Condo Q&A: Who Can Approve Association Expenses?
Also: A board member also owns a home watch business and provides home watch services to many of the building’s units. Is that a conflict of interest?
STUART, Fla. – Question: Our landscape vendor just contacted the association to coordinate some improvements. The vendor sent us an estimate for $10,000, and the board never approved the work. It turns out the landscape committee chair determined that the work was necessary and signed the estimate. Are we responsible for this charge? – G.C., Treasure Coast
Answer: The answer to your question, of course, is that it depends on the specific facts and circumstances.
Here, a member of the landscaping committee is generally not elected by the unit owners and does not hold a position as an officer of the corporation. And, unless the contract itself specifically authorizes this specific member of the committee to approve landscaping charges, the committee member did not have actual authority to approve these charges.
Because the community acts through its association, and because the association acts through its board of directors, and because the board of directors never approved these charges or authorized this individual to approve these charges – the committee member acted without actual authority.
That being said, there is a legal concept known as apparent authority, which provides that the landscaping charges here may be enforceable against the association provided the landscape vendor reasonably relied on the authority of the committee member.
Here, although not an officer, this person was the chair of the committee, and it is possible that the board historically allowed the committee chair to interface with the landscape vendor and authorize other minor charges. If so, you can see how it would be more reasonable for the landscape vendor to rely on this specific work order.
That being said, if the contract required an officer’s signature or if the board historically interfaced directly with the landscape vendor, you can see how it would be less reasonable to rely on the authority of the committee chair. Thus, even though the chair did not have actual authority, it is possible that there is a valid and enforceable contract between the association and the landscape vendor.
How can you avoid this? Well, one option is to make it crystal clear to all committee members whether they have authority to incur charges on behalf of the association. To do this, we recommend you have a charter drafted and approved by the board for most or all committees.
If the charter specifically says that committee members may not engage vendors to perform work on behalf of the association, the committee member could never claim ignorance. Second, it can be helpful to have the president or property manager send a communication to the vendor and specifically designate individuals that have authority to engage the vendor for services.
This way, the vendor would have a difficult time arguing that it was reasonable to rely on a committee member.
Question: One of our board members also owns a home watch business and provides home watch services to many of the units in our building. Is this a conflict of interest? – P.L., Stuart
Answer: Most likely no, there is no conflict of interest, but there could certainly be specific situations where a conflict may arise. In many communities, there is a local resident who also runs a home watch business and privately contracts with unit owners to periodically check the unit, run the appliances, change HVAC filters and other routine services.
This person is also often a board member and there is nothing wrong with this provided the home watch contract is between the private unit owner and the director in his or her individual or corporate capacity. This would be a conflict if the association was voting to hire the director’s business on a bulk basis to watch all the units and the common elements because the director has a financial interest in the proposed contract. Here, the association is not a party to the home watch contract.
We have seen this become a problem when there is water damage and there are allegations that the home watch person caused the damage or could have mitigated the damage. If this person was also a director – and assuming the association incurred damage to the drywall or common elements – you can see how this specific set of circulates, although rare, could create a potential conflict. It would not, however, jeopardize the director’s eligibility.
John C. Goede Esq., is co-founder and shareholder of the law firm Goede, Adamczyk, DeBoest & Cross, PLLC. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.
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