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Residential Community Working Relationships

by | Feb 25, 2022 | Firm News |


In order for there to be effective administration of your community, the Association’s board, the manager and Association legal counsel should be working together, and in their proper roles. This blog will briefly and generally examine these roles and how they complement one another.

The Role of the Board of Directors
The Association’s board of directors is the ultimate decision maker for the community. It is the entity that is designated to govern the affairs of the Association and it serves corporate functions as set forth in the Michigan Non-Profit Corporations Act (MNPCA), with specific powers set forth in particular in Article 5 of the MNCPA. The board also has overlapping functions and duties as provided in the Michigan Condominium Act and the governing documents for the community.

Many of the day-to-day management activities for the community may be delegated by the board to a community manager, however, the board has ultimate responsibility for oversight of community affairs and there are some functions that should not be delegated and board members and managers should familiarize themselves with the governing documents so as to be aware of what those functions are. Functions that would only be exercised by the board would typically include: approval of the finalized annual budget; approval and execution of documents related to community property, such as easements; approval and execution of governing documents, including amendments; approval and execution of all major contracts, including vendor contracts, insurance policies, and management contracts; approval of any litigation; and creation and oversight of enforcement of community restrictions, rules, and regulations. The board is situated to provide leadership and direction for community affairs.

The Role of the Manager
Governing documents will often specifically provide that the Association’s Board may employ a professional management agent to perform duties and services as may be authorized by the board which are not required by governing documents or Michigan law to be performed by the board itself. Since board members almost always are unpaid volunteers elected from among homeowners, a community that is even of moderate size is well-advised to employ the services of a professional manager to reduce the stress and substantial workload that comes with managing a residential community.

As discussed last month, the manager’s specific job description and the board’s expectations should be spelled out in a management contract, but generally a property manager’s role includes: (1) handling the day to day operations of the community and maintaining records related to that operation; (2) handling and managing community finances; (3) managing projects for the community; and, (4) acting as a communications liaison and manager between homeowners and the board. Significant final decisions and functions reserved to the board should be handled by the board, however, a professional manager will have lots of experience, advice, and opinions to contribute. Managers should be good at managing and resolving conflicts, but, if conflicts escalate or are of a particular nature, for instance if they potentially involve fair housing or discrimination issues or threats of litigation, such conflicts should be referred to Association counsel. Managers should not be providing legal advice or engaging in the practice of law, which is prohibited by MCL 600.916 and MCL 450.681.

The Role of Association Legal Counsel
Both the board and manager (as well as membership) should understand that Association counsel is legal counsel to the Association as a corporation and owes a duty of loyalty to the Association as a corporation, not to the member/homeowners, board members individually, or to the manager. While Association counsel should have a very good relationship with the manager, Association counsel does not represent the manager or its interests.

Association legal counsel should be there to be an educator, a drafter and interpreter of governing documents, to advise and represent the Association’s interest in both intra-community and extra-community disputes, to collect fees and delinquent assessments, to review and provide commentary with respect to existing and prospective contracts or other legal documents, to provide expert advice with respect to corporate legal issues (for instance in the context annual meetings or a recall), give general legal advice and counsel, as well as to help the Association with any developer issues at the time of turn-over and beyond.

Other Key Professionals
Certified Public Accountant: Residential associations are often faced with unique tax situations. Associations should seek out a CPA experienced in handling all manner of tax issues for residential associations, and that can assist and advise in preparation and filing the right forms with the IRS, answer tax questions, and perform the audit or review functions that are required, the case of a condominium, under the Michigan Condominium Act (MCL 559.157) and/or governing documents.

Insurance Professional: The Association should also have an insurance agent with some independence who has in-depth knowledge regarding the types of insurance coverages that are available and that are required by the Association’s governing documents and that can answer the Association’s questions regarding coverage for property loss, general liability, and directors & officers coverage and compliance with the governing documents. The Association should review its policies with its insurance professional on an annual basis.

Should you have any questions or regarding the roles and functions of the board of directors, association manager, legal counsel, or other professionals, or if the above raises any other legal issues, the experienced lawyers of Tilchin & Hall P.C. are here to assist. Please reach out to us at (248) 349-6203 or email us using the form below.

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