By Cameron Stark, VF Law

The Corporate Transparency Act is a major new federal law that imposes strict reporting requirements on nearly all business entities in the US, including community associations. This new law is significant, as it will impact every community association and every individual homeowner who serves on an association’s board of directors. Compliance with this new law is mandatory, and failure to comply can lead to severe penalties, which include fines of up to $500 per day and/or imprisonment of up to 2 years.

Congress passed this law to enhance transparency in business structures in an effort to combat money laundering and other financial crimes. The law is enforced by the Financial Crimes Enforcement Network (called “FinCEN”), an office within the U.S. Department of Treasury. The law requires existing associations to file a report called a Beneficial Ownership Information (“BOI”) report by December 31, 2024. After the initial report is filed, community associations have an obligation to file amended reports within designated timeframes.

A beneficial owner is defined as an individual who directly or indirectly exercises “substantial control” over the business entity. Under this standard, every board member of an association is likely to be considered a beneficial owner who must provide their personal information to FinCEN as part of the BOI report. Depending upon the individual circumstances of an association, additional individuals may be classified as beneficial owners and required to report their personal information. Professionals who provide ‘arms-length’ services to community associations, including attorneys and accountants, are not generally considered beneficial owners as they do not exercise “substantial control” over the community association.

Beneficial owners must provide sensitive personal information to FinCEN, which includes, but is not limited to, their full legal names, address, and driver’s license or passport information. It is important for associations and beneficial owners to consider the security risks related to this sensitive information. For example, if one board member volunteers to collect all of this information from the other board members and complete the reporting, how is this information being collected and stored? Management companies and law firms will need to consider the same question in order to protect this information. It is important to note that the individual completing the reporting must provide their personal information as well.

The best solution to this problem may be to use an independent, third-party entity to collect and report beneficial owners’ sensitive personal information. Third-party entities that specialize in this type of reporting may also be able to efficiently update the reports as needed, as the CTA requires an amended report every time a beneficial owner’s information changes. This means an amended report is required to be filed within 30 days of certain changes, including whenever a new board member is elected, a board member resigns, when or if their personal information changes, or after an error in a previous report has been discovered. It is imperative for associations to maintain accurate and up-to-date records in order to fulfill these reporting requirements.

Community associations must familiarize themselves with the specific requirements of the CTA and take the requirements seriously. Any beneficial owner who refuses or otherwise fails to comply with reporting requirements puts themselves and the association at significant legal risk. Associations should review their governing documents with their attorney and consider amending provisions related to the qualifications of directors. We recommend working with your attorney to consider adding provisions that automatically disqualify any director who refuses to comply from serving on the board in order to protect the association.

Cameron Stark is an attorney with VF Law, representing community associations in various matters. VF Law is a full-service, multi-state firm, providing trusted legal guidance to community associations for over 35 years.

By Caitlin Traub, RealManage

Gift-giving in the workplace amongst managers, management companies and vendors can be a thoughtful gesture, but it can also be complicated by the untrue perceptions or lack of understanding where “the line” is. To ensure a positive and ethical environment, management companies need clear gifting policies that managers and our vendor partners understand and abide by. When your company or Board is considering creating a formal policy, here are a few key things to consider:

Who Can We Consider Accepting Gifts From?

• Vendors: Generally, gifts of minimal value can be accepted, but a clear limit needs to be set (e.g., $25 or less). Food items shared amongst colleagues are usually okay. By communicating a clear limit, it is harder to view these gifts as an item that may influence a business decision.
• Colleagues: Gifts for birthdays, holidays, or special occasions are usually acceptable, if they abide by the set limit.
• Superiors: Gifts from supervisors can be perceived as an attempt to unduly influence behavior. Group gifts for special occasions are generally okay, but individual gifts should be discouraged.
• Direct Reports: In the same way that gifts from direct supervisors can be perceived as an attempt to influence behavior, the same goes for “gifting up,” which for both that reason and general gifting etiquette should be discouraged.

When Can We Accept Gifts?

• Special Occasions: Birthdays, holidays, work anniversaries, or farewells are appropriate times for gift-giving.
• As a Token of Appreciation: A small gift can be a nice way to thank a colleague for their help.  
• Promotional Events: Vendors may offer small gifts at trade shows or conferences.
• As Part of a Larger Whole: Gifts that are experiences, like a local attraction or event, where the whole team is invited, are often viewed as more acceptable than when only one or two individuals are included.

What Gifts Are Appropriate?

• Focus on the Thought: A homemade treat or a personalized note is often more meaningful than the cost of the item.
• Work-Specific Gifts: Gifts related to the recipient's professional interests are generally safe.
• Experiences: Experiences like a local attraction or event, as mentioned above can be a fun option for the entire team to feel included.
• Charitable Donations: Consider suggesting donations to a charity in the recipient's name.

What Gifts Are Prohibited?

• Cash: This can be seen as a bribe.
• Gifts of Significant Value: A gift, priced above that clearly outlined minimal value can be seen as creating an obligation or conflict of interest.
• Gifts That Could Be Misconstrued as Personal: Clothing, jewelry, or overly personal items are best avoided.
• Gifts That Violate the Greater Company Policy or Law: Always check for specific restrictions within your company, our industry or state.

Other Items You May Want to Consider:

• Transparency: Require employees to disclose any gifts received from vendors or clients.
• Documenting Gifts: A simple log can track gifts and their value, ensuring transparency and adherence to the policy.
• When in Doubt, Err on the Side of Caution: Encourage your team to remember that if they are unsure about the appropriateness of a gift, it's best to decline.

By implementing a clear and well-communicated gifting policy, managers, management companies and Boards can foster a culture of ethical behavior and avoid potential conflicts of interest. Remember, the goal is to maintain a professional environment where gestures of appreciation are appropriate without compromising integrity.

For this edition of our Chapter magazine, our editorial team was tasked with interviewing management companies as it relates to their potential use of outsourcing services that they provide to communities. Because of conflicting schedules and busy day to day conflicts, the research was stalled and we didn’t think that we’d be able to supply an article.

And then, a light bulb went off. Why not outsource getting the information and use ChatGPT? It’s the perfect example of how outsourcing can be beneficial!

Note: From a beginner’s standpoint (someone who isn’t social media / tech savvy), it took one minute to download a top rated app and ask a simple question: what are the pros and cons of outsourcing certain management services?

Within LITERALLY three seconds, this is how ChatGPT responded. Enjoy!

Outsourcing management services can bring several benefits, such as:

      1.    Cost Savings: Outsourcing can often be more cost-effective than hiring in-house staff, as you can save on salaries, benefits, and infrastructure costs.

      2.    Focus on Core Activities: It allows your company to focus on its core competencies and strategic initiatives while leaving non-core functions to experts.

      3.    Access to Specialized Skills: Outsourcing gives you access to a pool of specialized skills and expertise that may not be available internally.

      4.    Scalability: Outsourcing allows for scalability, as you can easily adjust services based on your business needs without the hassle of hiring or downsizing.

      5.    Risk Mitigation: Service providers often assume some of the risks associated with managing certain functions, such as compliance or technological advancements.

However, outsourcing also has its drawbacks, including:

      1.    Loss of Control: You may have less control over the quality and timeliness of deliverables compared to an in-house team.

      2.    Dependency on Third Parties: Your business becomes dependent on the performance and reliability of the outsourcing provider, which can be risky if the provider fails to meet expectations.

      3.    Communication Challenges: Working with a remote team can lead to communication challenges, especially if there are language or cultural differences.

      4.    Confidentiality and Security Risks: Outsourcing sensitive tasks may pose confidentiality and security risks, especially if proper agreements and safeguards are not in place.

      5.    Hidden Costs: While outsourcing may seem cost-effective initially, there can be hidden costs such as transition expenses, contract management, and potential reintegration costs if you decide to bring the function back in-house.

Choosing whether to outsource management services should involve a thorough analysis of your business or community needs, risks, and long-term goals to determine if the benefits outweigh the potential drawbacks.

By Brad Henderson, Network Insurance Services

Lloyds of London is an insurance carrier familiar to many as the carrier who will insure anything for the right price. In the 1980s, Bruce Springsteen insured his voice with Lloyd’s for $6 million. David Beckham, former professional soccer player, insured his legs with Lloyd’s for $144 million. 

Lloyds contributed to the founding of the modern insurance industry in 1652, with humble beginnings at Edward Lloyd’s coffee shop by the river Thames in the UK. Lloyds has remained an industry leader in placing hard to insure risks deemed too risky or unusual for standard insurance companies to insure. Lloyds, along with other excess & surplus lines (E&S) carriers, have the flexibility to provide coverage for unique or high-risk assets without being subject to the same regulatory constraints as traditional insurers.

As the United States Property & Casualty Insurance industry year over year faces billions in net underwriting losses, more standard market carriers are pulling back or often completely out of the marketplace, often leaving E&S carriers as the only viable solution for insuring Colorado homeowners associations. 

Standard market carriers, also known as admitted carriers, are those carriers most of us have seen commercials for on TV. These admitted carriers are licensed by the states in which they write policies in and must conform to regulations and rates set by each states regulating authority. In Colorado, this is DORA’s Division of Insurance. These regulations are generally designed to protect and benefit the consumer. 

Excess & surplus lines carriers, or non-admitted carriers, are not subject to a particular state’s coverage form or rate regulations. With the ability to deviate from a state’s coverage form regulations, E&S carriers can add exclusions, restrictions, and policy conditions that standard market carriers cannot. Among other things, this flexibility allows excess & surplus carriers to exclude high risk exposures, like coverage for aluminum wiring. Their ability to adjust the premium to adequately price for a unique risk enables E&S carriers to insure risks that a standard market cannot adequately price for. 

E&S carriers used to be primarily for communities with high-risk characteristics like aluminum wiring, hazardous circuit breakers, polybutylene plumbing, wildfire risks, or poor claim history. In today’s insurance market, it is more common for communities without these unfavorable risk characteristics to be pushed into the E&S market with no standard market carriers willing to offer a quote. Without the E&S carrier solution, the community may otherwise be uninsurable.

Securing a quote from an E&S carrier is a very different process than securing a quote from a standard market carrier. Standard market carriers commonly offer online quoting platforms where you can secure a quote without much or any interaction with an underwriting professional. A clever commercial quip suggests obtaining a quote can be done in less than 15 minutes by homeowners with no insurance experience. 

Securing an E&S quote typically involves many layers of insurance professionals. E&S carriers like Lloyds don’t work directly with the retail insurance brokers that community managers and their boards work with. Instead, they work with surplus lines brokers or wholesale intermediaries with whom retail brokers work to secure quotes for their clients. This distribution system serves an important function. With so much flexibility to adjust premium and coverage forms, interpersonal relationships are key in negotiating E&S quotes. E&S quotes cannot be built in 15 minutes or less, but the premium can certainly vary by 15% or more. 

With so many Colorado communities now insuring with E&S carriers, premium increases are not the only change communities need to be prepared for. E&S carriers have incredible flexibility to manuscript coverage forms. These forms can be detrimental to a community if the broker isn’t thoroughly reviewing the coverage language. Below is an example of a manuscript coverage form our team recently identified in a carrier’s renewal quote. 

We will not pay for loss or damage caused by or resulting from a fire that is lit in any outdoor cooking vessel, including but not limited to gas or charcoal grills, hibachis, kettle or drum grills, rotisseries, smokers, deep fat fryers and any other device intended for, or adaptable to, outdoor cooking, wherever used, including but not limited to inside the insured premises, outside of the insured premises on a balcony, patio, interior walkway, or outside and within ten feet of the insured premises.

The carrier including this coverage exclusion did not require grills to be prohibited from use as a condition of the renewal, nor did they draw attention to this exclusion being added to the renewal quote. Our long-standing relationship with our wholesale intermediary partner combined with their relationship with the carrier allowed for this unreasonable Outdoor Cooking Exclusion to be removed from the renewal quote with no change in premium. This was a big win for the community that avoided a potentially detrimental gap in coverage. 

A common inclusion in E&S policies is the ‘Minimum Earned Premium Endorsement’. The minimum earned premium is the least amount of money an insurance carrier will accept for writing a policy for any period of time. A 25% minimum earned premium endorsement means the community is obligated to pay 25% of the annual premium regardless of how long they keep the policy in force. This helps the insurance carrier manage risk and cover administrative costs while also deterring policyholders from binding coverage only to cancel shortly thereafter. 

In addition to the minimum earned premium endorsement, most E&S carriers include a short rate provision in their policy. This allows the carrier to charge a penalty when a policy is canceled before the expiration date. The short rate penalty is generally applied as a percentage of the unearned premium and can vary between policies and carriers.

Negotiations with E&S carriers often continue right up until the renewal date, leaving many boards wondering “Where is our renewal quote?”. As the insurance market continues to harden, often no single E&S carrier is willing to insure the total property value of a community. Your broker must work with their wholesale partner to build a ‘tower’ of insurance carriers to share in insuring your community, splitting the coverage into different layers. This is a complex process that takes time, switching carriers and their positions in the coverage tower to secure the most favorable combination for a community. A reputable broker experienced in insuring HOA’s will be able to provide the community with a realistic premium estimate within 30 days of the renewal, but a firm quote may not be ready until a few days before renewal. 

The insurance market is cyclical. Excess & surplus lines carriers will not be the only viable option for so many Colorado communities forever. Standard market carriers will inevitably reenter the market, and competition will drive premiums down. Until then, insuring your community in the E&S marketplace should be done with care and in partnership with a broker with the experience and attention to detail needed to navigate the complexities of the surplus lines marketplace. Just as icons like Bruce Springsteen and David Beckham trusted the E&S marketplace with their most valuable assets, your community can find confidence in the E&S market. With experience and attention to detail, a reputable broker can guide you through the unique challenges of the surplus lines marketplace, ensuring your community's assets are properly protected.

Brad Henderson is the Executive Vice President at Network Insurance Services and leads their Community Association Division. His passion for problem-solving and building relationships led him to his niche focus in Community Association Insurance, where he enjoys a consultative approach to partnering with property managers and board members in navigating the complexities of commercial insurance.

By Tressa Bishop, Alliant Insurance Services

Over the past two years, community associations in other parts of the country have been dealing with what Florida and California residents have complained about for years - - - dramatically increasing insurance premiums with skyrocketing deductibles and more limited coverage. 

Severe wildfires, hailstorms, hurricanes, tornadoes, and the like, all in more heavily populated areas than in decades past, have resulted in an increase in multi-billion-dollar property losses. Insurance carriers have experienced huge financial strains due to the sharp increase in the costs of labor, materials, as well as the reinsurance they must carry to protect against such catastrophic losses. With reinsurers impacted by catastrophic losses more frequently in recent years, reinsurance rates have seen double-digit increases year-over-year. These increased costs to the carriers are passed along in their pricing. In addition to the increased cost of doing business, carriers are redrawing wildfire maps, and looking at the risk of wildfire quite differently. The Marshall Fire (December 30, 2021) severely impacted how carriers looked at wildfire risk for all communities, paying particular attention to nearby open areas with tall grasses, instead of just those nestled in the foothills or surrounded by a forest. The Lahaina Fire (August 10, 2023) caused additional carrier scrutiny around highly dense vegetation and above ground power lines both within and surrounding communities. 

Many insurance carriers have exited this class of business altogether or changed underwriting guidelines to limit the amount of non-sprinklered frame construction on the books and instead write newer, 100% sprinklered, “better” construction. Most carriers have reduced the limit of insurance offered per location. For example, a carrier that would have written a limit of $80 million in 2022 is now offering only $20 million in 2024, and another carrier that would have written a limit of $50 million in 2022 is now offering only $5 million in 2024. This reduced capacity is having a drastic impact on the cost of insurance for most condominium and townhome communities as the requirement to insure to 100% replacement cost values remains. 

What to consider when your insurance budget is grossly inadequate for the current market conditions and what is offered by carriers? 

Amending the governing documents to reduce the amount of interior unit coverage required by the association is one strategy. Moving from all-inclusive coverage (insuring the value of all improvements and betterments made to units by any owner over time) or original specification/single entity coverage (insuring the value of the original interior finishes only) to studs out or bare walls coverage may reduce the limit of insurance needed to fulfill the association’s insurance requirement. A few associations have elected to reduce the association’s requirement all the way down to the building shell only, with no coverage by the master property policy carrier for any interior partition walls, plumbing, electrical, etc.

All things being equal, a reduced limit of insurance multiplied by the carrier’s rate results in a reduction in premium. A few wrinkles to consider: the carrier must agree to reduce the limit by policy endorsement mid-term, and/or the likelihood/severity of a rate increase needs to be considered at renewal. The association’s legal counsel should be consulted before going too far down this road, however. If applicable to the community, the Colorado Common Interest Ownership Act (CCIOA) requires that condominium associations with horizontal boundaries between units cover some portions of the interior of the units regardless of the language in the governing documents (see CO Rev. Stat. § 38-33.3-313(2) for details).

Another strategy is to remove the responsibility of insuring the buildings from the association altogether. Depending upon the language in the governing documents, this change may require a vote of all owners, as well as advance notice to mortgage lenders. Careful consideration should be given when discussing this type of a change. Below are a few notable things to think about:

• Ensuring that owners insure their portion of the building (monitoring/enforcing coverage) 
• Availability of single-family home policies for owners 
• Total cost of insurance for owners with the change in HO policy required 
• Multiple carriers involved following catastrophic loss within the community 
• An uninsured or underinsured owner and the impact on neighbors 
• Legal expenses (making the change, enforcing the change, resolving disputes) 

While we don’t expect premiums to fall to pre-2022 levels and carriers have not increased their capacity per location as of this writing, there are some positive signs in the community association insurance market. We’re seeing more carriers offer excess property quotes than this time last year. This increased competition is helping to keep percentage premium increases much more reasonable than in 2023 for many communities. Additionally, a significant increase in reinsurance capacity is helping those rates on the carrier side year-over-year. 

As you consider various strategies to help with your community’s insurance program, working with a specialist in this niche is extremely important and there are many who are active members of CAI. Helpful resources available through http://www.caionline.org such as the Directory of Credentialed Professionals and CAI Exchange (online discussion forum) can help guide you in the right direction. 

Tressa Bishop is a Senior Vice President at Alliant Insurance Services, a CAI Educated Business Partner, and is one of 125 insurance brokers to hold the Community Insurance and Risk Management Specialist (CIRMS) designation through CAI. Tressa enjoys working closely with board members and managers to ensure a solid risk management program is in place for their community. A frequent presenter on community association insurance topics, she enjoys providing education and advocating for her clients through the claims process. 

By Loura K. Sanchez

In today's world, where tolerance is increasingly emphasized but patience seems to be dwindling, discerning inappropriate client behavior can be nuanced. While societal norms evolve to foster inclusivity and understanding, the line between acceptable and inappropriate conduct can sometimes blur, necessitating a keen awareness of context and boundaries.  There are 3 key indicators of inappropriate client behavior:

1)  The violation of established professional norms and boundaries. This may include instances of harassment, discrimination, or verbal abuse that undermine the dignity and respect of individuals involved. In a world where tolerance is prized, it's crucial to recognize that acceptance does not equate to condoning behavior that crosses ethical or legal lines.

2)  The impact it has on individuals' well-being and the work environment. Whether it's persistent unwanted advances, demeaning language, or disregard for personal boundaries, behavior that causes discomfort, distress, or harm cannot be justified under the guise of tolerance. In a culture that values respect and empathy, it's essential to prioritize the safety and dignity of all parties involved.

3) Context.  The context in which behavior occurs plays a significant role in determining its appropriateness. While certain actions may be acceptable in one setting, they may be entirely inappropriate in another. For example, humor that is considered harmless among friends may be offensive in a professional environment. Thus, sensitivity to context and expectations of a professional is essential in discerning inappropriate behavior.

There is a good chance that you or someone that works for you or with you will encounter a client that acts inappropriately. That behavior may be done with true lack of awareness or it may be done intentionally. But, regardless, it is an opportunity to hold true to boundaries while utilizing emotional intelligence and educate the client with an eye towards creating a strong, professional relationship.  Below are a few specific inappropriate behavior situations and tips on how they might be handled with these goals in mind. 

Unwarranted Sexual Advances:

These advances can manifest in various forms, from suggestive comments and inappropriate jokes to overtly sexual gestures or propositions. For instance, imagine a scenario where a client repeatedly makes suggestive remarks during meetings causing discomfort and undermining the professional relationship.  In such situations, it's essential to respond promptly and firmly while maintaining professionalism. Begin by setting clear boundaries and expressing discomfort with the behavior in a calm yet assertive manner. For example, you may say, "I appreciate your feedback on the project, but I find comments of that nature inappropriate in our professional interactions. They make me feel uncomfortable which I’m sure is not your intent.  Let's focus on the task at hand." If the behavior persists despite your clear communication, consider escalating the issue to your supervisor or HR department for further intervention and support. NOTE:  If you are the supervisor, you must treat these issues with urgency and priority and fully investigate the situation and make decisions that protect your employee not just your bottom line.  If it is only you, consider a direct conversation asking the client why they continue to make these types of comments and explaining in greater detail why you find them uncomfortable and how you would like the relationship to look.  If it continues, you may have to consider whether the client is worth it.  

Abusive Language:

Another common form of inappropriate behavior that professionals may encounter is the use of abusive language by clients. This can include verbal insults, derogatory remarks, or aggressive communication styles that create a hostile or intimidating environment. For instance, imagine a scenario where a client sends you nasty emails in the evenings questioning your competence, insinuating you are lazy or stupid and then becomes verbally aggressive during a board meeting resorting to calling you names with owners and a business partner present.  

In such instances, it's crucial to maintain composure, exercise control of your own emotions and establish boundaries against this abusive behavior quickly. Politely but firmly communicate that such language and tone is unacceptable and will not be tolerated. For example, you may say, "I understand that you're frustrated, but I cannot continue to communicate with you if you use abusive language. Let's communicate respectfully to resolve the issue." This may mean getting to the real issue which is often not what is present in the moment.  You may try asking probing questions or looking at the situation from the client’s perspective to empathize with their situation and understand the real issue. Understanding the full picture will allow you to model how to discuss a viable solution without abusive language and use the situation as a teaching moment.  If the client persists with abusive behavior, you may wish to address the issue with the entire board and suggest another person be designated as your point of contact or otherwise limit your interaction with this individual.  

Not Adhering to Work Boundaries:

Clients may also exhibit inappropriate behavior by disregarding boundaries regarding communication channels, work hours or meeting times. This can include incessant phone calls or emails outside of designated working hours, insistence on impromptu meetings without prior notice, or insisting on a use of a specific communication channel. For instance, imagine a scenario where a client repeatedly texts outside of business hours, expecting immediate responses to non-urgent queries, disrupting work-life balance, and doing so in violation of your policy of not using text for business.

In such cases, the boundaries you’ve established related to no texts and hours of availability must be enforced. For example, you may say, "I'm happy to address your concerns during business hours. Please refrain from contacting me outside of these times unless it's an emergency."  If you are seeking behavior modification it is important that you be consistent in your response. If you occasionally answer a non-emergency text because it is an easy question but then push back at other times, this is an unclear message and not likely to produce the results you are seeking.  This may mean that you need to reevaluate your boundaries.

Despite your best efforts, there may be instances where the inappropriate behavior persists despite clear communication and boundary-setting. In such cases, it's important to prioritize your well-being and professional integrity which may be that the following options need to be considered:  

1. Termination of the Client Relationship: If the client's behavior continues to be inappropriate and detrimental to your well-being or the integrity of the professional relationship, consider terminating the client relationship. Ideally, this decision should be a thoughtful decision, not a knee-jerk one, and the decision should only be made after weighing the potential impact on the organization against the need to uphold professional standards.

1. Reporting to Authorities: In cases where the client's behavior constitutes harassment, discrimination, or criminal conduct, it may be necessary to report the matter to the relevant authorities.  Be sure to document any instances of misconduct and seek legal advice if necessary.

1. Seeking Support: Dealing with inappropriate client behavior can take a toll on your mental and emotional well-being. Don't hesitate to seek support from colleagues, mentors, or mental health professionals to process your experiences and explore coping strategies. Remember, you're not alone, and there are resources available to help you navigate challenging situations.

Navigating inappropriate client behavior requires a delicate balance of assertiveness, professionalism, and empathy. By setting clear boundaries, communicating expectations, and addressing misconduct promptly and assertively, professionals can maintain integrity, foster respectful relationships, and uphold a positive work environment. Remember that you have the right to work in an environment free from harassment or disrespect, and don't hesitate to take decisive action to protect yourself and uphold professional standards.

Loura K. Sanchez, as a recovering community association attorney and homeowner member of CAI, uses her years of industry experience to help boards and business owners build strong teams, establish clear direction and address challenging issues. 

By Wes Wollenweber & Lee Freedman, WF Legal

The topic of an association's board of directors' fiduciary duties is not new to this publication. However, as trial attorneys that have seen a lot of HOA litigation, including representing community management companies, we have seen how this duty plays out in court cases for both board members and community managers. Moreover, as our industry has changed, we have seen how certain business practices have raised ethical considerations when those practices are called into question during litigation. With that, it is helpful to review the various duties that are owed and look at their implications in litigation. There is no black and white, right or wrong answer to certain practices, but the ethics of these practices should be examined in light of litigation risks.

The Duties

As most of us know, board members owe a fiduciary duty to their associations, meaning their membership. These duties flow from the Colorado Nonprofit Act, CCIOA, and case law. Does a community manager or management company owe that same duty? This has been a topic of hot debate for years but in a recent court case in Colorado state court, the court emphasized that community managers share a special relationship of trust with boards and community members and, as such, owe a certain fiduciary duty to their community clients. This duty requires board member and managers to act reasonably and not in an arbitrary or capricious way. Board members also owe a duty of care to act in compliance with a vote the board has authorized. Additionally, they owe a duty of loyalty to act in the best interest of the membership and solely for the benefit of the association. This also requires a duty of confidentiality in certain situations. Yet, this duty also requires certain disclosures, especially concerning known or potential conflicts of interest.

Ethical Concerns from the Litigation Lens

In any type of HOA litigation, one of the biggest red flags is a board member or members who are accused of having acted in a self-interested manner. A common example is engaging a contractor that is related in some manner to a board member and whom may not have had the requisite skill for the work contracted or charged beyond industry standards for such work. These issues really rise to the top of an insurance recovery/bad faith dispute. Insurance defense attorneys will use this type of self-dealing to their advantage to argue that associations and their contractors are trying to game the system. Not all conflicts are necessarily detrimental to an association, but they should be disclosed in accordance with the association's conflicts governance policy. In selective enforcement cases involving use of construction defect proceeds, evidence that a board member's damaged home was repaired earlier and more thoroughly than a neighbor's home can lay the basis for a claim of breach of fiduciary duty based on self-dealing. These are ethical concerns because of the overarching duty to act in everyone's best interest. 

Revenue sharing agreements have placed community management companies under the microscope in certain cases we have handled. In insurance litigation matters, it has allowed defense counsel to make the argument that a manager induced a board to hire a particular contractor because the manager stood to gain financially. Why does that matter in and of itself? The inference is that the manager chose a contractor more likely to overcharge. While these practices might not result in a breach of fiduciary duty claim because of the nature of the case, they raise ethical concerns that give life to the defense counsel's case theory.

Breaches of these duties can even play a role in civil rights litigation. In a Las Vegas Fair Housing case, litigated in federal court and where the homeowners had no legal counsel, the board's disclosure of the owner's confidential, disability-related information to certain members, that was then spread to other owners, cost that association a significant verdict. Where a decision or practice can be questioned as to its ethics and fairness, evidence around those decisions and practiced will often be spotlighted in litigation.

In litigation, perception can equal reality. If something can be portrayed as unfair or unethical, it can support other legal theories in the case. Given that risk, boards, and managers working with boards, should make decisions under the scrutiny of whether that decision is ultimately in the best interest of everyone in the community. In that process, it may be prudent for an association to ask its general counsel if a decision might have ramifications in a future court case. Conflicts require full disclosure, dialogue, and careful consideration. Finally, document decisions and the legitimate basis for them. If the basis for the decision is reasonable and well documented, it may erode any argument of questionable behavior and a viable legal claim.

Wes Wollenweber and Lee Freedman have handled complex and bizarre HOA litigation for many years. Lee is on the current HOA Task Force and Wes mediates and arbitrates HOA related disputes.

By Jessica Azzarano, Westwind Management Group

We all know in the world of community associations, or any other industry for that matter, deciding to make a change from one business partner to another can be normal practice for a variety of reasons. Usually, but not always, the change does not come easily or without a lot of thought from the board of directors. Navigating a new territory with a new relationship is often difficult enough in and of itself but facilitating a smooth transition doesn’t have to be.

Whether the change was mutual - usually not - or severed on not-so-great terms, a business partnership may be lost, but a new opportunity is available to set your community and your new partnership up for success. Be professional, courteous, reasonable, and ethical to both companies during the transition. Be helpful and supportive to the new company by providing accurate and informative details about the community and defining clear and concise expectations. Don’t be afraid to ask questions of your new business partner and more importantly, be receptive to their questions and/or concerns, as well. This is the best time to align the partnership’s goals and nurture the relationship; the more hurdles you can clear prior to the beginning of the relationship, the smoother the transition and the road ahead. A good relationship can be immediate (after all, that is likely why a particular business partner was chosen), but sustaining that relationship can prove difficult if there isn’t clear communication from the start.

Communication is key – before, during, and after – in any partnership, and respecting a businesslike mindset will keep the association operating in forward-motion. Documents are also a substantial necessity pertaining to any request for proposal or contract; be sure to provide clear specifications for the services being proposed, contracted, or performed. Do not assume the business partner understands things as you understand them; make sure expectations are reasonable and measurable, and communicated both verbally and in writing. Meetings with association representatives and business partners are essential, at least initially, in order to places names with faces and to interact on a personal level in a businesslike setting. The more time you can invest in this new partnership in the beginning, the less time you need to invest during the course of the partnership. There will be trust earned, and trust retained, allowing less room for human error.

Be sure you do everything in your power so the business partner can succeed – purge your past experiences, don’t pass judgment or criticism of the past partnership, turn negativity into a learning experience and give the contractor room to bloom where they’re planted. Remember, your partnership is only as good as you make it, and as there is always a learning-curve to a new partnership or contract, providing as much information and detail as you can to avoid common pitfalls in any relationship and investing in your new venture is sure to pay off if you allow it the attention it needs.

About the Author: Jessica Azzarano, PCAM®, is new to Colorado but has been in the association management industry since 2000. She was a member on several committees on the Washington Metropolitan Chapter of CAI and served on the WMCCAI board of directors for six years. After 16 years in VA, her career moved her to San Diego, CA, and now to Colorado. She is an Association Business Manager at Westwind Management Group located in Englewood, CO, and manages a portfolio of condominium and townhome associations.

By Meaghan Brown and Nicholas Sekol, Spyder Construction

In the aftermath of property damage, whether due to fire, water, or natural disasters, a structured approach is essential to ensure efficient restoration. Understanding the sequential order of operations can streamline the process and mitigate further loss. This article outlines a detailed roadmap divided into seven phases, offering a comprehensive guide for property owners and managers facing the daunting task of reconstruction.

*** The timelines provided are what to expect and do not necessarily apply to every situation. Unexpected property damage is full of challenges, and some can be unforeseen. Please consult with your disaster recovery team of choice to discuss their specific timelines. Some of these phases can overlap on a timeline as noted below ***

Phase One: Immediate Response (First 0-5 Days Following Loss). The initial phase focuses on stabilizing the property and initiating crucial assessments:

• Board up windows/doors to secure the premises and erect temporary fencing to establish a safety perimeter.
• Arrange temporary power sources and execute utility safe-off procedures to prevent additional hazards.
• Conduct environmental testing, including asbestos and lead assessments. Please note, this should be completed per unit address. If asbestos is found, immediately order a “Spill Delineation Report” from an Industrial Hygienist. 
• Supply necessary liability release waivers to all owners, vendors, insurance carriers, consultants, and contractors requesting access to the property.  Executed copies must be returned before allowing access to the property.
• Engage structural engineers for evaluations if structural damage is apparent.
• Notify insurance carriers and file a claim promptly.
• Collaborate with preferred reconstruction vendors for site inspections immediately. It is the right of the insured to partner with whomever they prefer for their insured restorative construction project.
• Sign a work authorization with your reconstruction contractor to complete the project, with the schedule as “pending” and the value as “open.”
• Ensure your individual unit owners within the HOA place claims with their individual insurance carriers.

Phase Two: Coordinated Assessment (5-30 Days Following Loss). This phase involves coordinating with insurance adjusters and preparing for mitigation:

• Facilitate insurance adjuster inspections, involving contractors in initial site visits. The insurance carrier will need to inspect the loss prior to disturbing the scene. They may also require a cause and origin investigation.
• If the building is None Detect (ND) for asbestos containing materials:
• • Secure releases from tenants and owners to begin mitigation efforts within their spaces. 
  • Coordinate with tenants and owners to remove their contents.
  • Ensure that owner and tenant release forms include a contents release, as anything left behind will be thrown out as debris by the HOA’s contractor.
  • Unit owners can contract with HOA contractor for their individual needs and also have the right to hire their own vendors independent of the HOA for their insured loss.
  • Immediately begin mitigation efforts outside the area of cause and origin, as the mitigation cannot disturb the scene until your carrier releases the scene.
• If the building is positive for asbestos containing materials:
• • Immediately partner with a hazardous materials remediation company and provide the spill delineation report; Request that the company permit the spill response with the Colorado Department of Public Health and Environment (CDPHE).
  • The Spill Response cannot disturb the scene until your insurance carrier releases the scene.

Phase Three: Documentation and Planning (15-45 Days Following Loss). Focus shifts to documentation, cost estimation, and preliminary planning:

• Collect and submit emergency services, site stabilization, mitigation and/or asbestos spill response invoices to insurance adjuster.
• Obtain estimates for demolition and asbestos abatement, if necessary, and send them to the insurance adjuster.
• Depending on the severity of the damage, a design firm may be required for a permit.  Design firms are needed when structural damage occurs or damage to mechanical, plumbing, and electrical systems accompany structural damage. However, if structural damage is minor, an engineer may be all that’s required to design the repairs.
• Submit the design pricing to the insurance adjuster. 
• Request that your contractor work with your insurance carrier to get a preliminary scope of work defined and assess a preliminary value that is in alignment with the CCNRs. 
• Communicate to the individual unit owners the limitations of the HOA insurance and what their individual insurance carriers’ obligations will be.
• The contractor will then issue Change Order #1 to the HOA amending the preliminary estimate value to the contract.
• • At this point, the contractor can attempt to forecast a repair timeline.
  • Repair timelines are always dependent upon the issuance of a building permit. 
  • The contractor can also estimate the owner’s obligations separately upon request as the limitations of the HOA coverage are established.

Phase Four: Permit Procurement and Preparation (30-60 Days Following Loss). Efforts concentrate on securing permits and preparing for demolition or abatement:

• Apply for demolition and asbestos removal permits as required.
• Execute demolition and abatement procedures in compliance with regulations.

Phase Five: Design and Permit Submission (45-120 Days Following Loss). This phase focuses on obtaining design approvals and submitting permit applications:

• Obtain preliminary repair drawings (design team to collaborate with contractors before they submit for permit.)
• Engage design team or contractor to submit repair plans for permit approval from local authorities.
• Address supplementary items identified during plan reviews.
• Initiate change orders for additional work or code upgrades.

Phase Six: Construction Initiation (90-120 Days Following Loss). The construction phase begins with permit acquisition and project commencement:

• Contractor submits a production schedule within one week of receiving the permit and should amend the schedule to the contract by a $0.00 change order if there is a change from the original timeline projection.
• Contractor begins construction. Invoicing should be billed at least monthly, based on a percentage of work performed.
• During the production process, the Building Inspector may request work that exceeds what is specified on the plans. In the event this happens, the contractor will need to issue a supplement to the carrier for the additional expense.
• The contractor should issue a supplement by way of a change order to the HOA to endorse for each corrective change that was required by the building department.  These are referred to as “Code Upgrades” and will typically have insurance coverage limits for these specific corrections.  These should be submitted to the insurance carrier in a timely manner so that they can be added to the claim. Code Upgrades are typically paid when incurred by the insurance carrier.

Phase Seven: Project Completion and Claim Settlement (Production Timeline Following the Loss). The final phase involves completing construction and settling insurance claims:

• Obtain completion notice signed by HOA representative.
• Submit completion notice and supporting documentation (photos of work completed) to insurers.
• Receive Actual Cash Value (ACV) upfront and Replacement Cost Value (RCV) upon project completion. The ACV is the depreciated value of the repair and the RCV is the actual cost of the work the contractor charges.  The difference between these two costs is commonly paid to the insured upon substantial completion of the work.

Navigating property restoration demands a systematic approach and clear communication among stakeholders. By adhering to the outlined order of operations, property owners and managers can effectively navigate through each phase, ensuring a smooth and successful restoration process.

About the Authors: Meaghan Brown is a Business Development Specialist at Spyder Construction, working with HOAs, multifamily, and commercial properties for their community-wide reconstruction, roofing, building envelope, and large loss insurance projects.  In her free time, Meaghan enjoys spending time with her husband and dog enjoying the outdoors near their home in Idaho Springs. 

Nicholas Sekol is a Senior Project Director with Spyder Construction with over 20 years in the business and has completed over $150 million in projects during his tenure.  His focus is Fire Loss Mitigation and Reconstruction throughout the Front Range and beyond.  In his free time, he enjoys spending time with his family and riding his mountain bike all over Colorado. 

By Justin Bayer, Knott Laboratory, LLC

When it comes to the reconstruction and restoration of HOA communities, the civil and structural engineers who make up a part of this niche market are accustomed to working behind the scenes. After all, there’s nothing high-profile and flashy about designing repair plans, pulling permits, or writing up engineering reports about potential issues within a community.  Some recent events and current legislative attention have flipped that script around and shone the spotlight directly on the engineering side of this industry.  There is one lesson that is inevitable, however; deferred maintenance within our communities is increasing at an alarming rate. 

Clearly, there are plenty of examples of extreme circumstances, and not every situation is dire straits when it comes to deferring maintenance and its impact on structures.  That being said, the awareness gathered from situations like the one in Surfside can go a long way toward preventing catastrophes due to deferred maintenance in the future. 

There are many ways that a civil or structural engineer can assist a community, and this article will aim to point community managers, Board members, and contractors toward some situations in which you can or should contact an engineer. (It should be noted that most engineers within our CAI community are more than happy to be a resource and answer questions for the communities we serve, so never hesitate to ask!) 

The most common way to engage an engineer is when your community is in need of a repair/reconstruction project. This would be for things like deteriorating framing of stairs, decks, and balconies, as well as foundation issues, severe cracking, negative drainage, moisture intrusion, and a myriad of other similar issues. It’s always a great idea to start with engineering because this gives the community a chance to have their potential problems assessed by a third-party, independent expert.  This allows for the community to get a report and/or repair plans which can then be sent to general contractors to bid. 

Another way to engage a civil or structural engineer would be for construction defect concerns.  An engineer will often work with an attorney to diagnose issues with new build construction, which is then used in mediation or in court to fight for a settlement that the community will use for repairs.  Once a construction defect case is settled, a community will bring on a civil/structural engineer to work with the Board to prioritize repairs (life safety, building safety, community concerns, and aesthetics). Once repairs have been prioritized, the engineering team will design the repair plans for general contractors to be able to provide pricing to conduct the repairs. 

One way to combat deferred maintenance and regain control of the maintenance in your community is with a facility condition assessment (FCA).  This is essentially having a licensed engineer provide a report about the current state of the building(s) within the community.  Many communities are starting to look around and really grasp the concern for the level of deferred maintenance that their aging infrastructure may have. An engineer will be able to provide a report that details the visible building systems and informs the community on when those systems should be investigated further. For example, let’s say the engineer noted in the report that the stairs are in a deteriorated state, and that this should be addressed as soon as possible.  Now the community can work with the engineer and a contractor of their choice to further investigate the root-cause of the stair issue. 

The investigation into what is causing a particular issue is considered “forensic engineering.”  It’s sort of like CSI: Miami, but even cooler.  Keep in mind, destructive testing is often the only way that engineers can truly see what is happening inside of something like a ceiling, foundation, staircase, or balcony. A facility condition assessment can give a community a reason to investigate further, which can assist with knowing which items suffering from deferred maintenance should be addressed, and in what order. This really helps in the process of securing funding and creating a plan of action to address the issues in a proactive manner.  

So, now you know a bit more about when to call an engineer, why it is a great resource for the community to have an engineering firm representing their best interests, and where the engineering role falls into place as it concerns reconstruction projects. 

Let’s wrap up with some terms which you may see when dealing with engineers on your projects:

• Civil Engineering - Civil engineers design, build, and supervise infrastructure projects and systems. In this instance, civil engineering often refers to engineering involving the land surrounding a building, which includes drainage, grading, pipe networks, etc. This would also include streets/sidewalks, asphalt paring areas, and anything else having to do with “land.” 
• Structural Engineering - Structural Engineering is a specialty within Civil Engineering. Structural Engineers create drawings and specifications, perform calculations, review the work of other engineers, write reports and evaluations, and observe construction sites (civil engineers do all of this as well). A Professional Engineer’s license is required in order to practice both Civil and Structural Engineering. A license can be obtained only after completing a prescribed amount of education and work experience and taking a 2-day exam.

• Building Envelope – This term refers to the “shell” of the building, which aims to provide climate control, water and water vapor resistance, and protection from the elements.  This term encapsulates the roof, foundation, exterior walls (including windows and doors), and insulation. 

• Value Engineering – Value engineering is the consideration of wide-scale, holistic, project-wide conditions to achieve the most cost-effective and functional design. Essentially, this term refers to ways in which creative solutions between the engineer, owner, and the contractor can save the community money and stretch those resources to be able to accomplish more. 

• Destructive Testing – Destructive testing is utilized to understand the cause of the failure of a building’s systems and components. This process involves taking apart a portion of a building to gain an understanding for how/why the material or system is failing, or to understand how it was constructed.  

Knott Laboratory has been in operation for over 40 years and is the premier resource for forensic engineering in the HOA, Apartment, and Commercial industries in Colorado, Arizona, and Texas. Justin Bayer, Director of Business Development, currently serves as President on the Board of Directors for the CAI-Rocky Mountain Chapter.