Us Against...Us? Examining Internal Board Relationships

While the exception rather than the rule, boards can run afoul leading an association into troubled waters. In some cases, certain rules are enforced over others or community funds are simply mishandled. And in other instances, trusted advice from the property’s managing agent or legal counsel is ignored completely.

For managing agents, usually there are telltale signs that a board is heading off the tracks. However, at first, the signs might be subtle enough to require the observational expertise of an experienced professional.

“The telltale signs are frequent, long drawn-out meetings with little or no resolution to major discussions,” says Dennis DePaola, an executive vice president with Orsid Realty, a Manhattan-based property management firm. “Another sign is extensive argumentative e-mail correspondence, also without resolutions.”

In some cases, the arguments are not virtual but held in public during meetings, explains Attorney Thomas Kearns, a partner with the Manhattan-based law firm of Olshan Frome & Wolosky, LLP. “Some typical signs include repeated fighting at board meetings. Sometimes, board members send out unauthorized correspondence to owners,” he says. “In other cases, it’s the failure to make key decisions which imperil relationships, delay needed repairs, or cause owners or others to sue the corporation or condominium.”

When to Make the Call

When a manager sees wrongdoing or receives verbal or written complaints from board or non-board residents, the way in which he or she responds requires a delicate balance. After all, the management company was hired by the board, and theoretically could be fired by the board, as well.

When dealing with this sort of conflict resolution, the managing agent has to proceed with caution. Since every contract between an association and managing agency is different, managing agents have to ascertain if they are legally obligated to report all claims to the board first as opposed to seeking advice from legal counsel.

“This is a tricky situation when non-board residents complain to the manager about the board,” says Ronald Steinvurzel, an attorney and a principal with the White Plains-based Steinvurzel & Levy Law Group. “The property manager owes a duty to the corporation. So in most cases, the property manager’s first step is to advise the complainant that the property manager is obligated to take these concerns to the board. In most cases, a property manager cannot hide anything from the board.”

Steinvurzel recommends that property managers who have fielded complaints report those claims in writing. “It should be recorded and delivered in writing, and at a minimum sent by e-mail,” he says. “They can also pick up the phone and follow up after the information has been received.”

If a managing agent determines that the board is errant by either acting illegally or unethically (or both), the inclination to first report the complaint to the board might seem dubious. In certain circumstances, a younger managing agent may first look to senior management for guidance.

“They need to tell their boss, particularly if the matter involves potential fraud or criminal activity, and consult the board’s legal counsel,” says Kearns. “Sometimes a well-placed warning to key board members about potential liability gets attention particularly if it involves liabilities that individual board members could be hit with.”

While managing agents often rely on non-board residents for feedback on the status of day-to-day operations, seasoned professionals usually know there are problems before residents do. When the managing agent does recognize problematic issues and approaches the board, he or she usually has a difficult time getting clear direction or resolution from the board.

“One of the toughest skills to teach less experienced managers is the ability to take charge of board meetings and the meandering email conversations of clients,” says DePaola. “However, this skill is an essential tool for any successful co-op/condo property manager and senior management should lead by example and step in to such situations in order to train less experienced managers.”

And, he continues, “A manager can usually handle an errant board by taking hold of the discussions, providing board members with clear options and recommendations for decisions and then wrapping up discussions with a vote and repeating the action to be taken.”

While Steinvurzel says condos and co-ops are “separate and distinct animals,” there is little difference when it comes to property management. “It comes down to the nuts and bolts—the financial obligations and what people’s rights and responsibilities are to the building or property,” he says.

DePaola agrees adding that while the specific options are different for the collection of unpaid maintenance and common charges, and other issues, the basic board governance is “usually” the same. “In almost all instances, the fundamental governance of all co-ops and condos comes from the bylaws,” says DePaola.

Don’t Be Judge and Jury

While a property manager is an employee of the board, it doesn’t necessarily mean that the manager has to go along with every decision the board makes. If the manager suspects illegal behavior, for example, he or she has the right to speak up.

“Property managers have independent duties and liabilities, so they should not necessarily rubber stamp unlawful decisions by a board,” says Kearns. “For most decisions, the board is entitled to use its business judgment, and while the property manager may suggest a course of action, the board is entitled to decide except in the case of unlawful behavior.”

DePaola stresses that a property manager is an agent for the designated principal—the cooperative corporation or condominium association—not the board. An effective manager, he notes, should take lengths to stay out of the politics of the building and rather try to serve the best interest of the corporation or association.

“That being said, since the bylaws provide the corporation or association is to be governed by the board, assuming there is nothing illegal and that the manager does not have an ethical objection, proper decisions of the board must be carried out by the agent,” says DePaola.

The relationship between residents and property managers can often be a friendly one. In many cases, property managers have worked at the same location for many years. As such, if a trusted non-board member complains about certain board-related issues, the manager’s impulse might be to help that resident. However, blurring these lines and trying to avenge apparent wrongdoings is a slippery slope.

Deal Fairly with Residents

“This would be very dangerous for a property manager. It’s one thing if a majority of owners or shareholders come to the property manager with a problem related to the board,” says Steinvurzel. “Then a property manager could feel confident that they are representing the super majority and therefore its client, but if it is just one owner, that’s a different scenario—and one that the property manager should stay away from.”

Property managers can often feel isolated when dealing with disgruntled unit owners and shareholders. Many managers would rather try and settle the problem before bringing the issue back to the management firm. This approach usually backfires. Turning to experienced senior managers is often a win-win for all concerned parties.

“Firms can provide the manager with additional support to send out more frequent correspondence, which can diffuse the situation. Senior management should be sure to always have a good sense of what is going on in all properties under their management and whether the right manager is assigned,” says DePaola. “Many times, the chemistry between the manager and board or residents may impair or inhibit relations. In such situations, senior management should consider if a manager change will enhance the relationship.”

In many cases, managers will field complaints from one board member against another. Steinvurzel says that if this situation arises, it is best to open the lines of communication immediately by calling a special meeting of the board.

“If the board consists of five members and three come to the property manager claiming a problem with other two members, you now have a majority of the board of directors,” Steinvurzel. “Depending on the offering plan, they may have the authority to unseat those two members.”

Boards Gone Wild

When it comes to unethical board behavior, Kearns says there are countless examples. He recalls members of a co-op board once turning down a purchaser because they wanted the apartment for themselves. Other times, there were kickbacks involving contractors.

Crains New York Business recently reported a Manhattan district attorney investigation that caught 50 building inspectors with taking bribes to expedite inspections and dismiss complaints. A total of 156 buildings were involved in the scheme, many of them residential buildings in Brooklyn. Crains reported that among those charged were 22 property managers, six expediters, two contractors and one engineer.

“My favorite was a board member asking a managing agent to sign a false maintenance letter for his bank to help him refinance his mortgage, stating that there were no arrears, when in fact the board member was months behind,” says Kearns. “When I discovered it I said to the manager, ‘Do you realize you committed a federal crime?’ I assume the board member paid his mortgage since I never heard about an indictment!”

Being able to detect an unsavory board or board members comes from experience. The goal of any managing agent is to gain an interpersonal understanding of the collective. If a board has run off the tracks, it’s the property manager, who should first try to get the proverbial train rolling down the tracks again. And in many cases, most managers will see countless boards and board members turn over. Therefore, a manager’s obligation is to the well-being of the property and its residents not just the sitting board.

DePaola explains that few years ago, his firm was hired to take over the management of a large co-op. The previous sponsor had managed the building since a conversion in the 1980s. The firm was interviewed by one board that spring and then hired by a different board that fall.

“Come the following spring, there was another election and the majority of resident directors were not re-elected, leaving us to start a new relationship with a group who was not happy that we were initially retained to take over from the sponsor. However, by working diligently with the new group and proving that our allegiance was to the cooperative and not any individual board, we were able to forge a strong bond and we successfully managed the building through several elections since.”    

W.B. King is a freelance writer and a frequent contributor to The Cooperator.

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