fiduciary duty of property management company

Started by JimR24 • 13 replies • 5415 views

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JimR24 (Texas)
Posts: 399

Posted:

Hey everybody - it was mentioned to me the other day that our property management company had some type of fiduciary duty in performance of its contract to the Association. I thought the Board of Directors was the body who had the fiduciary duty to the Association.

Does a property management company play some part in the Board's fiduciary duty to the Association? What do you think?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

JohnB26 (South Carolina)
Posts: 1,001

Posted:

the PMC has NO fiduciary duty what-so-ever

the BOD has 100% fiduciary duty which may NOT be 'farmed out'

the PMC may be employed for the 'schlock work' or clerical work but assumes NO responsibility towards the HOA other than as an employee/contractor

the elected directors are ALWAYS responsible for the management of the corporation

NOT the corporations employees

DOH

BillH10 (Texas)
Posts: 1,217

Posted:

Jim

John's remarks are correct vis a vis the Board's fiduciary duty to the association in the execution of its responsibilities. However, based upon the definition quoted below, I believe the MC has a fiduciary duty to its client, the BOD, and by extension, the association. This is not stating the Board can "farm out" its responsibilities, it is saying, for example, the MC should always act in the interests of the BOD or association. If the MC has a conflict in the execution of its duties, it is responsible for resolving the conflict or bringing it to the attention of the client.

"A fiduciary duty is a legal duty to act solely in another party's interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals' express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries' other clients. A fiduciary duty is the strictest duty of care recognized by the US legal system."

I'm curious, what is the background of your question?

KerryL1 (California)
Posts: 14,550

Posted:

I'm curious about the background of your question too, Jim.

Our MC contract states that the MC should do nothing that opposes state law and our governing documents. It also states that they must make sure we have a preventive maintenance schedule set up.

Prop. Mgrs. (PMs) should be certified and if so, they have a Code of Ethics that binds them to certain standards of conduct that are fiduciary-like in many respects.

But the Board, no matter how many tasks it delegates to the PM/MC, delegates none of its fiduciary obligations --its duties of loyalty and of care- to the MC.

I might look up later if the MC actually also is a fiduciary.

So, Jim, if your PM is certified, see why the Code of Ethic of your state's certification body says. Also look at TX Bus. & Prof. codes for more insight.

JimR24 (Texas)
Posts: 399

Posted:

Thanks for both responses...excellent information.

Bob, some background for you: We've had a recent change in our property management company and during some troubled times when we were attempting to work together and work things out, the Board was charged with not giving the proper notification of a special called meeting. During the discussion about this issue, it was stated that the property management company was on-board with this and it was reasoned that it was the PM's "fiduciary responsibility" to keep the meeting from happening.

Governing documents were later checked and we eventually found that the Board did follow the appropriate guidelines for calling the meeting; however, the charge stayed for a while as this issue was being worked through. In other words, the charge eventually became a mute issue.

Anyway, during this disagreement time period - the issue of "the PM's fiduciary responsibility" was brought up and the statement has stayed with me. I have been wondering if there was anything to it. What do you think?

Hope i've explained things adequately. Sure am appreciating the responses to my question. Thanks!

oljim, in texas

Quote:

Posted By BillH10 on 08/30/2014 8:43 AM
Jim

John's remarks are correct vis a vis the Board's fiduciary duty to the association in the execution of its responsibilities. However, based upon the definition quoted below, I believe the MC has a fiduciary duty to its client, the BOD, and by extension, the association. This is not stating the Board can "farm out" its responsibilities, it is saying, for example, the MC should always act in the interests of the BOD or association. If the MC has a conflict in the execution of its duties, it is responsible for resolving the conflict or bringing it to the attention of the client.

"A fiduciary duty is a legal duty to act solely in another party's interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals' express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries' other clients. A fiduciary duty is the strictest duty of care recognized by the US legal system."

I'm curious, what is the background of your question?

Lovin' life with my honey!
and, President of HOA in Texas

KerryL1 (California)
Posts: 14,550

Posted:

Hi Jim, Here's a early statement in the CA PM's Code of Ethics. Texas may have something similar:

"1.0 General Standards
Loyalty, Fidelity and Integrity - The Member shall act with loyalty, fidelity and integrity in all aspects of the Member's relationship with the client and in all aspects of representing the client to third parties."

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Why do I think "fiduciary responsibility" and a misunderstanding about the time required to schedule a meeting do not go hand in hand?

I think someone was reaching for something/reason they do not understand to place blame.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JohnC46 on 08/30/2014 4:47 PM
Why do I think "fiduciary responsibility" and a misunderstanding about the time required to schedule a meeting do not go hand in hand?

I think someone was reaching for something/reason they do not understand to place blame.

I agree John. Fiduciary relationships are situation specific. They involve situations of unusual trust and unusual reliance. Your doctor can't disclose your medical records, but he can double bill your insurance company for your visit. Your lawyer can't commingle your retainer with his own funds, but he can fall asleep in the courtroom when defending you. Both of these are horrible practices, but they don't involve fiduciary misbehavior.

The fiduciary duties of doctors, lawyers, accountants, bankers, and other professionals are fairly well spelled out and different for each profession. But it's a lot fuzzier with MCs and PMs.

So while the MC would be violating a fiduciary duty by borrowing his gambling money from your HOA bank account, not knowing when deadlines are doesn't involve a situation of special trust and special reliance. It's everyday run of the mill stuff - not fiduciary in nature.

Sikubali jukumu. Read all posts at your own risk.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By JohnC46 on 08/30/2014 4:47 PM

I think someone was reaching for something/reason they do not understand to place blame.

True. And the blame should be on the Board.

The Board is responsible for the meeting notice, regardless of who send it. The Board should have verified how much time was required and verified that the individual responsible would have the notices mailed in time.

Now a new meeting needs to be called and the Association incur the expenses of printing and mailing a second time. Expensive lesson learned. Learn it well.

Quote:

Posted By JimR24 on 08/30/2014 6:33 AM

Does a property management company play some part in the Board's fiduciary duty to the Association? What do you think?

In my opinion, Yes. Additionally, in my opinion, breach of this fiduciary duty can be grounds for terminating the contract.

To me, the fiduciary duty is more in line with the processing of the Associations money on behalf of the Association. Failing to mail a notice on time would be a mistake not a violation of fiduciary duty.

More info would be needed to see if it was an intentional, careless or unavoidable mistake. Who was preparing the documents? Did the documents need to be approved? Was info not available? What are the terms of the contract? etc. etc.

As I said, bottom line is that regardless of who does the work, the Board is responsible for the work getting done and must accept the blame if it didn't get done or didn't get done on time.

The important thing is to identify why the mistake occurred and take steps to make sure the mistake doesn't get repeated.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Well said Tim.

Sikubali jukumu. Read all posts at your own risk.

CyrstalB (Maryland)
Posts: 457

Posted:

Fiduciary responsibility is solely on the BOD, and part of that is understanding your governing documents and state laws so that you don't make a mistake by acting upon any advice the PM/MC would dispense. (which was our mistake, and for which we took responsibility for)

We learned this lesson the hard way, and at the end of the day, the HOA board told us it didn't matter that we took the advice from a "vendor" because it was our Fiduciary Responsibility to understand our documents as we are the HOA.

Code of Ethics or Certification? Doesn't mean squat at the end of the day. As with all corporations these days, they will lie, cheat and never take responsibility if it helps their bottom line and PM/MC companies are no different, if not worse.

RogerB (Colorado)
Posts: 5,067

Posted:

Since we own a management company I find it interesting to see the variety of responses. A MC is an AGENT, not an employee, of the HOA. As such they provide services to the HOA as authorized by the management agreement. IMO, as their AGENT, we are a fiduciary for those duties listed in the agreement.

One definition of fiduciary is from West's Encyclopedia of American Law, edition 2:

Fiduciary 1) n. from the Latin fiducia, meaning "trust," a person (or a business like a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty. The most common is a trustee of a trust, but fiduciaries can include business advisers, attorneys, guardians, administrators of estates, real estate agents, bankers, stock brokers, title companies, or anyone who undertakes to assist someone who places complete confidence and trust in that person or company. Characteristically, the fiduciary has greater knowledge and expertise about the matters being handled. A fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual business person. He/she/it must avoid "self-dealing" or "conflicts of interests" in which the potential benefit to the fiduciary is in conflict with what is best for the person who trusts him/her/it. For example, a stockbroker must consider the best investment for the client, and not buy or sell on the basis of what brings him/her the highest commission. While a fiduciary and the beneficiary may join together in a business venture or a purchase of property, the best interest of the beneficiary must be primary, and absolute candor is required of the fiduciary. 2) adj. defining a situation or relationship in which a person is acting as a fiduciary for another.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By RogerB on 08/31/2014 8:46 AM
Since we own a management company I find it interesting to see the variety of responses. A MC is an AGENT, not an employee, of the HOA. As such they provide services to the HOA as authorized by the management agreement. IMO, as their AGENT, we are a fiduciary for those duties listed in the agreement.

I think your description is a bit misdirected. There may be things in the management contract that are not fiduciary in nature and some things that are not in the contract but are fiduciary.

Handling money, use of funds, and striking deals on behalf of the HOA always have a fiduciary obligation attached. Disclosing or not disclosing privileged information also tends to fall in the fiduciary category.

But IMO, most of the other stuff that MCs do may be contractual, but don't rise to the level of special care (trust) to be classified as fiduciary.

Sikubali jukumu. Read all posts at your own risk.

JimR24 (Texas)
Posts: 399

Posted:

Sure do appreciate all the responses here.

In our case, our PM's "fiduciary duty" ended up being terribly misplaced...although it was stated (at the time) - that our PM was keeping us from harming ourselves from doing something they felt was wrong.

As it turned out, our PM ended up being mistaken and we eventually worked thru it okay; however, it caused considerable strife within our community. Many of our homeowners did not know what to think and the situation became stressful for many within our community....and ended up contributing to the resignation of our President and Treasurer.

We did not have a good experience with our PM (we had never had a PM before)....and, as we have since found out, we were being misdirected in more situations than this one.

Just our own experience and my $.02 worth...and may or may not represent the norm out there.

Very interesting stuff...huh? Thanks soo much for everybody's time in responding to my question!

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

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