Conflict of interest?

Started by SusanJ8 • 27 replies • 2180 views

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SusanJ8 (South Carolina)
Posts: 6

Posted:

A fellow board member started a rental management company. He will be the rental agent for several units in our association. As a member of the HOA board is this a conflict of interest for him? Should the board be concerned? I know that a few owners who will be using his business are don't think it is but there are a few owners that do (they don't rent out their units). There is nothing in the by-laws or other documents that address this.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Susan,

I don't see it as a conflict of interest.

What concerns do you think the Board would have?
What concerns, if any, do you have about it?

AnnH5 (Florida)
Posts: 304

Posted:

Quote:

Posted By SusanJ8 on 11/03/2013 9:13 AM
A fellow board member started a rental management company. He will be the rental agent for several units in our association. As a member of the HOA board is this a conflict of interest for him? Should the board be concerned? I know that a few owners who will be using his business are don't think it is but there are a few owners that do (they don't rent out their units). There is nothing in the by-laws or other documents that address this.

Any time a Board member uses his position for his own personal gain, it is a conflict of interest. In this case, it could be a yes or it could be a no. It could be a plus to have a Board member acting as the rental agent because maybe he will be highly selective as to who he brings in as far as renters. It could also swing the other way in that he is out to get his and could care less as to the caliber of renter. If he is the rental agent and the renter turns out to cause problems, will he look the other way as a Board member if it comes down to matters of enforcement? After all, he was the agent who brought the renter into the community in the first place. Personally, it always concerns me when a Board member decides to solicit for business from the membership. Even if it is all innocent, it still comes across in a bad way (ie do me a favor and I will do you a favor) and it taints the relationship between owners and the Board. We have a Board member who does business with homeowners and it has caused a great deal of speculation as to how certain Board decisions are made including debt collection, liens, deed restriction enforcement, etc. Sometimes people need to pick- do they want to serve on the Board or do they want to do business within the community?

AllisonD (Florida)
Posts: 449

Posted:

It has the potential to be a conflict if the homeowner does not pay dues and the board member is the rental manager on that house.

CarolR11 (Colorado)
Posts: 2,563

Posted:

My understanding is that the director would recuse himself from voting on issues that involve his rental properties, e.g., fines, late fees, payment plans, etc.

He also might need to recuse himself if the Board meets to set policy on rental properties, e.g., limitations of any kind (if permitted in SC).

SusanJ8 (South Carolina)
Posts: 6

Posted:

There are four rental companies that manage rentals for owners. Does he have an unfair advantage over other rental companies because he is a board member (is that the conflict of interest) and yet he is also an owner. SO is personal gain from being an owner? He is charging about 5% less to the owners than the other companies. Are the owners going with him because he is an owner living full time in the building or is it because he is a board member? Shouldn't this be left to the owner to decide which company to use?
I don't feel that this person is doing this for personal gain but to help the building have good renters along with making sure that the maintenance men are not having to take care of renters during high season which takes them away from their regular duties.

SusanJ8 (South Carolina)
Posts: 6

Posted:

Tim see the other posts for reasons. Thanks.

SusanJ8 (South Carolina)
Posts: 6

Posted:

Would this or should this affect insurance (liability) for the HOA?

CarolR11 (Colorado)
Posts: 2,563

Posted:

At first glance, I can't see how this person serving on your Board would affect your insurance. But maybe someone else sees something troubling.

As a Board, simply don't let him vote (tell him to recuse himself if he doesn't do so voluntarily) on topics that can affect him differently than ANY other homeowners. You even can ask him to leave the room if you feel you need to discuss more openly than you would if he were present.

Let's say he makes a motion to improve the drive entry to your HOA. Is that a conflict of interest? After all, it might help him get more rental business. But such an improvement could benefit many or all owners. Such an improvement would not just benefit him alone.

Whether or not he has an "unfair" advantage over other rental agents is not the Board's concern--the health & wellbeing of your HOA is the Board's task.

I still don't know why some are worried about this. What do they think his status would do that harms your HOA and benefice only him??

SusanJ8 (South Carolina)
Posts: 6

Posted:

Another conflict of interest: Our BOD president and his wife the BOD treasurer are the only ones that see invoices and approve and pay. Now isn't this a conflict of interest?

FredS7 (Arizona)
Posts: 927

Posted:

> Another conflict of interest: Our BOD president and his wife the BOD treasurer are the only ones that see invoices and approve and pay. Now isn't this a conflict of interest?

You do not seem to understand what a conflict of interest is. A conflict of interest occurs when a board member or officer makes decisions, or participates in making decisions, that benefit him more than the community.

Now having two related people pay the bills may be bad policy, but it is not a conflict of interest unless they are paying themselves or their buddies.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By SusanJ8 on 11/03/2013 10:53 AM
Another conflict of interest: Our BOD president and his wife the BOD treasurer are the only ones that see invoices and approve and pay. Now isn't this a conflict of interest?

As Fred stated above, "Now having two related people pay the bills may be bad policy, but it is not a conflict of interest unless they are paying themselves or their buddies."

While I think it is overkill to require that the board approve every invoice before making payments, the rest of the board needs to know who is being paid how much and for what.

SusanJ8 (South Carolina)
Posts: 6

Posted:

You are right it is not a conflict of interest it is a conflict of accounting principles.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Conflict of interest is always a touchy subject as there are not only actual conflicts but also potential conflicts and perceived conflicts. In this case, there is a potential conflict and a perceived conflict.

Having someone on the board who has a potential conflict is questionable at best. You never know when the potential conflict will turn into a real conflict. Normally, I would say that if the rest of the owners knew of the potential conflict and elected him anyway that they are willing to take the risk.

Having a board member start up a management company while on the board creates the perceived conflict. Had he been in the business prior to his election to the board, the members would have known of his potential conflict and cast their votes accordingly. Here, they elected the proverbial wolf in sheep's clothing. One has to wonder whether he is using his position on the board to further his own business interest.

In my state, one must hold a real estate broker's license to manage rental properties for others. Is there a similar requirement in SC? Did this board member hold the required license when he was elected to the board and were all owners aware of that when he was elected?

One issue that has not been raised: Does this board member manage any properties that are not in your association?

If the rest of the owner/members were aware that this board member had the required licenses (if any) and they elected him to the board anyway, I think the rest of the board need do no more than make sure that he does not vote on issues where there is an actual conflict. But if this board member kept his licenses and plans a secret until he was elected, it would be appropriate to ask him to resign his position on the board as the owner/members were deprived of knowing what he was up to when they elected him.

Having a board member with any form of conflict of interest opens the entire board up to valid criticism from the membership. The best way to avoid that is to at least attempt to remove the conflict. The worst action would be to do nothing at all.

CarolR11 (Colorado)
Posts: 2,563

Posted:

For whatever reason, your board chose this couple to be president and treasurer. Your Board as a whole certainly may vote to review the invoices. All of ours come to the Board every month electronically, but we do not approve every invoice. We, as a board, review all financials, but don't bring them up a meetings unless something seems out of line, e.g., why was the electric bill so high last month? Who was that vendors who was psi $300, etc.

Why, Susan, do you think there's conflict of interest here?

How many are on your board? What size is your HOA?

AllisonD (Florida)
Posts: 449

Posted:

<
Conflict of interest is always a touchy subject as there are not only actual conflicts but also potential conflicts and perceived conflicts. In this case, there is a potential conflict and a perceived conflict.

Having someone on the board who has a potential conflict is questionable at best. You never know when the potential conflict will turn into a real conflict.

A good rule of thumb would be that if you are questioning the situation, so will others. If it feels wrong, it probably is.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By AllisonD on 11/03/2013 3:58 PM
<
Conflict of interest is always a touchy subject as there are not only actual conflicts but also potential conflicts and perceived conflicts. In this case, there is a potential conflict and a perceived conflict.

Having someone on the board who has a potential conflict is questionable at best. You never know when the potential conflict will turn into a real conflict.

A good rule of thumb would be that if you are questioning the situation, so will others. If it feels wrong, it probably is.

I agree.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By SusanJ8 on 11/03/2013 10:07 AM

There are four rental companies that manage rentals for owners. Does he have an unfair advantage over other rental companies because he is a board member (is that the conflict of interest) and yet he is also an owner.

He may have an advantage over other rental companies because he lives in the community. I think this would be true for any property manager as an owner who wants to rent may believe that having the property managed by someone who will actually be in the area to see what is happening can be a good thing.

Now, if the Board (through his encouragement) chose to only enforce violations on property that he didn't manage, that would be a conflict of interest.

Quote:

Posted By SusanJ8 on 11/03/2013 10:07 AM

He is charging about 5% less to the owners than the other companies.

We are in a free market society.

Quote:

Posted By SusanJ8 on 11/03/2013 10:07 AM

Are the owners going with him because he is an owner living full time in the building or is it because he is a board member?

Or is it because he charges 5% less than other property managers?
Perhaps it's because he goes to church or is in the same club with the owner who wants to rent?

Why someone chooses to hire one contractor over another is a personal choice and reasons can easily vary from one individual to another.

Would there be less concerns if the individual didn't volunteer to serve on the Board?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

As others have said, it's not a conflict of interest. However it isn't good business practice.

The simple fix for this is for someone else to step forward and volunteer to take on one of those duties. Perhaps you.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

1. On bill paying...most bills are automatically paid and shouldn't require board votes. However, any board director should have open access to invoices upon request and should receive monthly financial statements if internal, HOA statements are created for one or more officers. The logistics of bill-paying isn't necessarily a conflict of interest. A lack of transparency can be an issue. The treasurer and the president are usually more focused on bills than other directors as a condition of their office.

2. The property manager as board director? I don't see a patent conflict-of-interest. The positive side is that the HOA board would have a 100% accessible, human contact for several rental units when rentals are often difficult for HOA boards to address when matters arise. There's more benefit here than you realize.

JeanB9 (South Carolina)
Posts: 26

Posted:

Kelly,
One of our board members not an officer has started his own rental management company. We have our own Property management Company in which our manager attends our BOD meetings.

JH3 (Maryland)
Posts: 67

Posted:

Disclosure, Disclosure, Disclosure. End of story.

If it is disclosed, and no member raises issue with it, now or in the future, then its a non-issue.

Just because there is a potential conflict of interest, doesnt mean there is one.

JeanI (Louisiana)
Posts: 112

Posted:

HOA president also has a paid position with the management company. Is this a conflict of interest?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By JeanI on 01/27/2025 1:24 PM
HOA president also has a paid position with the management company. Is this a conflict of interest?

Jean, it's best to start a new thread vs. reactivating an old thread.

The reason is that your question may not get answered (as many simply read the first few postings).

To create a new thread, simply click on the words "start new topic" located above and to the left of the list of threads/topics.

Regarding your question - to me, and expecting that the developer is no longer controlling the Association, it could easily be a conflict of interest.
However, conflicts of interests are not against any statute, providing the conflict is known and, hopefully, the individual with the conflict does not vote on anything they have a conflict with.

MichaelS56 (Minnesota)
Posts: 858

Posted:

Your governing documents will have what the expectations are for a person who is renting out units. It will most likely have something about who will be responsible if the renter causes damage to anything the association is responsible for. In our association the renter is to give to the association a copy of the rental agreement indicating that they have received the Rules and Regulations and other information such as pets.....

As for the owner of the rental units being on the Board, that person should not be to vote on any issue that pertains to Association rental unit issues.

CathyA3 (Ohio)
Posts: 6,299

Posted:

It is not a conflict of interest unless the board is discussing issues in which the rental agent has a monetary interest. Examples of such issues:

* proposed amendment to the CC&R's rental restriction

* proposed amendment to community rules that affect landlords and tenants

* discussions of violations involving tenants, including stricter enforcement

* hearings involving the rental agent's own tenants

* in some states/communities, any actions that involve potential tenants such as background checks

In these cases, the rental agent must recuse himself from board discussions and votes.

ElleN (Idaho)
Posts: 1,333

Posted:

Quote:

Posted By JeanI on 01/27/2025 1:24 PM
HOA president also has a paid position with the management company. Is this a conflict of interest?

JeanI, is this a condominium? It makes a difference.

The Louisiana Nonprofit Corporation Act has important directions when a conflict like this arises. See Louisiana RS 12:228 at https://legis.la.gov/Legis/Law.aspx?d=76417

KerryL1 (California)
Posts: 14,550

Posted:

To add to others: There's also a potential conflict of interest when anything about the management company is on the Board's agenda.

These could be contract renewals, discussions, e.g., raises, corrections of management staff--perhaps of the community manager, and more.

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