What if There is No Board?

Written by Posted On Monday, 17 December 2018 05:00

Question: I live in a 50 unit condominium where, for the last several years, every board we elected got to fighting among themselves and accomplished nothing. Our place is a shambles and our delinquencies are increasing. We have (or I should say “had”) a five-person board, but one by one they all have resigned. We tried to get others to serve but with no success. Any suggestions?

Answer: If the boat sinks, its owner may be able to look to his insurance carrier for recovery. However, if the Association sinks, perhaps the only recourse to the owners is to look to the board members for recovery of any loss. Each board member runs the risk they will be sued personally, where there probably may not be any insurance coverage. However, presumably the board carried Directors and Officers insurance (check with management if they are still around) and file claims immediately. You should be able to find some lawyer to assist.

Members of a Board are governed by one standard: (l) fiduciary duty. But many states have protected boards who make mistakes by enacting the business judgment rule but that still require boards not to violate their fiduciary duty. The law in your state will dictate whether the business judgement rule is applicable. However, even if it is, a board member must understand that he/she has been elected by the owners to govern their association. You cannot just “cop out” when the going gets tough by resigning your elected position. And resigning is clearly not good business judgment.

Let’s look at some of the possible consequences should there be no board. Who will pay the bills -- insurance, management, utilities? Who will enforce the rules -- collections, architectural, safety and health? And who will give direction to management for the day-to-day operations of the Association? After all, the property manager -- regardless of how competent -- cannot (and should not) take on the responsibilities reserved exclusively in the association documents for the board of directors.

As one can quickly understand, a headless association is an invitation to disaster -- and the burden of creating (or avoiding) that disaster rests solely on the shoulders of the entire board of directors.
You should also consider filing for bankruptcy relief and asking the court to appoint receiver.

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

kasslegalgroup.com

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