" to be a term for managers, then it's "white collar" experience that bears most closely on the demands of a board member.

A board member must know how to mitigate risk, keep track of issues, negotiate contracts, administer committees, and take action when volunteers or contractors are not following through on their obligations. As the original topic of this thread asked, a board member must be comfortable bringing in experts (legal and otherwise) when needed. A "white collar" worker is more likely to have all these capabilities. A manager has more experience dealing with personnel issues, delegating responsibility, and communicating formally.

None of this is exclusively the domain of any one group -- you find capable people everywhere. It is entirely possible that people who have no management experience can grow into the job of director and be very successful. What I have seen in our community is that many of the volunteers for the board have little management experience, are unqualified and incapable of performing their role, are unwilling to learn, and are afraid to consult experts, which necessarily leads to problems.

Lawrence I have dealt with many white collar manager types throughout my working career. Some couldn't think their way out of a paper bag. Old saying you are always promoted to your highest level of incompetence.

But rather than debate with you over the ability of different classes of people I have one rather simple question.

Lets say YOU no longer reside in an HOA lets say you decide to purchase your own home and lets say you are a person who has held a manager position.

Now it comes time to have the lawn mowed. You search for a landscaper and are presented with a simple contract over lawn mowing. Do you seriously want to suggest you would hire a lawyer to review this contract for lawn mowing?

And snow removal? And trash removal?

Have you ever sold a home, purchased a vehicle, ordered cable or phone service have you had your lawyer review all of those contracts?

Now I have to wonder how many property owners or people in general go to that extreme.

And this would be as a result fo your abilities as a manager to bring in professional help to make such a decision?

IMO as a non manager type I have the ability to read, comprehend and accept or decline a simple written document.

And in my case as a blue collar type I worked 30+ years and not once without a contract or agreement being in place. Don't have to wear a white collar or as you suggest hold a management position to have common sense and the ability to make decisions.

Lawrence:

In NY we operate under the business judgement rule meaning the members of a corporate Board are required to act in "good faith" or in common terms clean hands.

If they do so they can no legal liability.

You make decisions based on the best of your ability as volunteers not professional property managers.

Your suggestion fiduciary duty might lead us to seek professional advice well IMO that door swings both ways. You would also have a duty to use property funds in a cost effective manner. Our lawyers costs us $250 per hour we use him when needed not for every decision process. Some have suggested a lawyer be brought in on every occasion now IMO that accomplishes just one thing the lawyers make more $$$$$.

I would suggest to you most lawyers have little if any knowledge as to the operation of a pool or landscaping needs of your property. What they do have is the ability to make people think the world cannot operate in a proper manner without their input or approval. And in all cases that suggestion is nothing more than selfserving propaganda.

We have a lawyer and he offers advice and guidance on several different issues sometimes we take his advice other times we choose to handle things differently. Reality is lawyers have limitations just like everyone else. Board members rather than handing off the duty of decision making in some cases need to do their jobs in the best interest of the property.

I have found in my life when people hesitate, refuse to decide on their own and try to pawn off the need to choose in many cases they are looking to cover their own backsides. When you ask for opinions and seek the approval of others it's just in case things don't work out in the end. You are climbing out from under the responsibility of the position you hold.
In that case you should not hold that position.

Myself I don't need the approval of others to find my path. I don't need to set up a back door just in case. And for something as simple as reviewing a contract with an MC you are already doing business with IMO hardly calls for calling in the legal dream team.

In New York State, the duty of care for directors is codified in the Not-for-Profit Corporation Law (NPCL) § 717. Duty of directors and officers:

“(a) Directors and officers shall discharge the duties of their respective positions in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.”

If a director violates his duty of care in a way that hurts the corporation the director will not be held liable if the Business Judgment Rule applies. The Business Judgment Rule is a policy by which a court will not interfere or second guess a business decision if (i) the decision was made in good faith, (ii) the director was reasonably informed, and (iii) the director had a rational basis for the decision.

The NPCL §717(b) describes the ways in which directors can and should gather information to make decisions in good faith according to the duty of care. Directors, in discharging their duties in good faith may rely on financial statements and other data prepared by:

1.officers or employees of the corporation who are believed to be competent and reliable;
2.counsel, public accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence, or
3.a committee of the board upon which they do not serve, duly designated in accordance with a provision in the certificate of incorporation or the by-laws, as to matters within its designated authority, which committee the directors or officers believe to merit confidence.

So the business judgement rule only applies in New York if a director avails himself or herself of expert advice (legal or otherwise) when warranted. The only question is, "When is an attorney warranted?" Unless a director has a background in contract law that would stand up in court, prudence would often require seeking a lawyers advice.

> Unless a director has a background in contract law that would stand up in court, prudence would often require seeking a lawyers advice.

I don't think I would go that far, some contracts may well be straightforward enough that legal review is unnecessary.

There IS a downside to getting legal review of everything. The lawyer is paid to find potential problems, and to write language in an attempt to prevent them, however unlikely. Then your contractor may feel the need to get HIS lawyer involved. This can escalate and turn a straightforward contract into something really messy.

Larry

Quite often the only difference between my scumbag lawyer and your scumbag lawyer is one of them is my scumbag.

Larry you really like to twist words to your viewpoint.

An ordinary prudent person does NOT imply the Board of GE or any other for profit corporation. Those Board members are not volunteer therefore their behavior cannot be compared to homeowners who volunteer to manage their properties. For you to read into this a HOA Board has to follow the same policies as a corporate Board is in fact far from reality.

But I do like the scary thought of raising my right hand in court. Sends chills up my spine the thought of defending my actions when we did not pay a lawyer a few thousand to review an contract with an MC. Typical legal BS the only people who can possibly handle this must have a law degree. FEAR everyone should be afraid...............

Just wondering Larry are you an attorney? Paralegal? Or just someone who believes the legal system serves someone else other then the smucks who work in it?

Are you in fact on a HOA Board? And you pay a lawyer to review every decision and contract?

The rule quoted in for NOT FOR PROFIT corporations. Last time I checked GE, DuPont and some of the others mentioned are FOR PROFIT.

We're talking about HOA governence vs. corporate behavior. IMO two different things altogether.

Taking your fiduciary responsibility seriously does not mean spending money to have a lawyer review a contract or agreement when plain English is used.

It basically comes down to this...The use of lawyers in a HOA is often misused, misunderstood or both. Lawyers can misuse or misunderstand a HOA as well. It is the concept of what lawyers are to be used for and the type best suited for a HOA. A HOA who uses a lawyer for every little decision tends to suffer from irrational and unwarranted fear factor. It can truly paralyze a HOA. It is finding and defining the true need for a lawyer that HOA should evaluate. Most HOA's do NOT need a full time lawyer on retainer and at their beckon call. Many can just use a legal service to do much of the paperwork and save money/time.

In reality a HOA only need for an attorney is to represent them in court. A HOA can technically appoint a board member to do this as well but who in their right minds would agree for a "Joe Blow" with no legal experience to represent them in court? Court should be left to the experts even in small claims for a HOA. Which a lawyer would be required if it were to go in front of a judge. There is so much involved in this area alone that it deserves another post. Just short and sweet a HOA should NEVER go to small claims court unless it is to counter sue. Counter suing costs less and it's the other party paying the filing costs etc...

As for lien or forelosure filings...It depends. Some states do NOT require a lawyer to file liens. Some legal services charge a few hundred dollars to file. That fee is then rolled into the lien. Foreclosures I would recommend a lawyer. Their costs are also rolled into the foreclosure costs to be paid. Although foreclosures are just "Stop the bleeding" measures.

Now the tough part deciding the type of lawyer. The purpose of a lawyer is to PRACTICE LAW. You and me without a licence and education can NOT practice law no matter how many times we post law statutes and look things up on the internet. We don't have the ability to translate the INTENT of the law such as lawyers or the legal professionals can. Hence why we leave it up to the professionals. A lawyer is much like a doctor. You go to different ones for whatever ails you. Some are specialist while others are "Quacks in a box".

Most assume a Real Estate attorney is the route to go. NOT true or accurate. A HOa is NOT dealing with Real Estate. It is just a group of people who OWN Real Estate in a common area that have signed a contract together on how to maintain that common area. Rarely is it an actual real estate issue in a HOA. It is a contractual dispute as the CC&R's are the contract. It is best to hire an attorney familiar with corporate/Business law or specializes in HOA's.

A HOA is incorporated. That means if it goes to court each individual is represented as a "Whole". You as an individual are NOT suing just your board. You are suing EVERY member in your HOA including youself. Plus the board members are protected for their personal assets by the HOA's insurance. It truly then is the HOA your hurting as a whole rather than the few that were chosen to represent the "Whole". It is best to resolve the issues internally by the measures allowed in your documents than to go to an outside source to force internal corrections. It becomes an expensive useless circle.

I got off topic a bit here but had to include a bit of lawyer hiring 101 for an HOA. Should a HOA have a lawyer review their contracts before signing them? Ask your membership what they are comfortable with and make it a policy. They may feel it is a waste of time and money if it is openly discussed at a board meeting and the baord members have reviewed the document. As long as the board isn't blindly signing without openly discussing it at an open meeting, I don't see an issue to bring up to an attorney. However, if there are questions about the contract terms then yes by all means after a vote, go see your attorney. It really comes down to what your membership feels comfortable with and agrees to.

(I took a few legal courses in college and ran my HOA for 3 years. I've changed the documents of our HOA, filed liens, did a foreclosure, and many other legal issues in my HOA. I only hired lawyers when the law required to do so.)