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Management Company / Resident Conflict of Interest?

Question: I am a member of a homeowners’ association. Our board recently hired a new management company. The owner of the management company is also a resident/property owner in our community. Some of us feel that this creates a conflict of interest. What is your opinion on this? T.W. (via e-mail)

Answer: As long as the owner of the management company is not also a member of your association’s board of directors, I do not believe that conflict of interest concerns in the traditional legal sense are presented. There is no legal prohibition against contracting with a property owner within your community. I have seen a few associations which have bylaw provisions which prohibit contracting with association members, but such provisions are certainly the exception. There are a couple of different ways to look at this. Some may argue that because the owner of the management company also has an investment in your community, he or she will go “above and beyond” to ensure that the community’s needs are served, thus protecting their own investment and keeping their friends and neighbors happy. Others would argue that contracting with an association member is a bad idea, because friendships and internal community politics could obscure the objective viewpoint the board should have in dealing with contractors. Whether contracting with a neighbor or a total stranger, I always recommend that contracts between community association management firms and associations contain a liberal termination clause, with or without clause, upon reasonable notice (such as thirty days).

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24 Comments
  • Katherine Knabel
    February 16, 2009

    I am a board member of an HOA. Our development has 56 individual HOAs…many of which are members of a larger master association that is responsible for entrances, roads and common grounds. Our HOA is a voluntary member. Recently, our board president was elected president of the master association that spends money and levies assessments annually to our HOA. I’m concerned about the potential for a conflict of interest between both boards while both are presided over by the same person and, further, that both boards use (and are advised by) the same property management company. Is is proper/appropriate for one board member to serve both boards?

  • Marshall Slutsky
    February 18, 2009

    One of our board members also owns a unit he rents out in one of our 6 buildings. We are trying to get bids on a HVAC service contract and he is telling us that the company that serves his building is the encumbant and that it would take a lot for him to want to sign any one elses contract even it is less expensive. The encombant company wants us to pay them for 5 years in advance. He also told me that the engineering survey should be by the same company the other buildings used. They discovered a problem in hte floor of our indoor garage and it was on his parking space so ther fore they are very good and we shouldnt get bids for this. Is he in conflict on interest???

  • JoAnne Paynter
    October 13, 2009

    Our community is an HOA (non-stock corp). I was the President of the BOD for four years. Our community has 306 townhouses and 71 single-family homes. There is a new board now and the secretary is causing havac with the community. He claims any one living in the community can be a board members even if they are delinquent with their dues. Today there are many renters in our community.
    My question is in refernces to the HOA By-Laws, Article V, Board of Directors; Selection; Term of Office. Section 1: “The affairs of nthis Association shall be managed by the Board of Directors who need not be members of the Association.” What is this statement saying? The only members of the board are members of the HOA as indicated in other areas of the By-Laws. Can renters be memebers of the board? Can anyone who is behind on theur dues be members of the board? Need answers…please.

  • Robert Schierenberg
    October 18, 2009

    I would like to know if it is legal for the president of my home owners association to also be the property manager? Also, he owns the company that takes care of the grounds and maintenance? Maybe its just me but this seems like a conflict of interest.

  • Bill Whiteside
    December 2, 2009

    Can two members of the same family, administration manager and son,work in the same condminium office.

  • Regina
    January 5, 2010

    To answer some questions:
    Robert Schierenberg: No your president can not be your association manager. Look in your governing documents, (By-laws or covenants) because the standard texts usually reads, “No director shall receive compensation for any service rendered to the Association. Any director may, however, be reimbursed for actual expenses incurred in the performance of duties as a director.” Thus, if they want to be a paid property manager, they should resign as President.
    JoAnne Paynter – Yes renters can be on the board. Because the bylaws state that anyone serving on the Board of Directors does not have to be a member of the Association.

  • lspencer
    January 24, 2010

    Can the Association Manager from the management company use a law firm related to him as the law firm for the association or is this a “conflict of interest”
    Response:
    The Board of Directors chooses which professionals to hire. While the management company may make recommendations, it is up to the board to determine whether that attorney (or accountant, or contractor or engineer) is suitable. The manager should reveal any relationship to the recommended professional – whether it is a familial relationship, business relationship, social, etc. Failing to disclose a relationship is a ‘red flag’, but if disclosed, the board may choose that professional.

  • Ellie
    January 24, 2010

    Hello all! Thank you for providing a great forum. I have a question from a completely different point of view, however, I’m hoping you will still respond.
    My husband owns a grounds maintenance co. here in WPB, that has maintained a community in our area for over 10 years. He has always done a good job at a competitive price. BUT, this year a new board member took our contract, gave it to his buddy and had him submit a bid at a lower price (the contract reads VERBATIM as ours). We, of course, lost the contract. While I know this isn’t fair, I understand it happens all the time.
    My problem is…the Board Member owns a Pest Control company, and his buddy contracts this portion of services to him! I do not see how it can be legal or fair for him to profit from his position. Do we, as a vendor, have any recourse? Is this common and/or allowed in any of your communities? Many of the residents have called our office asking if we would come back, as the community looks horrible and the new vendor is not doing a good job at all.
    Can you offer any advice or point me in the right direction? We are “good people” and don’t believe in kickbacks or side deals, and feel you must earn your money. But, it’s hard enough to make a living in this economy without a greedy board member making biz deals out his back office door. Any suggestions?
    Thank you for your time…Happy New Year, everybody!

  • Deborah Egle
    February 3, 2010

    I live in an RV Park and our newly elected President of the Board was formerly our Treasurer and paid Accountant. Is there a conflict of interst in him being Board President and remaining our paid Accountant?

  • Andy
    February 27, 2010

    Can any one tell me if a HOA hires an outside managemnt company to collect dues and respond to complaints from the homeowners that if the outside manaegment company fails to act on complaints regarding violations in the neighborhood, is their any legal action that can be taken for services not rendered, or just failing to act on a basic complaint. I pay a yearly fee to live here but do not see any inprovemnts or violations being addressed. HELP

  • Elizabeth
    March 29, 2010

    Our condo board president is a commercial real estate agent and has listed and sold six condo units in our downtown block in the last 3 years. These condos were all owned by a developer who developed our building and owns a unit there. The developer is putting his condo on the market soon. He has said he will use an out of town agency
    to sell his condo. Our board president was also the listing agent for a unit in our
    building though the unit sold later through another agency. In the event that this out of town agency terminates, he could use our board president again as his listing agent.
    We are in the earliest stages of our organization, having just taken over after the
    developer/declarant’s tenure ended. Does this create a potential conflict of interest with our board president?
    RESPONSE: As a general rule there is no prohibition against having any of the officers or directors serve as realtors or leasing agents for the unit owners. However, the relationship MUST be disclosed to the other board members (and owners) and any transfer approvals MUST be handled in the same way as others, except if the documents provide an exception for the developer’s units. The potential for conflict exists, so its important for the president to keep open disclosures and have the other board members vote on any related matters.

  • Patty
    April 17, 2010

    There is a Condominium in Florida, which allows a Unit Owner, who is also Secretary to the Board Director, to provide service as a private contractor for Maintenance of the Condo property.
    The COA never collects bids for the annual contract and they allow the person to live in the recreation center. The COA Director exclusively approves amendments to the contract.
    The unit owner/Secretary to the Board/Maintenance contractor also holds a number of proxy votes from non-resident unit owners.
    Florida is the only place I know – that by vague and extremely limp statues and laws of regulation .
    allow such curcupt practices. S 718 allows that no formal bid is required for any contract less than 5% of the COAS operating and reserve fund. It also allows for conflict of interest as long as the conflict is announced and made known to all Board Members.There is no limitation of any officer or board memnber in relation to voting proxy for others.

  • Alex
    July 15, 2010

    Hello, I live in a condo. in Miami Beach, FL. Is it a conflict of interest to have a condo. unit owner as a salaried manager? Is this even legal?

  • LF
    September 26, 2010

    Out current HOA management company has also contracted with at least one owner in the HOA complex to manage his/her rental property. I see this as a conflict since the management company would represent both the owner and the HOA in case of a violation, dispute, or other such action. Am I correct or is this type of arrangement acceptable, and more importantly, is ot legal?

  • LG
    October 13, 2010

    In Chicago, Illinois, I own a condo unit where the on-site union building maintenance employee is also the treasurer. This appears to be a conflict of interest, but it does not appear to be questioned by the board. When it is questioned by the any of the membership, it is ignored. The association also receives a certified audit by a CPA. Should the CPA provide a statement in the audit report noting this conflict and if this is not done, would the CPA be liable for the obvious mistake?
    RESPONSE: Can’t answer any questions about law in another State, sorry.

  • michael danza
    October 21, 2010

    we live at the meadows of estero, our vice president of the HOA who hired the management company for our community is on the payroll of the said company. after he was outed ,he said he was getting paid to run another property for them. he is also a realtor,who has put himself on the two person party to negotiate with banks for reducing HOA fees ..can he comprimise his position if he is the realtor vs HOa interest..so we have two issues, do we have a conflict of interest situation here..respectfully ..Michael Danza
    RESPONSE: There are new conflict of interest rules for HOA directors. Typically a realtor (not HOA director) can serve on the board governing a community in which that realtor markets/advertises property. A conflict may arise if the realtor involved in a particular transaction decides whether that transaction is approved.

  • Louis Salvemini
    November 7, 2010

    I live in a HOA of 436 single family homes in Polk County Florida. The board of directors had awarded me the landscape maintenance contract as my bid was the lowest and offered the most services out of a 3 bid process. Now, a new board has taken over and they are trying to say my contract is not valid because I’m a member on the Architectural review committee. They said I can not be on the ARC Board and earn money from the HOA. The previous Board told me, only Board of Directors couldn’t earn money but the ARC board members had no say over maintenance contracts and there wasn’t any conflict of interest?
    Is there a conflict of interest if I’m on the Architectural Review Committee and my Landscape company has the contract for the grounds maintenance? Louis Salvemini
    RESPONSE: Section 720.303(12), Florida Statutes was enacted this year. You may want to meet with counsel to determine what, if any, impact this statute has on your contract.

  • Kenneth Jones
    December 20, 2010

    I live in a condo in Florida where ownership of the property has changed hands several times. Now the one group Isram Realty has purchased the property along with 145 units. My question is it a conflict of interest if they vote and place several employees of Isram Realty on our home owners board where we aree getting no vote in how are HOA fees are being spent because they are the board and hold such a large block of votes are fees are being used to upkeep Isram realty rental properties?
    RESPONSE: This question requires a specific analysis – there are new bulk buyer and bulk assignee laws that must be taken into account.

  • Mort Richman
    December 28, 2010

    The treasurer on the board of directors of our POA also has the contract as bookkeeper for the POA and also works for a private management company which acts as our manangement company for the POA. She states this is not a conflict of interest, though everyone feels that it is. Is it?
    Thank you
    RESPONSE: If everyone on the board felt the same way then the association would be using a different management company. Your community may be subject to the 2010 changes to the HOA laws. I suggest the following posts:
    http://www.floridacondohoalawblog.com/2010/11/articles/board-operations/director-conflicts-of-interest-condo-directors-must-disclose-financial-gain/
    http://www.floridacondohoalawblog.com/2010/11/articles/board-operations/sb-1196-changes-law-on-hoa-director-compensation-and-conflicts/

  • Pat Sikora
    March 3, 2011

    The HOA where I live terminated our liscensed CAM. Now I hear that they are going to pay for the wife of the Board treasurer to become a liscensed CAM and work in the HOA office. Isn’t this a confilict of interest?
    RESPONSE: The HOA laws state:
    COMPENSATION PROHIBITED.—A director, officer, or committee member of the association may not directly receive any salary or compensation from the association for the performance of duties as a director, officer, or committee member and may not in any other way benefit financially from service to the association. This subsection does not preclude:
    (a) Participation by such person in a financial benefit accruing to all or a significant number of members as a result of actions lawfully taken by the board or a committee of which he or she is a member, including, but not limited to, routine maintenance, repair, or replacement of community assets.
    (b) Reimbursement for out-of-pocket expenses incurred by such person on behalf of the association, subject to approval in accordance with procedures established by the association’s governing documents or, in the absence of such procedures, in accordance with an approval process established by the board.
    (c) Any recovery of insurance proceeds derived from a policy of insurance maintained by the association for the benefit of its members.
    (d) Any fee or compensation authorized in the governing documents.
    (e) Any fee or compensation authorized in advance by a vote of a majority of the voting interests voting in person or by proxy at a meeting of the members.
    (f) A developer or its representative from serving as a director, officer, or committee member of the association and benefiting financially from service to the association.

  • Jimmy C. Clayton
    July 3, 2012

    I live in a 60 unity HOA and I am one of the seven board members. The board member that was the president secretly went to work for our management co. He later became our vice president and continues to work for our management co. I think this is a conflict of interest. Is this a conflict of interest?
    Thank you
    Hello and thank you for reading Florida Condo & HOA Law Blog.
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  • dick ullrich
    July 18, 2014

    this managment co owns and operates repair co in same office and we get overcharged and ripped

  • Jb
    October 2, 2014

    Is there a conflict of interest if the Board of Directors President of a Florida condominium association who is being sued in bancruptcy court be represented by the condo associations attorney.

  • WP
    December 27, 2014

    Does Florida law allows a Board Member to be employed as Property Manager?
    We were made to believe that the Property Manager Position would be posted and advertised, but the Board lied.When he got the job,he stayed on the Board.He has negative experience as property manager but because he was a Board Member,the other 3 Board Members hired him.There are so many dissatisfied homeowners and we need your help.