THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, October 22, 1994 TAG: 9410200294
SECTION: REAL ESTATE WEEKLY PAGE: 14 EDITION: FINAL
COLUMN: Common Ground
SOURCE: G. Robert Kirkland and Michael A. Inman
LENGTH: Medium: 81 lines
We are a small association and one owner owns the majority of the units. He has elected himself president of the board. We are concerned because we do not know what the financial condition of the association is. Also, we never get any minutes or notices. It seems everything is done in secret.
What can we do to get a new board or at least change the way this gentleman is conducting his business?
The first step is to review the requirements of the documents of the association to determine what the board must do in the performance of its duties. As to meeting, the Virginia Condominium Act states that the association must hold an annual meeting and written notice of the time and place of the meeting must be mailed to every owner of record.
The board also must notify the owners of the time and place of all board meetings. This does not have to be mailed but must be posted in a prominent place at least three days prior to the meeting.
Minutes of all meetings must be made available to any owner wishing to review them. The board has an obligation to inform the owners of the business of the association as the letting of contracts, approval of budgets, etc. In fact, in some associations if the budget is not sent to the owners, then the budget is not valid.
As to financial records, they must be available for inspection during normal business hours upon written request. The Condominium Act requires that financial records be kept in accordance with generally accepted accounting practices.
This means that your association books need to be reviewed periodically to ensure that they meet this test. Depending on the association documents, there may be a requirement for an outside audit each year. Not only is it important to the association, but also to the officers and directors to protect them from any accusation of mismanagement.
One important reason for doing it right is to protect the ability of any owner to sell his or her unit. Most lenders today require extensive documentation when providing a mortgage on a condo unit. These requirements include minutes, audited financial records and proof of adequate reserves. Without this documentation, it can prove difficult, if not impossible, to obtain a mortgage.
The willful failure of the board to perform its duties in accordance with the laws and the documents can result in major financial liability for the individuals on the board. If you cannot sell your unit because of a failing on the part of the board, the board may have to indemnify you for the loss.
We have often spoken of the need for directors and officers to remember that they are there to serve the community and not their personal agendas. A director must always vote in favor of the association or, if there is a conflict of interest, abstain from the vote.
Too often, we see directors voting on issues where they have an opportunity to gain personally. When this involves awarding contracts or approving an expenditure, this is a breach of their fiduciary responsibility to the members of the association.
In all matters, especially financial ones, the director must always do what is in the interest of the association and not themselves. A classic example is when a board approves a budget that they know to be inadequate to preserve and enhance the association. Those directors may now be personally responsible for any shortfall.
In the case of your association, this means that all of this potential falls on two or three directors. We suggest that you request the information you need, in writing, from the board. After a reasonable time, if you have not received what you need, call the president and ask him for a face-to-face meeting to discuss the matters at issue. If this fails, you might wish to seek legal counsel to review your specific situation. Most of the time, these matters can be cleared up with just a request or a meeting. Most problems result from ignorance and not willful misconduct. MEMO: G. Robert Kirkland, president of a Virginia Beach property management
consulting firm, and attorney Michael A. Inman specialize in Virginia
community association issues and are affiliated with the Southeastern
Virginia chapter of the Community Associations Institute. Send comments
and questions to them at Real Estate Weekly, 150 W. Brambleton Ave.,
Norfolk, Va. 23510. To submit questions by phone, call 446-2033; fax:
446-2531. by CNB