Property Manager - Conflict of interest #2

Started by TonyN2 • 9 replies • 292 views

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TonyN2 (Illinois)
Posts: 62

Posted:

Thought I would piggy back off of this one here since I had this question lingering for a while.

We have a board member (who has also served as president in years past) that signed us into contract with an HOA management company that she works for. This board member is on the board of both the master association and residential association at this current time. The management company she works for only currently services the residential association.

I personally don’t like this and would rather work with a management company that has no relational ties to board members. Am I wrong to feel this way?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

That is your personal feeling so not right or wrong. However again a pm is not a member of the HOA nor owns it. They work for the HOA.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Expecting you are on the board, the simplest thing to do (and should be done with every contract renewal) is to solicit bids for a MC/PM. Be sure to include the current company as well.

This will tell you if you are getting a good deal or not.

That board member should not be involved in soliciting bids (as there is a conflict of interest) but should be included in the vote on whom to award the contract to.

To avoid the current MC of knowing the other bids, all proposals should be sent to a board members address.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By TonyN2 on 01/11/2022 9:00 PM
Thought I would piggy back off of this one here since I had this question lingering for a while.

We have a board member (who has also served as president in years past) that signed us into contract with an HOA management company that she works for. This board member is on the board of both the master association and residential association at this current time. The management company she works for only currently services the residential association.

I personally don’t like this and would rather work with a management company that has no relational ties to board members. Am I wrong to feel this way?

No, you are not wrong to feel this way. Furthermore I think this goes beyond the problems posed when the management contract is up for renewal. The Board oversees the manager. This person (who is both manager of the sub association and on the board of both master and sub) is supposed to take direction from the board on any number of issues, yet as a director, is also supposed to vote on this direction?

AugustinD
Posts: 3,698

Posted:

TonyN2, from the Illinois Nonprofit Corporation Act:

Sec. 108.60. Director conflict of interest.
(a) If a transaction is fair to a corporation at the time it is authorized, approved, or ratified, the fact that a director of the corporation is directly or indirectly a party to the transaction is not grounds for invalidating the transaction.
(b) In a proceeding contesting the validity of a transaction described in subsection (a), the person asserting validity has the burden of proving fairness unless:
(1) The material facts of the transaction and the director's interest or relationship were disclosed or known to the board of directors or a committee consisting entirely of directors and the board or committee authorized, approved or ratified the transaction by the affirmative votes of a majority of disinterested directors, even though the disinterested directors be less than a quorum; or
(2) The material facts of the transaction and the director's interest or relationship were disclosed or known to the members entitled to vote, if any, and they authorized, approved or ratified the transaction without counting the vote of any member who is an interested director.
(c) The presence of the director, who is directly or indirectly a party to the transaction described in subsection (a), or a director who is otherwise not disinterested, may be counted in determining whether a quorum is present but may not be counted when the board of directors or a committee of the board takes action on the transaction.
(d) For purposes of this Section, a director is "indirectly" a party to a transaction if the other party to the transaction is an entity in which the director has a material financial interest or of which the director is an officer, director or general partner; except that if a director is an officer or director of both parties to a transaction involving a grant or contribution, without consideration, from one entity to the other, that director is not "indirectly" a party to the transaction provided the director does not have a material financial interest in the entity that receives the grant or contribution.

-- https://ilga.gov/legislation/ilcs/ilcs4.asp?DocName=080501050HArt%2E+8&ActID=2280&ChapterID=65&SeqStart=6800000&SeqEnd=8700000

CathyA3 (Ohio)
Posts: 6,299

Posted:

I agree that this is a problem and that your board should solicit bids from other property management companies in your area. It's a good idea to keep tabs on what other companies are offering, even if you don't have any issues with your current provider. Vendors are more likely to do a good job a good price if they think that they have to compete for your business.

KerryL1 (California)
Posts: 14,550

Posted:

In your o.p., Tony, you wrote the board member signed your HOA into a MC she works for. How did this card member have that authority? didn't the whole board vote on contract with the MC?

BenA2 (Texas)
Posts: 1,273

Posted:

As long as the board member declares the possible conflict and recuses their self from anything that might benefit the management company, there is no problem. It would not be fair to the management company to exclude them from competing for your business based on one employee being on the board.

HenryS7 (Pennsylvania)
Posts: 336

Posted:

Agree with Ben.

A conflict of interest with a PM is if they receive end of year gifts from vendors that they recommend to boards. I don't think this normally happens, but if it did happen, this would be an example of a conflict of interest you want to avoid.

The situation the OP presents is not really an issue because it doesn't impede the property manager's ability to do their job well.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By KerryL1 on 01/12/2022 9:22 AM
In your o.p., Tony, you wrote the board member signed your HOA into a MC she works for. How did this card member have that authority? didn't the whole board vote on contract with the MC?

Good question.

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