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Can manager be sued? Check contract

March 30, 2003|Stephen Glassman and Donie Vanitzian | Special to The Times

Question: I am a board member at my Capistrano homeowners association. Recently our management firm has started hiring what it terms "mold specialists" at the drop of a hat. They contract for repairs without notifying the board.

I asked the property manager about it and he said this is all OK because the association's insurance will pay and if his management company didn't act immediately they could be liable. The reality is that all the claims have been denied by our insurance, and the management company has an indemnification clause in its contract protecting it from liability at our expense.

The management company has sent us checks to sign for work of which the board had no knowledge. As treasurer, I have refused to sign them because no board member approved, signed or knew of the work the manager arranged. If we are forced to honor these vendor contracts, can we sue the management company?

Answer: Look at the contract between the association and the management company.

If it is an "industry standard" contract, there are probably four clauses in it that allow the management company staff to act in this manner.

They are: 1) an indemnification clause making the board liable for acts of the management company; 2) authority to act on the board's behalf, usually in the form of a term naming the management company as the association's "agent"; 3) authority to execute and enter into contracts to maintain the property, and 4) authority to write themselves a check for their monthly fees and to pay themselves out of your association's bank accounts if they are terminated.

Had the association hired an independent attorney to review the contract rather than one recommended by the management company, some or all of those terms might have been deleted.

If those clauses are in your contract and the association does not pay, the management company employees can pay themselves from the association's bank accounts if they have signing authority or sue the association for the money. They will probably prevail.

If modification of your contract is possible, the board needs to put the company's staff on notice that they are not to enter into contractual agreements without express written consent of the board, nor are they to contract with vendors without approval from the board, and that any agreements entered into in violation of this notice will be charged back to the company.

If modification is not possible, the board could review its contract regarding the termination clause and then fire the company. Obtaining legal advice after the fact is expensive but is better than no advice. Lawyers will tell you it is impossible to unring the bell and very costly to mute the sound.

Voting by proxy has its drawbacks

Question: I've lived in a Toluca Lake area condominium for decades. Every year before the annual meeting the board of directors circulates fliers warning homeowners that they "may be approached by other owners to obtain a proxy for voting at the meeting."

It also says: "Giving your proxy to another owner may not serve your best interest. If you have already given someone your proxy and you decide to attend, your attendance will nullify the proxy."

These fliers give the impression that only the board can be trusted. As someone who sat on the board for nine years, I don't believe this is the case. I have persistently tried to get board members to stop this practice but they won't listen. It is my experience that new homeowners are especially impressionable.

Can I stop the board from circulating this bogus warning and alert new owners that they can give proxies to other owners?

Answer: To avoid conflict-of-interest issues, boards probably should not be allowed to vote homeowner proxies, but nothing in the law prevents it.

Proxies are the manifestation of the right to vote at meetings when personal attendance is impossible. Granting a proxy to anyone whose views differ from yours as to how the association does business can mean you approve when your position might be the opposite.

Nothing in the Davis-Stirling Act prohibits a homeowner from soliciting the proxies of other homeowners.

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Please send questions to: P.O. Box 451278, Los Angeles, CA 90045 or e-mail your queries to: NoExit@mindspring.com.

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