Community Associations Update - Spring 2007

Date: May 11, 2007

It's Covered-Isn't It?
Spring cleaning should be a reminder for another unheralded task -- the annual review of insurance policies carried by the association and proposals for renewal.
By: Valerie L. Tetro

The time to determine what minimum coverages are required by your governing documents, what coverages you should have to protect against common occurrences and claims, and in what amounts, is before your association experiences a loss.

Even if your association's policies will not expire for months, or the policies have just been purchased, a review may expose any uncovered liabilities and give you the chance to obtain or replace existing policies with more appropriate coverage.

Basic Questions and Coverage
Yet, even the most basic questions can be daunting for associations and their boards: what are the right coverages for us, how much is "enough" coverage and what will it cost to rebuild?

Typically, a community association should carry Commercial General Liability Insurance, Master Fire and Property Coverage, Boiler and Machinery Coverage, Workers Compensation Insurance, Employer Liability Insurance, Directors & Officers Liability Insurance, Fidelity/Crime Coverage, and Umbrella or Excess Insurance. These coverages may be available under a combined package policy from an insurance carrier specializing in insuring community associations. Other specialty coverages which may be needed based on the association's particular circumstances include: Host Liquor Liability, Clubhouse and/or Pool Liability Coverage, Automobile No Fault/Non Owned Vehicles Insurance, and Flood Insurance. Some of these coverages may be required in the governing documents. More frequently, the documents are not specific enough to provide guidance to board members as to what coverages are needed, for whom and in what amounts. Collectively these policies and coverages may run 50 to 100+ mind-numbing pages.

Bring in Your Ringer
It is often an unpleasant surprise that insurance agents are agents of the carrier not the association. Unless your board members are well versed in the minutia of insurance, determining what insurance products are available and appropriate for your association, and evaluating competing proposals is no small feat. Consider retaining the services of a professional to evaluate your coverages in light of your association's governing documents and its exposure. While this is an additional cost, the effort and expense that went into choosing and understanding your insurance coverage will pay off if your association needs to make use of the insurance it purchased. And, that is the goal of the whole process: to make sure that insurance - not the association - pays for the loss.

Understand Your Employees
By: Peter D. Guattery

Community Associations, particularly those governing condominiums, present unique problems in employment
law. The democratic process that elects the governing board and controls its decision making process, as well as the unusual circumstance of residence as work-site, gives rise to some rather unusual employment situations. All too often the governing board finds itself confronting a complex employment problem and wondering: "How did we get here?" This non-exhaustive list of commonly encountered employee types should help you answer that question, and that is the first step in devising a solution.

  • The Long Termer: Usually a 20+ year employee, most often an engineer or tradesman, this employee has seen boards and managers come and go and weathered them all. Performance has started to become a problem; the employee becomes lax in his attendance and attitude. While the work suffers, years have passed since an evaluation was written, and managers and/or the board neglects to give verbal and written warnings even when warranted.
  • The House Favorite: A generally average or below average performer, this employee has won the fierce loyalty of a few vocal tenants on whom she depends for job security. This employee knows on which side her bread is buttered and has cultivated the support of key tenants while ignoring her other job duties. Inaction results because management is afraid of incurring the wrath of a neighbor (or fellow board member) in managing this non-performer out the door.
  • The Live In: The "resident as employee" is a perennial source of trouble. Terminating this employee will not remove them from the worksite, as they usually live just upstairs. The "Live In" often assumes he enjoys a favored station above that of an ordinary employee, because he owns a unit. Certainly you cannot be serious in expecting he must obey all of the same rules?
  • The Politician: Displaying an in depth understanding of local power structures, this employee has figured out how to play members of the board against each other or management in order to stymie any effort to hold him responsible for his job. Questions of performance quickly become personal battles between the board and/or management, while the employee quietly slips off the hook.
  • The Opportunist: This employee, often a painter, engineer, or carpenter, sees the association as a lucrative source of side jobs. Of course, over time, these side jobs become primary while her real job becomes secondary, to the point that it is often difficult to separate the two. Ripe for disputes, particularly where the tenant is unhappy with the work or, equally likely, where something goes wrong. These types of employees are usually liability waiting to happen.
  • The Target: This employee, unlike the others, is not the source of the problem. Rather, this individual has been singled out by a particular tenant for abuse and invective. Failure to act to prevent the abuse may bring about liability to the association and board. But the tenant has a few cards in her hand as well which may make such action difficult.

This list is obviously not exhaustive. The culture and organization of an association will ultimately determine how each of these archetypes manifests itself in your work place.

The key, ultimately, is to be able to recognize these problems and understand that handling them effectively requires a commitment to managing your employees as you would a business.

Standards of conduct and work rules are the most effective management tool, but they need to be followed in each circumstance. Making exceptions will, ultimately, make it more difficult in handling problem employees down the road, and may even lead to claims of differing (and discriminatory) treatment.

Effective management also requires that the board step back from the intense personal relationships that often develop, objectively consider the facts and fairly discuss a solution. Being gamed by the "Long Termer," the "Politician," or the "House Favorite" may, at some point, be a greater problem for your residence than simply putting aside the personal issues and deciding how best to run your show.

Rules for Rules
By: Joseph D. Douglass

Rules development and enforcement are critically important areas for condominiums, homeowner associations, and housing cooperatives. In developing and enforcing rules the board must be diligent, careful and resolute, but must keep things in perspective.

Here are a few important "rules for rules" which every community association board should keep in mind:

  • If you are not willing to do whatever it takes to enforce a rule, don't have the rule.
  • If you can't tell precisely what is required to comply with (or violate) the rule, you need to clarify the rule.
  • Standards evolve. Rules must evolve, too.
  • Don't take your legal authority for granted - Check the documents.
  • Rules can't contradict the declaration or bylaws.
  • If you involve the homeowners in rule development, you end up with better rules and fewer enforcement
  • A lack of consistency makes enforcement harder and harder as time passes.
  • Rules involving easily verifiable, permanent conditions (e.g. architectural rules) are easier to enforce. Rules involving intermittent behavior problems (e.g. noise, pets, etc.) are harder to enforce.
  • Parking regulation comes down to three basic options: (i) no regulation, (ii) permits, and (iii) assigned spaces. Generally speaking, less regulation means fewer enforcement headaches.
  • Vehicle rule violations do not necessarily have to be solved by towing.
  • "Fines" (if permitted by state law) may be effective in some cases, but they have some disadvantages, too. Don't forget to comply with all applicable notice and hearing requirements.
  • It is important that owners be made aware of the fact that rules are being enforced, and that obeying the rules is important. Communicate these facts, but do not identify individual violators.
  • In enforcement, don't lose sight of the objective: compliance. Treat violators with respect and courtesy,
    but be firm. Whenever possible, it is best to find reasonable, "face saving" ways for the violator to come into compliance.

New Laws

New Maryland Law: Requires Notice to Tenants of Conversion of Rental Facilities
Effective on October 1, 2007, SB 635/HB 95 provides that, when rental property is being converted to a condominium, if an offer of the right to purchase the rental property is not given to a tenant at the same time as the required notice of intent to create a condominium, the period of time that the tenant is entitled to remain in the
tenant's residence does not begin to run until the tenant receives the purchase offer. The new law, signed by Governor O'Malley of Maryland in April, also requires that the written notice of conversion given to a tenant must include specified language if a purchase offer is not included with the notice of conversion.

New Virginia Law: Requires CAs to Obtain Fidelity Bond or Employee Dishonesty Insurance Policy
In March 2007, Governor Kaine of Virginia signed into law an amendment to the Virginia Condominium and Property Owners' Association Acts. Among other things, the new law requires any unit owner's association collecting assessments for common expenses to obtain a blanket fidelity bond or employee dishonesty insurance policy. The bond or insurance policy will cover the officers, directors, and persons employed by the unit owners' association and any managing agent and employees of the managing agent. The bond or insurance policy must provide a minimum of $10,000 in coverage. This new law becomes effective on July 1, 2007.

Ray Diaz and Ed O'Connell Join Whiteford, Taylor & Preston

Raymond J. Diaz, former President of the Virginia State Bar, and Edward O'Connell, III have joined the firm's expanding Community Associations (CA) practice. Known leaders in the field of community association law, Ray and Ed are the first additions to WTP's new Northern Virginia office which is slated to open later this year. With over half a century of experience in CA law between them, they bring with them a wealth of knowledge that D.C. and Virginia clients will find very helpful.

With over 30 years of CA experience, Ray Diaz advises community associations on matters regarding litigation, community planning and development, contract negotiations and dispute resolution, delinquent assessment collection, and financial transactions. Named in the 2006 edition of Best Lawyers in America, he is a frequent lecturer on fair housing, the duties of directors, covenant enforcement, effective meetings, age-restrictive communities, and changes in CA law. Ray was a founding principal at Rees, Broome & Diaz, P.C., in Vienna, Virginia.

A 1973 graduate of George University's School of Law, he is admitted to the Virginia, District of Columbia, Maryland, and West Virginia bars. He is a former member of the Board of Directors for the Metropolitan Chapter of the Community Associations Institute, a Fellow of the American College of Real Estate Lawyers, and a Fellow of both the American Bar Foundation and the Virginia Bar Foundation.

Ray is Chair of the Virginia State Bar Section on the Education of Lawyers and a graduate of the Fairfax Chamber of Commerce's Leadership Fairfax Class of 1993. A former member of both the National Capital Chapter of the American Red Cross's Board of Directors and the John Marshall Foundation's Board of Directors, he is also a former President of the Virginia State Bar. He also serves on the Commission to Study the Future of Virginia's Judiciary, having been appointed to that position by the Chief Justice of the Virginia Supreme Court.

Representing common-interest community and civic associations, Ed O'Connell assists clients with financial and real property transactions, fair housing, contract negotiation and dispute resolution, rules and covenants compliance, zoning and land use, labor and employment, and assessments. A former shareholder at Rees, Broome & Diaz, P.C., Ed is a 1994 graduate of the Catholic University of America's Columbus School of Law. Admitted to the bar in Virginia and D.C., he is admitted to practice in the U.S. District Court for the Eastern
District of Virginia, the U.S. Court of Appeals for the Fourth Circuit the U.S. District Court for the District of Columbia, and the U.S. Tax Court.

A member of the Fairfax Bar Association, Ed is active in the Washington Metropolitan Chapter of the Community Associations Institute and a contributing author to their publication, Quorum. Prior to attending law school, he worked as a bond broker in New York's financial markets.