By: Barbara Hager, Esq. and Ronald J. Barba, Esq.
Every so often we receive calls from Board members or property managers exasperated by the actions of a meddling, “helping” or interfering unit owner who has taken it upon themselves to instruct Association vendors on the proper manner to do their job. These vendors range from landscapers, snow plowing contractors, carpenters, roofers and even insurance companies. They “remind” these vendors that they, the vendor, work for them as much as the Association since it is they that pay the bills. That lament is often pointed at the attorney during usually heated unit owner/board meetings.
Sometimes, Unit Owners or their tenants are so eager to “be involved” in everything that happens at the common interest community. They might, for example, decide that they know best about how to plow the snow. It may begin by the unit owner instructing (yelling at?) the contractor how best to do his or her job. Or perhaps the Association’s landscaper is not trusted by the Unit Owner, so the Unit Owner decides to stand near the contractor as they rake, mow, weed, you name it. All too often the meddling owners acts become harassing and abusive toward the contractor either distracting them from their duties or driving them off the job entirely. Sometimes, these busy-bodies will threaten or actually call the police on a vendor that has offended them in some imagined way.
The interfering owner proceeds on the mistaken presumption of authority or right since “they pay these vendors salaries.” Of course it’s not true. If it were, I would have been much more successful in talking the traffic cop out of issuing that parking ticket. What these owners fail to recognize is that it is the Association, through the board of directors that enters into contracts with its vendors. Unit owners certainly benefit from the service contracted for, but they are not parties to the contract and have no legal right to interfere. The Common Interest Ownership Act authorizes the Board of Directors the right to hire, fire and supervise vendors or contractors.
What can the Board of Directors do to address these situations? The options vary depending upon the frequency and intensity of the interference. The Board could have the property manager, or another available Board member, speak with the interfering Owner and explain the realities of the situation. In my experience, that rarely works. In the past, when approached with this problem, I would suggest that the owner be sent a letter from the Association’s legal team advising them of their bad acts and threaten them with litigation for “tortuously interfering with the Association’s contractual expectations.” The law provides contracting parties the right to sue those individuals that insert themselves into a contractual relationship and cause damage (monetary losses, premature contract terminations, etc.) In serious cases, the courts are willing to compensate the Association for the damage caused by the interfering owner. Generally, this option should be considered as a last resort and for the most egregious offenders. The cost and uncertainty of litigation can prove a significant deterrent for the Association.
The middle ground involves Association’s adopting rules specific to this problem. The Board could adopt language to be added to the Association rules which not only holds an interfering unit owner responsible for their acts but, can also be used to assess any expense incurred as a result of the interference. Rather than risk running the litigation gauntlet, the Board could address the problem in a more timely and direct manner by providing notice and an opportunity to be heard to the owner. If the board is satisfied that the interference occurred a fine or fines may be levied. If damages result from the interference, any calculable amount resulting from the owner’s conduct could be assessed against his or her unit.
By: Barbara Hager, Esq. and Amy Spears, Paralegal
Many times, our clients will rely on the foreclosure process when unit owners are not paying their common charges. On occasion the unit owners will have a mortgage on their unit. When this is the case, the Association has to list the mortgage in its foreclosure action to ensure that the Bank has notice of the foreclosure and obtain clear title should the foreclosure process be completed.
In recent years, the banking industry has seen highs and lows, with some of the lows causing various entities to file Bankruptcy. Most recently, Ditech Holding Corporation and all of its acting entities have filed for Chapter 11 Bankruptcy protection in the Southern New York District Bankruptcy Court.
When a bank such as Ditech files bankruptcy, an immediate stay is placed on any action that they are a party to as a Defendant. This is called the “Automatic Stay.” It means that all activity in the foreclosure case has to come to an immediate stop. We cannot move the foreclosure case forward until the Bankruptcy Case is dismissed, or we obtain Relief from the Automatic Stay. This can have ramifications on an Association as it can halt the action indefinitely, hampering the flow of income into the Association.
In order to proceed with the action, the Association must obtain Relief from the Automatic Stay, and do so as quickly as possible. Once Relief from the Automatic Stay is granted, we can move the foreclosure case fairly quickly to conclusion. The reason it is imperative to proceed so quickly is that the Association needs to consider the fact that, should the bank redeem in the Association’s action, the Association is only entitled to the nine-month priority (the equivalent of nine months’ common charges), and therefore is at risk of losing the amount due above the nine-month priority debt. Attorney Ronald Barba is working aggressively on obtaining Relief in the New York Bankruptcy Court to allow our Clients actions to proceed in a timely manner and minimize lost income to our association clients.
By: Kristie Leff
One of the most important functions of boards and property managers is to make sure common fees are collected and accounted for every month. This stream of income is vital to the successful operation of the association. When accounts become delinquent and are forwarded to our office for collection, our goal is to collect the delinquency as quickly and efficiently as possible. The best results come when associations understand our procedures and work with us toward this goal. Therefore, below are some pointers and reminders that can assist us in helping your association to recover delinquencies.
I. Ledgers: General Tips
II. Collection Actions
Please contact our office if you have any questions about adopting a collection policy, or questions regarding collection procedures in general. Remember, our goal is to collect the delinquency as quickly and efficiently as possible, and your help in this endeavor is necessary for success.
By: Barbara G. Hager
In your life as a Board member you have probably heard something like this from an unhappy unit owner: “You work for me! You owe me a duty to do what is best for me!” Well, no. None of that is true and here’s why.
As a Board member, your first duty is a duty of ordinary care and loyalty to the Association. Although the Association is “made up” of unit owners, it is not the same thing to say your duty is to individual unit owners. In fact, Connecticut courts have confirmed that Board members do not generally have a duty to the individual unit owners. Your loyalty and ordinary care duties are to the Association as a whole. And yes, it is a fine line to walk, because many or even most times, what is good for the Association will be, in fact, good for the unit owners. However, that is not always the case.
Take an example. Suppose the Board of Directors decides to enact a rule totally prohibiting bird feeders because of the mess they make on the ground and their ability to attract vermin like squirrels. The Board decides that bird feeders are unhealthy and bad for the Association, so they ban bird feeders.
This decision is well in keeping with the duties of board members to the Association and to do what is best for the Association as a whole. But of course, there will be the individual unit owner who is a bird lover – birds are her life – who will be very upset about this new rule and may even say, “You work for me! I don’t like this, you can’t do this to me!” Yes, you can.
Decisions which are best for the Association may in fact not be the best for some individual unit owners. Yet the Board must stand firm and remember their highest duty – to the Association. Exercising the duty of care means the decision by the Board was in good faith; made with the prudence an ordinary person would take in like circumstances; and made by directors who reasonably believe the decision to be in the best interests of the Association.
There are some duties the Board owes to individual unit owners. The Board in its enforcement and enactment of rules cannot act in an “arbitrary or capricious” manner. The decision of the Board – say, for example, the new rule – must have some reasoning behind it and it must have a relation to the actual problem the Board is trying to solve. Decisions cannot be made on a whim. Back to our bird feeder example. If the Board made a rule that “Mrs. Jones in Unit 3 may not have a bird feeder” that would be arbitrary and capricious. It is not tailored to solve the problem for the Association as a whole, or for the health and safety of the community as a whole. Also, the Board as a whole must not act in a manner which violates the statutes of the Common Interest Ownership Act.
What about individual Board members? Don’t they have a personal duty? No, with some exceptions. The Board only acts as a Board. Decisions are of the Board, by the Board, not by individual Board members. Individual Board members of course may not act in a self-dealing manner by voting for something that will harm the Association but financially help themselves. Additionally, although it should not need to be said, individual Board members who commit crimes, such as financial fraud or theft from the Association, are not acting as a Board but individually. Where a crime is committed, there is no shelter from the Board, either as an excuse (the Board said it was OK) or via Association insurance coverage of a judgment, civil or criminal. Finally, the Board needs to be mindful that an enforced rule does not discriminate on the basis of race, religion, sex, nationality or family status.
Take a deep breath when a unit owner says “You work for me!” and remember your duty is to the Association, and for what is in the best interests of the Association.
By: Kristie Leff
Pursuant to Connecticut General Statutes Section 47-255, associations are obligated to maintain the following insurance coverage:
By far, among these four types of insurance coverage, the one that garners the most questions and controversies is the first one: property insurance. The association’s property insurance policy is often referred to as the “master” policy because, for associations with units having shared boundaries, the policy covers not only property damage to the common elements, but the units as well.
The intent of the statute requiring the master policy to cover the units is to ensure that the physical structures get properly and uniformly rebuilt in the event of a catastrophic loss such as a fire or hurricane. Otherwise, without the assurance of a master policy covering all the structures, the ability to rebuild would be left up to the whims of individual unit owners who may or may not have their own property insurance, and the whims of individual unit owners’ insurers who may have different coverages and policy exclusions. The result would be a patchwork, with some units rebuilt, and others in ruins, thereby reducing everyone’s property values.
The merits of the master policy scheme are therefore self-evident in the case of a catastrophic loss. However, in the smaller yet ubiquitous cases such as leaks from a unit owner’s aged water heater or pipe freezes due to inadequate heat in a unit that cause damage to one or more units (combined with the trend of property insurance carriers to create more and more exceptions and exclusions to coverage) the merits of the master policy scheme are more elusive. In fact, because any expense necessary to repair damage that is not covered by property insurance is a common expense payable by all unit owners, the master policy scheme can create substantial financial hardship to associations in situations where the insurer denies coverage, the cost to repair is below the deductible, or where the insurer assesses “per-unit” deductibles.
However, there are some ways an association can try to recover some of the common expenses attributable to property damage not covered by property insurance. Connecticut General Statutes Section 47-257 provides a mechanism whereby certain common expenses can be assessed to particular units in particular situations. For example, according to Connecticut General Statutes Section 47-247(c)(1), if the declaration requires, a common expense association with the maintenance, repair or replacement of a limited common element shall be assessed against the units to which that limited common element is assigned. Also, Connecticut General Statutes Section 47-257(c)(2) provides that, if required by the declaration, any common expense benefiting fewer than all the units may be assessed to the units benefited. Note that both these provisions only apply if the declaration states that assessments of these type are required.
Another section of the statute that allows the association to assess some of the common expenses to unit is Connecticut General Statutes Section 47-257(e). This section provides that if a common expense is caused by willful misconduct, failure to comply with a written maintenance standard, or gross negligence, then the association may assess the expense to the unit after notice and hearing.
There is some controversy about whether an association can assess common expenses related to a property damage claim to a unit owner if the association’s declaration allows for assessment of common expenses in the event of negligence by the unit owner (as opposed to the “gross negligence” standard in the statute). There are some attorneys that think that if such an assessment is allowed by the declaration, it is permissible despite the language of the statute. Other attorneys caution that the statutory language prevails over the terms in the declaration. In order to resolve this controversy, some attorneys have suggested that the statute should be changed to allow for assessment of common expenses in the event of “negligence” as opposed to higher standard of “gross negligence”.
Other area of controversy is whether or not a property insurance carrier can legally deny coverage in situations where a unit owner actions caused the loss. We have all routinely seen this happen in situations where, for example, a unit owner failed to heat their unit, or a unit owner failed to fix a leak that caused damage over time. Connecticut General Statutes Section 47-255(d)(3) explicitly states that the association’s property insurance policy shall provide that no act or omission by any unit owner will be a condition of recovery under the policy. This section seems to clearly mean that insurers cannot deny coverage in situations where a unit owner failed to heat their unit or failed to fix a leak. There is controversy among attorneys about whether this section applies to insurance carriers, or whether this section is just meant to inform associations about the type of coverage it must obtain. This is an open question and some attorneys suggest it must be resolved by working with the State Insurance Commissioner to clarify the meaning of section.
The trend with property insurance carriers is to find more and more ways to deny coverage. This results in associations having to pay for the shortfall as a common expense. Given the current state of affairs, in order to avoid financial disaster, associations must use the statutory language, their governing documents and maintenance standards to try to find ways to assess common expenses to units.
For additional information about Condominium Associations and Insurance, please click the button below for information regarding our upcoming Insurance Seminar this fall.