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A friend asks: Are condo associations the spawn of Satan? p3

1/16/2015 | Real Estate Blog

Just finishing up our discussion of a friend’s frustrations with her condominium association. She is president, and the association had to make some major repairs to the garage, which is a common element owned by the association.

In Pennsylvania, condo association boards can have a great deal of power. If the declaration and bylaws do not limit the board’s authority, the board may approve everything but the dissolution of the condominium or any self-dealing transactions: capital improvements, raise dues, enter into contracts, and so on are all acceptable, again, if the documents do not say otherwise.

The law also makes it clear that the board assumes the role of fiduciary for the association and

shall perform their duties … in good faith in a manner they reasonably believe to be in the best interests of the association and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances.

That includes managing the association’s reserve fund, the money set aside to cover emergency expenses and large capital expenditures. The board can approve investments but must be prudent, must do its due diligence. The law takes the role of fiduciary very, very seriously. The fiduciary has a higher duty than a mere custodian to look after the property entrusted to him or her.

What that means, of course, is that board members are personally liable if they act in bad faith, take unnecessary risks with the association’s money or do anything that is not in the best interest of the association. And, it has happened that homeowners in an association have sued the board for leaving the association with insufficient reserves.

Our friend put the question of an assessment to the association, and the members pitched a fit. They didn’t want to pay out of their own pockets; they wanted the association to foot the entire bill, wiping out about three-quarters of the reserve. Our friend knew that, should another repair come up, the association would not be able to cover any of it, and the owners would be on the hook for the entire amount. She watched helplessly, wondering about her own liability if the owners made such a reckless decision.

Again, she should have called us.

Source: 68 Pa. Cons. Stat. Ann. § 3303, Executive board members and officers, via WestlawNext