By: Ronald J. Barba
The scenario is all too frequent when a board elects one of its members to meet contractors ahead of a major project. Invariably, the board member with the most time on their hands is chosen to contact the contractors and to meet them on site to discuss the details of the job. Before you go any further in the scenario there are some issues you may want to consider before the meeting. Failing to properly plan on a project from its inception to completion is an invitation to trouble. Many mistakes made early in the process can lead to expensive fixes and even litigation.
The first issue to consider is the level of authority the Board member has in his or her meeting with the contractor. If you’re dealing with a contractor who doesn’t perform much work for condominium associations, they may not be aware of the board structure and the formality that goes into entering into contracts. Appreciate that although the board has chosen from among its own to meet with the contractor, that board member thereafter becomes an “agent” of the Association. This article is focused on the importance of the agent and his or her authority.
The degrees to which an agent may bind the association vary greatly, so defining the parameters of the board member/agent’s authority at the outset is prudent. It is equally important that the board member agent make it expressly clear to the contractor that he or she is not authorized to contract unilaterally. The message should be clear that there is a board of directors which will review all the proposals and then collectively decide which company to hire. All of this may seem overly cautious, but the state of the law on actual versus apparent authority should keep you vigilant against assumptions of unwary contractors. So, what is all this stuff about agency?
Agency is the fiduciary relationship resulting from the consent by one person to another that the other shall act on his behalf and subject to his control and that the agent will act accordingly. An agency relationship exists when the principal (Association) asks the agent to act for it and the agent agrees. The agent knows that the Association is always in control the project. You may be aware that a real estate agent is someone with whom you enter into a contract to sell your home. The Agent makes representations (hopefully) in your best interests to potential buyers and may under certain circumstances, bind you to those representations.
When the agency relationship is not so clear, the contractor may believe that the person is an agent with the authority to bind the Association. That is call “apparent authority” and is something for a corporate board and its members to be very watchful for.
“Apparent authority” is reliance by the contractor that the Association’s agent is authorized to make deals. Often the question of apparent authority boils down to the reasonableness of the contractor’s reliance. Reasonableness can be judged based in part by the form of the agent’s representation, the relations of the parties, and each parties level of knowledge and access to information. The contractor must exercise some judgment, must have acted in good faith and consistent with business practices. The reasonableness of the belief in the apparent authority of a board member is determined by the facts and circumstances of each case.
So next time the board discusses meeting with potential contractors you it may want to establish a plan ahead of time by providing the contractor a writing which acknowledges that the board representative is not authorized to bind the Association unilaterally and that the board of directors makes all decisions about contract terms. You may find that an ounce prevention will save many thousands of dollars in unnecessary litigation over confusion and accidental representations.