conflict of interest

Started by BeckyV2 • 4 replies • 1282 views

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BeckyV2 (Michigan)
Posts: 1

Posted:

Our association board is talking about hiring a co-owner as property manager to replace the retiring management company we had had for many years. This co-owner and his wife are employees of the vendor who holds the largest service contract for the association. This same co-owner is also asking for repairs to the units in the building in which he lives to the tune of about $50,000. The problem in the building has existed for 20+ years. He contacted a company to evaluate the work to be done without approval or input from the board. The board is ready to move forward on his hiring without doing a search for a manger. Two newly elected board members were nominated by this same co-owner. I am not saying there is impropriety here because as far as I know this person is an honest man. My concern is that the Association opening itself to potential legal issues should the hiring take place. Any comments?

FrankS10 (Kansas)
Posts: 276

Posted:

From just what you have said, it doesn't pass the smell test for me. I would encourage the Board to open the issue up for a committee to look at, and then follow their recommendation which hopefully includes a vote by the membership. Obviously, the first place to consult are your statutes and HOA governing documents.

Avoiding even the appearance of a conflict will serve everyone best for the long run!

MatthewW4 (Arizona)
Posts: 500

Posted:

Becky,

Associations should never hire their own members for anything. The reason is that if their employment is ever terminated for any reason they will still be members and dealing with the same board members who terminated them. A person who believes that he has been wrongfully terminated may seek revenge of some sort against those who fired him/her. You probably would not want that person living in your midst.

There was a thread on this forum a few months ago where an association had hired a couple of its members. The president fired them and the dismissed employees organized a recall election and took control of the association.

In this particular case, whether the man is honest or not does not seem to matter. He comes with a built-in conflict of interest by being an employee of your largest vendor. He has already indicated that he wants to make repairs to his building for which he will benefit. Your board needs to look elsewhere for a property manager.

AnnH4 (Florida)
Posts: 53

Posted:

1) I don't know about your state, but in our state the community association managers (CAMs) must hold a valid license to be a CAM. 2) IRS governs certain things with tax-exempt organizations like HOAs and how employment is handled vs contractor work. 3) Insurance is always a consideration when hiring anyone or signing a contract. My thought is the best thing to do is to bid out for a property management company. I agree that hiring an association member may not be desirable. For example, one of our former Boards hired their buddy, who also sat on the Board, to do a remodeling project on community property. That person resigned from the Board to do the work and then was angry when the Board didn't reinstate him. Not only that, the community ended up paying way too much for the work and the quality was marginal to poor and even though the community paid a considerable sum, the materials that were used look cheap. The other piece is that another association member submitted a bid and was rejected. It looks all around bad with the special preference given to the Board member. In another instance, the community hired an association member who has no professional liability insurance for a job, putting the entire community at risk. Now there is also some bad blood created by these situations. My opinion is that it is a stupid idea to hire an association member for anything.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By MatthewW4 on 08/18/2013 3:11 PM
Becky,

Associations should never hire their own members for anything. The reason is that if their employment is ever terminated for any reason they will still be members and dealing with the same board members who terminated them. A person who believes that he has been wrongfully terminated may seek revenge of some sort against those who fired him/her. You probably would not want that person living in your midst.

There was a thread on this forum a few months ago where an association had hired a couple of its members. The president fired them and the dismissed employees organized a recall election and took control of the association.

In this particular case, whether the man is honest or not does not seem to matter. He comes with a built-in conflict of interest by being an employee of your largest vendor. He has already indicated that he wants to make repairs to his building for which he will benefit. Your board needs to look elsewhere for a property manager.

I agree.

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