Professional Documents
Culture Documents
M-100
instructor guide
the essentials of
2011 Community Associations Institute All rights reserved. Reproduction in whole or in part is not permitted without the expressed, written consent of CAI. Community Associations Institute 6402 Arlington Boulevard, Suite 500 Falls Church, VA 22042 (888) 224-4321 www.caionline.org CAI is a national, nonprofit 501(c) (6) association created in 1973 to educate and provide resources to Americas community association industry. Its members include: volunteer leaders of condominium and homeowner associations, cooperatives, and planned communities of all sizes; community managers and management firms; builders and developers; and attorneys, accountants, lenders, reserve specialists, insurance providers, and other providers of professional services and products for community associations. CAI has more than 50 chapters throughout the United States. Each chapter has its own menu of programs and services and serves geographic areas, entire states, and multiple states. In 2010, CAI estimated that there were approximately 310,000 community associations in the United States. The Association of Professional Community Managers (APCM) is a specialized member group for managers dedicated to giving you added advantages on the job, in your career, and in the community association marketplace. APCM is a home for managers in the broader CAI communitya professional society that focuses on you, your career, your job, and your professional growth, whether youre an onsite, portfolio, or large-scale community manager. The material presented in this publication has been prepared for the general information of the course participant. While the material presented is believed to be accurate, neither CAI nor its chapters warrant the publications suitability other than as information guidelines. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. From A Declaration of Principles, jointly adopted by a Committee of the American Bar Association and a Committee of Publishers This leader guide was created with:
Acknowledgements
Community Associations Institute members were instrumental in the overall design and development of this M-100 course. As content developers, reviewers, and advisors, they devoted hours to this project, generously sharing their expertise and ensuring successful completion. Their hard work, enthusiasm, and dedication made this endeavor possible. M-100: The Essentials of Community Association Management Team Leader: Margey Meyer, CMCA, PCAM CAI is grateful to the M-100 team members who shared their expertise by designing, reviewing, editing, and writing portions of this course manual. Philip Adams, CMCA, PCAM Jo-Ann M. Greenstein, CMCA, AMS, PCAM Marge Imfeld, PCAM Debra Warren, CMCA, PCAM CAI is grateful to those volunteers who offered their assistance and shared sample materials. Sara E. Barry, CMCA, PCAM Kevin Cavanaugh, CPA Ellen Hirsch de Haan, Esq. John Hammersmith, CMCA, AMS, PCAM Steven Hurwitz, CMCA, AMS, PCAM Staci M. Gelfound, CMCA, AMS, PCAM Howard Goldklang, CPA, MBA David J. Graf, Esq. Paul D. Grucza, CMCA, AMS, PCAM James H. Main, CMCA, PCAM Kelly A. Moran, CMCA, AMS, PCAM Carole Murphy, CMCA, PCAM John P. Poehlmann, RS Loura K. Sanchez, Esq. J. David Ramsey, Esq. Clifford J. Treese, CIC, CPCU, ARM, CIRMS CAI is especially indebted to Stephen Bupp, CMCA, AMS, PCAM, and Clifford J. Treese, CIC, CPCU, ARM, CIRMS, for their extraordinary efforts in designing and developing the original M-100: The Essentials of Community Association Management.
Preface
Your Instructor Guide is your organizer for this course. The course content is organized around a set of basic community association management principles.
For each topic that we focus on in this course, there are corresponding pages that set out to familiarize students with a particular aspect of community association management. Many topics also have accompanying activities to help students develop their ability to perform various skills. In addition to providing instructional guidelines for the material presented in this course, this manual provides copies of the corresponding student pages for quick reference and ease of instruction. PowerPoint slides are also included with this text to highlight key points within the course content.
In order to facilitate practical skill development for the students, they will use materials from a fictitious community association, Bayview Towers, for many of the course activities. These small and large group activities give participants the opportunity to learn from one anothers experience. Additionally, many sample documents are included in the course materials for participants to use for future reference. Work well and enjoy!
Leader Guide
Table of Contents
Table of Contents
INTRODUCTORY MATERIAL Getting Started About This Guide The Program In Perspective Program Preparation Training At A Glance vi vi ix xvi xviii
MODULES Day 1: Introduction Welcome & Introductions Logistics Course Overview Course Introduction Module 1: Legal Basis Lesson 1: Legal Basis for Community Associations Overview Defining a Community Association Purpose of a Community Association Types of Community Associations Introduction to Federal Laws State Statutes That Affect Community Associations Governing Documents of Community Associations Class Exercise Summary Lesson 2: Rule Development and Enforcement Overview
2011 Community Associations Institute
1 3 6 7 12 15 19 22 25 27 30 39 49 54 66 69 78 80
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Table of Contents Scope of Rules and Architectural Guidelines Rule Development Rule Development, continued Rule Enforcement Work Group Exercises Summary Module 2: Financial Management Lesson 1: Budgets and Replacement Reserves Overview How a Budget is Used Budget Components Establishing Annual Assessments Development of Budget Line Items Preparation of an Operating Budget Budget Presentation Reserve Account Work Group Exercises Summary Lesson 2: Collecting Assessments Overview Benefits of Establishing a Collections Policy Characteristics of an Effective Collection Policy Collection Procedures and Remedies Bankruptcy Actions Class Exercise Summary
Leader Guide 83 91 94 100 118 137 145 150 152 156 162 167 169 172 175 177 184 193 202 203 210 212 214 218 221 226 233 235 239 243
M-100: The Essentials of Community Association Management
Lesson 3: Financial Statements, Audits, Income Taxes, & Investments Overview Types of Accounting Financial Statements
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Leader Guide Warning Signs Class Exercise Audits, Reviews, and Compilations Income Taxes Investments Asset Protection Summary Module 3: Facilities Management Lesson 1: Maintenance Overview Maintenance Responsibilities Class Exercise Class Exercise #2 Types of Maintenance Facilities Maintenance Systems Evaluating Maintenance Systems and Efforts Sustainable Lifestyles Summary Lesson 2: Contracting Overview Deciding Whether or Not to Contract Using Requests for Proposals (RFPs) Contract Provisions Negotiating Contracts Summary Lesson 3: Risk Management & Insurance Overview Insurance for Community Associations Insurance Coverages The Bidding Process
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Table of Contents 251 253 257 262 265 269 273 283 288 290 295 303 308 310 313 321 324 331 340 342 345 352 361 372 375 384 385 392 395 410
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Table of Contents Insurance Claims Summary Module 4: Community Management and Leadership Lesson 1: Community Management Overview
Leader Guide 414 416 423 428 430 434 452 455 462 465 469 473 490 503 505 507 511 514 519 530 531 534 536 546 550 552 558 566 574 575
M-100: The Essentials of Community Association Management
Everyone Has a Role in the Operation of the Community Association Role and Responsibilities of the Manager Class Exercise Different Forms of Management The Management Contract The Employment Agreement Work Group Exercises Managing a Developing Community Human Resources for Managers Creating a Human Resources Management System Compliance with Applicable Laws and Regulations Performance Planning and Evaluation Supervision and Discipline Summary Lesson 2: Board Meetings and Decision-Making Overview Decision Making for Community Associations Preparing for the Board Meeting Conducting the Board Meeting Owner Meetings The Manager's Role Work Group Exercises Summary Lesson 3: Ethics Overview
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Leader Guide Definitions Conflict of Interest Code of Ethics CAI's Designation Code of Ethics for Management Class Exercise Summary Course Conclusion Course Conclusion Summary Course Evaluation Course Exam
Table of Contents 578 580 583 584 587 591 599 600 601 609 610
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Getting Started
Leader Guide
Getting Started
About This Guide
Whats the purpose of this guide? This leader guide provides a master reference document to help you prepare for and deliver The Essentials of Community Association Management program. What will I find in the guide? This leader guide is a comprehensive package that contains
checklists of necessary materials and equipment presentation scripts and key points to cover, and instructions for managing exercises, case studies, and other instructional activities.
How is this guide organized? This section, Getting Started, contains all of the preparation information for The Essentials of Community Association Management program, such as learning objectives, pre-work, required materials, and room set-up. Following this section is the Training At A Glance table. This table can serve as your overview reference, showing the module names, timings, and process descriptions for the entire program. Finally, the program itself is divided into modules, each of which is comprised of one or more lessons. A module is a self-contained portion of the program, usually lasting anywhere from 2 to 4 hours, while a lesson is a shorter (typically 30-90 minutes) topic area. Each module begins with a one-page summary showing the Purpose, Time, Process, and Materials for the module. Use these summary pages to get an overview of the module that follows.
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Leader Guide
Getting Started
Page [#] Please note that all Participant Guide blocks are highlighted so you can easily determine where to focus your attention (as is this one). As you work through this manual, all notes to you as the instructor to do this or say this are outside of these highlighted blocks.
A complete list of the margin icons used in this guide is provided on the following page.
IMPORTANT NOTE You may also occasionally find important notes such as this one in the text of this guide. These shaded boxes provide particularly important information in an attention-getting format.
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Getting Started
Leader Guide
Lesson Blocks
Assessment Audio Capture Case Study Check Computer Flipchart
Activity
Handouts
Highlight
Game
Key Points
Lab
Objective
Process
Project
Q&A
Role Play
Say This
Speaker
Time
Tools
Transition
Video
Workbook
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Leader Guide
Getting Started
CAIs M-100: The Essentials of Community Association Management is designed for new community association managers or those with less than three years of experience. This course covers 10 basic functions of association management, from financial and facilities management to legal and management topics. A final exam, based on the information in this text, is administered to course students. A passing grade is required to receive credit for the course. The Essentials of Community Association Management is taught by CAI manager members who have successfully completed the course and who have a Professional Community Association Manager (PCAM) designation. The course and exam, offered through CAIs 50+ chapters, may be completed without attending classroom instruction. For more information on the Home-Study option or the M-100 online course, please contact CAI. Successful completion of The Essentials of Community Association Management is required for the Certified Manager of Community Associations (CMCA), Association Management SpecialistTM (AMSTM), Large-Scale Manager (LSM), and Professional Community Association Manager (PCAM) designations, and additionally, may satisfy state manager credentialing requirements. Criteria for community association manager licensing vary from state to state. Through its manager education program, CAI offers fourteen separate courses from basic to advanced levels that cover all aspects of management and operation of community associations of all sizes and types. For a schedule of courses in your area or for more information on the designation programs, contact your local CAI chapter or call CAIs national office in Northern Virginia at (888) 224-4321.
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Getting Started
Leader Guide
Learning Objectives: Lesson 1: Legal Basis for Community Associations Define a community association. Describe the purpose of a community association. Identify the types of community associations. Identify federal laws that affect community associations. Identify state statutes that affect community associations. Understand governing documents of community associations and their hierarchy of authority. Lesson 2: Rule Development and Enforcement Understand the scope and purpose of rules and architectural guidelines in community associations. Identify the four types of resolutions for community associations. Develop valid and enforceable rules using formal rule making procedures. Develop and implement a due process procedure for enforcing rules.
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Leader Guide
Getting Started
Learning Objectives: Lesson 1: Budgets & Replacement Reserves Use budgets as a management tool to facilitate the effective operation of the community association. Explain the sources of budget requirements. Identify and understand the budget components. Recognize the purpose and benefit of the reserve account. Identify the two types of budget line items. Identify the two basic methods of budget preparation. Calculate reserve account budget line items. Present a budget to the board of directors. Lesson 2: Collecting Assessments Recognize the sources of authority to collect assessments. Identify the benefits of establishing a collections policy. Identify legal remedies available to community associations for collecting delinquent assessments. Understand the impact of a bankruptcy filing on the association. Lesson 3: Financial Statements, Audits, Income Taxes, & Investments Identify the purpose and types of financial statements. Identify and explain the three types of accounting methods. Differentiate between an audit, review and compilation. Recognize federal income tax requirements and responsibilities for community associations. Explain investment policies and objectives for community associations.
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Getting Started
Leader Guide
Learning Objectives: Lesson 1: Maintenance Determine your associations maintenance responsibilities. Analyze your communitys maintenance needs. Identify the types of maintenance work. Analyze your facilities maintenance system and management tools. Evaluate maintenance systems and efforts. Explain the importance of sustainable lifestyles. Lesson 2: Contracting Determine whether or not to contract for services. Prepare a request for proposals and evaluate bids submitted for consideration. Identify the provisions that should be included in every contract. Lesson 3: Risk Management & Insurance Identify the four types of exposure to loss for an association. Define risk control. Identify four ways to control risk. Identify the requirements for community associations to have insurance coverages. Identify the four major insurance coverages available to community associations. Explain the managers role in the bidding process. Provide tips for filing insurance claims.
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Leader Guide
Getting Started
Learning Objectives: Lesson 1: Community Management Explain the roles and responsibilities of the community association owners, board and committees. Identify the roles and responsibilities of the manager. Explain the different forms of community management. Describe the scope of the management contract. Describe the scope of the employment agreement. Understand the managers role in a developing community. Understand the managers role in overseeing a communitys human resource system. Lesson 2: Board Meetings and Decision-Making Explain the board of directors decision-making authority. Explain the managers role in preparing for the board meeting. Provide tools for conducting a board meeting. Understand the types of owner meetings. Use techniques to facilitate a successful meeting. Lesson 3: Ethics Define ethics for community associations. Identify and resolve ethical conflicts for managers. Understand and apply CAI's Designation Code of Ethics for Management.
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Getting Started
Leader Guide
IMPORTANT NOTE It is very important that each days class begins on time and ends no later than the scheduled time. Many students will have other business or personal commitments that have been scheduled in conjunction with the time frame of this course. The instructor should review this schedule with students on the first day to help avoid any misunderstanding about the time required for the course.
Target Audience The course is designed for persons with limited experience in the community association management profession. The primary focus has been for those with less than three years experience. All instructors are urged to remember this audience level as the course is presented. Because this is the first of many educational experiences through CAI, the instructor should use this opportunity to promote the PMDP courses and to provide more information on additional educational opportunities. Since the M-100 is a PMDP requirement, instructors might also find students in attendance with many years of management experience. These managers bring a wealth of knowledge to the course and can share information with the group.
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Leader Guide
Getting Started
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Getting Started
Leader Guide
Program Preparation
Instructor Preparation Read the Participant Guide provided by CAI Use this Leader Guide as your study guide to prepare to deliver the class Be familiar with the M-100 exam questions
Terminology Students from different parts of the country use different terminology. The instructor should use the terms that are most familiar with the students, but let them know that others exist.
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Terminology
Community Association You will see and hear community associations referred to by one of several names: 1. Community Association: This term is used by Community Associations Institute, publisher of this course manual and sponsor of this class, and by the Florida Department of Business and Professional Regulation (DBPR). Instructors are encouraged to use the term community association as an all encompassing term for condominium, cooperative, and planned communities. 2. Common-Interest Community (CIC): This term is used by the National Conference of Commissioners on Uniform State Laws. 3. Common Interest Realty Association (CIRA): This term is used by the American Institute of Certified Public Accountants (AICPA). 4. Common Interest Development (CID): This term is used by the California Department of Real Estate (DRE). Community Association Manager The term community association manager should be used instead of property manager.
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Getting Started
Program Preparation
Evaluation All students are provided evaluation forms for their feedback on the course, the instructor, and other aspects of the presentation. The evaluations should be collected by a student, placed in a sealed envelope, and returned to the instructor at the end of the course. All evaluations must be forwarded to CAIs national office.
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Training At A Glance
Leader Guide
Training At A Glance
Time
DAY 1 8:30 a.m. Day 1: Introduction (40 minutes) Module 1: Legal Basis (2 hours and 45 minutes) Lesson 1: Legal Basis for Community Associations (1 hour and 30 minutes) Welcome participants, introduce yourself, and run the participant introduction activity to highlight the course objectives. Focus: Why we have community associations and how they are structured. Through a combination of faculty presentation, work group exercises, and facilitated group discussion, walk participants through the fundamental basis upon which community associations exist, why they exist, and the various elements of their governing documents. Overview the fundamental concepts of the authority by which to create a rule, how to develop a rule, and successful enforcement techniques.
Module/Lesson
Description
9:10 a.m.
Break (15 min.) Lesson 2: Rule Development and Enforcement (1 hour and 15 minutes)
Break for Lunch (1 hour) Module 2: Financial Management (3 hours and 15 minutes) Focus: How to understand the basic financial reports and activities of a community association and the community managers typical involvement in them.
Explain the budgeting process, including development Lesson 1: Budgets and presentation of a community association budget as and Reserves (1 hour and 15 minutes) well as understanding the importance of using the budget as a management tool.
Break (15 min.) Lesson 2: Collecting Assessments (60 minutes) Overview the basic concepts of the assessment collection process.
Break (15 min.) Lesson 3: Financial Statements, Audits, Income Taxes, & Investments (60 minutes) Teach participants how to review financial statements and look for key elements that indicate the financial condition of the community.
Break (5 min.) Day 1 review and wrap up (30 minutes) Conclude Day 1 M-100: The Essentials of Community Association Management Review the concepts discussed in Day 1 and answer any questions participants may have.
Leader Guide
DAY 2 8:30 a.m. 8:45 p.m. Day 2 Introduction (15 min.) Module 3: Facilities Management (2 hours and 45 minutes)
Training At A Glance
Overview the agenda and goals for Day 2. Focus: How to understand the community managers role in operating, maintaining, repairing, and replacing the common elements and common areasand planning, organizing, leading, and controlling your associations resources in order to achieve its goals. Examine the physical assets that must be maintained by the association and how to determine whether the association or the owner is responsible for such work
Break (15 min.) Lesson 2: Contracting (50 minutes) Discuss whether an association should use staff, personnel, or contractors to complete various tasks in the community, what should be included in the specifications of work in a request for proposal (RFP), and what provisions should be included in all contracts.
Break (15 min.) Lesson 3: Risk Management & Insurance (55 minutes) Explain how community associations are exposed to losses and what measures can be taken to manage that risk, including the purchase of insurance, and discuss the requirements for insurance coverage, the types of insurance protection available to community associations, and the role of the manager in the bidding and claims processes.
Break for Lunch (1 hour) Module 4: Community Management and Leadership (3 hours and 45 minutes) Lesson 1: Community Management (1 hour and 35 minutes) Focus: How to inform and guide your communitys owners and volunteers and successfully perform your role as community manager and leader. Overview the role of the manager of a community association, including their relationship with the volunteer leadership, the members, the staff, and various contractors and vendors; the needed components of a management contract and/or employment agreement; and the role of the manager in overseeing the communitys human resource system.
Break (15 min.) Lesson 2: Board Meetings and Decision Making (1 hour and 20 minutes) Examine the roles and responsibilities of the manager in relation to boards of directors meetings and how to prepare for and help facilitate a successful and effective meeting.
Break (15 min.) Lesson 3: Ethics (50 minutes) Review what constitutes a conflict of interest and how to avoid it as well as understanding how not to engage in unethical or improper behavior.
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Training At A Glance
5:15 p.m. 5:30 p.m. Day 2 review and wrap up (15 minutes) Conclude Day 2
Leader Guide
Review the concepts discussed in Day 2 and answer any questions participants may have.
DAY 3 8:30 a.m. 8:35 a.m. 9:30 a.m. 9:45 a.m. 10 a.m. 12 Noon Day 3 Introduction (5 minutes) Review/Questions and Answers (55 minutes) Break (15 min.) Course Evaluations (15 minutes) Examination (2 hours) Conclusion of Course Ask a volunteer from the class to distribute, collect, and seal the course evaluations. Administer the course exam. Overview the agenda for Day 3. Review the concepts discussed in the course and answer any final questions participants may have.
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Leader Guide
Day 1: Introduction
Day 1: Introduction
Page 1
Day 1: Introduction
Leader Guide
Day 1: Introduction
Goal The purpose and goal of this module is to welcome participants and introduce them to the course content.
Time 40 minutes
Welcome & Introductions: 20 min. Logistics: 5 min. Course Overview: 5 min. Course Introduction: 10 min.
Overview Welcome participants, introduce yourself, and run the Participant Introduction activity to obtain insight about the course attendees and their expectations.
Materials Needed
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Leader Guide
Day 1: Introduction
Slide 1
Welcome students to CAIs The Essentials of Community Association Management: Designed to provide the fundamental knowledge and skills needed to manage a community association.
Briefly mention the value of CAI: Founded in 1973, Community Associations Institute is the nations voice for condominium, cooperative, and homeowner associations. It is the only national organization solely committed to the community association industry. It also is the only organization to provide an in-depth community association management education curriculum and professional designation program specifically designed to recognize community association managers across the nation.
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Day 1: Introduction
Leader Guide
Self-Introduction Introduce yourself to the class as the course instructor and establish your credibility as an expert. The introduction should be provided in such a way as to demonstrate your knowledge, expertise, and authority. This can be accomplished by: Providing some background information about yourself
Describing your experiences in the community association management field Explaining your involvement with CAI Briefly describe the positions youve held in community association management and the types of community associations that youve managed. Mention any national or chapter positions youve held in CAI.
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Leader Guide
Day 1: Introduction
Job title/function Years in profession/experience in community association management Name of company or community Number of communities and units/homes managed Geographic location Background Specific expectations from the course Specific questions or areas of concern
IMPORTANT NOTE Make careful notes during these introductions to obtain insight about the specific attendees and their expectations. The instructor may also wish to consider separating those students sitting together that are from the same company or association. Because there are many exercises to be completed in small work groups, it is advisable to have the work groups composed of persons other than co-workers.
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Day 1: Introduction
Leader Guide
Logistics
Allow 5 minutes to cover this material
Other upcoming Professional Management Development Program (PMDP) courses Other CAI national or chapter activities Any required announcements about continuing education credits. (Refer to any materials provided by CAI.)
For example, length of session, schedule, breaks, and facilities, etc. Pagers and cell phones: The instructor is encouraged to request that all students turn off laptops and cell phones to avoid disturbing other students or disrupting the class. While some students may need to maintain contact for emergency situations, the students should be encouraged to check with their offices during the scheduled break times and not to receive e-mails or calls during class.
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Leader Guide
Day 1: Introduction
Course Overview
Allow 5 minutes to provide the course overview.
Direct participants to the Preface page in their Participant Guides. This page contains:
Summarize the main points in the Preface: The purpose of the PMDP course curriculum is to help community association managers develop their skills. The courses use a series of activities to do so. For each skill or set of skills, the workbook: Explains what a manager needs to know. Offers an activity to develop the skill(s). The arrangement of the workbook enables participants to use it as a reference book after completing the course.
Say This course covers various topics, subject matter, and principles that are needed to successfully manage community associations, as well as management company offices.
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Day 1: Introduction
Leader Guide
How often do you use management skills in your role as a professional community association manager? Provide specific examples. With whom do you interact on a daily, weekly, monthly, or yearly basis in executing your management duties? Owners Tenants Volunteer leaders Staff Contractors Consultants (attorney, CPA, insurance agent, engineer, architect, etc.) Public officials Other management company employees Outside vendors
In what capacity do you use management skills in dealing with these people? What kind of a manager do these people expect you to be? Ethical Clear Direct Respectful Friendly
How does your ability to manage effectively impact your community association and/or your company?
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Leader Guide
Day 1: Introduction
Methods of instruction used Class exercises Group exercises Role plays Other interactive methods to support the faculty presentation
Participant Guide Participants should read the workbook as a supplement to the course All information cannot be covered in the class Participants should use the workbook in the future as a resource
Examination 100 multiple choice questions Two hours to complete To pass: Read the workbook Listen and participate in class Ask questions Get clarification of any item Correctly answer at least 70 questions
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Day 1: Introduction
Leader Guide
Slide 3
Slide 4
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Day 1: Introduction
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Day 1: Introduction
Leader Guide
Course Introduction
Allow 10 minutes for the Course Introduction.
Discuss the incredible growth of community associations in the United States during the past 4-5 decades.
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The number of community associations in the U.S. has exploded in the past 40 years. This chart reflects the estimated number of U.S. association-governed communities and individual housing units and residents within those communities: Year 1970 1980 1990 2000 2002 2004 2006 2008 2009 2010 Communities 10,000 36,000 130,000 222,500 240,000 260,000 286,000 300,800 305,400 309,600 Housing Units 701,000 3.6 million 11.6 million 17.8 million 19.2 million 20.8 million 23.1 million 24.1 million 24.4 million 24.8 million Residents 2.1 million 9.6 million 29.6 million 45.2 million 48.0 million 51.8 million 57.0 million 59.5 million 60.1 million 62.0 million
The number of people living in associations today makes the need for leadership in the community management profession extremely important. Discuss the need for leaders in the community management profession.
Help students to see that as managers: They are leadersnot secretaries They are expected to be professional advisors
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Leader Guide
Day 1: Introduction
Course Introduction
Say One way for managers to become industry leaders is to seek and obtain the highest credentials in the community management profession. The first step is the CMCA Certified Manager of Community Associations.
Slide 6
Slide 7
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Leader Guide
There are also other credentials for managers offered through CAIincluding the AMS, LSM, and PCAMand AAMC for management companies. For more information, please visit CAIs website: www.caionline.org.
Slide 8
Other CAI Designations for Community Managers and Management Companies
Association Management Specialist (AMS) Large-Scale Manager (LSM) Professional Community Association Manager (PCAM) Accredited Association Management Company (AAMC)
Transition to Module 1.
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Overview This section of the program will cover: The legal nature of a community association, including the scope and limits of its authority (Legal Basis for Community AssociationsLesson 1)
Materials Needed
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Slide 9
Slide 10
Legal Basis
This section of the program will introduce you to: The legal nature of a community association, including the scope and limits of its authority (Legal Basis for Community AssociationsLesson 1) Proper rule development and enforcement (Rule Development and EnforcementLesson 2)
10
Transition to Lesson 1
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Time 1 hour and 30 minutes Session Time Breakdown 60 minutesFaculty presentation 20 minutesClass exercise 10 minutesSummary/quiz
Overview In this first lesson, you will work with the students in teaching them about the legal basis of community associations. It is critical they comprehend and understand the basic legal concepts before leaving this session as all other sessions will either refer to information contained herein or will be built upon the principles in this session. Of equal importance to the novice manager is understanding that every state has different statutes affecting community associations and that every set of governing documents are unique to the specific association. The students must understand that they may apply similar principles to every community association, but not the specifics of its governance. As this is the first lesson of the course, you should ensure the students understand these basic concepts. Remember that the course is designed for the fundamental knowledge needed to manage a community association. While you are not encouraged to drag out this lesson, it is important that you not rush through the material. The time frame established should provide adequate time to present the information at a comfortable pace.
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Overview
Introduce the lesson Say
The topic of this lesson is the legal basis of community associations and the principles under which community associations exist.
The characteristics, purposes, and different types of community associations. Various laws and legal documents which affect community associations. The different types of resolutions that a community association may adopt.
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Leader Guide
Slide 11
Point out the Key Terms on PAGE 13 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Leader Guide
Key Terms:
Articles of incorporation Bylaws CC&Rs (Covenants, Conditions, and Restrictions) Community association Condominium Cooperative Declaration Equal Employment Opportunity Commission (EEOC) Fair Debt Collection Practices Act (FDCPA) Fair Housing Act Fair Labor and Standards Act (FSLA) Family and Medical Leave Act (FMLA) Federal Communications Commission (FCC) Telecommunications Act of 1996 Federal Insurance Contributions Act (FICA) Governing documents Indemnification Lien Master deed Master association Mixed use development Occupancy agreement Occupational Safety and Health Act (OSHA) Planned community Proprietary lease Public offering statement Resolution Soldiers and Sailors Civil Relief Act of 1940 (SSCRA) Statute Umbrella association U. S. Bankruptcy Code 55 and older community
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Community associations derive their basic legal authority for their existence, activities, and actions from state statutes (laws) and certain legal documents. In order to effectively manage a community association and inform and advise its owners, a manager must: Understand the legal nature of the community association(s) he or she manages, as well as the scope and limits of its authority. Recognize when to consult with the communitys attorney concerning the interpretation of statutes and documents.
This lesson explains: What a community association is The state statutes that enable a community association to operate The legal documents that enable a community association to govern its member owners
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Slide 12
Characteristics of a Community Association
Mandatory membership Mutually binding documents Lien-based assessments
12
Discuss with the class the difference between voluntary membership dues and mandatory lien-based assessments.
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Provide member programsaerobics or card games Provide educational programsswim lessons Provide help to the greater communityrecycling program
Slide 13
Purpose of a Community Association
Community
Business
Government
Ask students to name other examples of the association providing the community aspects.
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Provide adequate income to operate the association Provide sound financial planning for future
Ask students to name other examples of how the association fulfills the role of a business.
Say A third purpose of a community association is to govern its members. It must make and enforce rules and regulations and enforce the governing documents that protect all members and enhance the overall community. Examples to cite: Protect the common propertyclubhouse use rules
Protect the membersspeed limits in the parking areas Protect the overall valueexterior appearances
Ask students to name other examples of how the association acts as a government.
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A lien is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. Placing a lien on an owners property protects the community associations interests. It encourages payment of the debt. Among other consequences of a lien, the owner cannot sell or transfer the unit without settling the debt. The recording of a lien against an owners unit must be authorized by your community associations applicable statutes or governing documents. Most statutes enabling the establishment of a community association or governing documents require that assessment liens be subordinate to any mortgages or government claimssuch as taxes or assessmentsagainst an owners property. Subordinate means that these other claims would be satisfied before that of the associations assessment lien. In most states and governing documents, the recording of the declaration/CC&Rs/master deed constitutes an automatic, prior-recorded assessment lien against the unit owners interests. Some state statutes have authorized a super lien or community asset protection lien. It provides a specified (usually up to six-months) priority for the community over the lien of a first mortgage holder, which means that if the lender forecloses, it must pay the association up to the specified period of delinquent assessments owed by the foreclosed owner. When an association has an automatic lien, it may not be necessary to file the lien of record in order to pursue collection. However, having the associations attorney manually file the lien provides public notice of the debt and is usually required before foreclosing on the home. Your attorney can handle the recording of any liens against the title to a unit in the land records. The form used varies by state.
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Slide 14
Types of Community Associations
Planned Community Condominium Cooperative
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Say: There are three types of community associations, based upon how the homes or units and the common areas are owned, and not the architectural style. The type of community association cannot be determined according to its architectural style or appearance. 1. Planned community. In a planned community: The owner owns the lot and/or unit.
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Types of Community Associations: Condominium A
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The unit and its assigned undivided interest cannot be separated. For example, the plot of land in front of a condo unit belongs to all the owners, so the unit owner cannot landscape the area or enclose it.
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Types of Community Associations: Condominium B
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The owner has a lease or occupancy agreement for the unit. The association (corporation) owns the building and the units.
Emphasize that in a cooperative, the association owns all the property including the common areas, and that the owners do not own any property or units.
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Types of Community Associations: Cooperative
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Association Owns
X X
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Slide 19
Other Types of Communities
Master (Umbrella) Association More than one residential community association Mixed-Use Development Mixture of residential and commercial and/or industrial use grouped together 55 and Older Communities Must have one person who is 55 years of age or older living in at least 80% of its occupied units
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Describe 55 and older communities and their incredible growth in recent years. Say: Technically, theres a difference between active adult and 55 and older communities. Active adult may mean just a lifestyle, and not a community legally governed by the Fair Housing Act.
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These three types of residential community associations can exist by themselves or they can be grouped in clusters called: Master or Umbrella AssociationsA master or umbrella association consists of more than one residential community association. Mixed-Use DevelopmentsA mixed-use development usually consists of a mixture of residential and commercial and/or industrial uses grouped together. Their marketing slogan is often live, work, play. 55 and Older Communities Must have one person who is 55 years of age or older living in at least 80% of its occupied units One of the fastest growing segments of our society today is active adults. The National Association of Home Builders estimates that by 2014 there will be 85 million people who are 55 years of age or older. Official 55 and older communities must have one person who is 55 years of age or older living in at least 80% of its occupied units. The community must be designated 55 and older to qualify as this type of housing that legally prohibits children and limits occupancy to a certain age span. The designation process involves submitting applications and obtaining approval before any enforcement of the ages of residents commences. Approval from the Department of Housing and Urban Development (HUD) must be received before construction begins. On the other hand, an active adult community may or may not be legally designated 55 and older. When working with a developer on the creation of a community, a manager should make sure the developer understands the difference and obtains the appropriate approvals if he decides to pursue the 55 and over designation. For the purpose of this course, however, well use the terms interchangeably. As we age, we look for a place to live that is located in an area that will allow us to be involved with our children and grandchildren but will also give us independence. In years past, retirement facilities were designed to provide safety and care. Today, the baby boomers, the most financially stable group in our society, are very concerned with health and fitness and are showing that getting older does not mean acting old. Many boomers continue to work during their retirement. According to the 2005 Merrill Lynch New Retirement Survey, 71% of the adults surveyed plan to work after what has been traditionally known as retirement age. These adults believe continuing to work and staying active contributes to their mental and physical well being. Developers have observed these statistics and are building more active adult communities to cater to the lifestyles of these individuals. These communities allow residents to stay near their hometowns and families and develop new friendships and activities. These communities are springing up all over the country, not just in Florida and Arizona where they were previously predominately located. While not all of these communities are associations, many are being built as condominiums and planned developments. They are not a separate type of association, just a variation on the usual styles. Onsite activities may include golf, hiking trails, restaurants, fitness centers, art and/or craft studios, salons, bridge, paddleball, dancing, support groups for singles, transportation, sporting activities, entertainment, and many more. These communities are serviceoriented and focused on amenities.
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Active adult communities require a much higher level of service than those of the traditional retirement communities. They provide services geared more toward personalized support and quicker responses. These services range from transportation to shopping and medical appointments to trips to entertainment venues and even multi-day excursions away from the community. Residents usually demand a quicker response than residents in traditional housing communities. At the same time, they are highly cost conscious and demand frugality and penny-pinching while providing many services and amenities. Managers of active adult communities must be able to provide the specialized expertise far beyond that which is expected of a typical portfolio or onsite manager and may require additional training. Often, the management team is on site, and consists of a full staff ranging from the onsite manager and an activities director to the facilities maintenance personnel and support staff for all activities. Every year the National Association of Home Builders sponsors an International Builders Show catering to active adult community developers. This trade show attracts more than 100,000 guests each year, and features many events and programs that are focused on the 50-plus housing industry. We in the association management industry must keep up with the growing trends of these active adult communities and this is an excellent venue in which to learn about best practices and new products and services.
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Slide 20
Sources of Legal Obligation for Community Associations
Federal, state, and local statutes, regulations, and case law Legal documents unique to the community association called Governing Documents Lender requirements Standards set by professional bodies for example, auditing standards set by the American Institute of Certified Public Accountants (AICPA)
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Slide 21
Types of Federal Laws Applying to Community Associations
Equal Employment Opportunity Commission (EEOC) Fair Debt Collection Practices Act (FDCPA) Fair Housing Act Fair Labor and Standards Act (FSLA) Family and Medical Leave Act (FMLA) Federal Communications Commission (FCC) / The Telecommunications Act of 1996 Federal Insurance Contributions Act (FICA) Occupational Safety and Health Act (OSHA) Soldiers and Sailors Civil Relief Act of 1940 (SSCRA) U. S. Bankruptcy Code
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IMPORTANT NOTE Failure to comply with these laws may result in significant penalties against the association and your company, especially if the onsite staff is the management companys employees.
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If you dont think and talk safety and health, your employees will not, either.
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As charged by Congress, in 1996 the FCC adopted the Over-the-Air Reception Devices (OTARD) Rule concerning restrictions on viewers' ability to view programming from direct broadcast satellites, wireless cable and television broadcast stations. It overrides a community associations deed restriction that bans satellite dishes and antennae from property that is exclusively used, controlled or owned by the resident, including tenants. The rule applies to video antennas including direct-to- home satellite dishes that are less than one meter (39.37") in diameter (or of any size in Alaska), TV antennas, and wireless cable antennas. The rule prohibits most restrictions that: 1) unreasonably delay or prevent installation, maintenance or use; 2) unreasonably increase the cost of installation, maintenance or use; or 3) make it impossible to receive an acceptable quality signal The rule authorizes community associations to impose rules that do not affect the installation, maintenance or use of a satellite dish or antenna, such as preferred placement. It also permits community associations to prohibit satellite dishes and antenna from common areas such as exterior walls, limited common area balconies, patios and roofs and to ban installations that may affect residents safety and for historic preservation.
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Slide 22
Fair Housing Act
55 and Older Communities Reasonable Accommodations/ Modifications Maintenance Pets/Service Animals Disruptive Residents
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CAI's policy on fair housing states that it "supports the right of all individuals to be free from illegal discrimination on the basis of race, creed, color, sex, national origin, familial status or handicap." CAI says it will "progressively pursue fair and reasonable interpretations and administration of, or changes to, Fair Housing Acts and related legislation and regulations." Following is a brief summary of the significant provisions of the Act that impact community associations. 1. 55 and Older Communities 55 and older communities must have one person who is 55 years of age or older living in at least 80% of its occupied units. The Act requires that the community advertise accordingly and publish and follow policies and procedures that demonstrate an intent to be housing for persons 55 and older (rather than just a marketing term active adults). If the community is established as a 55 and over community, it is not violating the Fair Housing Act by excluding children. 2. Reasonable Accommodations/Modifications In 1988, the Fair Housing Act created a new class of protected individuals those with disabilities. The Acts intent was to allow those with disabilities to have an equal opportunity to use and enjoy their home. In many situations, that may mean that the community association must allow variances to rules, policies and services so that the person with the disability can use and enjoy his home and common facilities. Examples of such accommodations/modifications could be: 1) Reassigning an undeeded parking space so it is closer to the home of the resident with a disability 2) Authorizing a disabled resident to construct a ramp from the parking area to the sidewalk There are three considerations when determining if a request for a reasonable accommodation is valid: 1) Is the individuals disability covered under the Fair Housing Act? In general, the Act addresses both mental and physical disabilities which substantially limit a major life function. 2) Is the requested accommodation reasonable? The Act does not intend to impose an undue burden on the association or require major alterations to the unit. 3) Is the requested accommodation necessary for the individual to use or enjoy his/her home? There must be a connection between the requested accommodation and the residents disability. The requested accommodation must improve the residents quality of life of which the disability deprived him/her.
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Who pays for the modification? Under the Fair Housing Act, the resident would pay for the modification if the housing provider desires. The association may require him/her to pay to remove the modification when s/he moves out of the community. If the association offers public access (other than just to residents and their guests) to an amenity such as a golf course, retail stores or restaurants, then the American with Disabilities Act (ADA) would apply. The major difference between the Fair Housing Act and ADA is that, under ADA, the association would bear the cost of the accommodation, while under the Fair Housing Act the person with the disability would pay for the modifications. 3. Maintenance Under the Fair Housing Act, a person with a disability could sue the association for failing to maintain physical components of the community needed by the resident. For example, a consistently inoperable elevator or sidewalks full of snow for an unreasonable length of time can impede a person with a disability related to mobility. 4. Pets/Service Animals Theres no dispute that the Act requires community associations to approve the request of a person with a disability for a trained seeing-eye or signal dog when s/he can provide verification of their disability and need of the animal. Questions arise, however, when a resident in a community that prohibits pets requests approval for a companion pet to help him cope with a proclaimed but unproven mental disability. There is no distinction under the Act between those with physical disabilities and those with mental disabilities. Very often, the animals which assist these persons with their disabilities are called a variety of names including service, assistance, companion and therapeutic animals. In the end, if the person meets the definition of disability and can show a need for the animal, the animal should be allowed and not considered a pet. Many see these animals as auxiliary aids, much like a wheelchair. If an owner submits a request for approval of a companion dog in an association that prohibits pets or limits their size, weight or type, the board should treat the request with care and due diligence. Grant a temporary waiver while verification of the disability and need of the animal is sought. If it is determined that the request is valid under the Fair Housing Act, with the involvement of legal counsel, develop a special resolution that details the specific circumstances under which the board approved the pet so that the pet ban or limitation is still applicable to all other residents. 5. Disruptive Residents A person with a mental disability who behaves in a disruptive or threatening manner is still entitled to reasonable accommodations under the Fair Housing Act. Even if the resident presents a health or safety threat, the association may have to go to court for approval to have him/her removed from the community.
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1. Associations may not discriminate against children with regard to recreational facilitiesunless it is a 55 and older community. That means you cannot designate one pool for children and one pool for adults, or limit times in which children may swim or use the tennis courts. Additionally, associations cannot prohibit babies under 3 or children wearing swim diapers from using the pool, or prohibit children from playing in the common area where adults are allowed to do so. 2. If a person claims to have a disability under the Fair Housing Act but does not appear to be disabled, do not dismiss his/her request for a reasonable accommodation/modification. Every request should be seriously considered and reviewed in a timely manner. 3. The Fair Housing Act makes it illegal to direct abusive, foul, threatening or intimidating language or behavior toward tenants, residents or potential home buyers because of their membership in a federally protected class. Board members must realize the potential impact of their words spoken in the heat of the moment, and always think before they speak in their role as a leader in their community. 4. One neighbor harasses another neighbor with racial and sexual epithets and threats of personal injury. The offended neighbor asks the association to intercede, but the board refuses, saying that disagreements between neighbors are not within the associations realm of responsibility. On the contrary, in Reeves v. Carrollsburg Condominium Unit Owners Association, a Washington, DC, case, the appeals court ruled that the associations failure to intervene created a "hostile housing environment" for the resident being harassed and threatened. The appeals court found that the associations bylaws authorized the board to address illegal behavior but it failed to do so. However, similar situations have occurred in other jurisdictions in which the court found just the opposite that the association was not responsible. This is an evolving issue with no clear, consistent direction from the courts. If a similar circumstance arises in an association you manage, contact the associations legal counsel immediately for a written opinion on how to respond appropriately. However, in similar circumstances, other courts have uniformly agreed that the association is not responsible for the behavior of one resident towards another. 5. Many boards and managers believe it is okay to enforce deed restriction violations only when a resident complains about a situation or a neighbors behavior or action. Scott Carpenter, a CCAL (College of Community Association Lawyers) member in Tempe, Arizona, disagrees. "Do all of your enforcement off of routine, objective and scheduled site visits and not off of individual complaints because you don't know another homeowner's motivation, says Carpenter. That way, if someone says that he or she is being targeted for enforcement because of race, the board can respond with evidence of transparent, objective policies. 6. In most situations, if authorized in the governing documents, a board may approve a resolution limiting the number of occupants per bedroom but cannot limit the number of children.
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According to Richard S. Ekimoto, in Journal of Community Association Law, Vol. 4, No. 2, 2001 An Overview of Reasonable Accommodations Under the Federal Fair Housing Act, It is vitally important for community associations to comply with the fair housing laws. Discrimination can have a devastating impact on disabled individuals. Moreover, violation of the Fair Housing Act can result in substantial penalties, damages, and attorneys' fees. Community associations should take a balanced approach in their consideration of requests for accommodations. An association's concern that a non-disabled individual is misusing reasonable accommodation to get preferential treatment should not outweigh its concern that disabled individuals be afforded equal enjoyment of their dwellings. Sometimes it's more important to resolve a problem amicably than to stand firm, especially when the disagreement has the potential to escalate into a discrimination allegation. Be open to finding a resolution that protects the association's interest and also addresses the individual complaint. You'll probably be better off in the long run." As written in the Common Ground, September/October 2009 article, Discriminatory Behavior, by Anna Stolley Persky, The simple solution is to have lawyers look over all association rules. After all, it's easier to amend the rules than to go through a discrimination complaint battle, lawyers say. Even better, let the attorneys review proposed regulations before they are enacted.
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Each state's statutes are different and the student is strongly encouraged to obtain a copy of their respective state's laws governing community associations. The laws governing community associations are complex and the students should always seek competent legal advice from an attorney who is experienced with community association law.
There are three types of state laws which may affect community associations: 1. General state statutes: Apply to community associations as well as other organizations, such as the not-for-profit corporation statute.
Slide 23
Types of State Statutes Applying to Community Associations
General State Statutes Applies to all types of associations, including community associations For example, regular corporate or not-for-profit corporate statutes
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Types of State Statutes Applying to Community Associations, continued
Uniform State Statutes National Conference of Commissioners on Uniform State Laws draft generic, content-specific wording for topical issues to encourage uniformity among the states For more information, visit www.nccusl.org
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A specific state statute for a certain type of community association takes precedence over any general statute that applies to the community association. Furthermore, a specific state statute takes precedence over a community associations governing documents unless it is written to allow for flexibility. For example, the statute might say, unless the documents provide otherwise. Specific state statutes can also be amended over time. In addition, their provisions can be retroactive (apply to past activities), as well as prospective (apply to the future). As community managers, you should stay informed about any specific state statutes that apply to your type of community association either on your own or through CAI and/or your communitys attorney. Any community association that is incorporated must be careful to follow the statutory requirements under which it is incorporated.
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Emphasize that each community type and each state may have different requirements for a specific hierarchy of authority of the documents.
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Each of these documents is discussed in some detail in the pages that follow. The higher a documents place in the hierarchy, the greater its legal weight in a court of law. Documents lower in the hierarchy cannot conflict with or change the terms of those above them. Whenever there is a conflict, the higher document will prevail. For example, if the declaration requires the imposition of a $5 late fee, the board cannot vote to raise the amount to $25. Only the owners can amend a clearly-stated provision in the governing documents other than the rules and regulations, unless otherwise provided in that document.
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Slide 28
Recorded Map, Plat, or Plan
Recorded before first parcel sold/title transferred Plat sets developments boundaries
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Declaration, CC&Rs, Proprietary Lease or Occupancy Agreement
In community developments, deed restrictions are recorded in one document instead of the deed/title for each lot or unit Condominium = declaration/master deed Planned Community = declaration of covenants, conditions, and restrictions (CC&Rs) Cooperative = proprietary lease/occupancy agreement
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More than any other single document, the declaration brings the condominium or the planned community into existence because it spells out the essential elements of ownership. The condominium or planned community comes into existence when the declaration is filed in the office of the local recorder of deeds or registrar of titles. The Declaration, Master Deed or CC&Rs generally: Defines the portions of the development owned by the individual owners and those owned by the community associationif any Creates interlocking relationships binding all the owners to one another and to the community association for the purposes of maintaining, governing, and funding the development Establishes standards, restrictions, and obligations in areas ranging from architectural control to prohibitions on various activities in order to promote harmonious living Creates the administrative framework for the operation and management of the community associationalthough many of the specific administrative details are spelled out in the bylaws Provides the mechanism for financial support of the community association through assessments Provides for a transition of control of the community association from the developer to the owners
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Slide 30
Articles of Incorporation
Brings corporation into existence Cooperatives must incorporate why? Other types of communities may incorporate varies by state Benefits of incorporating: - Limit liability of individual owners - Right granted all corporations - Easier to deal with utility companies, vendors, etc. - Grants the board the same rights as all board members of incorporated entities under state statutes
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Articles of Incorporation
Incorporation may or may not be a legal requirement for a community association. It is essential for cooperatives because the corporation owns all the property. The cooperative comes into existence when its articles of incorporation are recorded or filed. If a community association is incorporated, it is typically as a not-for-profit, or nonprofit, corporation. Stock usually is not issued for incorporated condominiums and planned communities, while stock may be issued to cooperative owners. Condominium associations often are incorporated, depending upon the requirements of applicable state law and attorney preference. In some states, condominium associations do not have to be incorporated because they are protected by a state condominium statute. A community associations corporate structure is established when a developers attorney creates the associations governing documents. The attorney may file articles of incorporationsometimes called a corporate charterwith the appropriate state corporation agency. Different states have different names for this agency. The articles of incorporation: Bring the corporation into existence Define its basic purposes and powers Indicate whether stock will be issued Indicate the number of board members and identify the initial board There are a number of benefits to incorporating a community association. Incorporation: May help to limit the liability of individual owners for acts of the community association Entitles the community association to the rights granted to all corporations under state lawthis could be useful in areas such as obtaining financing, obtaining insurance, or bringing suit against another party May make it easier to deal with other parties, such as utility companies or vendors Grants the board of directors the same rights as all board members of incorporated entities under state statutes
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Slide 31
Bylaws
Bylaws: Formal procedures for administration and management of the governing entity Examples: - Meeting procedures including voting rights - Board powers and duties - Indemnification of officers and directors
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Public Offering Statement
Public Offering Statement Provides association information to first prospective buyers Required by state statute Not considered a governing document
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Bylaws
Bylaws are formally adopted regulations for the administration and management of a community association. Sometimes bylaws are developed as part of the declaration although usually, they are a separate document. While bylaws should be included in the original set of governing documents prepared by the developers attorney, they are sometimes overlooked and must be created and adopted by the board after control of the association is turned over to the homeowners. Bylaws address such topics as: Requirements for membership in the community association Requirements for membership meetings Voting rights of member owners Procedures for electing the board of directors; qualification of directors Procedures for the board of directors to elect officers (in a very few associations, the association members elect the officers in addition to the board members.) General powers and duties of the board Provision for indemnification of officers and directorsexcept in cases of gross negligence or willful misconduct To indemnify and hold harmless means: To exempt an individual or entity from responsibility for claims made against the organization and To reimburse or directly pay for the individual or entity for damages or expenses incurred as a result of such claims
Resolutions
Rules and regulations for all three types of community associations are usually established by means of board resolutions. A resolution is a motion that follows a set format and is formally adopted by the board of directors. Resolutions may enact rules and regulations or formalize other types of board decisions.
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Class Exercise
Allow 20 minutes for this Class Exercise.
Run the Class Exercise. As a large group, have the class decide how to address the following question. Allow 5 minutes for the class to read the scenario and brainstorm responses. A new owner within the community calls you. She has received a delinquent assessment notice in the mail. She is angry. She did not know her home was in a community association and does not understand why another governmental bureaucracy is bothering her. As the manager, how would you respond? As for volunteers from the class to share how they would respond to this situation.
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Answer:
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Summary
Say You have learned: The fundamental legal concepts of a community association. The purpose of a community association. The different types of community associations. The sources of legal obligations for community associations. The different types of governing documents. How these items all impact you in your role as a community association manager.
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Key Terms:
Articles of incorporation Bylaws CC&Rs (Covenants, Conditions, and Restrictions) Community association Condominium Cooperative Declaration Equal Employment Opportunity Commission (EEOC) Fair Debt Collection Practices Act (FDCPA) Fair Housing Act Fair Labor and Standards Act (FSLA) Family and Medical Leave Act (FMLA) Federal Communications Commission (FCC) Telecommunications Act of 1996 Federal Insurance Contributions Act (FICA) Governing documents Indemnification Lien Master deed Master association Mixed use development Occupancy agreement Occupational Safety and Health Act (OSHA) Planned community Proprietary lease Public offering statement Resolution Soldiers and Sailors Civil Relief Act of 1940 (SSCRA) Statute Umbrella association U. S. Bankruptcy Code 55 and older community
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Summary
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 1 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review. Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. Define a community association and its three key characteristics. 2. What is the purpose of a community association? 3. Define the three basic types of residential community associations in terms of ownership rights. 4. What sources create legal obligations for community associations? 5. Describe some of the federal laws that affect community associations. 6. Explain the difference between general, specific, and uniform state statutes and give an example of each. 7. What is the purpose of governing documents for a community association? 8. List the basic governing documents for a community association. 9. What is the purpose of a recorded map, plat, or plan in terms of the legal rights and obligations of owners and the community? How does this document affect a community associations activities? 10. What purpose does a declaration, CC&Rs, or a master deed serve for a condominium, cooperative or planned community? How does this document affect a community associations activities? 11. What is the purpose of a proprietary lease or occupancy agreement in a cooperative? How does this document affect a cooperatives activities? 12. What is the purpose of articles of incorporation? What are the benefits to incorporating a community association? 13. What areas of community association activity do bylaws typically address?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. Is your community association part of a master or umbrella associationor a mixed use development? 2. Find out which general state statutes apply to your community association. (Hint: Ask your communitys attorney.) 3. Find out which specific state statutes apply to your community association, if any. 4. Find out whether your state uses any uniform statutes for community associations. 5. Look at a copy of any recorded map, plat, or plan for your community association. What can you learn from it? 6. Review your communitys declaration, CC&Rs, or master deed, if it has one. What does it tell you about: Ownership of different portions of the community association? Owner-to-owner relationships and community-to-owner relationships? Administration of the community? The transition of control of your community association from the developer to the owners? 7. Review your community associations proprietary lease or occupancy agreement, if it is a cooperative. What does it tell you about the maintenance of the unit? 8. Review your community associations articles of incorporation, if it is incorporated. What general topics do the articles address? 9. Review your community associations bylaws. What general topics do the bylaws address?
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Lesson 1 Quiz
1. Each of the following are key characteristics of community associations EXCEPT: a. Mandatory lien-based economic charges or assessments are levied on each owner in order to operate and maintain the community association. b. Membership in the community association is mandatory and automatic for all owners. c. A requirement of community association ownership is attending board meetings. d. Certain documents bind all owners to be governed by the community association. RATIONALE: This is one of the three key characteristics common to all community associations. Members of an association are not legally required to attend board of directors meetings; however, the overall success on the community is dependent upon the members involvement in its affairs. 2. True or False. The primary purpose of a community association is to provide for the governance, business, and communal aspects of the association. (True) RATIONALE: Providing for the governance, business, and communal aspects of the association is achieved by administering, maintaining, and enhancing a residential real estate development, and through the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations. 3. Each of the following are basic types of residential community associations EXCEPT: a. Planned community b. Townhouse c. Cooperative d. Condominium RATIONALE: While many communities are indeed townhouse design, not all such developments are necessarily legally-structured community associations. A community association is defined in terms of ownership rightsnot architectural style. 4. A _________________ is a motion that follows a set format and is formally adopted by the board of directors. a. Governing Document b. Plat c. Public Offering Statement d. Resolution RATIONALE: Resolutions may enact rules and regulations or formalize other types of board decisions.
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Additional Resources
For further information on the legal basis for community associations, we suggest the following: Community Association Law: Cases and Materials on Common Interest Communities, Second Edition, by Wayne S. Hyatt and Susan F. French. An ideal introduction to this important area of the law. Community associations bear similarities to not-for-profit corporations, municipal governments, and trusts, but are different. Community association law draws from all these fields but reflects the unique character and needs of common interest communities. The book combines academic rigor and practical knowledge. Primary materials include important cases, statutes (including proposed revisions to UCIOA), the Restatement (Third) of Property, Servitudes, and references to literature on common interest communities. (Carolina Academic Press, 2008.) Community Association Law Reporter, Wayne S. Hyatt, ESQ., Editor. A monthly newsletter that reports on current laws and legal decisions affecting community associations. (Community Associations Institute.) Community Association Legal Counsel: How to Select & Use An Attorney, (Guide for Association Practitioners, Report #13), Second Edition, by Thomas J. Hindman, ESQ. and Loura K. Sanchez, ESQ. Contains information on how to get the best out of your association attorney as well as what to consider when searching for a new one. Offers guidance for working out various fee structures and includes a five-part appendix consisting of a sample request for proposal, interview questions, evaluation criteria, billing statement, and more. (Community Associations Institute, 2002.) Condominium and Homeowner Association Practice: Community Association Law, Third Edition, by Wayne S. Hyatt, ESQ. Contains a comprehensive overview of the basics of community association ownership, including creating associations, governance, financing, design standards, enforcement, liability, and amending documents. Appendices contain a document drafting checklist, a sample table of contents for the declaration of a condominium association, and a sample table of contents for the bylaws of a condominium association. (American Law Institute-American Bar Association, 2000.) The Homeowners Association Manual, Fifth Edition, by Peter M. Dunbar, ESQ. Excellent overall guide for leaders and board members of community associations. Covers rules, meetings, elections, committees, volunteer leaders, budgets, insurance and amending documents. Includes sample documents. (Pineapple Press, 2004.) Developer Transition: How Community Associations Assume Independence, A Guide for Association Practitioners, by Amanda G. Hyatt Guides the reader through the transition process, methods and legal requirements. Covers how to draft documents, structure committees, develop leaders, and involve residents early. Includes a transition checklist. (Community Associations Institute, 2004.)
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Time 1 hour and 15 minutes Session Time Breakdown 45 minutesFaculty presentation 20 minutesWork group exercises 10 minutesSummary/quiz
Overview This session focuses on rules enforcement, which is one of the more stressful duties of a community association manager. Rules enforcement may create opportunities for direct conflict between the manager and an alleged violator. Many times alleged violators look at the enforcement process as harassment or an attack on them personally by the manager. You should focus on teaching the manager to develop good rulesthose that are necessary, yet fair and reasonable. These rules should benefit the entire community, be fully explained before they are enforced, and be easily understood. A good rule will be easy for everyone to comply. You should also focus on creating rules with positive rather than negative wording and tone. An effective enforcement policy is one that resolves issues to everyones satisfactionnot necessarily enforcing every rule to the exact letter of the law. Managers should understand that having compliance with the intent and spirit of the rule is much more desirable than exact enforcement. Whenever possible, encourage the board to look for compromise and be empathetic to the owners efforts to balance the rules with a desire to personalize their unit.
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Overview
Introduce the lesson. Say: The manager: Must understand the authority by which a rule is created, the process by which the rule is developed, and the effective methods of enforcement.
Must understand due process and appeals in the enforcement process. Must understand the concept of alternative dispute resolution in resolving rules violations. Must know when variances to the rules are acceptable.
How rules are created and the benefits of using the resolution format in creating rules. The benefits of alternative dispute resolution and how it can help you as a manager as well as your community associations. Why variances to the rules are sometimes acceptable and how to create a variance to apply to certain specific situations.
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Slide 34
Point out the Key Terms on PAGE 51 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Alternative dispute resolution Appeal Arbitration Architectural guidelines Cease and desist letter Default hearing Due process procedure Eviction Hearing Hearing notice Mediation Resolution Rule Self help
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Community associations use rules and architectural guidelines to: Promote harmonious community living Maintain, preserve, enhance, and protect the property values and assets of the community Careful rule making and enforcement are essential for community associations for several reasons: 1. There is the need to create a sense of fairness and equity among residents (owners and tenants). 2. In contemporary society, people are more likely to question and challenge authority. 3. In cases where rules have been poorly developed or enforced, the courts are ruling against community associations. Responsibility to make and enforce rules rests with the board of directors in a community. But the manager is expected to: Lead the board in making appropriate decisions for their specific community Give the board practical, technical, and administrative assistance in developing and enforcing rules Maintain records which can furnish legal support if board actions in adopting or enforcing rules are challenged Provide practical, technical and administrative advice This lesson explains: Authority to make and enforce rules for a community association Development of rules Enforcement of rules Whenever the term rules is used in this lesson, it refers to rules, regulations and architectural guidelines.
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A rule is a statement of required behavior. An architectural guideline is a rule that applies to the appearance or exterior of a lot, home, or unit.
For this session, we will refer to both rules and architectural guideline simply as rules. Rules are adopted to promote harmonyboth in living and design, to protect property values, and to limit the impact one persons behavior may have on his or her neighbors. In a community association, the scope of the rules cover the following areas: 1. Use of common property. Such as: Pets (number of pets, size of pets, kind of pets) Parking (number, size or type of vehicles) 2. Use of individual lots or units. Such as: Leasing of units Residential use only Changes to the interior structure or floor covering 3. Changes in the appearance of the lots or units. Such as: Paint color Landscaping Exterior doors Window treatments Flags and signs 4. Behavior of residents (owners and tenants) as well as guests. Such as: Excessive noise Disruptive or illegal behavior
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Criteria for a valid and enforceable rule Steps in developing a rule Benefits of using a resolution process to adopt rules Resolution format Development of architectural guidelines Use of a due process procedure to enforce rules Alternative dispute resolution Internal resources for enforcing rules External resources for enforcing rules Enforcement of architectural guidelines Architectural variance or change requests
In this section of the lesson, we will discuss the: Definition of a rule and guideline Scope of rules and guidelines Typical areas of rule making Relation of rules to the hierarchy of authority in community associations Sources of authority to make and enforce rules
Definitions
Lets begin with some basic concepts: A rule, also called a regulation or resolution, is a specific statement of required behavior or action, a violation of which carries a penalty (sometimes called a sanction). An architectural guideline is a rule that applies to the appearance of an owners lot or the exterior of his or her unit or improvements.
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Architectural Guidelines Introduce the topics commonly addressed by community association architectural guidelines. Ask the class to share their ideas and record them on your flip chart. Common examples include: Fencing Decks and patios Exterior lighting Landscaping Doors Window treatments Location of improvements upon lots Exterior materials Color of exterior surfaces Outdoor equipment, such as play sets Roof protrusions, such as skylights Ask for any other topics not listed here.
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Types of Resolutions
There are four types of resolutions for a common interest community: 1. Policy Resolutions: affect owners rights and obligations and usually address ambiguities and omissions in the declaration. (For example rules for the use of common areas and recreational facilities, architectural guidelines, and enforcement procedures.) 2. Administrative Resolutions: address the internal operations of the community association and usually address ambiguities and omissions in the bylaws. (For exampleoperating procedures, collection procedures, and where board meetings will be held.) 3. Special Resolutions: These are resolutions stating board decisions that apply a policy or rule to an individual situation. (For examplea decision about an alleged architectural violation.) 4. General Resolutions: These are resolutions which involve routine events. (For exampleadoption of the annual budget or approval of the minutes.) The power of the board to enact rules and regulations is generally defined in the declaration, bylaws and/or state statute. Sometimes, the boards right to enact rules is limited by the requirement that the members approve the rules. Resolutions should be kept in a Book of Resolutions. This is an orderly, indexed record of the resolutions adopted by the board. In some communities, it includes the resolutions adopted by the architectural guidelines committee as approved by the board. If your community association doesnt already do so, consider creating a Book of Resolutions by dividing a three-ring binder into sections by type of resolution. Enter resolutions under their designated category in the order of their adoption, or subject, or by unit address. This system makes the use and updating of a Book of Resolutions as simple as possible. You might also consider creating an electronic copy or version of your Book of Resolutions.
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There may be special uses of resolutions to clarify ambiguous or vague provisions of the governing documents or to address areas not mentioned. In some cases, the community association may be able to use resolutions in lieu of amending the governing documents. However, if the documents are clear, such as the requirement to impose a $5 late charge, then the only means to change the amount is by the amendment process which involves a vote of the owners. For example: The governing documents may not state when assessments are past due. The board, through an administrative resolution, could adopt a reasonable past due date. The governing documents provide that the association is responsible for the exterior maintenance and painting of the unit door and that the owner is responsible for the interior maintenance and painting of the unit door. However, they do not specify who is responsible for replacing the door itself or painting its edge. The board, through a policy resolution, could adopt a policy requiring the unit owner to be responsible for the replacement and edge painting of the door.
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Rule Development
Say All rules must be valid and enforceable. Lets examine the criteria. Must not have a component that violates fundamental constitutional rights such as discriminating on the basis of: o Race o Religion o Disabled persons Must be consistent with applicable laws, statutes, and governing documents. Possible rule creation areas such as: o Towing laws o Swimming pool regulations Must be reviewed for local ordinances or state laws that could conflict with an associations planned change to their rules. For example, a rule cannot be adopted in violation of law. If a municipality passes regulations regarding towing, then the association must comply. Must be reasonable and fair and cannot create a separate class or group. If a proposed rule does the following o Treating owner occupants differently than non-owner occupants o Limiting childrens access to the pool to certain hours it will most likely be invalid since it creates a separate class of residents/owners. Must be capable of uniform enforcement. o No selective enforcement procedures o No exceptions For example: All front doors must be blue, is capable of uniform enforcement. All front doors must be blue, except for rental units is not capable of uniform enforcement. Must be necessary.
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Rule Development
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Criteria for Valid Rules
Must not violate constitutional rights Must be consistent with laws, statutes, and governing documents Must reasonably relate to purpose of community Must be reasonable and fair Must be capable of uniform enforcement Must be necessary
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IMPORTANT NOTE
When in doubt about the legality of a rule, consult an attorney. It is always a good idea to have your communitys attorney review the wording of all rules and regulationsas proposed and as adoptedto ensure that they are legally sound and avoid conflict with other governing documents and the law.
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Steps in Developing Rules
1. Justify the need for the rule 2. Look at the immediate and long-term impacts 3. Find the authority to make the rule 4. Define the scope of the rule
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Adopting rules using the resolution process has several benefits. Provides a thorough, deliberate approach to making rules. Provides consistency in making rules. Provides a formal record of all rules made. Protects the association from arbitrary board actions. Protects against the adoption of invalid rules.
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5. 6.
7.
8.
9. 10.
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Point out the acronym PASS (Purpose, Authority, Scope and Intent, and Specifications) to help your students remember the four sections of a resolution.
Write the four sections of a resolution on your flip chart to help the class absorb the content.
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As we said in Lesson 1, a resolution is a motion that follows a set format and is formally adopted. There are several benefits to using the resolution process to adopt rules as opposed to using the simpler process of making motions. The resolution process: Provides a thorough, deliberate approach to making rules Provides for consistency in making and wording rules Provides a formal record of all rules made As a result, the process: Protects owners from arbitrary board actions Protects the community from charges that could result in invalid and unenforceable rules
Resolution Format
A resolution contains four sections. The acronym PASS is a helpful mnemonic device (Purpose, Authority, Scope and Intent, and Specifications). 1. PurposeThis section states why a rule is being adopted. For example: WHEREAS, there is a need to adopt specific rules on parking... 2. AuthorityThis section cites the primary source(s) of a boards authority to make a rule on the topic. Possible sources include statutes, declaration, articles of incorporation, and bylaws. For example: WHEREAS, the board of directors of _____ Homeowners Association, Inc. is empowered to govern the affairs of the homeowners association pursuant to Article IX of the bylaws... 3. Scope and IntentThis section states: o Who will be affected o For what period of time o The reach or range and extent of the rule o Penalties for noncompliance For example: WHEREAS, it is the intent that this rule shall be applicable to all owners, tenants, guests, invitees, or any others who have vehicles entering upon the common areas and this resolution shall remain in effect until otherwise rescinded, modified, or amended by a majority of the board of directors 4. SpecificationsThis section states clearly and completely what those bound by the rule will be expected to do. For example: NOW, THEREFORE, BE IT RESOLVED THAT the following rules on parking are hereby adopted by the board of directors: Revised Article IV, Section D of the parking rules will read: Parking spaces which are not marked Reserved shall be available on a first-come-first-served basis for visitors, guests, second cars, etc. No inoperable vehicle or vehicles with invalid registrations may park in these spaces. Owners of such vehicles are subject to the vehicle being towed at the owners expense.
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Development of architectural guidelines should begin with a review of the governing documents to determine in what areas the board can allow a change. Usually a community associations declaration, CC&Rs, or master deed provides for architectural changes. It is in the communitys best interests for a board to establish written architectural guidelines for two reasons: 1. Written guidelines indicate to owners what types of changes will be allowed under normal circumstances. 2. Written guidelines are a way to avoid claims of arbitrary or selective treatment of owners. It is in the boards best interests to establish an architectural guidelines committee. A committee can concentrate its effort and attention on this major task alone. It can also act as a buffer between the requesting owner and the board.
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Rule Enforcement
Define Due Process Procedure: A due process procedure is a formal process designed to protect the rights of all parties involved. Due process procedures should be used in rule enforcement to protect the rights of the association, the owners and the renters. Discuss the benefits of using a due process procedure: All alleged violations are handled in the same manner. Courts look favorably on this process. Resolution can usually be reached through the process. It gives the alleged violator the opportunity to be heard. It allows for alternative methods of resolving the alleged violation.
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Due Process Procedure
A formal process to protect the rights of all parties. Alleged violations all handled the same way Courts recognize and value the procedure Majority of violations can be resolved Non-threatening environment furthers voluntary compliance Provides opportunity to explore alternative means of resolution
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In this section of the lesson, we will discuss: Use of a due process procedure to enforce rules Alternative dispute resolution Internal resources for enforcing rules External resources for enforcing rules Enforcement of architectural guidelines Architectural variance or change requests As a manager, remember that your board has the responsibility to enforce rules. It may delegate to a committee the authority to review situations and make recommendations. Your responsibility as a manager is to : 1. Provide guidance to the board in the rule enforcement process 2. Help the board develop reasonable resolutions 3. Present infractions to the board and make recommendations 4. Encourage the board to consider the implications of their decisions From time to time, managers may have a board that expects them to handle all aspects of rule enforcement. As a community manager, you must help your volunteer leaders understand and accept your role as supporter and advisor to the enforcement process. A Compliance/Conciliation Committee can provide support to both the manager and the board by reviewing proposed rules and by initiating the enforcement process by regularly inspecting the property for violations.
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Say The steps in a due process procedure include: 1. Call the resident or send a courtesy letter to resolve the violation. 2. Issue a cease and desist letter. Notice of alleged violation Action to end alleged violation Time frame to comply Penalties for non-compliance 3. Issue a hearing notice. Consideration of alleged violation and sanctions 4. Conduct a hearing. This is a fact-finding session of allegations A default hearing if alleged violator does not appear 5. Issue a decision. After hearing all the facts 6. Allow for an appeal. Review by a higher authority If the hearing panel is a committee, then the board of directors acts as the appeals body. If the board is the hearing panel, the appeal will have to be to an outside authority such as an arbitrator or other uninvolved third party.
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Point out the sample resolution for a rules enforcement procedure on the following pages. It is an example of a due process procedure.
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The following are the basic steps in a community association due process procedure for handling alleged rule violations. If the violation is resolved after any of the steps, it is not necessary to continue the enforcement process. 1. Consider calling the resident or sending a courtesy letter to resolve the violation. Be sure to check your state statutes or governing documents for guidance with the formal enforcement process. While phoning a resident is the best customer service step to take, it may prolong the due process procedure if state statutes or governing documents require that the first formal step must be a cease and desist letter described below. 2. Issue a formal cease and desist letter by certified mail which contains: o Specific description of the alleged violation o The action required to resolve the alleged violation o A specific time within which the alleged violation must be corrected o The penalty (sanction) which may be imposed after a hearing if the alleged violation is not corrected within the stated time (specified by state statute, your governing documents or board resolution) 3. Issue a hearing notice if the alleged violation is not resolved within the stated time. This is a written notice to an alleged violator that a hearing will be held to consider his or her alleged violation. 4. Hold the scheduled hearing if the alleged violation is not resolved within the stated time. This is a fact-finding session. It is an inquiry into the allegations and an investigation of them. A hearing should be viewed as an opportunity for both the association and the alleged violator to hear the input of the other party, not to engage in additional conflict. Hold a default hearing in the absence of an alleged violator. A default hearing is one held when the alleged violator fails to appear. 5. Issue a decision after a hearing is held. The hearing panel determines the facts; whether or not a rule has been violated; the penalty to be imposed, if any; and the enforcement date of the penalty, if any. The hearing panel then issues this information in the form of a decision. A hearing panel may find an alleged violator to have committed a violation or notor decide that not enough clear evidence was submitted to allow the panel to reach a clear decision. No decision is ever given during a hearing to avoid claims that the hearing panel was predisposed to a particular point of view. The hearing panel should issue its written decision within the time frame mandated by state statute, the governing documents, or an administrative resolution by the board. If the board of directors is the hearing panel, its decision should be adopted as a special resolution. 6. Allow for an appeal of a decision. An appeal is a request for a review of a case by a higher authorityif permitted by the governing documents, resolution or statute. For exampleif the hearing panel is a committee, the board of directors acts as the higher authority. If the board of directors is the hearing panel, the alleged rule violator must appeal to an authority outside the community associationfor example, alternative dispute resolution.
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If applicable legal sources allow, some community associations shorten the due process procedure by combining the cease and desist letter with imposition of a penalty and a statement of the alleged violators right to a hearing to waive (dismiss) the penalty. If the alleged violator does not request a hearing within the stated time, the party is understood to have accepted the penalty. If the party does not fulfill the penalty, then a hearing is scheduled. It is also important to check the governing documents carefully, as many recent documents specify a due process procedure, which would prevail. In addition, check your state statues to determine whether deliberations can be held in private or must remain open, and if there are regulations regarding the issuance of the findings of the panel. Below you will find a sample resolution for a rules enforcement procedure. It is an example of a due process procedure.
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1. A copy of this letter will be sent to the person originating the complaint. 2. If the alleged violation persists past the 10 day grace period, a second letter must be sent by a complaining owner (not necessarily the first owner who complained) alleging that the violation exists. D. After the receipt of two letters of complaint within the prescribed period, a hearing will be held. 1. A hearing notice will be sent to the alleged violator stating: the nature of the alleged violation; the action requested to cure the alleged violation; the time and place of a hearing; an invitation to attend the hearing and produce any statement, evidence or witnesses (the number of which not to exceed the total number of hearing board members) on his or her behalf; a statement that a sanction may be imposed; and the maximum amount of any sanction. 2. An invitation will also be sent to the person or persons originating the complaint, inviting them to the hearing in order to produce evidence to substantiate their complaint. E. The board will hear testimony from both sides at the hearing and then excuse both parties and render a decision. F. Should a fine be imposed on the alleged violator, standard collection action may be pursued which may take the form of court action for damages, collected as provided by law. It is also possible that standard collection action may include the recording of the lien on the unit for nonpayment of the fine. G. In the case of non-owner-occupied properties, all applicable renters and owners will be provided copies of all correspondence.
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Slide 41
Alternative Dispute Resolution
Effective with serious disputes Used before lawsuit/court involvement Trained 3rd party Can include arbitration (binding or non-binding) or mediation (binding or non-binding)
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A number of community associations are turning to alternative dispute resolution as a means of encouraging people to comply with rules and guidelines. Alternative dispute resolution (ADR) refers to a process that has been around a long time. It involves submitting a dispute to a trained, uninvolved third party for assistance with solving a problem. The third partys decision may be nonbinding or the third party may merely act as a facilitator. However, this approach can be a more efficient and effective way to resolve a dispute than a drawn-out lawsuit. An alleged rule violator might consider ADR if he or she is dissatisfied with the community associations decision or appeal verdict. A community association might propose ADR when confronted with a difficult rule enforcement situation or the possibility of prolonged litigation. In many jurisdictions, ADR is either required or encouraged before filing suit or during the discovery process after the lawsuit was filedbut before trial. How Arbitration Differs from Mediation Arbitration is a process in which a third partycalled the arbitratorrenders a decision as to the respective liabilities of all parties. The object is not to reach a settlement; instead the arbitrator ultimately makes a ruling. It is an adversarial process that results in the same win-lose or lose-lose that you would see in litigation. The arbitration can be binding or non-binding. A binding arbitration typically cannot be appealed. Once the decision is rendered, unless you can prove fraud, the decision will be forever binding. This is true even if the arbitrator has made a gross deviation from existing law. For that reason, it is advantageous to hire an intelligent and well-informed arbitrator. A non-binding arbitration is advisory in nature. The decision that the arbitrator makes does not have to be followed. In that respect, it is like getting an opinion of your case from a neutral party, which could result in a fair settlement figure. In contrast, mediation is a non-adversarial process that is intended to bring about a win-win resolution. In this process a neutral third partycalled a mediator attempts to guide the parties into reaching a resolution or settlement that is favorable to everyone. It gives both parties a chance to present their side in a forum where confidentiality is guaranteed; however, as will be explained, it can be compromised. Mediation is often the first meaningful discussion the parties have, in which each party has the opportunity to face the other and work through the issues with the help of the mediator. Like arbitration, mediation can be binding or nonbinding, depending on the terms agreed upon between the parties before the session begins. The mediator does not attempt to blame either party and should not take sides. However, the mediator will often give his/her opinion on the outcome of the case, should it go to trial, in order to facilitate settlement. A good mediator also will attempt to make the parties see the realities of their position. Traditionally, a mediator will not hear any testimony and while the mediator may review documents to get a better feel for the issues, the mediator does not admit evidence into any record. The mediator also meets with individual parties so that the mediator can discuss issues privately. Arbitrators, on the other hand, never meet with the parties individually because it would not give the opposing party the ability to respond to the allegations.
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There are a number of internal resources a community can use to encourage an owner or tenant to conform to community association rules. Suspension of owners voting rights: While this may be the mildest action possible, a community association should still use it as a resource in encouraging rule violators to conform to association rules. The manager should make a recommendation of whether to suspend an owners voting rights, and the board should pass a formal resolution. Always consult with an attorney before suspending an owners voting rights. Suspension of the use of recreational facilities and common areas: If your community association uses this resource to encourage someone to conform to association rules, only privileges related to the violation should be suspended. (For examplesuspend pool privilegesnot parking privilegesfor a pool violation.) Fines: Be sure your community has the authority to impose fines, as well as to collect them. If a per day fine is imposed, the violation must be personally witnessed each day the fine is imposed. Fines must bear a reasonable relation to the violation involved. Some states have legislated the maximum fines allowable. Most courts will not allow a community to continue to fine until the amount owed becomes unreasonable. A community association must pursue other means of resolving an issue. Eviction: Eviction is the process of physically removing a tenant (not an owner) from a property. This process involves the local court system and the use of an attorney. Do not consider this alternative without consulting your communitys attorney. Many jurisdictions do not permit eviction as a remedy for violations. Self help: Self help means the community association takes action to correct the violation itself. Again, do not consider this potentially dangerous alternative without consulting your communitys attorney. Before your community considers using any of the internal resources for enforcing rules, be sure to verify that either a statute or a governing document gives it the authority to take such an action.
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Community associations can also draw on resources within the broader community to help them enforce association rules. Local government agencies and municipal services can be great resources for enforcing rules. However, you must ask for help. Take the time to build working relationships with each of the following parties. Local Health Department: Your local health department can be asked to enforce the local health code. Possible areas of violation include: Number of occupants in a unit Internal use of a unit or storage on a lot Pervasive stench or pet feces Local Zoning Department: This local agency can assist with enforcement of such rules as: Fence or shed regulations Setback restrictions Restrictions on commercial use of dwellings Removal of vehicles, boats, and trailers from lots or common areas Other matters involving common areas and lots Local Police Department: In some jurisdictions, the police will enforce traffic regulations or tow violators of the communitys parking rules. In others, notice must be given to the police before the community has a vehicle towed. The police also can help with noise control and suspected illegal activity, and offer onsite presentations on crime prevention. As a general rule of thumb, it is a good idea to develop a good working relationship with your local police department before you need its help. Local Fire Department: Your local fire department will help with enforcement of fire lanes and the removal of hazardous materials. They also offer onsite presentations on fire safety. Local Building/Housing/Property Standards Department: These terms refer to the local government office that issues building permits. This department may be able to help you if a unit is in violation of an existing building, plumbing, fire, or electrical code. The office may require the approval of a communitys board of directors before it will issue a permit. You also should note that this offices responsibilities can overlap with those of local zoning and health departments. Local Animal Shelter or Animal Control Officer: This agency is a good source of information on types of pets and weight classifications when your community association is defining rules for pets. You also can request that this agency patrol your community for animals in violation of its pet rules, or pick up animals that the association has caged. While local government agencies and municipal services can be great resources for enforcing rules, utilizing such entities can have repercussions for the community. Before you call or write, you should think through what enforcement of a code could involve. You should be prepared for all possibilities (e.g. shutting down a building, etc.). In addition, in certain situations, government agencies may be reluctant to enter private propertyso their assistance can be limited. On the other hand, when help is available, it is much better to have someone else wear the black hat instead of the association and the manager.
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Be sure to point out the sample architectural variance request form and the sample form for responding to variance requests on the following pages.
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A communitys enforcement of architectural guidelines can be upheld in a court of law. The keys to successful enforcement of architectural guidelines are the same as the keys to successful enforcement of other rules. (See the criteria for a valid and enforceable rule earlier in this lesson.) A manager should advise a board of any violations of architectural guidelines as soon as they are discoveredfor example, during a site visit of the property. The board should refrain from turning a blind eye toward violations. They should report any known violations to the manager in a timely manner. If unapproved architectural changes are permitted to exist, the association may be hindered if it later tries to enforce the rule that was violated. One resource for successfully enforcing architectural guidelines is an established process for handling architectural variance or exception requests. On the following pages, you will find a sample architectural variance request form and a sample form for responding to variance requests. Although our sample does not, some architectural variance request forms include a neighbor awareness section. It requires the applicant for a variance to obtain the signatures of two neighborsindicating that they have been informed of the pending changes. The signatures indicate only awareness of the request, not approval of the variance. Some states require obtaining signatures from affected owners. You, as the manager, or your community associations architectural control committee/review board should always inspect any variance made to ensure that it conforms to what was approved.
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7. I will be responsible for complying with, and will comply with, all applicable federal, state, and local laws; codes; regulations; and requirements in connection with this work, and I will obtain any necessary governmental permits and approvals for the work. I understand and agree that the _______________, its board of directors, its agent and the committee have no responsibility with respect to such compliance and that the board of directors or its designated committees approval of this request shall not be understood as the making of any representation or warranty that the plans, specifications, or work comply with any law, code, regulation, or governmental requirement. 8. I understand that a decision by the committee is not final and that the board of directors may reverse or modify a decision by the committee upon the written application of any owner made to the board of directors within ten (10) days after the committee makes its decision. 9. The contractor is:______________________________________ 10. If approved within twenty-one (21) days, the work would start on or about _________________________ and would be completed by ______________________________. 11. Any work not started on or before __________________ is not approved and planned construction is be subject to re-submittal to the committee.
Signature: ____________________________________
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Run the Work Group Exercise activity. Five work group exercises are described here. Divide the class into work groups of 3 to 6 persons depending upon the size of the class and assign an exercise to each group. Allow approximately 10 minutes for the work groups to complete their exercise. After the work groups have completed the exercises, have them share the problem and recommended solution with the remainder of the class (10 minutes). An alternative method for running this activity is to go through each exercises as a classinstead of breaking into smaller work groups.
Work Group Exercise #1 Prepare a resolution to allow residents to park recreational vehicles within the community. Use the general description of the community and the governing documents to structure your resolution. Answer: Purpose: There is a need to have a policy governing the parking of large vehicles. See Section 5.8(a)(7) of the declaration. Authority: Section 3.1(f) of the bylaws authorizes the board of directors to adopt rules. Scope: This should include all vehicles listed in the first sentence of Section 5.8(a)(7) of the declaration. Specifications: Should include vehicles parked in the lot at the rear of the property and not in the front or in the underground parking. Recall from the general description that there is substantial unused parking in this lot secluded in the rear of the community.
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Prepare a resolution to allow residents to park recreational vehicles within the community. Use the general description of the community and the governing documents to structure your resolution. Refer to the sample documents below and on subsequent pages. Answer: Purpose: ________________________________________________________________ ________________________________________________________________ Authority: ________________________________________________________________ ________________________________________________________________ Scope: ________________________________________________________________ ________________________________________________________________ Specifications: ________________________________________________________________ ________________________________________________________________
General Description
Bayview Towers is a condominium located on a twenty-acre parcel containing 240 units. There are six five-story buildings with eight units on each floor. Assigned parking is provided underground in each building. The layout of each building is the same. Each floor contains the following units: # of Units 2 1 3 1 1 Style One Bedroom One Bedroom/Study Two Bedroom Two Bedroom/Den Three Bedroom Size 824 sq. ft. 950 sq. ft. 1,192 sq. ft 1,450 sq. ft. 1,597 sq. ft. Parking Spaces 1 1 2 2 2
Each floor has 650 square feet of common area on each floor in the elevator lobby and hallways. The six buildings surround a small lake. There is a 2,600 square foot community center that includes the managers office, maintenance storage, an open area for parties and meetings, and a kitchen and rest rooms. There is one pool and two tennis courts. There are two open parking lots. One is near the clubhouse and office and accommodates 25 vehicles. The other lot is in a remote area at the rear of the property and accommodates 40 vehicles.
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Unit Type 1 Bedroom 1 Bedroom/ Study 2 Bedroom 2 Bedroom/ Den 3 Bedroom Totals
Size 824 sq. ft. 950 sq. ft. 1,192 sq. ft 1,450 sq. ft. 1,597 sq. ft.
# of Units 60 30 90 30 30 240
Bylaws
ARTICLE 3 Board of Directors
Section 3.1. Powers and Duties. The Board of Directors shall have all of the powers and duties necessary for the administration of the affairs of the Bayview Towers Condominium Association and may do all such acts and things as are not by the Condominium Act or the condominium instruments required to be exercised and done by the Association. The Board of Directors shall delegate to one of its members or to a person employed for such purpose the authority to serve as liaison to the managing agent and to act on behalf of the Board on such matters relating to the duties of the managing agent (as defined in Section 3.2) if any, which may arise between meetings of the Board as the Board deems appropriate. In addition to the duties imposed by these Bylaws or by any resolution of the Association that may hereafter be adopted, the Board shall on behalf of the Association: (a) Prepare and adopt an annual budget, in which there shall be expressed the assessments of each unit owner for the common expenses. (b) Make assessments against unit owners to defray the costs and expenses of the Condominium, establish the means and methods of collecting such assessments from the unit owners and establish the period of the installment payment of the annual assessment for common expenses. (c) Provide for the operation, care, upkeep and maintenance of all of the Property and services of the Condominium. (d) Designate, hire, and dismiss the personnel necessary for the maintenance, operation, repair and replacement of the common elements and provide services for the Property and, where appropriate, provide for the compensation of such personnel and for the purchase of equipment, supplies and material to be used by such personnel in the performance of their duties, which supplies and equipment shall be deemed part of the Property. (e) Collect the assessments against the unit owners, deposit the proceeds thereof in bank depositories designated by the Board of Directors, and use the proceeds to carry out the administration of the Property.
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Declaration Excerpt
Section 5.8 Restrictions on Use of Units and Common Elements: Rules and Regulations. (a) Restrictions. Each unit and the common elements shall be occupied and used as follows: (1) Except for the areas of the Condominium designed for a management office or commercial or recreational use and except as provided in the Declaration, no unit shall be used for other than housing and the related common purposes for which the Property was designed. The Board of Directors may permit reasonable, temporary non-residential uses from time to time. The Board may also permit the use of all or part of a residential unit for a professional office, provided that such use is consistent with all applicable laws, ordinances and regulations of any governmental authority. As a condition to consenting to such office use, the Board may require the unit owner to pay any increase in the rate of insurance for the Condominium that may result from such office use. Such permission may not be revoked later except for good cause shown. Nothing in these Bylaws shall be construed to prohibit the Declarant from using any unit owned by the Declarant for promotional, marketing, or display purposes or from using any appropriate portion of the common elements for settlement of sales of condominium units and for customer service purposes.
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(2) Nothing shall be done or kept in any unit or in the common elements that will increase the rate of insurance for the Property or any part thereof applicable for residential use without the prior written consent of the Board of Directors. No unit owner shall permit anything to be done or kept in the unit or in the common elements which will result in the cancellation of insurance on the Property or any part thereof or which would be in violation of any law, regulation or administrative ruling. (3) No improper, offensive or unlawful use shall be made of the Property or any part thereof, and all valid laws, zoning ordinances and regulations of all governmental agencies having jurisdiction thereof shall be observed. All laws, orders, rules, regulations or requirements of any governmental agency having jurisdiction thereof relating to any portion of the Property shall be complied with, by and at the sole expense of the unit owner or the Board of Directors, whichever shall have the obligation-to maintain or repair such portion of the Property, and if the latter, then the cost of such compliance shall be a common expense. (4) No unit owner shall obstruct any of the common elements nor shall any unit owner place or cause or permit anything to be placed on or in any of the common elements (except those areas designated for such storage by the condominium instruments or the Board of Directors) without the approval of the Board. Nothing shall be altered or constructed in or removed from the common element except with the prior written consent of the Board of Directors or the Covenants Committee, as appropriate (subject, however, to the applicable provisions of the Fair Housing Act regarding modifications by handicapped residents). (5) The common elements shall be used only for the furnishing of the services and facilities for which the same are reasonably suited and which are incident to the use and occupancy of the units. The lobbies, vestibules, hallways and stairways shall be used for no purpose other than for normal transit. (6) No unit shall be used or occupied for (i) transient or hotel purposes or (ii) in any event for an initial period of less than six months. No portion of any residential unit (other than the entire unit) shall be leased for any period; provided, however, that a reasonable number of roommates are permitted. No unit owner shall lease a unit other than on a written form of lease: (i) requiring the lessee to comply with the condominium instruments and rules and regulations; (ii) providing that failure to comply constitutes a default under the lease, and (iii) providing that the Board of Directors has the power to terminate the lease or to bring summary proceedings to evict the tenant in the name of the lessor after forty-five days prior written notice to the unit owner, in the event of a default by the tenant in the performance of the lease. The Board of Directors may suggest or require a standard lease form for use by unit owners. Each unit owner shall, promptly after entering into any lease of a condominium unit, forward a conformed copy of the lease to the Board of Directors. The foregoing provisions of this paragraph, except the restriction against use or occupancy for transient or hotel purposes, shall not apply to the Association, the Declarant, or a Mortgagee in possession of a unit as a result of foreclosure, judicial sale or a proceeding in lieu of foreclosure.
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(11) No unit shall be subjected to or used for any timesharing, cooperative licensing or other arrangement that would entail weekly, monthly or any other type of revolving or periodic occupancy by multiple unit owners, cooperators, licensees or timesharing participants. (b) Changes to Rules and Regulations. Each unit and the common elements shall be occupied and used in compliance with the rules and regulations that may be promulgated and changed by the Board of Directors. Copies of the rules and regulations shall be furnished by the Board of Directors to each unit owner. Changes to the rules and regulations shall be conspicuously posted prior to the time when the same shall become effective and copies thereof shall be furnished to each unit owner upon request. Section 5.9. Right of Access. By acceptance of the deed of conveyance, each unit owner thereby grants a right of access to the unit, as provided by Section 55-79.79(a) of the Condominium Act and Section 4.2(a) of the Declaration, to the Board of Directors or the managing agent, or any other person authorized by the Board or the managing agent, or any group of the foregoing, for the purpose of enabling the exercise and discharge of their respective powers and responsibilities, including without limitation making site visits, correcting any condition originating in the unit or in a common element to which access is obtained through the unit and threatening another unit or the common elements, performing installations, alterations or repairs to the mechanical or electric systems or the common elements in the unit or elsewhere in the Property or to correct any condition which violates any mortgage; provided, however, that requests for entry are made in advance and that any such entry is at a time reasonably convenient to the unit owner. In case of an emergency, such right of entry shall be immediate, whether or not the unit owner is present. Section 5.10. Utility Charges; User Fees. The cost of utilities serving the Condominium not individually metered or sub metered to specific units shall be common expenses allocated pursuant to Section 5.1. The cost of utilities serving one or more units and individually sub metered shall be a Limited Common Expense payable by the units served based on actual consumption of such services in accordance with Section 55-79.83C of the Condominium Act. Pursuant to Sections 55-79.83B and 5579.83C of the Condominium Act, the Board of Directors may impose reasonable user fees, whether or not designated as Limited Common Expenses, for the use of Reserved Common Elements or personal property of the Unit Owners Association or services provided by or arranged for through the Association. Section 5.11. Parking Spaces. All parking spaces shall be used by the unit owners for self-service parking purposes on a "first come; first served" basis, except as the Board of Directors may otherwise determine; provided, however, that no unit owner shall park on the common element parking spaces more than two vehicles (owned or leased by such unit owner, a member of such unit owner's household without the prior written consent of the Board of Directors. The cost of maintenance and repair of all parking areas shall be a common expense. During the time that units are being sold by the Declarant, no more than 24 parking spaces may be restricted to the Declarants use for sales purposes.
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According to the Bayview Towers Condominium Bylaws: (1) which group has the authority to assure that the community is well maintained and visually pleasing and is responsible for protecting property values and promoting the welfare and safety of the residents; and (2) which governing body is authorized to modify or reverse the decisions of this group? Identify where in the bylaws both of these clauses are outlined. Answer: (1) _____________________________________________________________ ________________________________________________________________ (2)______________________________________________________________ ________________________________________________________________
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Officers and directors shall have no personal liability with respect to any contract made by them on behalf of the Association. The liability of any unit owner arising out of any contract made by the officers or Board of Directors, or out of the indemnification of the officers or directors or managing agent, or for damages as a result of injuries arising in connection with the common elements solely by virtue of ownership of a Common Element Interest therein or for liabilities incurred by the Association, shall be limited to the total liability multiplied by such unit owners Common Element Interest. Every agreement made by the officers, the Board of Directors or the managing agent on behalf of the Association shall, if obtainable, provide that the officers, the directors or the managing agent, as the case may be, are acting only as agents for the Association and shall have no personal liability thereunder (except as unit owners), and that each unit owners liability thereunder shall be limited to the total liability thereunder multiplied by such unit owners Common Element Interest. The Association shall indemnify and hold harmless each of the members of the Covenant Committee from and against all liability to others arising out of the due exercise of such members responsibilities unless such members action shall have been taken in bad faith or contrary to the provisions of the Condominium Act or the condominium instruments. The Association shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was an officer or director or managing agent of the Association or a member of the Covenants Committee against expenses (including attorneys fees), judgments, fines and amounts paid in settlement incurred any such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Condominium. (b) Neither the Association nor the managing agent shall not be liable for any failure of water supply or other services to be obtained by the Association or paid for as a common expense, or for injury or damage to person or property caused by the elements or by any unit owner, or resulting from electricity, water, snow or ice which may leak or flow from or over any portion of the common elements or from any pipe, drain, conduit, appliance or equipment. Neither the Association nor the managing agent shall be liable to any unit owner for loss or damage, by theft or otherwise, of articles that may be stored upon any of the common elements. No diminution or abatement of any assessments, as herein elsewhere provided, shall be claimed or allowed for inconveniences or discomfort arising from the making of repairs or improvements to the common elements or from any action taken by the Association to comply with any law, ordinance or with the order or directive of any governmental authority. Section 3.12. Covenants Committee. (a) Purpose. The Board of Directors shall establish a Covenants Committee, consisting of three members appointed by the Board, each for a term of one year, in order to assure that the Condominium shall always be maintained in a manner: (1) providing for visual harmony and soundness of repair; (2) avoiding activities deleterious to the esthetic or property values of the Condominium; (3) furthering the comfort of the unit owners, their guests, and tenants; and (4) promoting the general welfare and safety of the Condominium community.
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Answer:
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Summary
Say You have learned: How to create rules that benefit the community and how to effectively enforce the rules in a less stressful environment while striving to protect the value of the community. How to use the resolution process to adopt rules. How to use due process in enforcing rules. How to use the alternative dispute resolution process in enforcing rules. How to use both internal and external resources in enforcing the rules. How to recognize and document acceptable resources for granting a variance to some rules.
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Key Terms:
Alternative dispute resolution Appeal Arbitration Architectural guidelines Cease and desist letter Default hearing Due process procedure Eviction Hearing Hearing notice Mediation Resolution Rule Self help
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 2 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. What are some reasons for establishing community rules and architectural guidelines? 2. Give some reasons why careful rule making and enforcement are essential for community associations. 3. What are a managers responsibilities in the rule making and enforcement process? 4. Describe the scope of rules and guidelines for a community association. 5. List some areas commonly addressed by community association rules. 6. List some areas commonly addressed by community association architectural guidelines. 7. Explain the four types of resolutions for a community association and give an example of each. 8. What are the two most important sources of a communitys authority to make and enforce rules? 9. Name and explain the eight criteria for a valid and enforceable rule or architectural guideline. 10. Name and explain the eight steps in developing a rule or architectural guideline. 11. Name some of the benefits of using a resolution process to adopt rules for a community association. 12. Explain the four parts of a resolution. 13. Give some reasons for putting architectural guidelines in writing. 14. How does establishing an architectural guidelines committee benefit a board of directors? 15. What are the benefits of using a due process procedure to enforce rules? 16. Define the six steps in a due process procedure for handling alleged violations of community association rules or guidelines. 17. Name and define some internal resources a community association can use to enforce its rules and guidelines. 18. Name and define some external resources a community association can use to enforce its rules and guidelines. 19. What can a community association do to increase the likelihood of a court of law upholding its enforcement of its architectural guidelines?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. Review the legal documents in your communitys hierarchy of authority. What authoritygeneral and specificdo they give your community association to make and enforce rules and guidelines? 2. Find out where your community association keeps its board resolutions. How are they organized? 3. Does your community association keep its rules in a Book of Resolutions or something similar? If so, what areas of rule making has your community association addressed? If so, what areas of architectural guidelines has it addressed? If so, can you find examples of each of the four types of resolutions a community association can adopt? If not, how can you arrange to consolidate all the community associations rules and guidelines in a central place? 4. What process does your community association use to develop rules and guidelines? Does it have a checklist or criteria for determining whether the rule or guideline it is developing is valid and enforceable? Are there any changes you can propose for your community association? If your community uses the resolution process to develop rules, is it following the standard resolution format? 5. Does your community association have written architectural guidelines? Does it have an architectural guidelines committee? If your community association lacks one or both, what reasons can you use to persuade your board that they are needed? 6. Is your community associations rule enforcement process a due process procedure? What aspects of the procedure led to your answer? 7. Has your community association ever used alternative dispute resolution? What can you deduce about the experience? 8. Find out which internal resources for enforcing rules your community association has used. (Hint: Examine past resolutions and minutes of board meetings. Ask people who would know.) 9. Does your community association have an established relationship with any of the agencies described in this lesson as external resources for enforcing your associations rules? Has it used any of these resources to enforce its rules? Which of these agencies have you established a relationship with? 10. Does your community association have a process and forms for handling architectural variance or change requests?
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Lesson 2 Quiz
1. Reasons for establishing community rules and architectural guidelines include each of the following EXCEPT: a. There is the need to create a sense of fairness and equity among residents. b. In contemporary society, people are more likely to question and challenge authority. c. In cases where rules have been poorly developed or enforced, the courts are ruling against community associations. d. Fines imposed on residents who break community rules are frequently the primary source of association income. RATIONALE: Careful rule making and enforcement are essential for community associations. Rules should never be passed simply to collect income for the associationthey must be necessary and intended to contribute to the betterment of the community. 2. True or false. According to the general hierarchy of authority for operating community associations, rules and regulations take precedence over the articles of incorporation. (False) RATIONALE: The hierarchy of authority means that rules and architectural guidelines may not contradict or be in conflict with the legal sources that take precedence over them. Although rules and architectural guidelines are lower in the hierarchy of authority for community associations, they may clarify and expand a communitys governing documentsbut may not conflict with the other governing documents, such as the articles of incorporation. 3. Which of the following is an example of an architectural guideline? a. pets b. noise c. fencing d. parking RATIONALE: An architectural guideline is a rule that applies to the appearance of an owners lot or the exterior of his or her unit or improvements, such as fencing. A rule is a specific statement of required behavior whose violation carries a penalty. Pets, noise, and parking are all examples of areas that often prompt community association rules. 4. Each of the following are benefits of using the resolution process to adopt rules EXCEPT: a. Provides an informal approach to making rules b. Protects owners from arbitrary board actions c. Protects the community from charges that could result in inoperable rules d. Provides for consistency in making and wording rules RATIONALE: There are several benefits to using the resolution process to adopt rules, as opposed to using the simpler process of making motions. Among these benefits is that it provides a formal, written record of all rules made.
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Additional Resources
For further information on rule development and enforcement, we suggest the following: Conflict Resolution: How ADR Helps Community Associations, A Guide for Association Practitioners, by Mary Avgerinos. Alternative dispute resolution negotiation, mediation, and arbitrationis far less costly than litigation and promotes harmony rather than discord. Learn how to avoidand manage disputes and build consensus among divergent groups. Contains numerous sample documents. (Community Associations Institute, 2004.) Design Review: How Community Associations Maintain Peace & Harmony, A Guide for Association Practitioners, by Byron R. Hanke and Richard Ekimoto, Esq. Enhance or maintain the aesthetics of your community and improve your architectural review criteria and compliance. Includes suggestions for designcommittee procedures and sample design guidelines to help you develop or update your own association manual. (Community Associations Institute, 2004.) Be Reasonable! by Kenneth M. Budd. A compendium of expert opinions from over 30 leading community association attorneys, managers, and directors. Provides effective strategies for drafting and enacting reasonable rules, identifying unreasonable rules and restrictions, working with owners, and reasonable enforcement procedures. (Community Associations Institute, 1998.) Conflicts of Interest: How Community Association Leaders Honor Their Duties, A Guide for Association Practitioners, by Tonia C. Sellers and Jay S. Lazega. Avoid conflicts of interest by reading about fiduciary obligations, conduct of directors, managerial conflicts, ethics policies and board conflicts. Contains sample policies, resolutions, code of ethics and cases. (Community Associations Institute, 2004.) Drafting Rules: How Community Associations Maintain Peace & Harmony, A Guide for Association Practitioners, by Gurdon H. Buck, Esq. Spells out the legalities of making rules and provides input for rules you may have overlooked. Contains sample community association rules (Community Associations Institute, 2004.) Pet Policies: How Community Associations Maintain Peace & Harmony, A Guide for Association Practitioners, by Debra H. Lewin. Find real solutions to old problems: how to have clean common areaseven when residents dont pick up; nuisance barking; how to deal with unusual animal problems; and more. (Community Associations Institute, 2005.) Reinventing the Rules: A Step-By-Step Guide for Being Reasonable, by Lucia Anna Trigiani, ESQ. Describes in detail the challenge that must be met in order to put our communities first by looking at rules from a new perspective. (Community Associations Institute, 2002.)
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Budgets and Replacement ReservesLesson 1 Collecting AssessmentsLesson 2 Financial Statements, Audits, Income Taxes, and InvestmentsLesson 3
Materials Needed
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In Module 2, Financial Management, you will learn about the basic financial activities of a community association and a managers typical involvement with them. At a minimum, a manager has a professional duty to oversee a communitys financial operations. However, a typical managers financial duties and responsibilities often go well beyond this minimum. Without giving up their authority and responsibilities, the board of directors and officers often delegate their financial duties in full or in part to a manager or management company. The following excerpt from a set of bylaws illustrates the typical financial duties of a treasurer delegated to management: The treasurer shall have the responsibility for the _______s funds and securities and shall be responsible for keeping full and accurate financial records and books of account showing all receipts and disbursements, for preparing all required financial statements and tax returns, and for the deposit of all monies and other valuable effects in the name of the ________ in such depositories as may from time to time be designated by the board of directors. The treasurer shall be responsible for the preparation of the budget. The duties of the treasurer may be delegated to the management agent. In such case, the duties shall be performed by the management agent under the supervision of the treasurer The financial duties delegated to a manager often are described in the management contract or employment agreement. However, a contract or agreement frequently will not include all the financial duties expected of or appropriate for a community association manager. As a new manager, request an initial discussion of what financial duties your board expects of you. It is recommended that the manager and the board periodically review expectations and performance to identify any needed changes. The financial duties and responsibilities expected of a professional manager, but not always spelled out, include: Exercise of ordinary and reasonable care Use of sound business judgmentinvolves a business decisions made with due care, good faith, and discretion Maintenance of an adequate record-keeping system Payment of bills in a timely, business-like manner Collection of monies owed to the community association in a timely, businesslike manner Use the information in Module 2 to help you professionally fulfill the financial duties and responsibilities assigned to you and expected of you.
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Module 2: Financial Management Review the Focus of Module 2 with the class.
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Financial Management
This section of the program will introduce you to: Budgets and Replacement ReservesLesson 1 Collecting AssessmentsLesson 2 Financial Statements, Audits, Income Taxes, and InvestmentsLesson 3
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Summary/quiz10 minutes Overview This lesson may cause some apprehension for those students who are intimidated about accounting, finance, or just math in general. You should make sure everyone understands we will be discussing fundamental concepts of what a manager should know about the financial operations of a community association, not the mechanical creation of the financial reports. While there will be some math exercises in the session, they are designed to show the concepts being discussednot the computations themselves. This lesson will cover all aspects of the financial operations of an association including budgets and replacement reserves. This session has both class and work group exercises. In some cases, there will be precise mathematical solutions. In others, there will be thoughts, ideas, and recommendations from the students. There are suggested answers to those exercises provided for you; however, you may find the class discussion and student recommendations to provide equally sound answers.
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Overview
Introduce the lesson Say: The topic of this session is the community association budget. The manager:
Must have a fundamental understanding of the budgeting process including the preparation of the budget for the board of directors consideration and the presentation of the adopted budget to the membership. Must understand the concepts of replacement reserves and how the amounts for reserve contributions are calculated.
The aspects of preparing and presenting a budget, including the requirements for having a budget, identifying components of the budget, looking at various line items, calculating assessment rates, and conducting a role play on budget presentation. How to review the sample documents to determine how to comply with the requirements regarding budget preparation. Replacement reserves and replacement reserve calculations.
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Slide 46
Point out the Key Terms on PAGE 101 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Assessment Baseline funding Budget Chart of accounts Discretionary budget line items Expenses FHA FHLMC FNMA Full funding Historical trend budgeting Mandatory budget line items Major improvement expenses Operating budget Operating expenses Percent funded Reconciliation of expenses and revenue Reserve account Reserve cash flow statement Reserve formula Reserve Specialist Reserve study Revenue Special assessment Threshold funding VA Zero-base budgeting
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This lesson provides an overview of the role of budgets and replacement reserves in community associations. The lesson explains: Roles and responsibilities in the budget process Budgets and replacement reserves and their use The sources of budget and reserve requirements Budget preparation Budget presentation
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Board of Directors
Most boards of directors are responsible for establishing, approving, and monitoring the communitys budget. Although they have the power to establish a budget, most will delegate preparation authority to their manager. When directors review a proposed budget, they should consider: Legal requirements of state statutes and governing documents Owners needs and desires (balancing mandatory and discretionary items) Committee and owner feedback The need to reconcile revenue and expenses (in a community association budget, revenue reconciles with expenses, meaning that they total each other. There should not be a net profit or net loss in a community association budget.) Any financial forecasts and analyses of past financial activity prepared by the manager
Treasurer
The community treasurer is responsible for ensuring that the draft budget is prepared and approved. He or she will usually delegate initial preparation of the budget to the manager. Then the treasurer will usually review the draft budget with a finance committee. It is important that the treasurer consult all committee chairpersons and invite owner input to ensure support of the planned revenue and expenses. Their participation and support would be especially important where a vote of owners is required or recommended for: An increase in assessments Special assessments Major improvements Funding replacement reserves Usually the treasurer presents the proposed budget to the owners at a formal, special meeting or at an informal, town hall-style community meeting. Frequently, community governing documents require that an open meeting be held before the board adopts a budget.
Owners
Some states and some community governing documents require that the budget be passed by a vote of the owners. The preceding discussion explains when and why owners should be involved in reviewing the proposed budgeteven when the board is responsible for its adoption.
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As community manager, your formal budget responsibilities are more likely to appear in your contract than in the communitys bylaws. Even if neither the declaration nor your contract spell out your budget responsibilities, informally you will be expected to: Prepare or be involved in the development of a draft budget Review it with the treasurer, finance committee if one exists, and ultimately the board and membership Revise it after any changes are made Mail a summary of the budget to the owners after board approval unless your governing documents or state statute requires otherwise
What is a Budget?
A budget is an annual financial plan for an organizationin this case, a community association. A budget provides an estimate of a communitys revenue and expenses for a specified period of time. It is the first step in managing your communitys financial operations.
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Sources of Budget Requirements
Federal laws and regulations State statutes, regulations, and court decisions Local laws and regulations Governing documents
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Budget items will vary from one community association to another. They also will vary from year to year for the same association. Many budget items develop in the normal course of doing business. However, a number of budget items appear because they are required by: Federal laws and regulations State statutes, regulations, and court decisions Local laws and regulations The communitys governing documents
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Governing Documents
The governing documents of your community: Define the property to be maintained by the community association Specify maintenance and service responsibilities and requirements Maintenance and service items will appear in the expenses section of your communitys budget
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Budget Components
Say The budget is comprised of two components: 1. Revenue 1) Owner assessments: Most revenue will be derived from owner assessments. 2) Interest: Interest earned from invested replacement reserves and/or excess operating cash. 3) Other revenue: Late payment fees Fines User fees 2. Expenses 1) Operating expenses: These are noted as administrative and operating expenses on the sample budget. They are items which occur on a routine basis for the operation of the association. 2) Major improvement expenses or capital improvements: These consist of items that are not required for daily operations, but may be added later to enhance value such as adding a gazebo or awnings. 3) Replacement funding: Amounts set aside for future replacement of existing major components.
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Budget Components
Revenue Owner assessments Interest Other revenue (includes late fees, fines, and user fees) Expenses Operating routine administration and operations Major improvements new Replacement fund repair or replacement of major components
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Budget Components
Point out the sample budget for Bayview Towers Condominium Association.
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Before you begin reading this section, you may want to pull out a copy of your community budget to review as you read through the following pages. The two main components of a community budget are revenue and expenses. The revenue and expense categories used in your budget must be the same categories used in your financial records, reports, and statements.
Revenue
Revenue consists of the collective items or amounts of income which, in the case of a community association, are appropriated for common expenses. The typical sources of revenue for a community association include: 1. Owner assessments: An assessment is the owners financial obligation to the community association during a given period of time usually one year. It covers the owners share of the common expense. An annual assessment may be paid on a monthly, quarterly, or annual basis, or however the governing documents dictate. Most of a communitys revenue will come from owner assessments. Occasionally, special assessments may be levied. A special assessment is a onetime assessment often voted on by the owners to cover a major expense that was not included in the annual budget or replacement reserve. 2. Interest: A typical source of revenue for communities is interest or dividends earned on their cash savings and investments. 3. Other revenue: Other sources of revenue include rent from commercial tenants, rent from lease of units, charges for resale packages, collection on insurance claims, legal settlements, easements, and antenna rental. Late payment fees Fines User fees: For exampleparking space rentals, laundry machine use, guest privileges, swimming pool use, and move inmove out fees. Note that we do not recommend creating a separate line item in your budget for fines and late fees, as that would give the wrong impression to the owners. We dont want them to think we hope they pay late and violate the governing documents because the association needs the revenue to balance the budget.
Expenses
Expenses consist of the cost of goods and services used to operate and maintain the associations common elements. Typically, there are three types of expenses for community associations: 1. Operating expenses: Operating expenses occur on a regular basis for the normal and usual services and repairs for the association For example Swimming pool management Professional and administrative services (management, legal, accounting, insurance) Utilities (electric, gas, water, oil) Contract services (lawn maintenance, elevator, trash removal, janitorial services, painting)
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Budget Preparation
A budget usually applies to a 12-month period. For example January 1 to December 31 (calendar year) July 1 to June 30 (fiscal year) Your communitys budget should be approved at least 45 days in advance of the start of the fiscal or budget year (check your state statute and governing documents). This will enable you to distribute copies of the approved budget to your owners before it goes into effect. Before you begin work on the budget, pull together all the related documents and reports you and your community associations accountant have prepared over the past year. (For examplethis years budget, any comparison of actual expenses to budgeted expenses, other financial reports or statements, and bills paid over the past year.) To meet approval and distribution deadlines, you should begin work on the next years budget several months in advance. Keep a file all year long with recommended budget items for the future, along with notices of rate increases from utilities and service providers. Ask residents for any wish list items for the coming year. Recommend that the board form a budget committee to assist with budget development. The budget packet should include the operating budget, a summary of the reserve budget, and a 35 year cash flow report combining the operating and reserve budgets. This budget packet, a statement as to whether special assessments are contemplated, and a description of the associations collection policies, should be distributed to the members within the time frame stated above.
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Budgeting by Month
In our next lesson, we will discuss the importance of thoughtfully and deliberately calculating each budget line item amount. One of the best financial management tools for both the manager and the board members is the Statement of Revenue and Expenses that, among other data, compares actual expenditures and revenue sources to budgeted amounts in each category. Logically, the report would be more informational if the budgeted amounts are shown in the months the revenue or expense is expected occur, rather than simply dividing the total expense by 12 months and showing 1/12 each month in the Statement of Revenue and Expense. For example, snow removal would show in winter months, pool lifeguard in summer months, etc. See the next page for a sample 12-month budget. When you compare actual figures with budgeted figures: Identify all significant differences or variances between actual and planned figures Determine the reasons for the differences and notify the board Advise the board of any necessary corrective action it needs to take as soon as possible On accrual basis reports, the budgeted assessment income should equal the actual assessment income
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Budget Presentation
Say Budget presentation is critically important to help the directors and owners understand and accept the managers planned expenditures. Here are some tips: Include a budget narrative that details your thought process in determining and substantiating the appropriate amount for each revenue and expense line item. Anticipate the line items in which the owners and board members will be most interested, and formulate your response both verbally and in the budget narrative: o Salaries and benefit costs, especially those of the manager. o Management fees. o Quality of life items, such as newsletters, socials, and volunteer recognition. o Other discretionary line items. Present information in an easy-to-read and easy-tounderstand format. o Do not provide too much information or complex explanations that will overwhelm the reader. For example, the manager may only want to focus on the budget line items with significant changes from the prior year and leave other budget line items with less significant changes out of discussion. If there are questions on these line items, the manager can always offer explanations. o Use charts, graphs, and other visual presentations o Use comparisons or trends to help explain line items, such as increases in utility costs. Obtain information on the past five years rate increases from utility and insurance companies.
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There are two questions to ask yourself when you are preparing to present a budget: What information will help my audience understand and accept my estimates of revenue and expenses? How can I present that information in an easy-to-understand format? There are two common mistakes to avoid when presenting a budget: Neglecting to present any information on how estimates were developed. Presenting so much information that people are overwhelmed and confused. When you are preparing to present your budget: 1. Identify the line items that your audience is likely to be interested in or question. 2. Identify any comparisons or trends that would help your audience understand why your estimate is what it is. 3. Decide whether a table or a visual presentation such as a pie chart or bar graph will most clearly demonstrate what is happening with the numbers. There are many ways to present historical information on line items to support budget estimates for the coming year. Here are three samples: 1. Line graph 2. Table 3. Bar graphThe bar graph below plots the utility expenses for a community association from 2007 through 2012. This graph allows the reader to see the changes in utility expenses over a six-year period. It also shows how these utility expenses compare to expenses for trash and landscaping and grounds during the same period. What conclusions about utility expenses can you draw from this bar graph?
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Reserve Account
Say Reserves are funds set aside for the future replacement of major components. The reserve account should be included as part of the community association budget packet. Reserves may be required by statute, regulations, mortgages, or by the governing documents. Cite an example of replacement reserves being required by the governing documents and by federal law, such as the FHA requirement that 10% of the annual budget must be allocated by separate line item to replacement reserves. Slide 53
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The reserve account consists of funds put asidein reservefor the replacement of major components of a communitys common property. Typically, the reserve account might be used to replace asphalt paving, concrete sidewalks, roofs, central heating and cooling plants, swimming pool, tennis courts, elevators, and many other property components. Revenue raised for adding a major item will be a major improvement expense. Revenue raised for replacing that item when it deteriorates will come from the reserve account. Major items that either come with the initial construction or are added later are placed on a replacement reserves schedule. The schedule is a framework for accumulating and spending the funds for replacing major components of the property. The funds are put aside over a period of time to ensure that adequate amounts are available to replace components when they need to be replaced either for deterioration or technological improvements. The components, cost to replace the components, and the remaining useful lives of the components will determine how much should be in the replacement reserves. It is important to note that the Internal Revenue Service does not consider painting an eligible reserve component, believing that it is an operating expense. For those associations that want to set aside funds for a regular paint program, they should create a separate line on both the balance sheet and the statement of revenue and expenses (see Lesson 3), separate from the reserve budget allocation and/or fund, to track the monies set aside for this project. Otherwise, if it audits the association, the IRS may impose additional tax obligations and penalties.
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Slide 54
Benefits of an Adequate Reserve Account
Meets legal, fiduciary, and professional requirements Provides for planned replacement of major items Equalizes contribution of new and old owners Minimizes need for special assessment Enhances resale value
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3. Maintaining a reserve account equalizes the contributions of old and new owners. Major items deteriorate during use. Although a roof may be replaced when it is 25 years old, every owner who lived under that roof should pay a share of its replacement. Just as both old and new owners benefit from the presence of such an item, both contribute to deterioration. 4. Maintaining a reserve account minimizes the need for special assessments. Owners, especially those on fixed incomes, have limited resources. They may not be able to afford the large special assessments that would be required if replacement reserves are insufficient to cover a major replacement. Special assessments have the reputation of being indicative of poor management. 5. Maintaining a reserve account enhances resale values. Lenders and real estate agents are aware of what a reserve account is and the ramifications for a new buyer if reserves for replacement are inadequate. Many states have replacement reserves disclosure requirements for potential buyers in a community association. Most lenders require adequate replacement reserves before approving a loan application. Some states require replacement reserves for replacements and/or replacement reserve studies.
Funding Goals
The answer to the critical question of how much replacement reserves are enough or adequate is not simple. Each association has different needs, so $100,000 may be excessive to one association but an extremely small amount to another. One standard method of measuring the size of an associations reserve account, providing information about how the account measures up against the needs of the association, is the concept of percent funded. Percent funded allows an association to measure the relative size of their replacement reserves compared to a fully funded reserve balance. Depending on the associations funding objectives, the associations funding plan can range from conservative to aggressive. Note that reliance on future special assessments is not considered part of a responsible funding plan. Funding plans are expected to project the revenue and expenses of the reserve account for 30 or more years. Many associations include the effects of interest earned from their reserve accounts on deposit and the effect of inflation on projected future expenses. While interest earnings tend to reduce the effects of inflation, the two factors do not offset each other since interest is earned only on the reserve balance, while inflation affects the total replacement cost of all the reserve components.
Reserve Study
Maintaining the associations common property is among the managers and boards most serious responsibilities, and it takes a long range plan to prepare successfully for repair or replacement of the associations major common area assets. The reserve study is a budget planning tool with which the association expects to offset ongoing deterioration and prepare for inevitable future expenses. Reserve projects are typically the largest expenses that an association faces, and proper financial preparation is essential.
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Slide 55
Benefits of a Reserve Study
Fulfills fiduciary duty Meets state requirements Meets AICPA requirements Reduces liability Saves planning time Effective communication tool Reveals unbudgeted items
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The reserve study is used for developing a reserve account budget. The study addresses all major common physical components of the property that the association must repair, replace, restore, or maintain. The study should contain, at a minimum, a statement of the remaining useful life of each item; an estimate of the current cost of repair, replacement, or restoration, of those items; and an estimate of the total annual contribution necessary to defray the cost of repair, replacement, or restoration, of those items after deduction of existing reserve funds. In essence, the study must include all items for which the community has long-term replacement responsibility. Consequences of not having a reserve study Underfunding: Special assessments, bank loans, deferred maintenance, or a combination of these Overfunding: Paying too much (more than owners fair share), for the benefit of future owners Board member liability: Exposure to claims of fiscal irresponsibility and loss of D&O insurance coverage Reserve study benefits to community managers and board members Fulfilling fiduciary responsibility Meet individual state requirements (for regulated states) Compliance with the American Institute of Certified Public Accountants (AICPA) audit guide for community associations (An auditor must note in his or her report if the reserve funding amount is absent or inadequate.) Reduce personal liability from claims of financial mismanagement Save valuable time with prioritized business plan for capital repairs and replacements Effective communication tool to keep owners informed Reserve study can turn up maintenance issues that havent been budgeted in ongoing operations The physical components in community associations are constantly changing. As a reserve study is based upon facts at the time the study was conducted, managers and boards should plan for an update of their reserve study on a regular basistypically from three to five yearsto ensure accuracy. Annually, the manager and board should review its reserve study, particularly its funding plan because the associations physical assets may deteriorate at different rates, interest and inflation rates change, and the association may change its reserve strategy from conservative to aggressive (or vice-versa). Associations should be encouraged to plan responsibly for the future, using the reserve study as a valuable tool. Interest earned on the investment of reserve funds can be added to the replacement reserves on hand. If you do not update your reserve budget each year, you should add its interest income directly to the reserve account. This will help your reserve account keep up with increases in prices due to inflation.
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Reserve Specialist
Whenever possible, use an experienced, qualified person to prepare a reserve study because of the technical detail involved. If the board believes it cannot afford to use a specialist or one is not available in your market, the board should consider hiring a local engineer or qualified contractor and providing him or her with CAIs A Complete Guide to Reserve Funding & Reserve Investment Strategies (Guide for Association Practitioners Series). Most managers are not qualified to prepare a reserve study or a reserve budget. Attempting to do so may increase your liability exposure and result in loss of the management contract if the reserve budget numbers are incorrect and the association either overfunded or underfunded the reserve account. CAI established the Reserve Specialist (RS) designation program to help community managers and board members identify qualified reserve study providers and to assist communities in developing their reserve study. Utilizing a Reserve Specialist means managers and boards can obtain proposals from competent reserve study providers and make informed business decisions to responsibly fund their associations replacement reserves. What is the value of having the reserve study conducted by a Reserve Specialist? Reduced liability exposure: Community managers and board members can limit liability by relying on expert advice. Independence: No potential conflict of interest. Focus: Allows managers and board members to concentrate on running the association. Credibility: If the person or committee preparing the reserve study isnt credible enough to effect a change in the associations budget, there is no point expending time on the study. A Reserve Specialist, by virtue of his or her credential, has already established respect and credibility with the board. Accuracy: The Reserve Specialist does this year-round, and is wellversed in the implications of all the decision points. A reserve cash flow statement shows the amount to be funded and the amount to be expended from the replacement fund over a given period of time.
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Run the Work Group Exercise activity. Three work group exercises are described here. Divide the class into work groups of 3 to 6 persons depending upon the size of the class and assign an exercise to each group. (Feel free to assign the same exercise to multiple groups.) Allow approximately 10 minutes for the work groups to complete their exercise. After the work groups have completed the exercises, have them share the problem and recommended solution with the remainder of the class (10 minutes). An alternative method for running this activity is to go through each exercises as a classinstead of breaking into smaller work groups.
Work Group Exercise #1 Using the budget sample, prepare for a role play in which the members of the work group will be answering audience questions. This budget reflects a 15% increase from last year. The areas that have increased the most from the previous budget are payroll, benefits, insurance, and repairs. Also note that an increase is projected in the management fee category. Anticipate questions the board and owners may pose to you. Questions to be posed from the audience during the role play are not to be provided to the work group, but either asked by the instructor or audience members selected during the role play. Q. The payroll costs go up every year. Why do we need all this staff? A. To attract quality staff. Increases reflect satisfactory performance reviews. It is better for associations to have long-term, qualified staff than high turn-over which results in employees who are in various stages of training.
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Q. Why are you increasing the management fee in January? What is the management fee for anyway? Why do we need a management company and a site-manager? Im sure the manager could do the job by him- or herself. A. A loaded question. Companies have to cover ever increasing costs. This could be the first increase in several years. Many times, management companies are hesitant to raise fees on an annual basis because of potential concerns such as this. The increase could also be pre-set in the contract to reflect a multi-year agreement. To provide the highest level of service to the community, the site manager is needed along with support for knowledge, experience, administrative support, and financial record keeping from the management company.
Q. Why do we waste all this money on newsletters and socials? I just want my grass mowed and the parking garage kept clean. A. For the overall benefit of the entire community, these types of items enhance community value and the quality of life. Theres much more to an association than just maintenance. Since many different individuals live in our community association, you can be assured that there are individuals who fiercely support the newsletter and social activities as they believe that these association involvements provide community.
Q. Why are we paying taxes? I thought we were nonprofit? A. There is a big difference between being nonprofit and taxexempt. Community associations must pay taxes on revenue earned from sources other than member assessments.
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Answer:
Answer:
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Payroll Taxes Provide for employer portion of payroll related taxes estimated at eight percent of gross payroll expense. Employee Benefits Provide for health and life insurance, workers compensation and other benefits estimated at 12 percent of gross payroll expense based on current bids for medical and life coverage and actual workers compensation rate. Employee Education Provide for training, seminars, and other educational courses. Two courses for onsite manager at $345, maintenance course for maintenance man at $500 and customer service class for all three employees provided by management company at no charge to the association. Utilities Provide common area electricity, water, and gas. Rate increases as follows: water 3%; sewage 7%; water meters $5 each; electricity 4%; gas 2% Elevator Provide for full service contract for six elevators. No rate increase. Includes 6 after-hour emergency calls @$150 per hour. Patrol Provide for daily drive-through patrol service, parking enforcement, and 10 non-contract visits for annual meeting, Neighbors Night Out, and emergency calls. Landscape Provide for complete landscape management program including routine maintenance, disease and pest control, fertilization, and seasonal color. 3% increase. Trash Removal Provide for contractor to service seven dumpsters three times each week. We eliminated a fourth weekly pick-up to reduce 8% increase to 2%. Pool Provide for complete pool management program including routine cleaning and maintenance. No rate increase. Repairs Provide for common area repairs as needed. Calculated at an increase of 5% over previous years actual expenses, less roof repair costs eliminated because roof was replaced last December. Painting Provide for interior common area lobby and hallways. 1% increase to reflect increased cost of paint. Taxes Provide for income taxes on all nonexempt revenue. Reflects 30% of estimated revenue other than assessments.
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Using the zero-based budgeting method of budget preparation, develop a budget line item for the creation, production, and delivery of the newsletter for Bayview Towers, the sample community.
Answer:
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Summary
Say You have learned: Page 133 How to prepare and present a budget. The importance of funding the reserve account.
Key Terms:
Assessment Baseline funding Budget Chart of accounts Discretionary budget line items Expenses FHA FHLMC FNMA Full funding Historical trend budgeting Mandatory budget line items Major improvement expenses Operating budget Operating expenses Percent funded Reconciliation of expenses and revenue Reserve account Reserve cash flow statement Reserve formula Reserve Specialist Reserve study Revenue Special assessment Threshold funding VA Zero-base budgeting
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 1 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. What are some sources that typically provide information on the financial duties and responsibilities delegated to a community association manager? 2. What are some examples of financial duties and responsibilities typically expected of a professional manager? 3. What is the role of a board of directors in the budget process? What is a treasurers role? What do committees do? What is the role of the owners? What does a manager do? 4. What is a budget? What is the role of a budget in community management? What are some of the uses of a budget? 5. What are the different sources of budget requirements? Give an example of each for your community association. 6. What is revenue? Name the different types of revenue for a community association. Give an example of each from your association. 7. What are expenses? Name the three types of expenses. Give an example of each from your community association. How do the three types of expenses differ from one another? 8. What are the reasons for maintaining a reserve account? 9. What is the typical time period covered by a budget? 10. Why should a budget be approved at least 45 days before the budget year begins? 11. What are budget line items? Whats the difference between mandatory and discretionary line items? What are some characteristics of meaningful budget line items? 12. Name and define the two basic methods of budget preparation. Why should a combination of both methods be used to prepare an operating budget? 13. What is the purpose of a reserve study? What do the line items in a reserve account budget consist of? What four items of information do you need to calculate a reserve account budget line item? 14. What does it mean to reconcile a community associations revenue and expenses for the coming year? 15. What are some rules of thumb to follow in order to make an effective budget presentation?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. What are some financial duties and responsibilities your board expects of you? How do you know? 2. What are the formally required roles in your community associations budget process for the board, the treasurer, committees, owners, and yourself? (Hint: See your communitys governing documents and your contract.) What are the informally expected roles for each? (Hint: What do people ask of one another or act as if they expect?) 3. When you look at this years budget for your community, what policy decisions do you think it reflects in terms of what your community association will do and will not do this year? 4. What budget requirements are set for your community association by: Applicable federal laws and regulations Applicable state statutes, regulations, and court decisions Applicable local ordinances and regulations Community association governing documents 5. When you look at the line item expenses in your communitys budget, can you tell which are mandatory and which are discretionary? 6. Check your community associations software or records to find its chart of accounts. Are the same account titles and numbers used in the budget and in financial reports? 7. Can you find out what method or methods were used to prepare your communitys current budget? 8. What historical information is available to you for preparing the next budget? 9. Does your community association have a reserve account budget? If not, can you find out why not? How can you help your board and owners see the need for one? If so, how has the reserve account budget been prepared? Given what you learned in this lesson, are there any changes in line items to propose? Are there any changes in how the budget is prepared to propose? 10. Find out what documents were used to present the current budget to the board before it was adopted. (Hint: Check the files.) Were any documents other than the draft budget prepared? If so, what were they used for? If not, what other documents do you think could have been prepared to help explain the proposed budget?
1.
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Lesson 1 Quiz
1. True or false. Community managers are ultimately responsible for establishing, approving, and monitoring the communitys budget. (False) RATIONALE: Most boards of directors are responsible for establishing, approving, and monitoring the communitys budget. Although they have the power to establish a budget, most will delegate preparation authority to their manager. 2. Which of the following officers is responsible for ensuring that the draft budget is prepared and reviewed? a. Treasurer b. President c. Secretary d. Vice President RATIONALE: The community treasurer is usually responsible for ensuring that the draft budget is prepared and reviewed. He or she will usually delegate initial preparation of the budget to the manager. Then the treasurer may review the draft budget with a finance committee. It is important that the treasurer consult all committee chairpersons and invite owner input to ensure support. 3. Each of the following agencies are federally established secondary mortgage institutions EXCEPT: a. Environmental Protection Agency b. Federal National Mortgage Association c. Veterans Administration d. Federal Home Loan Mortgage Corporation RATIONALE: Federally established secondary mortgage institutions may set requirements that community associations have to meet if owners are to participate in their financing programs. These agencies regulate and influence such items as the amount of insurance a community association must carry, procedures for financial operations, and requirements for the upkeep of property. The Environmental Protection Agency is not an example of a secondary mortgage institution. 4. True or false. The two main components of a community budget are revenue and expenses. (True) RATIONALE: The two main components of a community budget are revenue and expenses. The revenue and expense categories used in a budget must be the same categories used in financial records, reports, and statements.
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Additional Resources
For further information on budges and replacement reserves, we suggest the following: Reserve Funds: How & Why Community Associations Invest Assets, 2nd Edition, A Guide for Association Practitioners, by Mitchell H. Frumkin, PE, PP, RS, MBA, and Nico F. March, CFM, Editors. Reserves are essential to the successful, long-term operation of a community association. Learn how to establish the right funds and invest them responsibly, and how to comply with federal and state regulations. Second edition has been updated relative to current economic conditions. Appendices include FAQs and summaries of state reserve-fund laws. (Community Associations Institute, 2009.) The Board Treasurer: Roles and Responsibilities in Community Associations, A Guide for Association Practitioners, by Howard A. Goldklang, CPA, MBA. Not just for treasurers. Contains information on all aspects of association financesstatements, balance sheets, assets and liabilities, members equity, reserves, investments, audits and more. Outlines the treasurers duties and how to prepare documents, work with boards and handle delinquencies. Contains sample documents. (Community Associations Institute, 2006.) Community Association Finances. A collection of 31 of the best articles from Common Ground magazine covering assessments, cutting costs, generating revenue, budgeting, protecting assets, reserves, investing and taxes. (Community Associations Institute, 2005.)
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Time 60 minutes Session Time Breakdown 30 minutesFaculty presentation 20 minutesClass Exercise 10 minutesSummary/quiz
Overview This session focuses on basic information a manager can use to assist and support a boards efforts to fulfill its duty to establish and collect assessments. Materials Needed
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Overview
Introduce the lesson Say This lesson provides an overview of assessmentsthe lifeblood of a community association as its major source of revenue. If adequate assessments are not collected in a timely manner, the community association will not be able to operate, preserve, maintain, and enhance its common property.
Overview the session Say We will discuss: The sources of authority to collect assessments. The benefits of establishing a collections policy. Legal remedies available to community associations for collecting delinquent assessments. The impact of a bankruptcy filing on the association.
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Overview, continued
Go through the Lesson 2 learning objectives with the class.
Slide 56
Point out the Key Terms on PAGE 141 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Acceleration Assessment Bad debt write-off Chapter 7 bankruptcy Chapter 11 bankruptcy Chapter 13 bankruptcy Fair Debt Collection Practices Act Foreclosure Lien Maintenance fee Personal money judgment Soldier and Sailors Act Special assessment
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This lesson provides an overview of assessmentsthe lifeblood of a community association as its major source of revenue. If adequate assessments are not collected in a timely manner, the community association will not be able to operate, preserve, maintain, and enhance its common property. The lesson provides basic information a manager can use to assist and support a boards efforts to fulfill its duty to establish and collect assessments. It explains: Owner assessments and special assessments Authority to collect assessments Establishing annual assessments Collection policies and procedures
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Overview, continued
Define Assessment and Special Assessment
Slide 57
Assessments
Assessment Owners financial obligation to a community association during a given period of time Special assessment One time assessment, often voted on by owners to cover a major expense such as a major repair or replacement
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Say The authority to collect assessments comes from three sources: 1. Federal laws and regulations. Including Fair Debt Collection Practices Act and the Soldiers and Sailors Civil Relief Act. 2. State statutes. Typically regulate an associations authority to collect assessments. 3. Governing documents. Routinely cover: Mandatory nature of assessments Authority to collect assessments Purpose or use of assessments Basis for calculating assessments Reasons for levying fines, fees, etc. Payment procedures Collection procedures for delinquent payments
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Assessment: As covered in Lesson 1, an assessment, sometimes called a maintenance fee, is the owners financial obligation to the community association during a given period of timeusually one year. It covers the owners share of the common expense (known as common expense liabilities in some states). An annual assessment may be paid on a monthly, quarterly, or annual basis. An assessment for an owners share of the common expenses is a binding legal obligation based on the community associations governing documents. In condominiums and planned communities, assessments are binding obligations that the owner cannot avoid. Special assessment: A special assessment is A one-time assessment, often voted on by owners, to cover a major expense, such as a major repair or replacement or improvement that was not included in the annual operating budget. To protect your community associations interests, your governing documents should include a broad definition of assessments, if your state law does not. A broad definition includes: Monthly (or quarterly or annual) and special charges against all units for common expenses Special charges that may be levied against a particular unit, such as late fees and interest, collection costs (including attorneys fees), fines, fees, payment for damages to the common property Additional charge that may be levied against all owners to pay for a major expense not included in the operating budget
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Module 2: Financial Management SAMPLE: Covenant Language on the Collection of Assessments, continued
NONPAYMENT OF ASSESSMENTS Any assessments or other charges or payments that an owner is required to make or is liable for hereunder which are not paid when due shall be deemed delinquent. If an assessment or other charge or payment is not paid within thirty (30) days after the due date, it shall bear interest from the due date at the contract rate permitted in _____, but not to exceed eighteen percent (18%) per annum, and the board (i) may bring an action against the owner personally obligated to pay the same, together with interest, costs, and reasonable attorneys fees of any such action, which shall be added to the amount of such assessment or other charge or payment and shall be included in any judgment rendered in such action and (ii) may enforce and foreclose any lien which it has or which may exist for its benefit, together with interest, costs, and reasonable attorneys fees of any such action, which shall be added to the amount of foreclosure judgment. In addition, the board may in its discretion charge reasonable late fees for the late payment of assessments or other charges. No owner may waive or otherwise escape liability for the assessments or other charges or payment provided for herein by nonuse, abandonment, or transfer of his dwelling unit.
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Slide 58
Benefits of an Established Collection Policy
Educates owners about their obligations to the association and the consequences of not meeting those obligations on time Provides a checklist and a road map to guide a board and a manager Avoids charges that the association is proceeding in a selective or discriminatory way Helps preserve harmony among owners
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Slide 59
Characteristics of an Effective Collection Policy
1. Established by a formal resolution of the board 2. Specify only actions that are within the power of the association and its board 3. Set a firm due date for assessments 4. Outline the steps to be taken when a payment is late 5. Allow for discretion in special cases 6. Specify when a delinquent assessment should be referred to legal counsel 7. Provide for the collection of any costs associated with collecting delinquent assessments
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Every association should adopt a formal collection policy in which all actions are automatically and systematically executed. Educate owners about consequences of failing to pay assessments and other charges on time To ensure consistent handling of delinquent accounts To avoid selective or discriminatory actions against delinquent accounts To give equitable treatment and preserve harmony among owners
CAUTION: Because of recent legislative and media efforts to limit the right of community associations to foreclose on delinquent assessments and assessments, your board may want to consider requiring board member approval before referring an owner to the attorney and posting a home for foreclosure instead of establishing an automatic process as described above.
7. Provide for the collection of any costs associated with collecting delinquent assessments. The right to recover attorney fees, management company collection fees, and costs from a delinquent party should be guaranteed by state statute, the governing documents, or resolution.
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Slide 61
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Enforcement of collection procedures and remedies should be prompt, systematic, and aggressive. Do your best to be all three when collecting delinquent payments! When a payment is late, your community associations collection policy should tell you: When late notices are to be sent and how frequently What late notices should say What late or collection fee to assess the delinquent owner When collection should be turned over to legal counsel When to accelerate assessment payment Acceleration is the collection of all assessments due through the end of the fiscal year. For example, if an owners payments for the annual calendar-year assessment are due monthly and become delinquent at the end of March, all monthly payments through December of that year are due immediately. Usually, if acceleration is not authorized in state statutes or the associations governing documents, it cannot be implemented by board resolution. Various state statutes generally govern the legal remedies available to a community association for collecting delinquent payments from owners. Because statutes and case law vary from state to state, your board and attorney should determine what is allowed by law before implementing any policy or procedure. Furthermore, always assess the cost effectiveness of taking various actions to recover delinquent assessments.
Extra-Judicial Remedies
There are remedies outside the courts that a community association can use to encourage a delinquent owner to pay what is owed. If your board wants to use any of the following procedures, they must be provided for in a state statute, the governing documents, or a formal board resolution. Verify your community associations authority to use any of these extra-judicial procedures before implementing them. Extra-judicial procedures to get an owner to pay a delinquent amount include: Imposing a late charge or interest penalty on delinquent accounts Requiring a security deposit of a certain number of months of estimated assessments from an owner with a history of delinquency Acceleration Suspending the owners use privileges, such as pool access Suspending the owners voting and other participation rights Other, more drastic legal measures an association may employ to collect delinquent payments from owners include the following:
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As discussed in Module 1, a lien is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. The automatic lien in a community association protects the associations interests. It encourages payment of the debt. Among other consequences of a lien, the owner cannot sell or transfer the unit without settling the debt. The lien against an owners unit must be authorized by your community associations applicable statutes or governing documents. Most statutes enabling the establishment of a community association or governing documents require that assessment liens be subordinate to any mortgages or government claimssuch as taxes or child supportagainst an owners property. Subordinate means that these other claims must be satisfied before that of the assessment lien. In most states, the recording of the declaration constitutes a prior recorded assessment lien against the unit owners interests. Some state statutes have authorized a super lien or community asset protection lien. It provides a limited six-month priority for the community associations assessment lien over the lien of a first mortgage holder. Your attorney can handle the recording of any liens against the title to a unit in the land records. The form used varies by state. While the lien is automatic and exists without recording it in most states, perfecting the lien by recording it provides public notice of the debt.
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Bankruptcy Actions
Say A bankruptcy filing imposes strict laws on the association. It is illegal for a creditor (the association) to violate the debtors (delinquent owners) protection under federal and state laws. As soon as you are aware that an owner has filed for bankruptcy: Cease all collection efforts. Contact your legal counsel. Forward copies of all notices to your legal counsel. Explain to the class that the three types of bankruptcy involve Chapter 7, Chapter 11, and Chapter 13.
Slide 62
Bankruptcy
Immediately take three actions: 1. Contact legal counsel (attorney) 2. Forward any bankruptcy notices to counsel 3. Stop all collection efforts Types of bankruptcy: 1. Chapter 7 liquidation 2. Chapter 11 corporate reorganization 3. Chapter 13 personal reorganization
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3. Chapter 13: Chapter 13 is used to reorganize personal or non-corporate debt. A plan is submitted to a judge for paying off all or some of the debt over a specified period of time while waiving other debt that may have been incurred prior to filing for bankruptcy. Chapter 13 establishes a payment plan detailing the amount that must be paid and the time period for repaying it. Creditors do not have to agree to the plan. As with Chapter 11, a creditor has more of a chance of eventually being repaid under Chapter 13 than Chapter 7.
Uncollectible Payments
A payment that cannot be collected from an owner is called a bad debt. When a community association determines that a debt cannot be collected from an owner after a reasonable effort has been made, it should write off the debt. A bad debt write-off consists of recording an uncollectible debt as an expense that the association must absorb. This usually requires a resolution of the board.
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Class Exercise
Allow 20 minutes for the Class Exercise.
Run the Class Exercise. Run this activity as a classinstead of breaking into smaller work groups.
Class Exercise Based on the information about the sample community, prepare a collections policy for Bayview Towers. Identify the references in the governing documents that empower you to establish and enforce your policy. Answer: Section 5.3 of the Declaration gives the Board of Directors the authority to collect assessments and take action against any owners who are delinquent. Capture your notes here.
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If the replacement reserves are inadequate for any reason, including nonpayment of any unit owners assessment, the Board of Directors may at any time levy a further assessment, which shall be assessed against the unit owners according to their respective Common Element Interests, and which may be payable in a lump sum or in installments as the Board may determine. The Board of Directors shall serve notice of any such further assessment on unit owners by a statement in writing giving the amount and reasons therefore, and such further assessment shall, unless otherwise specified in the notice, become effective with the next periodic payment which is due more than ten days after the delivery of such notice of further assessment. All unit owners so notified shall be obligated to pay the adjusted periodic amount or, if such further assessment is not payable in installments, the amount of such assessment. Such assessment shall be a lien as of the effective date as set forth in subsection (c). (e) Initial Budget and Initial Capital Payment. (i) Upon taking office, the first Board of Directors elected or designated pursuant to these Bylaws shall determine the budget, as defined in this section, for the period commencing thirty days after such election and ending on the last day of the fiscal year in which such election occurs. Assessments shall be levied and become a lien against the unit owners during such period as provided in subsection (c). (ii) The Declarant, as the agent of the Board of Directors, will collect from each initial purchaser at the time of settlement an initial capital payment equivalent to twice the estimated periodic installment of the annual assessment for common expenses, if any, fur such purchasers unit. The Declarant will deliver the funds so collected to the Board of Directors to provide the necessary working capital for the Association. Such funds may be used for certain prepaid items, initial equipment, supplies, organizational costs and other start-up costs, and for such other purposes as the Board of Directors may determine. (f) Effect of Failure to Prepare or Adopt Budget. The failure or delay of the Board of Directors to prepare or adopt a budget for any fiscal year shall not constitute a waiver or release in any manner of a unit owners obligation to pay the allocable share of the common expenses as provided in this Declaration whenever the same shall be determined and, in the absence of any annual budget or adjusted budget, each unit owner shall continue to pay each periodic installment at the rate established for the previous fiscal year until notified of the periodic payment which is due more than ten days after such new annual or adjusted budget is adopted. (g) Accounts. All sums collected by the Board of Directors with respect to assessments against the unit owners or from any other source may be commingled into a single fund. Section 5.2. Payment of Common Expenses. Each unit owner shall pay the common expenses, including Limited Common Expenses, assessed by the Board of Directors pursuant to the provisions of Section 5.1. No unit owner may be exempted from liability for the assessment for common expenses by reason of waiver of the use or enjoyment of any of the common elements or by abandonment of the unit. No unit owner shall be liable for the payment of any part of the common expenses assessed against that unit subsequent to the date of recordation of a conveyance by such unit owner in fee of such unit.
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Summary
Say You have learned:
The sources of authority to collect assessments. The benefits of establishing a collections policy. Legal remedies available to community associations for collecting delinquent assessments. The impact of a bankruptcy filing on the association.
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Key Terms:
Acceleration Assessment Bad debt write-off Chapter 7 bankruptcy Chapter 11 bankruptcy Chapter 13 bankruptcy Fair Debt Collection Practices Act Foreclosure Lien Maintenance fee Personal money judgment Soldier and Sailors Act Special assessment
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 2 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. Explain the difference between assessments and special assessments. 2. Name the three sources of a community associations authority to collect assessments. 3. How is the amount of a community associations total annual assessment determined? 4. Describe the most common methods for determining an owners share of the total annual assessment. 5. List some possible consequences for a community association when owners are delinquent in paying their assessments. 6. List some benefits a community association receives from an established policy for collecting assessments. 7. What are the seven characteristics of an effective collection policy? 8. What are the basic collection procedures to use when an owners assessment payment is late? 9. What extra judicial remedies are available to a community association for collecting delinquent assessments? What legal remedies are available? 10. How does a foreclosure affect the collection process? 11. How does an owners bankruptcy affect the collection process? 12. What must a community association do when it cannot collect money due from a delinquent owner? 13. What are some ways a community association can make up any shortfall in collecting assessments?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. What authority to collect assessments can you find in your community associations governing documents and the specific statute enabling its establishment, if any? 2. How does your community association assign each owner his or her share of the total annual assessment? 3. Does your community association have a formal collection policy for collecting delinquent assessments? If so, which of the seven characteristics of an effective policy discussed in this lesson does it have? If not, what reasons can you give your board for adopting one? 4. What are your community associations procedures for collecting late payments from owners? 5. What extra-judicial remedies for collecting delinquent payments has your community association used in the past? (Hint: Check any formal collection policy, ask people who have been involved with the association for awhile, or look in its files.) 6. What legal remedies for collecting delinquent payments has your community association usedor can it use? (Hint: Look at your associations governing documents, any state statute, any formal collection policy, or the community associations legal files, or check with your associations attorney.) 7. Does your community association have a standard bad debt write-off resolution it uses? 8. Has your community association ever had a collection shortfall? If so, how was it handled?
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Lesson 2 Quiz
1. Each of the following statements regarding community association assessments are true EXCEPT: a. Assessments penalize residents for violating association rules b. An assessment is the owners financial obligation to the community association during a given period of time c. An assessment for an owners share of the common expenses is a binding legal obligation based on the community associations governing documents d. An annual assessment may be paid on a monthly, quarterly, or annual basis RATIONALE: Assessments are not a penalty or fine for residents who violate association rules. Instead, assessments cover an owners share of the common expenses, and are one of the three defining characteristics of all community associations. 2. Because a community association relies on the timely collection of assessments in order to meet operating expense requirements, delinquent payments may result in each of the following EXCEPT: a. Property beginning to appear run-down b. A budget surplus c. Disharmony between paying owners and delinquent ones d. Essential maintenance becoming unaffordable RATIONALE: Instead of creating a budget surplus, a large number of delinquent payments can actually lead a community association to increase annual assessments for all residents to cover the deficit. 3. True or false. An established collection policy educates owners about their obligations to the community association and the consequences of not meeting those obligations on time. (True) RATIONALE: If owners are informed about their obligations and the consequences of not meeting them, they are more likely to pay timely. 4. An effective collection policy should exhibit each of the following EXCEPT: a. Be established by a proper formal resolution of the board b. Prohibit the referral of delinquent assessments to legal counsel c. Set a firm due date for assessments d. Allow for discretion in special cases RATIONALE: An effective collection policy should specify when to refer a delinquent assessment to legal counsel. This step should be automatic once a delinquent assessment reaches a specified age or amount. Once an account is turned over to legal counsel, it is critical that all further communication be between the community associations attorney and the delinquent owner or the owners attorney. The manager and/or board should not be involved in discussions with anyone other than the associations legal counsel.
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Additional Resources
For further information on collecting assessments, we suggest the following: Delinquencies: How Community Associations Collect Assessments, A Guide for Association Practitioners, by Loura K. Sanchez, Esq., and Thomas J. Hindman, Esq. An informative guide covering collections policies and procedures, legal remedies to collect delinquencies, the effect of bankruptcy on collections, the Fair Debt Collection Practices Act and more. Includes sample letters and a collections resolution. (Community Associations Institute, 2008.) Member Dues: How Community Associations Collect Assessments, A Guide for Association Practitioners. Learn how to create a payment system that works! This guide explains six kinds of remittance systems and helps you decide which is best for your association. Contains numerous sample documents. (Community Associations Institute, 2005.) Tips for Protecting Your Association Finances. A handy brochure for board members and key employees regarding finances. Offers tips on important aspects of association finances: audits, financial statements, signatory control, investment policies, and more. (Community Associations Institute.)
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Time 60 minutes Session Time Breakdown 20 minutesFaculty presentation 20 minutesStudent exercises 10 minutesFacilitated group discussion 10 minutesSummary/quiz
Overview Because of the fundamental nature of this course, you should not attempt to explain in detail the most complex issues involving taxation or investments. You should make sure the students understand that each association must file a tax return, that there are annual options regarding the type of form to file, and that the membership should adopt the rollover resolution each year at their annual meeting. Likewise with investments, your role is to ensure that the students understand that the board should adopt a written investment policy that the manager can implement and oversee, and that the manager should not provide investment advice to the board of directors except, perhaps, to point them to www.bankrate.com. Materials Needed
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Overview
Introduce the lesson Say This session about the financial aspects of the community association. The manager:
Should be able to review the financial reports of a community association and evaluate its financial condition. Must know that all community associations must file tax returns and are subject to taxation. Must not give investment advice to the board of directors and must follow the adopted investment policy of the board.
The purpose and types of financial statements. Three types of accounting methods. The difference between an audit, review and compilation. Federal income tax requirements and responsibilities for community associations. Investment policies and objectives for community associations.
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Slide 63
Lesson 3: Financial Statements, Audits, Income Taxes, & Investments Session Overview
Learning Objectives
Identify the purpose and types of financial statements. Identify and explain the three types of accounting methods. Differentiate between an audit, review and compilation. Recognize federal income tax requirements and responsibilities for community associations. Explain investment policies and objectives for community associations.
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Point out the Key Terms on PAGE 167 in the Participant Workbook. These words are defined within the lesson on the specified page.
Say Financial statements have two primary purposes: 1. To provide information for making appropriate decisions about the community association. 2. To enable the board and the manager to control the financial operations of the community association.
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Key Terms:
Accrual basis of accounting Assets Audit Balance sheet Bond Cash basis of accounting Certificate of deposit Commercial reporting method Comparison to budget Compilation CPA Deficit in members equity Engagement letter Excess of revenues over expense Expense FDIC Fund balance Fund reporting method GAAP GAAS Income Investment liquidity Investments Investment safety Investment yield Liabilities Management letter Members equity Modified cash basis of accounting Net revenue Net loss Notes to financial statements Opinion letter Representation letter Revenue Review Statement of cash flows Statement of changes in members equity (or fund balances) Statement of revenue and expense Treasury bills Treasury bonds Treasury notes
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This lesson provides an overview of additional financial operations for community associations. It explains: Financial reports Independent certified public accountant services Federal income taxes Investments
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Federal income tax filing responsibilities for community associations Federal income tax filing options for community associations Investment options for community associations Investment checks and balances Managers typical investment-related duties Investment policies and procedures for community associations Essential investment objectives Asset protection
This section provides some background information on financial reports in general. Financial reports have two primary purposes: 1. To provide their internal and external users with the information needed to make appropriate decisions on behalf of or regarding the community association. 2. To enable the community association board and manager to control the communitys financial operations.
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Types of Accounting
Say There are three types of accounting methods: 1. Cash basis records revenue when it is collected and expenses when they are paid. It is similar to a checkbook. It is a very simple method to use and is perceived as easy to understand. However, it often does not provide a true picture of the associations financial condition. 2. Accrual basis records revenue when it is earned and expenses when they are incurred. It provides an accurate picture of the associations financial condition. 3. Modified cash basis records revenue on the accrual basis and expenses on a cash basis with selected items on an accrual basis. For example, the association may accrue a large roof repair payment that will be due in a few months, but will not accrue any other expenses that were incurred but not yet paid. The best way to understand the differences between the three types of accounting methods is to review an example. Refer students to Cash vs. Accrual Comparison on the following pages. Note how given the same facts, two distinctively different financial pictures are portrayed. On the cash basis, the Members Equity shows $11,300 with a $6,300 profit for the month. However, this is misleading; look at the accrual basis. By including all amounts due to the association and all amounts due from the association, it is obvious that this is a much more accurate picture. In fact, the association actually lost $500 this month and the Members Equity is only $4,500. Emphasize to the class the substantial differences in financial reporting between these two methods.
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Types of Accounting
Slide 64
Accounting Methods
Cash Basis Income when received Expense when paid Accrual Basis Income when earned Expense when incurred Modified Cash Basis Records income and expenses on a cash basis with selected items recorded on an accrual basis Most common = records income (assessments) on the accrual basis and expenses on the cash basis Also known as Modified Accrual
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Use your flip chart to recreate the table below. This exercise will help the class better understand the difference between the three types of accountingby examining how revenue and expenses are recorded.
Revenue Cash Basis Accrual Basis Modified Cash Basis Received Earned Earned
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Beginning Cash Balance: Deposits were: Current months assessments Next months assessments Late fees Interest Other Checks written: Management fee Electricity Water Repairs Trash removal Billings were: Current months assessments Current months late fees Invoices received but not paid: Insurance Patrol Legal Other repairs
5,000
14,000 300
An invoice has not yet been received from the landscaper; however, the monthly contract amount for the work performed is $4,000.
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Module 2: Financial Management Page 171 THE SAMPLE CONDOMINIUM FINANCIAL STATEMENTS FOR THE MONTH ENDED JULY 2012
CASH BALANCE SHEET ASSETS Cash Accounts Receivable Other Assets Total Assets LIABILITIES Accounts Payable Accrued Expenses Prepaid Assessments Total Liabilities MEMBERS EQUITY TOTAL LIABILITIES/EQUITY
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ACCRUAL
11,300 0 0 11,300
0 0 0 0 11,300 11,300
STATEMENT OF REVENUE AND EXPENSE REVENUE Assessments Interest Late Fees Other Total Revenue EXPENSES Legal & Audit Management Fee Insurance Electricity Water Patrol Landscape Trash Removal Repairs Total Expense REVENUE/LOSS
600 1,000 1,800 800 1,500 1,000 4,000 800 4,100 15,600 (500)
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Financial Statements
Say There are three components to financial statements: 1. The statement of revenue and expense 2. The balance sheet 3. Subsidiary reports contain detailed information to support the financial reports, such as a check register, accounts receivable list, or accounts payable list. The statement of revenue and expense is a record of the associations financial transactions and activities over a given period of timeusually a month, plus the fiscal year to date. Its purpose is to track the financial activity of the association. The statement of revenue and expense should be compared to the budget to provide a variance report. The statement of revenue and expense is the title of the report commonly used for not-for-profit entities, and is sometimes erroneously referred to as an income statement.
Slide 65
Be sure to point out the sample statements of revenue and expense on the following pages.
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Interim financial reports are prepared during the year to provide the board and management with accurate economic information that will allow them to make decisions and take action in a timely manner. Interim financial reports are often presented on a modified cash basis. For example, a modified cash basis report may include an accrual item such as assessments owed but not paid yet (accounts receivable). This gives a more complete financial picture. At a minimum, interim financial reports should include: A statement of revenue and expense with a comparison to budget A balance sheet Accompanying information to the financial reports should include: Bank statements with reconciliations Aged receivables report (amount owed by owners) Open payables report (amount owed by the association)
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Module 2: Financial Management ABC Condominium Association, Inc. Statement of Revenue and Expense for the Month Ending April 30th and 20XX to Date (Four Months Ended) With a Comparison to Budget
REVENUE Assessments Interest Other Total Revenue EXPENSES Administrative: Management Fee Legal & Audit Insurance Telephone Other Total Administrative Operating: Payroll & Related Taxes Professional Fees & Training Utilities Elevator Security Lawn Maintenance Trash Removal Pool Repairs & Maintenance Depreciation Income Taxes Total Operating Total Expenses Net Income Before Contribution to Reserves Contribution to Reserves Net Revenue (Loss) April 20XX $ 62,623 3,894 2,050 $ 68,567 Actual Year to Date $ 250,492 15,577 8,198 $ 274,267 Budget Year to Date $ 250,490 15,248 5,667 $ 271,405
$ 12,263 287 23,964 1,029 328 531 1,610 1,332 6,220 250 1,838 $ 49,652 $ 57,647
$ 49,052 1,149 95,857 4,116 1,313 2,127 6,438 5,328 24,879 1,000 3,677 $ 194,936 $ 226,915
$ 46,726 2,000 103,979 4,637 570 3,406 7,003 6,229 17,811 2,821 $ 195,182 $ 229,349
$ 42,056 (42,056) $
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Module 2: Financial Management Page 175 Sample Statement of Revenue and Expense
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Slide 66
Financial Reports, continued
Balance Sheet Snapshot financial condition at a specific point in time What association owns and owes and its net worth ASSETS = LIABILITIES + MEMBERS EQUITY and ASSETS LIABILITIES = MEMBERS EQUITY
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A balance sheet is a summary of a communitys financial position at a specific point in time. A balance sheet summarizes: What your community association owns What your community association owes The net worth of the association It is called a balance sheet because what the community association owns (assets) and what it owes to others (including the owners) (liabilities and members equity) must balance out. A balance sheet typically is prepared on a monthly basis to allow the board of directors and manager to carefully monitor the associations finances. There are three major components of a balance sheet: 1. Assets: Assets include anything owned that has value. Unlike commercial businesses, however, the actual land and buildings of the community association are not generally shown as an asset, although the association may include assets that can be sold without an owner vote. For cash basis reports, cash usually is the only asset. 2. Liabilities: Liabilities consist of what is owed to others or collected in advance (e.g. owner assessments received prior to the billed month). 3. Members equity or fund balance: Members equity of fund balance equals the difference between the community associations assets and liabilities. Industry standards suggest a minimum balance of 2-5% of gross assessments with 10-15% being very good. When a community associations liabilities exceed its assets, this condition is known as a deficit in members equity. It occurs when a community association has incurred expenses that it cannot pay until it collects future assessments from owners or sells assets. If the association is dissolved on the day the financial statements/balance sheet was created, the equity would be distributed or charged to the owners. Occasional small decreases in members equity are common during a normal fiscal year due to such things as seasonal fluctuations in expenses. A continued or increasing decrease, however, is an indication of an inadequate level of assessments or overspending, and a signal for board action. Can you locate all three components of a balance sheet on the following pages? Notice how the three components balance out: ASSETS = LIABILITIES + MEMBERS EQUITY And ASSETS LIABILITIES = MEMBERS EQUITY
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LIABILITIES AND MEMBERS EQUITY Accounts Payable Prepaid Assessments Total Liabilities Replacement Fund Unappropriated Members Equity Total Members Equity Total Liabilities and Members Equity See accompanying Notes to Financial Statements. NOTE 5As of December 31, 20XX, the Association had invested its cashreplacement reserves as follows: $319,671 Money Market, $404,661 Treasury Bills. $63,688 2,778 $66.466 $610,454 104,635 $715,089 $781,555
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Warning Signs
Briefly discuss the financial reporting warning signs.
Slide 67
Financial Reporting Warning Signs
Steady decline in the amount of cash on hand Replacement reserves not set aside (no formal reserve study) Increase in assessments owed to the community Increase in what the association owes for bills Failure to resolve any differences between bank statements and financial reports Significant and/or unexplained differences between actual and budgeted figures Members equity balance is less than one to three months of operating expenses Unpaid amounts showing as due between funds
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Class Exercise
Allow 20 minutes for the Class Exercise.
Run the Class Exercise. Divide the class into work groups of 3 to 6 persons depending upon the size of the class. Instructions are to review the Sample Financial Statements on the following pages. Have the work groups review the reports and provide both positive and negative trends they see, if any, and their recommended actions to overcome any negative trends. Allow approximately 15 minutes for the work groups to complete the exercise. After the work groups have completed the exercise, have each group share one or more of the issues identified and their recommended solution with the remainder of the class.
Problems/recommended solutions: Statement of Revenue and Expense items: 1. Interest income is below budget by 23% to date. Was the budget too optimistic? Are balances not being maintained? Possibly a CD has not matured and its interest is not included. 2. Other revenue is below budget by 73% to date. Are late fees not being correctly charged? Are all owners current in their assessments? What comprised this amount in the original budget? 3. Legal and audit expense is 55% over budget and as of the first three months of the year, the association has expended 96% of the annual budget amount. It may not be possible to cut back enough to cover the excess. This category will require close monitoring. However, it could reflect payment of the audit and a major collection effort. This line item reflects the need to insert the budget amounts in the month in which the expense is anticipated. 4. Payroll and payroll-related items are over budget. If this trend continues, the year will end with payroll being almost $5,000 over budget. Too much overtime? Poor scheduling? Emergencies? Can you reduce expenses for the next few months to recover?
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Class Exercise
Review the sample financial statements of Bayview Towers as of September 30, 2012. From your review, provide both positive and negative trends or aspects you note in the financial condition and operation of the association. For each negative item you identify, provide a recommended plan of action to correct or change.
LIABILITIES Accounts Payable Accrued Expenses Prepaid Assessments TOTAL LIABILITIES MEMBERS EQUITY TOTAL LIABILITIES & EQUITY 33,812 8,097 4,283 46,192 204,776 250,968
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Slide 68
Role of the Certified Public Accountant (CPA) Audit Review Compilation
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Accounting standards are called GAAP, Generally Accepted Accounting Principles. Their purpose is to provide uniformity among reports from different preparers. GAAP requires the following set of year-end financial reports for a community association: Balance sheet Statement of Income and Expense (or Revenue and Expense) Statement of Changes in Members Equity (or Fund Balances) Statement of Cash Flow Notes to Financial Statements Unaudited supplementary information on future major repairs and replacements GAAP also requires the use of accrual accounting. Because many state statutes and community association governing documents specify the role of a CPA in preparing annual reports for associations, we will begin this section with a discussion of that role. Then we will move on to discuss the various types of reports prepared.
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3. A compilation is a presentation without any review or assurances. Emphasize that the student should be aware of the statutory requirements as well as the requirements of the governing documents. Again emphasize that the purpose of an audit is for a qualified, independent CPA to express an opinion on the accuracy of the financial reports and not to discover fraud or embezzlement. Along with the audit, review or compilation, the CPA should prepare the annual tax return.
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REVIEW
Definition: A less thorough, and therefore less costly, review of a community associations financial activities. Purpose: Provides some assurance to the board and other interested parties that the financial statements make sensewithout going into the detailed examination of an audit. If included in the scope of work, a review typically includes the preparation of the associations tax return. Scope: o Interviews of management personnel o Analytic review of financial procedures: - Make comparisons between budget and prior year - Look for unusual items or changes Outcome: Provides a significantly lower level of assurance than does an audit. Report states that the CPA is not aware of any material or significant changes that should be made to the financial statements in order for them to be in conformity with GAAP for community associations. As is also the case with audits, it is important to use a CPA who is familiar with community associations.
COMPILATION
Definition: A presentation of financial statements by a CPA without the assurance that the information conforms to GAAP. Purpose: The community association asks a CPA to prepare its yearend reports and tax return. Scope: The CPA prepares the community associations financial statements based on information the association provides. Outcome: The CPA cannot make any claims about the accuracy and completeness of the financial statements.
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Income Taxes
Say Community associations must file federal income tax returns. Federal tax returns, or extensions, are due 75 days after the end of the fiscal year. Community associations have options as to the kind of tax return they should file, which affects the amount of taxes due. State income tax filing requirements vary from state to state. Income tax returns should only be prepared by experienced CPAs or tax preparers. The manager should never prepare income tax returns for the association. The tax liability of the association may be reduced if the association adopts a rollover resolution at the annual membership meeting. The manager is urged to contact the associations accountant for help with the wording of the resolution.
Why community associations pay taxes Explain to course participants that unless associations have tax exempt status Section 501 (c)(4) of the Internal Revenue Code, they are taxable entities. As taxable entities, they have the option to file under Section 277 (Form 1120) or Section 528 (Form 1120H) of the corporate code. The H in Form 1120H stands for Homeowner Association Note that there are a variety of elements and variations related to revenue that is or is not taxable under each method and what expenses are appropriate for deduction under each method. The bottom line is that if there is a net taxable revenue under either method, there will be a tax obligation and only a tax expert can determine the method most beneficial to the association.
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How a community association files its federal tax return affects the amount of income taxes it has to pay. A community association can choose how it files, if it meets certain IRS qualifications, particularly as set forth in Section 277 of the Internal Revenue Code. A community association may file as a regular corporation (IRS Form 1120) or as a homeowners association (IRS Form 1120H). Regardless of which filing method is used (1120 or 1120H), interest income is taxable to the association. On Form 1120, certain expenses may be allocated against that income, and the associations CPA will determine that allocation. Additionally, net revenue from non-members is also taxable. Other revenue may be taxable, depending on the filing method. In addition to Section 277 of the Code, you will hear people refer to Section 216, which refers to cooperatives, and Section 528, which refers to planned communities, condominiums, and timeshares. Check with your tax professional to see which method of filing is best for your community.
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Investments
Say Community associations should have written investment policies. The board of directors should seek investment advice from experienced financial or investment counselors. The manager should never give investment advice other than perhaps referring the board to www.bankrate.com, but should execute the written investment policy of the board of directors. Discuss the three essential investment objectives as outlined on the following pages: Slide 69 Safety. Safety for community association investments consists of protecting the principle (amount of original investment) from loss as much as possible. Liquidity. Liquidity refers to the ease with which an investment can be converted into cash or a cash equivalent. Yield. Yield is the amount of return on an investment.
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Ask course participants if they have any questions or comments on association investments.
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The purpose of this section is to provide basic information on community associations and investmentsnot to advise you on how your community association should handle its investments. Investments involve the purchase of anything with money value for the purpose of generating additional money over time, such as savings accounts. This lesson presents the basic information you will need as a manager to oversee your community associations investments.
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Safety
Safety for community association investments consists of protecting the principle (amount of original investment) from loss. Here are some key questions to ask to determine the safety of an investment: 1. Is the principle insured? By whom? For how much? For example Bank deposits of up to $250,000 per investor (not account) in a single FDIC institution are insured (FDIC stands for Federal Deposit Insurance Corporation, a government agency that guarantees investors deposits in member institutions). 2. How stable is the institution? The institution offering the highest rate of return may be taking risks which will influence its overall stability. 3. Is the investment speculativethat is, is there a chance of a financial loss, as well as a chance for a financial gain? Normally, anyone acting on behalf of a community association would not take this kind of risk in order to gain a higher return than usual. 4. Would a prudent investor choose this investment? Among the safest investments available to all community associations are certificates of deposit under $250,000, which are FDIC insured, and certain obligations of the U.S. government such as: Treasury or T bills Treasury notes and bonds
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These are the safest investments because payment is guaranteed by the government. Treasury bills are short-term instruments that mature in 13, 26, or 52 week periods. They are issued in minimum denominations of $10,000. Anything larger must be in $5,000 increments. As soon as one is purchased, the buyer receives the promised earnings. Then, when the bill matures, the buyer receives the face value (value indicated in the wording of the T bill). Treasury notes mature in one to 10 years. Treasury bonds mature in more than 10 years. Both notes and bonds are issued in denominations from $1,000 to $100,000. They are also interest-bearing with interest paid every six months. When the note or bond matures, the buyer receives the full face value. Your community association may pay more or less than the face value to purchase a Treasury bill, note, or bonddepending on the market demand for them.
Liquidity
Liquidity refers to the ease with which an investment can be converted into cash or a cash equivalent. Due to unexpected events, a community association may need access to its invested funds at times other than planned. Here are some common ways to provide for that access: A community association should avoid tying up all its invested funds for extended periods of time. On the other hand, a community association usually does not invest only in short-term options. This would limit the yield of its investments. A community association can match investment maturity dates to the time the association expects to use the money (laddering), based on a reserve study that indicates when the funds will be needed. A community association can always leave a portion of investments available on relatively short noticesuch as 30 to 60 days. There is little reason to keep investments in non-interest-bearing accounts with immediate access. In an emergency, certificates of deposit could be used as collateral for a short-term loan. Money market accounts may be appropriate under certain circumstances, since they typically offer private insurance rather than insurance provided by the federal government.
Yield
Yield is the amount of return on an investment. The ultimate earnings from an investment are not necessarily the stated rate of interest. For example Certificate of deposit (CD)When a CD is reinvested together with its accumulated interest, the ultimate yield will be higher than the stated rate of interest. BondsBonds can also yield more or less than their stated rate of interest. Because the prices at which bonds are bought and sold fluctuate in response to current interest rates, the community association may pay more than the face value of a bond if its stated rate of interest is attractive to buyers.
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Asset Protection
Briefly discuss some of the ways a community manager can help the board of directors prevent fraud and embezzlement.
Slide 70
Safeguarding Association Funds
Work with your board of directors to implement a series of safeguards and internal controls to help prevent fraud and embezzlement.
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To better protect association funds from theft and/or embezzlement, consider working with the board to implement the following practices and procedures. 1. Know the association's federal tax identification number (FTI). Use the FTI to obtain periodic listings of all bank accounts and account numbers, and make sure they are all under the association's name and FTI number. Needed to verify the existence of accounts and open new accounts, the FTI number should not be disseminated to the general membership, and only to board members on a need-to-know basis. All too often, the volunteer treasurer will provide his or her social security number instead of the association's FTI number, which makes it easier for the treasurer to transfer money to personal accounts. 2. Use a lock box system for deposits and require dual signatures for all withdrawals. While it may seem obvious, never sign blank checks. Require dual signatures on all checks or a monthly report showing check numbers, payees and amounts. As proof, require the bank to return canceled checks or provide electronic images of the canceled checks along with the monthly statements. A lock box system allows owners' payments to be mailed or transferred directly to the association's bank accounts. This reduces the chance that the association's money will be deposited into the wrong account. 3. Segregate and safeguard your association's replacement reserves. As the association builds its reserve funds, make sure you are segregating and safeguarding them. Similar to checking accounts, the reserve accounts should be under the control of at least two people. Any transfers or withdrawals should also require the name and signature of a board member. Do not give one board member or bookkeeper total control over reserve accounts. It is also important to lock long-term savings into non-liquid accounts such as certificates of deposit for better rates of return. 4. Require that copies of monthly statements of operating and reserve accounts be sent every month. One statement should be sent to the management company (or, if self-managed, to the treasurer or bookkeeper) and the duplicate to a board member, who does not have authority to sign the checks or make any type of transfer or withdrawal. Alternatively, many banks offer statements by e-mail, which could be sent to more, if not all, of the board members. Another option would be to give the board members read-only access to view the account(s) online. 5. Check invoices against checks paid and the original receipts for credit card accounts, if any. If the association has professional management or a bookkeeper, the board treasurer should conduct this review. If self-managed, a board member without access to the bank accounts or credit card privileges should check for any unauthorized use. 6. Shop around for bank services. Several of these steps require the cooperation of the bank to be effective. Unfortunately, some banks do not enforce dual-signature requirements or prohibit electronic transfers among accounts, despite their being under different FTI numbers. It is not enough to choose a bank that pays the highest interest rate. If the bank wants your business, demand that it demonstrate the safeguards it has in place to minimize the threat of theft, especially through electronic transfers.
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Is your mail opened by someone other than the bookkeeper? This prevents an embezzler from intercepting any correspondence that might bring the illegal activity to light. Is a daily listing of checks received by mail prepared by someone other than the bookkeeper? Many associations use a local bank's lockbox service to handle their monthly assessments. Are cash receipts deposited intact daily? Hold-over cash deposits can be stolen or pilfered. Is your bookkeeper prohibited from signing checks? Is your supply of unused checks controlled? Can just anyone gain access to them? Is the signing of blank checks prohibited? Never sign a blank check! Are signed checks mailed out without being returned to the person who prepared them? Prevent the preparer from changing or modifying the payee by making sure signed checks are never returned to the preparer's desk for mailing. Do you issue checks in numbered order? A check issued way out of sequence could have been stolen. You can catch attempts to steal funds by spotting checks that are significantly out of sequence. Are all invoices approved for payment? When paid, are they canceled or noted as having been paid? This prevents the same bill from being paid over and over. Are invoices checked to make sure there are no unexplained past-due notices? Do you maintain the integrity of your bank accounts and related service passwords or access codes? Keep them secret, and change them regularly. Store the master password record in a secure location, and don't distribute passwords to anyone not in the need to know small group.
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Summary
Say The manager has a substantial part to play in the financial operations of an association. In most instances, it will be a role in which to advise and guide the board, implement their decisions, and oversee the financial operations. In this session, you have gained fundamental knowledge about the financial operations of a community association. You have learned: How to understand association financial statements and how to review them to determine the financial condition of the association. How to point out key components of the financial statements to help the board members understand their associations financial position. What your role is regarding income tax return preparation. What your role is regarding investment policies of the board.
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Key Terms:
Accrual basis of accounting Assets Audit Balance sheet Bond Cash basis of accounting Certificate of deposit Commercial reporting method Comparison to budget Compilation CPA Deficit in members equity Engagement letter Excess of revenues over expense Expense FDIC Fund balance Fund reporting method GAAP GAAS Income Investment liquidity Investments Investment safety Investment yield Liabilities Management letter Members equity Modified cash basis of accounting Net revenue Net loss Notes to financial statements Opinion letter Representation letter Revenue Review Statement of cash flows Statement of changes in members equity (or fund balances) Statement of revenue and expense Treasury bills Treasury bonds Treasury notes
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 3 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. Explain two reasons for preparing financial reports. 2. What are some reasons why the form and content of one community associations financial reports may be different from the form and content of anothers? 3. Explain the difference between the cash basis, accrual basis, and modified cash basis accounting methods used for reports. 4. List some warning signs about the financial health of a community association to watch for when you review its financial reports. 5. Name and define the two financial statements that are the minimum required for interim reporting purposes. 6. Define revenue and expenses. Give an example of each for your community association. 7. Explain what comparison to budget in a financial report involves. Why should a comparison to budget be prepared? 8. List and define the three major components of a balance sheet. Why is it called a balance sheet? 11. What is the role and purpose of a certified public accountant? 12. What is GAAP? What is it used for? 13. List and explain the various typical year-end reports for a community association. 14. Explain the difference between an audit, a review, and a compilation. Give at least one reason for using each. 15. Explain the five types of opinion letters that an auditor might prepare. 16. What is the purpose of the management letter that accompanies an audit? 17. Give some reasons why it is important for you to be familiar with federal income tax requirements and options for a community association. List some federal income tax filing responsibilities for a community association. Will state income tax filing requirements be the same as federal requirements? Does a community association have a choice of forms for filing its federal income tax return? 18. Define investments. Give some examples. 19. List some checks and balances a community association should implement to protect its investments. 20. List some of a community association managers typical investment duties. 21. List at least two possible sources of investment policies for a community association. Give an example of a possible investment policy for a community association. Give at least two examples of investment procedures for a community association. 22. List and define the three essential investment objectives for a community association in their order of importance.
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. What accounting method does your community association usecash, accrual or modified accrual? 2. Do you use an independent CPA? 3. Locate copies of interim and year-end financial reports prepared for your community association, Identify each report. Identify the major elements in each report. Can you tell which accounting method was used for the reportscash, accrual or modified accrual? When you review the reports, can you find any of the warning signs this lesson mentions? 4. Did your community association have any audit, review, or compilation prepared during the past year? If so, what general conclusions can you draw from the CPAs letter or opinion and any management letter he or she prepared? 5. Find out the following information about your communitys tax status: Is your community a nonprofit organization? Is your community tax-exempt under the Internal Revenue Code? What is the tax filing year for your community? Was your communitys last federal tax return filed by its due date? Does your community file as a regular corporation (IRS form 1120) or as a homeowners association (IRS form 1120 H)? Is your community required to make quarterly payments of its estimated annual tax? 6. Find out the following information about your communitys investments: Who makes the investments for your community association? Does your community association have an investment advisor? What types of investments does your community make? What investment policies are your community association required to have? What other investment policies does your community association havewritten or informal? What investment procedures does your community association havewritten or informal? Describe the safety of each of your community associations investments. Describe the liquidity of each of your community associations investments. Describe the yield for each of your community associations investments.
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Lesson 3 Quiz
1. Which of the following accounting methods records revenue when it is collected and expenses when they are paid? a. cash basis b. accrual basis c. modified cash basis d. modified accrual basis RATIONALE: A community associations financial reports will reflect one of three possible accounting methods. Cash basis records revenue when it is collected and expenses when they are paid. Accrual basis records revenue when it is earned (or assessed to owners) and expenses when they are incurred or acquired. Modified cash basis records revenue on the accrual basis along with selected expense items. 2. Complete the following sentence: A ___________ occurs when expenses are greater than revenue. a. net income b. net loss c. net gain d. net profit RATIONALE: A net loss occurs when expenses are greater than revenue. Net revenue is the amount left after deducting expenses from revenue. The net revenue or loss can be significantly different depending on whether a cash, accrual, or modified cash basis is used. 3. Which of the following is not one of the three major components of a balance sheet? a. Assets b. Liabilities c. Expenses d. Members Equity RATIONALE: Expenses are one if the major components of a statement of revenue and expense, while a balance sheet consists of assets, liabilities, and members equity. 4. True or false. A CPAs representation letter describes the nature of the work to be done, the type of report to be prepared, the fee for services, the time frame for the assignment, and the accountants disclaimers. (False) RATIONALE: A representation letter states that the information the community association provides is true to the best of its knowledge and describes the steps the community association has taken to provide for the preparation of accurate and complete financial statements. An engagement letter describes the nature of the work to be done, the type of report to be prepared, the fee for services, the time frame for the assignment, and the accountants disclaimers. It is usually executed by the management company on behalf of the association.
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Additional Resources
For further information on financial statements, audits, income taxes, and investments, we suggest the following: Accounting for Managers, by William H. Webster. Managers need a basic understanding of how money is accounted for in an association, since it plays a hand in every decision a manager makes. This down-to-earth book simplifies accounting concepts and their application in everyday businessenhancing your productivity and adding value to your communities, your employer and your career. (McGraw Hill 2004.) Property Taxes and Homeowner Associations, (Guide for Association Practitioners, Report #6), Fourth Edition, by George R. Grasser. If your association holds title to common areas and facilities, theres a possibility they may be taxed twice. You may be surprised to learn that small mistakes in the original subdivision process can go unnoticed for years! Learn what you and your tax accountant can do about it. (Community Associations Press, 2002.) The Board Treasurer: Roles and Responsibilities in Community Associations, A Guide for Association Practitioners, by Howard A. Goldklang, CPA, MBA. Not just for treasurers. Contains information on all aspects of association financesstatements, balance sheets, assets and liabilities, members equity, replacement reserves, investments, audits and more. Outlines the treasurers duties and how to prepare documents, work with boards and handle delinquencies. Contains sample documents. (Community Associations Institute, 2006.) Reserve Funds: How & Why Community Associations Invest Assets, 2nd Edition, A Guide for Association Practitioners, by Mitchell H. Frumkin, PE, PP, RS, MBA, and Nico F. March, CFM, Editors. Reserves are essential to the successful, long-term operation of a community association. Learn how to establish the right funds and invest them responsibly, and how to comply with federal and state regulations. Second edition has been updated relative to current economic conditions. Appendices include FAQs and summaries of state reserve-fund laws. (Community Associations Institute, 2009.)
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Conduct the Review/Q&A session to wrap-up Day 1. Allow 30 minutes to respond to any questions participants may have about any of the material covered in Module 1 or 2.
Conclude Day 1
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Materials Needed
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Slide 71
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Slide 72
Facilities Management
This section of the program will introduce you to: MaintenanceLesson 1 ContractingLesson 2 Risk Management and InsuranceLesson 3
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Module 3 Overview
Management is the process of planning, organizing, leading, and controlling an organizations use of its resources in order to achieve its goals. For a community association, facilities management is the process of operating, maintaining, repairing, and replacing common propertythat is, the common elements or common areas. As such, it involves the management of both physical assets and human resources.
Contents of Module 3
Module 3 of this program is intended to introduce you to three key components of facilities management for a community association manager: MaintenanceLesson 1 ContractingLesson 2 Risk Management & InsuranceLesson 3 These lessons will not tell you all that you need to know about facilities management or risk management and insurance. However, they will provide you with a good foundation for developing your management skills in these areas. The M-201 (Facilities Management) and M-205 (Risk Management) courses go into much more detail on these topics.
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Lesson 1: Maintenance
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Lesson 1: Maintenance
Goal At the end of this lesson, students will understand the physical assets that must be maintained by the association and how to determine whether the association or the owner is responsible for such work. The students will also understand the different types of maintenance and the systems to use to ensure that maintenance is promptly and effectively completed.
Time 60 minutes Session Time Breakdown 30 minutesFaculty presentation 20 minutesClass exercises (2) 10 minutesSummary/quiz
Overview This session covers the maintenance aspects of a community association. These responsibilities can vary greatly depending upon the type of association and the governing documents. There should be a focus on the systematic handling of a facilities maintenance program from its creation, through its supervision, and to its completion. Time should be spent focusing on preventive maintenance work to make the managers job easier. Time should also be spent helping managers understand how to determine who is responsible for maintaining the various components of the property, especially in those areas that are not clearly defined by the governing documents. There should be a discussion about how to sensibly resolve those ambiguities for the benefit of both the association and the owner. Depending upon where this course is presented, there will be different maintenance issues unique to that area. For example, ice damming in roof gutters will not be of concern to students in Arizona, nor will palm tree trimming be an issue to those from New England.
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Lesson 1: Maintenance
Therefore, students should not focus on the specific maintenance task being discussedinstead they should focus on the concept in which a problem or concern was handled. Materials Needed
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Overview
Introduce the lesson Say The topic of this session is facilities maintenance for community associations. The manager:
Must understand the responsibilities of the association to maintain its physical assets. Must understand what components of the community are the responsibility of the association to maintain and which ones are the responsibility of the owner. Must understand the different types of maintenance and how to effectively handle each one. Must use appropriate systems to ensure the maintenance program is effective.
Overview the session Say We will discuss: The need for an association to maintain its facilities. The different types of maintenance a community association must perform.
Review a set of governing documents to learn how to determine maintenance responsibilities. Participate in class exercises that will help you understand the items we discussed.
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Overview
Go through the Lesson 1 learning objectives with the class.
Slide 73
Point out the Key Terms on PAGE 211 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Analysis sheet Emergency services maintenance Facilities management Site visit checklist Site visit report Inventory Maintenance calendar or schedule Maintenance contact sheet Maintenance record Management tool Preventive maintenance Requested maintenance Reserve replacement Responsibility chart Routine maintenance Work order/response form
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For a community association, facilities management is the process of operating, maintaining, repairing, and replacing common propertythat is, the common elements or areas. A community association has four major maintenance goals: 1. To meet the needs of the individual residents as they relate to the community associations responsibilities 2. To preserve and enhance the common property 3. To limit potential exposure to injury to residents, guests, and employees 4. To protect property values of the homes or units through successful maintenance of the common property An effective maintenance system depends on a managers leadership ability to get all the relevant participants involved as appropriateresidents, employees, consultants, contractors, and the developer. As a leader, the manager should work with the board, committees, and site staff to establish a maintenance system for the community. The purpose of this lesson is to help you to organize and manage the maintenance that your community association requires. Whenever the term maintenance is used in this lesson, it refers to maintenance, repairs, and replacement of physical assets or resources.
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Overview, continued
Define maintenance management tool and provide some examples.
Slide 74
Management Tools for Maintenance
A management tool is any means used to record, remind, or command attention. Examples: Checklists Charts of information Calendars or schedules Records of actions taken Inventories Work orders Request forms Response forms track,
74
Point out that as a leader, the manager should work with the board, committees, and site staff to establish a maintenance system for the community.
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Maintenance Responsibilities
Say The maintenance responsibilities in a community association are varied and require the manager to know all aspects of maintaining the community. To determine your associations maintenance responsibilitiesand who is responsible for the maintenance: Review the governing documents of the association for specific maintenance responsibilities assigned to the association, the developer or the owner. Review state statutes to determine if any laws require the association to maintain certain components or parts of the common areas. Review board resolutions to determine if the directors have established specific maintenance responsibilities for the association or the owners that were not detailed in the governing documents or state statutes. Identify any area in which the maintenance responsibilities are not clear and prepare necessary recommendations for clarification through the resolution process. Point out the sample language from the declaration and bylaws on the following pages as examples of how to research your maintenance responsibilities and identify who is responsible for the maintenance. Also be sure to point out the Sample Maintenance Responsibility Chart and Sample Contact Sheet.
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To determine your associations maintenance responsibilitiesand who is responsible for the maintenance: Research legal documents to identify your community associations physical assets and who is responsible for the maintenance: State statutes Board resolutions Governing documentsfrequently, the declaration or master deed will include a maintenance schedule for particular assets (See the typical language describing maintenance responsibilities in the excerpts from a condominium associations declaration on the following pages. We included the excerpts to give you an idea of the kind of maintenancerelated information you are likely to find in your associations governing documents.)
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Module 3: Facilities Management Typical Language on Physical Assets and their Maintenance from The Declaration of a Condominium Association
Definition of Units Each unit consists of the space measured horizontally between the unit side or inside of the unfinished surface of the exterior walls enclosing such unit, and where walk and partitions separate such unit from other units, to the unfinished surface of the unit side of such walls and partitions, and measured vertically from the unfinished surface of the unit side of the floor to the underside of the unfinished surface of the ceiling of such unit. Included as part of a unit are a) the sliding glass door to the patio or balcony of a unit, b) the front entrance door and any other entrance door of a unit and their hardware and fixtures, c) all windows of a unit, and d) all floor covering of a unit. Common Elements The common elements consist of a) the land described in Schedule A, b) all foundations, columns, girders, beams, and supports of all buildings, c) all exterior walls and exterior surfaces of the buildings; all floors and ceilings structure and unfinished surfaces enclosing a unit; all walls and partitions separating units from hallways, corridors and stairways, and the terrace floor, d) roof, roof drainage pipes, gutters, headers, halls, corridors, stairs, stairways, crawl spaces, attic spaces, entrances and exits of all buildings, and e) all yards, gardens, play and grass areas, all parking and driveway areas, and streets. Limited Common Elements (a) The locations of the common elements to which each unit has direct access are shown on the Plats and Plans; pursuant to section 55-70.5(c) of the Condominium Act, a balcony, porch, patio, terrace or fence, if any, shown adjacent to a unit is a limited common element appurtenant to that unit. (b) A portion of the common elements is marked on the Plans as Common Elements that may be assigned as limited Common Elements. This portion of the common elements includes all of the covered or underground parking spaces located under or in the buildings from the top surface of the concrete floor slab to the underside of the concrete slab or dropped ceiling, as the case may be, and the storage areas in common element storage rooms. Pursuant to section 5579.54(a)(6) of the Condominium Act, the Declarant reserve the exclusive right to assign these parking spaces and storage areas as limited common elements forthe exclusive use of certain unit owners to whose units these parking spaces and storage areas shall become appurtenant. The Declarant may assign such a common element as a limited common element parking space or storage cubicle pursuant to the provisions of section 55-79.57 of the Condominium Act by causing an appropriate amendment to this Declaration or to the Plans to be executed and recorded. If, prior to settlement on a unit, a person acquires the right to the assignment of a limited common element, the Declarant shall evidence the right to such an assignment in the deed to the unit to which such limited common element parking space or storage cubicle shall appertain. If a unit owner acquires the right to the exclusive use of such a limited common element subsequent to settlement on the unit, the Declarant may but need not evidence the unit owner's right to such an assignment in a separate written agreement with the unit owner. The laundry room and hallway on each floor are limited common elements appurtenant to the units situated on that floor.
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Owners maintenance responsibility Each owner shall have the obligation to maintain and keep in good repair all portions of the unit and those other portions of the condominium hereinafter specified, including any interior walls; interior ceiling and floors; kitchen and bathroom fixtures and equipment, including refrigerator and range, dishwasher, clothes washer, clothes dryer, and disposal; lighting, heating, and air conditioning unit; those parts of the plumbing, mechanical, utility, and electrical systems which serve only his or her unit, whether located within or without the boundaries of his or her unit; and all carpeting, patio doors, screens, windows, drywall, doors, doorways, frames, and hardware that is a part of the entry system and window system of the unit. Each owner shall keep the interior of his or her unit and its equipment in good order, condition, and repair and in a clean and sanitary condition, and shall do all repair, maintenance, redecorating, painting, and varnishing which may at any time be necessary to maintain the good appearance and condition of his or her unit. In addition, each owner shall be responsible for all damages to any and all other units or to the common elements resulting from his or her failure to make any of the repairs required to be made by him or her by this Section, including, but not limited to, damages caused by water leaking from the plumbing fixtures of one unit into another unit. Condominium Associations Maintenance Responsibility The condominium association shall maintain and keep in good repair as a common expense all of the condominium property not required to be maintained and kept in good order by an owner. Except to the extent that insurance required to be maintained or maintained by the board covers any damage or loss, the board shall not be responsible for any maintenance or repair to the interior of any unit nor for lack of waterproofing to any part of the unit or common elements. The board shall be responsible for all exterior surfaces, specifically including the painting of the exterior surface of the front door of each unit, whether or not included within the boundaries of a unit.
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Page 216
Some community associations assume maintenance responsibilities for physical assets which they do not ownfor example, assets that belong to owners, such as exterior painting of townhouses in a planned community. However, the governing documents and applicable state statutes must provide for a community association assuming maintenance responsibility for specific owners assets. An association must be very careful not to expend funds on maintenance items not clearly defined as the associations responsibility in the governing documents, resolutions, or government mandates. One management tool you can use to keep track of who is responsible for the maintenance of various property elements or areas is the responsibility chart. It commonly is used as a handout for owners and tenants and maintained on the communitys website. Typical responsible parties include the owner, the association, the developer, a committee, or a manufacturer. (See the sample responsibility chart for a planned community on the following page.) If you prepare a responsibility chart for your community association, it must be based on your associations legal documents and board policies. Some legal documents specify that the community association must perform a particular maintenance, repair replacement, or upgrade, but the individual owner must pay any financial costs involved. Preparing the chart is typically not a usual function included in the management contact. Be sure to obtain your supervisors approval to proceed, and advise the board that you can prepare the draft only if they agree to allow an attorney to approve it before distribution. On the other hand, an ad hoc committee would be an excellent alternative to develop the chart. To identify who should perform the maintenance for a particular physical asset, you will have to decide whether association employees can do the workor whether it will be necessary to use a contractor. (See the discussion in the Contracting lesson to help you with this decision.) Here, a useful management control is the maintenance contact sheet. This is a form that records the contacts for various maintenance services and any pertinent information needed during an emergency. (See the sample maintenance contact sheet on the following pages.) Depending on your management companys after-hours emergency procedures, every community manager should have an up-to-date maintenance contact sheet and carry it with him or her at all times. Emergencies do not keep normal business hours!
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ITEM 1. Owners equipment / appliances 2. Interior unit construction 3. Interior alterations to unit 4. Exterior alterations to unitapproval 5. Trash collection 6. Exterior pest control 7. Interior pest control 8. Plumbing 9. Air conditioners 10. Window Glass Replacement 11. Exterior painting 12. Roof repairs 13. Insurancefire or damage to structure 14. Insuranceowners contents 15. Common Area Landscape Problems 16. Community pool/spa maintenance 17. Recreation facility maintenance
Owner X X X
Association
X X X X X X X X X X X X Developer* Developer*
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___________________________________________________________ ___________________________________________________________
CONTACT
Accountant: ___________________________ Phone: ___________________ Air Conditioning: _______________________ Phone: ___________________ Architect/Engineer: ______________________ Phone: ___________________ Attorney: _____________________________ Phone: ___________________ Cleaning Contractor: ____________________ Phone: ___________________ Electrician: ____________________________ Phone: ___________________ Exterminator: __________________________ Phone: ___________________ Schedule: ____________________________________________________ Fire: _________________________________ Phone: ___________________ Handyperson: _________________________ Phone: ___________________ Heating System: _______________________ Phone: ___________________ Insurance: ____________________________ Phone: ___________________ Landscaper: ___________________________ Phone: ___________________ Emergency/After hours: _________________________________________ Mail Boxes: ___________________________ Phone: ___________________ Patrol Service: _________________________ Phone: ___________________ Plumber: _____________________________ Phone: ___________________ Police: _______________________________ Phone: ___________________ Pool/Spa: _____________________________ Phone: ___________________ Pool Keys: ___________________________________________________ Pool Location: ________________________________________________ Roofer: ______________________________ Phone: ___________________ Warranty Info: ________________________________________________ Snow Plowing: ________________________ Phone: ___________________ Street Sweeper: _______________________ Phone: ___________________ Schedule: ____________________________________________________ Towing: _______________________________ Phone: ___________________ Towing Procedure: ____________________________________________ Trash Contractor: ______________________ Phone: ___________________ Schedule: ____________________________________________________ TV Cable/Master Antenna: _______________ Phone: ___________________ Utility Emergencies: ____________________ Phone: ___________________ Developer: ____________________________ Phone: ___________________ Other: ________________________________________________________________
___________________________________________________________ ___________________________________________________________
________________________________________________________________
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Slide 75
Identifying Maintenance Needs
Conduct a site visit of the property Examine building plans or specifications Review any reserve studies Review all maintenance records Interview board members, employees, or contractors Review product or equipment information
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Class Exercise
Allow 10 minutes for this activity.
Run the Class Exercise. Have students review the sample governing documents and the Maintenance Responsibility Chart on pages 220-222 to determine whether the association or the owner is responsible for the following maintenance requests. Allow 10 minutes for this exercise. Review responses. For those that are not clearly defined, discuss how the manager should address those items. Answers: 1. Repair roof leak: Association responsibility. 2. Repair broken pipe: Varies depending upon where the break in the pipe is located. Provide examples in which this request could be the responsibility of the association and examples of owner responsibility. 3. Repair damaged wooden slat on patio gate: Association responsibility. 4. Paint entry door: Exterior side is association responsibility. Interior side is owner responsibility. This is an area of possible class discussion. For example, how do you define the vertical edge of the door, exterior or interior? 5. Clean fireplace flue: Owner responsibility. 6. Repair ceiling damage from roof leak: Not described in governing documents. 7. Replace light bulb on balcony: Owner responsibility. 8. Paint balcony railing: Association responsibility. 9. Respond to sewer back up: Association responsibility. 10. Pay for sewer backup clearing and damage: Varies could be either depending on interpretation. 11. Replace window screen: Owner responsibility. 12. Repair electrical transformer: Varies depending upon the location of the transformer. 13. Replace doorknocker on exterior of entry door: Owner responsibility. Emphasize using common sense and consistency in addressing undefined areas of responsibility. Ask students for their experiences in dealing with these issues. Has anyone been successful in addressing these areas? Do any students in the class have a problem with their own governing documents that could be discussed now?
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Class Exercise
Review the sample governing documents and the Maintenance Responsibility Chart to determine whether the association or the owner is responsible for the following maintenance requests. Write your response next to the requested maintenance item. 1. 2. 3. 4. 5. 6. 7. 8. 9. Repair roof leak. ______________________________________________ Repair broken pipe. ___________________________________________ Repair damaged wooden slat patio gate. ___________________________ Paint entry door. ______________________________________________ Clean fireplace flue. ___________________________________________ Repair ceiling damage from roof leak. _____________________________ Replace light bulb on balcony. ___________________________________ Paint balcony railing. __________________________________________ Respond to sewer back up. _____________________________________
10. Pay for sewer back up clearing and damage. ________________________ 11. Replace window screen. ________________________________________ 12. Repair electrical transformer. ____________________________________ 13. Replace doorknocker on exterior of entry door. ______________________
Work Space
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Items
Unit Components Under Association Responsibility Only to the extent that a malfunction originates outside the unit in which the malfunction occurs or may occur.
Electrical & related systems & components thereof excluding appliances, fixtures, & lights serving only one unit. Heating, ventilating, & cooling systems & components thereof. Parking spaces. Refuse collection system.
All maintenance, repair, & replacement of portions of plumbing serving more than one unit. Water damage to common elements or units other than the one that is the primary source of the problem through negligence of the occupants of such units. All, in all regards.
All, in all regards, from the common side of the unit panel.
All, in all regards, serving more than one unit, as a common expense. All parking space in all regards. All, in all regards.
All, in all regards, for items serving only one unit and located within the unit (on the unit side of the units electrical panel, including the panel itself). All, in all regards serving only one unit.
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Items
Grounds, including all paved areas and other improvements thereon lying outside the main walls of the building and all underground utility systems. Building, exterior roof, exterior vertical breezeways, foundation. Windows.
All surfaces exposed to outside including door panel door edge, trim, & sill.
Balconies, patios, & railings. Screens (balcony or patio doors and windows). Fireplaces & fireplace flues.
In all regards except routine cleaning, latch mechanism and weather-stripping. In all regards except routine cleaning.
Routine interior and exterior cleaning, replacement all, in all regards, serving only one unit Interior of door panel & interior trim. Hardware set including lock & doorknocker assembly & hinges/closure. Routine cleaning, latch mechanism and weatherstripping. Routine cleaning.
All which serve the unit in all respects. Replacements to be of same color, grade, & style. All, in all regards serving only one unit. Page 307
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Class Exercise #2
Allow 10 minutes for this exercise.
Lead the class through the following large-group activity. The sample governing documents for Bayview Towers do not address the issue of who is responsible for ceiling repairs resulting from roof leaks. Many owners have damaged ceilings and are calling board members and demanding that something be done. The board is sympathetic to the owners pleadings. Create a resolution that you would recommend to clarify this issue. Answer: Items to be considered: Purpose: There is a need to clarify an ambiguous or unclear provision of the maintenance responsibilities. Authority: Article 3 of the bylaws gives the board the powers and duties necessary for the administration of the affairs of the association and allows them to provide for the operation, care, upkeep, and maintenance of all property. Scope: Those owners who have suffered ceiling damage as a result of roof leaks. Specifications: The association will repair ceiling damage and repaint ceilings for those units that have been damaged as a result of roof failurea common element for which the association is responsible. Owners are not allowed to make roof repairs and could not prevent their ceilings from being damaged. The association will paint only the damaged area. The owner must report the leak within 30 days of first occurrence to qualify for interior repair.
Ask the students to discuss these additional issues: What should be the policy on repairs other than ceilings, such as carpeting or personal property? Should there be a deadline by which all claims must be submitted?
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Class Exercise #2
The sample governing documents for Bayview Towers do not address the issue of who is responsible for ceiling repairs resulting from roof leaks. Many owners have damaged ceilings and are calling board members and demanding that something be done. The board is sympathetic to the owners pleadings. Create a resolution that you would recommend to clarify this issue. Answer: Purpose: _________________________________________________ _________________________________________________________ _________________________________________________________ Authority: ________________________________________________ _________________________________________________________ _________________________________________________________ Scope: ___________________________________________________ _________________________________________________________ _________________________________________________________ Specifications: ____________________________________________ _________________________________________________________ _________________________________________________________
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Types of Maintenance
Say There are five basic maintenance programs for community associations: 1. Routine maintenance. Regular, recurring upkeep. For example: o Cleaning the common areas. o Mowing the lawns. 2. Preventive maintenance. To extend the useful life of the physical asset. For example: o Sealing cracks/seal coating asphalt paving. o Lubricating pump motors. o Changing oil in the associations truck. 3. Emergency maintenance. Stress the importance of having written disaster plans in place. Immediate response to a required service or to limit potential damage. Danger to health. For example: o Sewer backups, out of service elevator, or burst pipes. 4. Requested maintenance. Corrective action in response to a resident or board member request or contractor recommendation/observation, or observed during a regular site visit. For example: o Missing lawn sprinkler head. o Patio gate repairs. 5. Reserve replacement. Replacing assets as needed from the inevitable deterioration process. For example: o Roof replacement. o Fence replacement.
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Types of Maintenance
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To get the maintenance work done, a manager must: Organize the maintenance work Create controls for ensuring that the work is actually done
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Slide 78
Work Order Systems: Benefits
Ensure follow-up Monitor costs Provide historical records Document problems
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In the same manner as you asked for class participation with written site visit reports, make the same inquiry about work order systems. Ask someone to volunteer their experiences in working with a work order system and to offer benefits in addition to those noted above. Specific examples of how these systems are effective will help other students realize their value. Be sure to point out each of the sample checklists and tools on the subsequent pages.
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Module 3: Facilities Management Page 228 SAMPLE: Pool and Spa Maintenance Calendar
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SAMPLE: Checklist
Address
Trash Room
Hall Floors
Stair Treads
Glass
Cleaning
10200 10202 10204 10206 10208 10210 10212 10214 10216 10218 10220 10222 10224 10226 10228 10230 10232 10234 10236 10238 10240 10242 10244 10246 10248 10250 10252 10254 10256 10258 10260
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Prepared: 1/11/XX
By: ___________________________________
10206
Adjust the rear door closer Replace the split stair treads; several split stair treads Repair the fresh air vent leak at top hallway rear Top floor, replace the door closer bolts with the proper type Cut off the hallway door; it drags on the carpet Install fire alarm glass at front fire pool Adjust the terrace room fire door so it doesnt hit the frame
10220
Replace the weather strip at the rear entry door Lubricate the rear entry door Install the proper bolts at the terrace level door closer Replace several split stair treads Re-secure the fire alarm at the front entrance Lock the attic access
10228
Adjust the rear door so it closes properly Replace the fire alarm glass at the rear entrance Adjust the terrace level door closer Replace the logo and the front entry glass Replace the fire alarm glass at front entry
10240
Adjust the rear door so it closes properly Exit face missing at the rear entry Adjust or replace the terrace level door Reposition the emergency light at front entrance Replace split stair tread as needed
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Association: ______________________ Date: ___________ Time: __________ Homeowner Name: ________________________________________________ Address: ________________________________________________________ ________________________________________________________________ Home Phone: _____________________Work Phone: _____________________ Email Address: ___________________________________________________ Service Requested: ________________________________________________ ________________________________________________________________ ________________________________________________________________ Comments: ____________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Request Taken By: _____________________________ Keys Needed?_______
Address: ________________________________________________________ Assigned to: _____________________________________ Date: ___________ Date Job Completed: _______________________________________________ Completed By: ____________________________________________________ Contractor Comments: ____________________________________________________________ ________________________________________________________________ Resident Comments: ________________________________________________________________ ________________________________________________________________ Signed: ____________________________________ Date: ________________ Owners or Tenants Signature: ___________________________ Date: ________________
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Emphasize the many differences noted on the comparison chart for maintenance systems.
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IMPORTANT NOTE
Lack of complaints does not necessarily mean that you have a good maintenance system that is well-implemented. Take steps to obtain feedback.
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Effective Cost-effective; and within budget Smooth daily operation of the community Scheduled preventive maintenance programs Efficient and prompt response to requests Ability to review work sorted by unit, building, contractor, type of work, and date Preventive maintenance to reduce potential for damage to property and person Efficient use, maintenance and replacement of equipment Buildings and grounds in good condition Health and aesthetic standards of the community are being met Positive outlook and atmosphere among community members Positive, supportive, respectful attitude among owners, board, staff and manager
Absence of established routines for performing maintenance Slow response time Poor record-keeping Increased frequency of maintenance-related insurance claims Frequent equipment break-downs
Buildings and grounds are rundown Local health or building department citations for corrective action A board that gets involved in dayto-day maintenance issues (micromanages) Residents and/or a board that show lack of respect toward management, employees, and all parties involved with maintenance Defensive employees
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Sustainable Lifestyles
Say The community association manager is in the perfect position to help associations to be more green and to be a steward of the environment.
Review the following pages with the class. Briefly go through many of the initiatives that a community association manager could recommend to the board to help their communities be more sustainable.
Say One great idea is to have your board establish a sustainable lifestyle mission statement or charter, and then share it with the membership. Here is an example:
Slide 79
Bayview Towers Condominium Association, Inc. GREEN ENERGY COMMITTEE (Advisory Committee) CHARTER OBJECTIVES: To assist in the education of homeowners and staff regarding energy, water and other conservation related subjects. This shall be accomplished through research, analysis and testing of new technologies, in addition to well established procedures and recommendations. Additionally, the committee will investigate federal, state, and local government programs while also soliciting knowledge and ideas from public utilities and private industry. Communication of technical findings, ideas and suggestions to homeowners will be through, but not limited to, a monthly column, special notices, lectures and demonstrations. Ideas suitable for the community will be presented to the board or appropriate committees. The actions and benefits resulting from this committee will be dependent upon a high level of interest and the involvement of the entire community. Therefore, the committee shall encourage and solicit homeowner participation to the maximum extent practical. ORGANIZATION: The committee will meet as needed, typically monthly. The committee members will select its chair. All committee meetings will be open to the public. Minutes of the meetings will be taken and filed in the corporate files. A report that will be issued to the board will be generated from each committee meeting. The committee will consist of at least five (5) association members. The committee will serve at the pleasure of the board.
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As community association managers, we have the opportunity to have a significant impact on the future of our world by educating our board members and residents on the need to focus on the impact they and their association have on the environment. Sustainable communities are developed to meet the needs of the present without compromising the ability of future generations to meet their own needs. They are regenerative, meaning they have processes that restore, renew or revitalize their own sources of energy and materials, creating sustainable systems that integrate the needs of society with the integrity of nature. The core purpose of community associations is to create sustainable practices and approaches, even in communities without sustainable language in their covenants. Community associations exist to improve members quality of life because they offer choices, lifestyles, amenities and, most importantly, efficiencies that people value. Architects, landscape architects and developers initially conceived community associations as places where residents could share resources, thereby saving each member the cost of building resources themselves such as pools, tennis courts, fitness facilities and recreational activities. Out of the community association concept came the sustainable idea of saving energy and resources. Developers have found that they enjoy a competitive advantage by constructing new communities with common recreational amenities and provision for some services. There is also a growing demand among potential buyers to find eco-friendly homes that offer high energy efficiencies in both design and resources. This final section will only briefly touch on the many opportunities the association and the residents have to both save the planet as well as benefit financially from their sustainable efforts. For a more in-depth discussion on how communities can conserve energy and reduce negative impacts on the environment through design, technology and social innovation, download the free Best Practices: Green Communities report from the Foundation for Community Association Research at www.cairf.org.
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A. Individual Resident Programs 1. Install Energy Star rated windows and doors. Close window blinds and curtains on summer days. In winter close curtains at night to capture passive solar heat. These efforts could save 25-75% on heating and cooling bills and reduce CO2 emissions 2,700 lbs per year. 2. For large windows in direct sunlight, install UV protection window film. 3. Timely repair plumbing leaks 4. Install low-flow toilets, shower heads and faucets 5. Seal air flow leaks and ducts 6. Recycle household waste 7. Use energy-efficient Energy Star appliances (washer, dryer, dishwasher, refrigerator, water heater, air conditioner) 8. Use a digital, programmable thermostat 9. Use a power consumption monitor 10. Use tankless or point-of-use water heater 11. Sign up with green power provider 12. Use compact fluorescent lamps (CFL) or light emitting diodes (LED) lamps/bulbs 13. Use drinking water-filtration system instead of buying bottled water 14. Use low- or no-VOC paints and sealants. What does VOC mean? Volatile Organic Compounds are potentially toxic ground-water contaminants, some caused naturally in the environment, others by manmade activities, and some by both, which can ultimately impact drinking water supplies. 15. Buy smart recycled/recyclable party goods and office supplies, recyclable grocery bags and containers, no- or minimum wrapping of products 16. Dont litter; pick up others litter 17. Use glass, china or other materials for dishes and glasses instead of paper, plastic or Styrofoam ones 18. Donate old cell phones to www.collectivegood.com, www.recyclewirelessphones.com, www.donateaphone.com or to Good Will 19. Donate working appliances to www.goodwill.com 20. Donate cardboard boxes to a local shelter or www.usedcardboardboxes.com 21. Donate wearable womens clothing at www.dressforsuccess.org 22. Donate gently used clothes and towels to a local animal shelter, faith-based organization or community center 23. Donate Styrofoam peanuts to a local pack-and-ship store or contact www.loosefillpackaging.com 24. Trade ink-toner cartridges at some office supply stores or www.recycleplace.com B. Individual and Association Maintenance, Repairs and Replacements 1. Improve attic insulation and install radiant barriers 2. Install energy-efficient doors 3. Use motion sensors instead of photocells or timers on exterior and interior 4. Use a heat recovery ventilating system
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14. 15. 16. 17. 18. 19. 20. 21. 22. 23.
C. Common Area Conservation Programs 1. Recycle household and maintenance waste 2. WOWW! (Wipe Out Water Waste) program analyze water consumption, organize residents to fix leaking faucets and toilets 3. Take the Challenge! (electricity and gas conservation program) analyze gas and electricity consumption; send regular updates on progress; summarize water, gas and electricity bills 4. Install native shrubs and trees a. reduce ozone accumulation b. reduce irrigation requirements c. reduce air conditioning requirements by providing shade during peak energy demand
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5. To assist your community, plan and establish a means for the members to realize their greener future. a. The Sustainable Mission Statement Start at the top. Unless the board of directors understands and strategizes about sustainable conceptsand sees the value of themyour initiatives as a manager could well be minimized or discounted. So, communicate your ecofriendly information to your board. b. The mission could state: We support locally made, organic or earth and human friendly products and practices that reflect our goal as a conservation-friendly, education-oriented community that promotes sustainable initiatives such as 1) pick up litter, 2) recycle and reuses, 3) save or stores water, 4) maintain energy efficient buildings, 5) manage land and lakes for environmental preservation, conservation, and the benefit of wildlife, 6) make its membership aware of green products and services available to them, and 7) use energy efficient transportation. c. This mission should not be developed unless there is an understanding that it is supported by the communitys membership. To that end, the board may want to add the following proviso: We support these sustainable goals to the extent that they are embraced by the communitys members. Such wording would allow future boards the ability to embrace the mission even as they modify it to suit the community for that year. It is to be anticipated that the sustainable community in your location would be very different over the next five years, since change is the nature of life. You will want to characterize that in the mission by its being able to change and grow. So maybe your community does not want to commit all of the initiatives described previously. Start with a very few things that you know you can tackle, then grow over time. Better for your community to grow from a solid foundation than be a quick-to-rise souffl. 6. Green Team a. Once you have a board-approved policy in place, then it is up to you as the manager to implement the policy or to encourage the board to create a committee responsible for implementing the policy. b. Set up a representative from each community neighborhood, building or cluster of homes, plus staff department representatives, to serve as a Sustainable Initiative Leadership Council, or Green Team, an accountability group to move the mission. The Green Team becomes your closest confidante to help you put into action the boards broad mission. c. Each representative must have excellent communication skills. He or she would monitor and advise on community interest in the Teams green ideas, and consider tactics to fulfill the boards mission.
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Slide 80
Relax Architectural Guidelines
Use broad language Allow multi activities Allow diversity Include sustainable initiatives Assure proper restoration of sustainable systems Predetermine technologies you want Be up to date with terms Allow low tech options, too Allow resourceful and natural systems
Ask the class for any examples of methods or techniques they incorporate into their own maintenance programs to help the environment.
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Summary
Say You have learned: How to systematically design, implement, oversee, and evaluate an effective facilities maintenance program. How to determine the maintenance responsibilities of the association and the owners and how to address areas that are not clearly defined in the governing documents. The five types of maintenance work and the importance of each type. Why associations should be interested in Going Green. Page 241 Once again, review the Key Terms with the participants.
Key Terms:
Analysis sheet Emergency services maintenance Facilities management Site visit checklist Site visit report Inventory Maintenance calendar or schedule Maintenance contact sheet Maintenance record Management tool Preventive maintenance Requested maintenance Reserve replacement Responsibility chart Routine maintenance Work order/response form
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 1 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review. Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. What are the maintenance goals for a community association? 2. What are the steps in establishing a maintenance system for a community association? 3. What are some sources that can provide information on a community associations physical assets and their maintenance needs? 4. What kind of management control does an inventory provide? What kind of information does it typically record? 5. What kind of management control does an analysis sheet provide? What kind of information does it typically record? 6. What kind of management control does a responsibility chart provide? 7. Name some typical parties responsible for maintenance in a community association. 8. What kind of management control does a maintenance contact sheet provide? 9. Name five basic maintenance programs for a community association and give an example of each type of maintenance. 10. Compare and contrast a maintenance calendar or schedule and a maintenance record. Why do you need a form or forms for both? 11. What is the purpose of a site visit checklist? What can a site visit report be used for? 12. What can a work order form be used for? What are some benefits of using a work order/response form? 13. What are some common methods for evaluating maintenance efforts in a community association? 14. What are some characteristics of an effective maintenance system? 15. What are some characteristics of an ineffective maintenance system? 16. Why should associations be interested in sustainable lifestyles?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. Which of the five steps in establishing a maintenance system has your community association carried out? 2. What physical asset categories does your communitys maintenance system use? Are there any ways you can improve on the categories you use? If your community doesnt have a set of categories, how would you modify the set suggested in the lesson for your communitys use? 3. Which sources of information have you used to identify your associations physical assets and their maintenance needs? Try the information sources listed in the lesson that you havent used yet and familiarize yourself with them. 4. Which of the five types of maintenance programs described in the lesson does your community association have? Are there any you think your community association should add? Why? 5. What maintenance management controls does your community association have? After reading this lesson, what maintenance management controls do you think your community association needs? After reading this lesson, what improvements do you need to make in your maintenance management controls? 6. What methods has your community association used to evaluate its maintenance efforts? Why have they been effective or not? After reading this lesson, what evaluation methods do you think your community association could add? 7. Which characteristics of a good maintenance system apply to your communitys system? Which characteristics of a poor maintenance system apply to your communitys system? What steps can you take to eliminate any ineffective characteristics? 8. Name some ways your community can go green.
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Lesson 1 Quiz
1. Complete the following sentence: For a community association, _____________ is the process of operating, maintaining, repairing, and replacing common property. a. preventative maintenance b. facilities management c. maintenance record d. scheduled replacement RATIONALE: Facilities management is the process of operating, maintaining, repairing, and replacing common property, and for a community association, that includes the common elements or areas. 2. True or false. One of the goals of maintenance for a community association is to limit injury to residents, guests, and employees. (True) RATIONALE: Maintenance has three major goals in a community association. These include meeting the needs of the individual residents as they relate to common elements, to preserve and enhance the common property, and to limit potential for injury to residents, guests, and employees. 3. Each of the following include steps in establishing a maintenance system for a community association EXCEPT: a. assign blame to staff not adequately fulfilling maintenance responsibilities b. develop maintenance management controls c. analyze your assets maintenance needs d. evaluate your maintenance system and efforts RATIONALE: There are six steps in establishing a maintenance system for a community association. These involve developing maintenance management controls, identifying the physical assets to maintain, analyzing your assets maintenance needs, establishing five basic maintenance programs, and evaluating your maintenance system and efforts. Assigning blame to staff not adequately fulfilling maintenance responsibilities is not included among these steps. 4. Which of the following is not an example of a maintenance management control? a. work orders b. charts of information c. response forms d. public offering statements RATIONALE: A management control is any means used to track, record, remind, or command attention. Usually these means are forms or documents. Examples of maintenance management controls include checklists, charts of information, calendars or schedules, records of actions taken, inventories, work orders, request forms, and response forms. Effective maintenance cannot occur without management controls. The public offering statement is simply a disclosure statement that provides information on the community association to prospective buyers. It is also mandated by state statute.
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Additional Resources
For further information on community association maintenance, we suggest the following: Enhancing Outdoor Spaces for Community Associations, Guide for Association Practitioners (GAP) No. 17, 2nd Edition, by Douglas M. Kleine, PCAM. Increase property values and resident satisfaction by improving the look of common areas. This useful guide can help. (Community Associations Institute, 1998.) Trees, Turf & Shrubs: How Community Associations Maintain Common Areas, A Guide for Association Practitioners, 2nd Edition, by Bette Weseman, PCAM and Debra Lewin. Improve property values with a good grounds maintenance system. Discusses pros and cons of do-it-yourself versus contracting, and provides information on maintenance practices for lawn care, trees and shrubs. Include a green approach to grounds maintenance. (Community Associations Institute, 2009.) Road Repair Handbook, by Roderick D. Johnston. Find out how to maintain roads and parking lots correctly and economically, spot the signs of pavement failure, when its okay to make quick fixes, how to deal with failing concrete, the advantages and disadvantages of concrete and asphalt, how to choose contractors, and much more! Includes numerous illustrations, photos and checklists. (Trans Mountain Publishing, 2009.) The Ultimate Guide to Pool Maintenance, by Terry Tamminen. Learn how to keep pools, spas, and other recreational water-containment units in tip-top shape. This comprehensive guide contains technical information and tricks of the trade suitable for the novice or pro. Covers chlorine alternatives, automation, noise control, pool-side safety, portable spas, environmentally friendly product resources and project checklists that make caring for a pool less costly. An absolute must for any community or homeowner with a pool or spa! (McGraw Hill 2007) The Complete Book of Home Inspection, by Norman Becker. Find out exactly whats behind, beneath, above and around the homes in your community and how to evaluate their condition accurately. Its basic enough for a layperson and detailed enough for professional home inspectors. Packed with photos, graphs, checklists, worksheets and more. (McGraw Hill 2002)
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Lesson 2: Contracting
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Lesson 2: Contracting
Goal At the end of this lesson, students will know the process to use for determining whether an association should use staff or contractors to complete various tasks in the community. The students will know what should be included in the specifications of work in a request for proposal (RFP) and what provisions should be included in all contracts, regardless of whether or not they are for maintenance services.
Overview While the majority of contracts that most community association managers deal with are related to the maintenance aspects of the community, there is also a need for managers to know how to deal with non-maintenance contracts such as engineers, reserve studies, garbage removal, or cable TV. You should make sure that these types of contracts are brought into the discussions. You should remind students that the decision of whether to use staff or contract for services in many cases will be made by the board of directors. Students must be prepared to present appropriate information to the directors to assist their decisionmaking process. In other cases, they will be able to make the decision. The students will need to understand that there may not be a choice in some areas. For example, a small community simply could not justify the cost of performing landscape maintenance with its own employees, so there is no need to go through the comparative analysis of such work.
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Lesson 2: Contracting
You should make sure the students thoroughly understand both the need for the contract provisions as well as what the provisions mean. An uneducated manager can cause great harm to an association by omitting any of these key issues. This can be stressed during the exercise that identifies the strengths and weaknesses of the sample contract. Materials Needed
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Overview
Introduce the lesson Say The topic of this session is the use of contracts to obtain products and services for the community association. The manager:
Must be able to evaluate the needs of the association to determine whether or not to contract for a service. In some cases, such as professional services, there may not be a choice except to contract for these services, e.g. attorney, auditors, engineers, etc. Must understand the bidding process including the preparation of the request for proposal (RFP) and evaluation of the bids. Must know what provisions should be included in every contract.
The process the manager must use in determining whether or not to contract for services. The bidding process including the preparation of an RFP and the evaluation process for bids submitted for consideration. The provisions that should be included in every contract. Using what we have discussed, you will complete an exercise that tests your knowledge of whether or not to contract for a service. You will review a sample contract, determine its strengths and weaknesses, and evaluate the provisions it contains.
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Overview
Go through the Lesson 2 learning objectives with the class.
Slide 81
Point out the Key Terms on PAGE 247 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Assignability provision Bid request Bid specifications Certificate of insurance Contract Default Entire obligation provision Governing law provision Modification provision Payment bond Performance bond Progress payments Prospective bidders questionnaire Qualifications sheet Request for proposal Severability provision Waiver of lien Waiver provision Warranty
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Management of a community associations resources frequently involves the use of contracts to obtain the products and services required. A contract is An agreement between two or more parties Enforceable by law By which each party promises to do, or not to do, something Whenever a community association enters into a contract, it is binding itself both legally and financially. Therefore, as a community association manager, you must assist your community to enter contracts as carefully as possibleseeking legal or technical advice whenever necessary. The purpose of this lesson is to provide you with leadership tools to guide the board through the bidding and contracting process. It will introduce you to: Deciding whether to contract for work Preparing a request for proposal packet Evaluating bids Key contract provisions Negotiating contracts
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Slide 82
Issues that Affect the Decision to Contract Services
Personnel Time constraints Cost Tools, equipment, and supplies Insurance coverage Licenses and permits Storage facilities
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Module 3: Facilities Management Page 249 Deciding Whether to Contract for Work
Leader Guide
Deciding whether to have a task performed by association staff members or by a contractor requires an analysis of several work requirements Personnel Time Cost Tools, equipment, and supplies Insurance coverage Licenses and permits Storage facilities
Personnel
When deciding whether to have staff members or a contractor perform a task, consider the required: Number of people Expertise Supervision Availability When you look at the number of people a task requires, is it more than the community has available? Can the staff members available perform the task in addition to their routine assignments? If you try to stretch your people too thin, there is the danger of demoralizing the staff and delaying completion of all tasks. In comparison, contractors can add workers as necessary, even though they have established crew sizes. When you look at the expertise a task requires, do the available staff members have the training and skills needed? Will it be possible to make up a work crew of one or two experienced people who will be assisted by less-experienced ones? Will it be possible to bring your people up to speed with a short training period? Always consider the possible costs of using inadequately trained people to do a job. In comparison, if the skill involved is a specialized one, an experienced contractor will know where to find trained workers or already has them on staff. When you look at the supervision of onsite staff that a task requires, do you have someone available and qualified to supervise staff members if they do the work? Be realistic about the amount of supervision that will be necessary and whether you or someone on site can provide it. In comparison, a contractor can and should be contractually bound to provide adequate supervision for a work crew. Your contract must specify that a supervisor must be present during work hours and what will happen if a contractors work crew does not perform the task at all, performs it inadequately, or otherwise behaves inappropriately on the job.
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Cost Does the association have to purchase needed equipment or materials? There is the cost of training and start up. The total cost of staff includes taxes and benefits in addition to salaries. There are up-front costs that impact cash flow. A contractor provides a fixed cost or a cost-plus contract that you can control
Tools, equipment, and supplies The association may already own tools and equipment or may have to purchase such items. Tools may be useful for only one time or one purpose. Tools or equipment may or may not be used in the future or for other work. A contractor will already have the necessary tools and equipment and the cost is included in the contract amount.
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When deciding whether to have staff members or a contractor perform a task consider: The urgency of the work How long it will take to complete the task If a task must be done immediately, staff members are already on siteall other factors being equal. If a task has low urgency, staff members might be able to work on it as their regular duties allow. When you estimate how long it will take to complete a task, include both start-up and clean-up time in your estimate.
Cost
When deciding whether to have staff members or a contractor perform a task, look at both the cash outlay required and the real labor costs involved. If the association executed a turn-key contract, there will be no additional cost. On the other hand, employees can be a significant cost element in a special work project, even though they are already budgeted for in terms of training time, compensation, taxes, and benefits. All those cost components may increase if the staff is tasked with additional work. This cost element should not be overlooked. Depending on the project, it actually could cost more to use employees instead of contracting for the work.
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Licenses and permits The work may require a license. The staff may need to be certified. The work may require a permit. Qualified contractors will have all necessary licenses and permits.
Storage facilities The association must provide a secure place to store tools and equipment. A contractor will already have facilities.
Point out that the manager must evaluate all aspects and requirements before deciding which method is best for the association and making a recommendation to the board. Refer students to the Decision Chart for Choosing Between Association Staff and Contractor on the following pages; this chart will help the manager in this decision-making process. Emphasize this process is to be used when the manager has the option of contracting or not. There may be situations such as needing legal or engineering services in which there is no option except to contract for the services.
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When deciding whether to have staff members or a contractor perform a task, consider which party or parties haveor can obtainthe necessary insurance coverage(s). Check with your associations insurance agent to verify that its policy or policies cover the work to be done by staff members. If a task requires a specialized skill, your associations liability insurance may not cover it. In comparison, qualified contractors should carry the necessary coverage, including Commercial general liability Use of owned or non-owned vehicles Workers compensation See Lesson 3 in this Module for an explanation of each type of insurance.
Storage Facilities
When deciding whether to have staff members or a contractor perform a task, consider where tools, equipment, and supplies will be storedand the liability involved. Make sure that all supplies are stored and labeled in accordance with OSHA standards. Both security and safety are the issues here. You want to avoid theft and accidents. Depending on the tools, equipment, and supplies involved in a task, your association may not be able to securely and safely store them for the duration of the project. Additionally, owners may not appreciate having to look at a pile of siding or roofing shingles for an extended period of time.
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Module 3: Facilities Management Decision Chart for Choosing Between Association Staff & Contracting Out
Place a check in a column if the party meets the work requirement. If the work requirement is not necessary, put an N/A for Not Applicable in a column. After you have reviewed all the work requirements, select the party that best meets the set of requirements as a whole. ASSOCIATION CONTRACTOR ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
WORK REQUIREMENTS An adequate number of people are available to do the job The people available have the necessary skills Adequate supervision is available Available to do the work immediately Available for a job of this length Will not be pulled off assignment to do other work Least expensive option Has access to the necessary tools, equipment, and supplies
Has adequate insurance coverage for this job (liability, workers compensation, vehicle) ____ Has the necessary license(s) and permit(s) Storage facilities are available for any tools, equipment, parts, or materials ____ ____
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Say Prepare thorough and accurate bid specifications by hiring an expert to outline the scope of the project. The root of the word specifications is specific. Specifications must be complete, accurate, and specific.
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A request for proposal (RFP) is an announcement that an organization is interested in receiving proposals for a particular project. Preparing an RFP packet involves: 1. Gathering preliminary information 2. Hiring an expert to prepare specifications with accuracy and thoroughness 3. Compiling a complete RFP packet 4. Conducting a pre-bid walk through 5. Possible consulting with a professional engineer or architect Because of the amount of effort the bidding process requires of both the community association and the bidders, it should be used primarily for larger jobs or purchases or for on-going services, such as lawn maintenance. If the bidding process will be needed, confer with your board to determine the minimum size of a contract that requires competitive bidding. Alternatively, there may already be minimum amount established in the management contract. The RFP packet includes The bid specifications or detailed instructions about the products or services requested. All contract terms should be included in the bid request. This will help the association avoid a situation where the successful contract bidder receives a written contract in which terms may not be acceptable to the contractor. Information about the association that the contractor will need in order to prepare a bid. Information about work conditions, such as hours, uniforms, parking, storage areas, license requirements, daily clean-up requirements, and time requirements. Requests for information about the contractor that will help the association evaluate the contractors ability to perform the work and meet the specifications.
1. Gathering Information
1. When you are going to contract for services, there are a number of steps to take in developing your RFP packet. These steps should be performed in conjunction with a qualified expert or engineer: Survey the area(s) where the work is to be done. 2. Outline the work to be done in detail. This may include consulting with a professional engineer or architect. 3. Specify the materials to be used, and where the materials will be stored. 4. Set a realistic deadline for completion of the work. Your deadline should take into account enough time for o You to develop your RFP packet o Adequate notice of pre-bid walk through o Contractors to prepare thorough bids o You to evaluate the bids received and make recommendations to your board o The board to review the bids and your recommendations and select the contractor o You to negotiate final details so the board can execute the contract o The selected contractor to do the work Be realistic! In many cases this can be a minimum of 60 days. 5. Make recommendations to the board and receive authorization to solicit bids from contractors.
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Slide 83
Preparing an RFP Packet
The full name, address, and telephone number of the association Detailed description of the work to be done or the product to be purchased Key dates Whom to call for information or inspection of site Where to submit bid Request for three to five references from previous jobs of similar size and scope Warranties required
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Do not abuse potential bidders, such as: Using the bid process just to get prices. Bidding, but never awarding, contracts due to the indecision of the board. Requiring detailed bids for small jobs.
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The RFP packet should state What parts, materials, or labor it wants guaranteed For how long What it expects the contractor to do if any parts, materials, or labor are defective
IMPORTANT NOTE
For very large and complicated jobs, you will also want to enclose a prospective bidders questionnaire or qualifications sheet. This is a document that asks for certain types of information to determine if the bidder is technically and financially qualified to handle a job of this scope.
4. Conducting a Pre-bid Walk Through and Consulting with a Professional Engineer or Architect
For large or complicated jobs, consider holding a pre-bid meeting with all the contractors at a designated time. This will allow the contractors to all see the work at the same time, and will provide youor the consulting engineer or architectthe opportunity to answer questions. This will save you and the contractors a significant amount of time, and allows all of the contractors to get the same answer to each question.
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Point out the Sample Bid Comparison Spreadsheet for Lawn Work on the following pages.
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Evaluating Bids
Once you receive several legitimate bids from your contractors, take the following steps to evaluate the bids: 1. Review each bid to verify that it conforms to your specifications. Contact the bidder for clarification if you have any question about a term, a price, or a promised service. Dont assume anything! 2. Check each bidders references. 3. Check each bidder with your local Better Business Bureau and the local Office of Consumer Affairs to see what type of complaints it has receivedif any. 4. Verify insurance compliance. Obtain original certificates of insurance. 5. Verify licenses (if required). 6. Eliminate any bids that are unacceptable based on steps #1-5. 7. Compare the remaining bids in terms of price. (See the sample bid comparison spread sheet on the next page for a comparison of bids.) Be wary of extremely low or high-priced bids. A price that is noticeably lower than the rest may mean that the low bidder doesnt understand what the job involves or is willing to cut corners. A price that is noticeably higher than the rest may mean that the high bidder doesnt understand what the job involves or wants a high profit margin. 8. Recommend a contractor to the board based on the following criteria Demonstrated understanding of what needs to be done Possesses the necessary qualifications to do the job Reasonable price
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Module 3: Facilities Management Page 258 Sample Bid Comparison Spreadsheet Lawn Bids: 20xx Season
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Contract Provisions
The discussion of key contract provisions goes into a level of detail appropriate for new managers. Each provision can include more detail.
Say The manager should make sure that every association contract contains the following provisions. These items are applicable to all contractsnot just maintenance work. Parties to the contract The parties should be clearly defined and include corporate structure, such as ABC Landscaping Company, a Georgia corporation. The association, not the management company, must be clearly identified as the other contracting party. Scope of work The contract must specifically set forth the work to be performed. The specifications can be attached to the contract to establish the scope. This should include each of the following: Requirement that the contractor conform to applicable codes, industry standards, or manufacturers specifications Requirement that the contractor provide sufficient employees necessary to perform the scope of work as described in the contract Requirement that the contractor clean up after the work is performed and restore the common elements or areas to their prior condition Exact location where work is to be performed Working hours Provisions for tools and equipment Materials Storage Job site safety requirements
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Contract Provisions
Slide 84
Contract Provisions
Parties Scope of work Compensation Time period Performance standards Warranty Restoration Indemnification Insurance License & permits
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Scope of Work
A contract must spell out specifically what work is to be done by the contractor. The larger the dollar amount and size of the project, the more detail should be included. Both parties (and possibly a court) must understand precisely what the contractor is responsible to do. Instead of referring to prior correspondence that describes the work, provide completed, detailed specifications in the contract or provide them as an attachment. The scope of work should also include: Requirement that contractor conform to applicable codes, industry standards, or manufacturers specifications Requirement that contractor provide sufficient employees necessary to perform the scope of work as described in the contract Requirement that contractor clean up after the work is performed and restore the common elements or areas to their prior condition Exact location where work is to be performed Working hours Provisions for tools and equipmentinclude security, storage, insurance, rental, and repair terms Materials o Quality, type, quantity, color o Who provides them o Delivery and storage o Who provides insurance coverage o Disposal of leftover materials Storage o Where o Who is responsible for security and for any missing equipment Job site safety requirements
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A contract should state: Total agreed-upon amount that will be paid for the product or service When payment(s) will be made In what manner payment(s) will be made On what terms payment(s) will be made Amount of retainage amount, if any For example, a contract may allow for progress payments. These are partial payments based on some demonstrable progress in completing the work involved. It is reasonable for a contractor to negotiate progress payments. Just be sure to tie them to observable progress and dont let them get ahead in payments of the actual work completed. Your final payment should be based on the work being completed to the community associations satisfaction (see discussion of standard of performance below). This means the final payment should be large enough to provide an incentive to the contractor to complete the work satisfactorily. As an alternative, some contracts call for the association to retain a certain percentage of the contract price until the terms of the contact are fulfilled.
Time Period
A contract should state when the work is to begin and when it must be completed. It should also provide for liquidated damages payments by the contractor, or reduction in cost if the contractor is responsible for not meeting the deadline.
Standard of Performance
A contract should provide a standard against which a contractors work can be judged. For example, the contract may require the contractor to create a specific result, such as an appearance identical to that existing immediately prior to the commencement of the work or a structure substantially similar in design and appearance to existing structures of the same type in the community association. Even without such a provision, contractors will generally be held to the standards established by prevailing custom and practice in their particular industries. But as with other terms of an agreement, it is always best to expressly state the expected standard of performance. Whenever possible, try to use an objective standard of performance, such as manufacturer specifications, American Standard Test Methods (ASTM), or American Institute of Architects (AIA) standards.
Warranty
A contract should state the agreed upon warranties clearly and in detail. As we said earlier in this lesson, a warranty should state: What is covered For how long What is not covered What the contractor will do if the work or product proves defective
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A contract should contain a clause stating that if the contractors employees, agents, or subcontractors damage any common or individual property in the community while performing contracted work, the contractor agrees to fully restore the property to its condition prior to the damage. This clause may also provide for the community association to retain part of the contract price until restoration has been completed. Or it may provide for deducting from the contract price any costs that the community association is forced to spend to do the restoration itself if the contractor does not do it within a specified period after completion of the work.
Indemnification
A contract should expressly state that the contractor will indemnify and hold harmless or reimburse the community association for any amount the association is required to pay because a claim was made against the association as a result of the contractors workas well as for any legal costs associated with defending the association against any claims. For example, if an owner sues the community association because the owner tripped and injured himself on the stairs that a contractor was in the process of resurfacing, this provision would require the contractor to pay any amount for which the community association is found liable, as well as any legal costs involved. The provision should be broadcovering any claims of any type by any party arising from the contractors work.
Insurance
A contract should expressly require the contractor to have all necessary insurance for the projectincluding liability, workers compensation, and vehicle insurance. The contract should also require the contractor to provide the community association with original certificates of insurance, which prove that it has coverage, before work begins. Have the community association insurance agent review the contractors insurance policies to assure that coverage is adequate. Depending on your region of the country and the contractors insurance carrier, it may be possible to get a contractor to name the association and its management company as additional insured parties on the contractors policies.
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Slide 85
Contract Provisions, continued
Notices Termination Default Financial protection
- Performance bond - Completion bond - Waiver of lien
Legal provisions
- Assignability - Modifications - Waiver - Severability - Entire obligation
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Notices
A contract should clearly state the names and addresses of the individuals representing both parties for the purposes of that contract. These will be the official addresses to which correspondence related to the contract must be sent.
Termination
A community association should always have a way extricate itself from a contract if it so desires. This is particularly true for long-term service contracts. A service contract should contain a provision that gives the community association the right to terminate the contract with or without cause after a specified period of prior notice to the contractor.
Default
A contract should specify: What constitutes a default or failure of either party to fulfill the terms of the contract What each partys rights are if the other defaults
Financial Protection
A contract should provide for the community associations financial protection if the contractor should default. This is important at all times, but especially during a weak economy, or for larger projects. Depending on the type of project, a contract may require: Performance bond: This is a guarantee by a surety (a third party) to protect the community association if the contractor fails to perform or finish the work. Because there is a cost to the community association involved, a performance bond typically is used with certain large projects. Payment bond: This bond usually comes in a package with the performance bond. The surety guarantees that the contractors suppliers and any subcontractors will be paid if the contractor does not pay themto protect the association from having a mechanics lien placed against them. Waiver of lien: This is a document which gives up the right to make a claim against the community association for payments not received. When a contractor does the work and receives payment, the contractors representative provides a waiver of lien signed by the contractor, as well as waivers signed by the contractors suppliers and any subcontractors. If the project involved is a large one with multiple payouts, it is possible to receive waivers of lien more than once during the project as each payment is made. Use a waiver of lien when a project involves the heavy use of materials or subcontractorse.g., some type of construction projectand your community association wants to avoid the risk of having to pay for materials or subcontractors if the contractor fails to do so.
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Emphasize that managers should contact the associations attorney regarding any question or concern they may have about a contract or one of its provisions before having the association enter into the contract.
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Be sure to obtain any waivers of lien before making final payment on a projecteven a small one. If you do not, your community association could end up paying for supplies or subcontractor services twice! Although we discussed progress payments and retention of a portion of the contract price under the compensation provision, notice how they are also forms of financial protection for your community association.
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Negotiating Contracts
Say The final section of this lesson discusses: 1. The basic steps in negotiating a contract, and 2. Some important tips for successfully completing a contract
Slide 86
Tips for Successfully Completing a Contract
Hire a specialist to inspect ongoing work Monitor the job site while work is in progress Inspect the completed job before final payment Prepare a payment schedule if you are going to make progress payments
86
A final word of advice: While monitoring the job site, the manager should never try to climb a roof or attempt to ensure that cement mix is the right consistency, for example. A professional should inspect the work during the contract and again when it has been completed to certify that it was done correctly. This condition should be written into the contract and final payment should be contingent on successfully passing this professional inspection and receiving all written warranties.
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In this last section of the lesson, we would like to discuss: The basic negotiating process Tips on successfully completing a contract
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While monitoring the job site, the manager should never try to climb a roof or attempt to ensure that cement mix is the right consistency, for example. A professional should inspect the work during the contract and again when it has been completed to certify that it was done correctly. This condition should be written into the contract and final payment should be contingent on successfully passing this professional inspection and receiving all written warranties.
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Summary
Say You have learned: How to analyze a particular service or function the association needs and determine the best approach for accomplishing this work for the benefit of the association. What provisions should be included in all contracts to which the association is a party. To use RFPs in requesting bids. To use specifications for all work in a RFP. An effective approach for deciding whether to use in-house staff or to contract out when the association has work that needs to be done.
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Key Terms:
Assignability provision Bid request Bid specifications Certificate of insurance Contract Default Entire obligation provision Governing law provision Modification provision Payment bond Performance bond Progress payments Prospective bidders questionnaire Qualifications sheet Request for proposal Severability provision Waiver of lien Waiver provision Warranty
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 2 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review. Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. Why is it important to assist your community association with entering into contracts and to do so as carefully as possible? 2. What are some work requirements to consider when deciding whether to have a task performed by staff members or by a contractor? For each work requirement you name, explain the considerations involved. 3. What does an RFP packet include? 4. What are the five steps to take before developing an RFP packet? 5. Name some sources that can be used to obtain the names of potential contractors for a specific job. 6. Why is it important that bid specifications be as thorough and accurate as possible before the RFP packet is sent out? 7. List the basic items a complete RFP packet should include. 8. What are the eight steps to take in order to evaluate a set of bids for a project? 9. Why is it important to have a standard contract with certain key provisions in it? 10. Name some of the key provisions that should be included in every contract. Explain each provision. 11. What are the six basic steps in negotiating a contract? 12. What are some tips for successfully completing a contract?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. Identify a project or routine service your community association is considering or has decided to undertake. Use the decision chart from this lesson to decide whether staff members or a contractor would best meet the work requirements involved. 2. Identify a project or routine service for your community association whose bidding and contracting process you have either participated in or observed. (If you are relatively new to your community association, interview another employee or a board member about a recent process.) Based on what you have read in this lesson a. Review the steps taken to gather preliminary information for the bid request. How could they have been improved? b. Review the process used to identify potential contractors for the project. How could it have been improved? c. Review the bid specifications. How could they have been improved? d. Review the complete RFP packet. How could it have been improved? e. Review the steps taken to evaluate the bids received. How could they have been improved? f. Review the steps in negotiating the contract for the project. How could they have been improved? g. Are there any ways execution of the contract could have been improved? 3. If your community association has a standard contract it uses, identify the clauses which represent the key contract provisions mentioned in this lesson. If there are key provisions not represented in your community associations standard contract, ask your immediate supervisor or communitys attorney about them. If your standard contract has clauses which represent provisions his lesson hasnt mentioned, ask about those, too. If your community association does not use a standard contract, what are some reasons you could use to convince your board that it needs one?
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Lesson 2 Quiz
1. True or false. A contract is an agreement between two or more parties, enforceable by law, by which each party promises to do, or not to do, something. (True) RATIONALE: Management of a community associations resources frequently involves the use of contracts to obtain the products and services required. A contract is an agreement between two or more parties, enforceable by law, by which each party promises to do, or not to do, something. Whenever a community association enters into a contract, it is binding itself both legally and financially. Therefore, as a community association manager, you must assist your community to enter contracts as carefully as possibleseeking legal or technical advice whenever necessary. 2. When deciding whether to have staff members or a contractor perform a task, a manager should consider each of the following EXCEPT: a. supervision b. expertise c. number of people d. retirement plan contributions RATIONALE: When deciding whether to have staff members or a contractor perform a task, a manager should consider the number of people, expertise, supervision, and availability. If a manager tries to stretch his or her people too thin, there is the danger of demoralizing the staff and delaying completion of all tasks. Always consider the possible costs of using inadequately trained people to do a job. Be realistic about the amount of supervision that will be necessary and whether you or anyone else on site can provide it. 3. True or false. When deciding whether to have staff members or a contractor perform a task, a manager should consider where tools, equipment, and supplies will be stored, and the liability involved. (True) RATIONALE: A manager is responsible for ensuring that all supplies are stored and labeled in accordance with O.S.H.A. standards. In this respect, the manager should be concerned with security and safety issues and seek to avoid theft and accidents. Depending on the tools, equipment, and supplies involved in a task, an association may not be able to securely and safely store them for the duration of the project, and may wish to instead use a contractor.
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Additional Resources
For further information on bidding and contracting for community associations, we suggest the following Bids & Contracts: How to Find the Right Community Association Professional, A Guide for Association Practitioners, by Stephen R. Bupp, CMCA, AMS, PCAM. Find out what to specify in your request for proposals and how to prepare your contracts correctly. Includes sample documents. (Community Associations Institute, 2004.) Landscape Contractors: How to Find the Right Community Association Professional, A Guide for Association Practitioners, by James B. Cranford, AMS, PCAM. This guide covers it alldrafting specs, performance criteria, warranties, maintenance schedules, insurance requirements, communicating with residents, advice on bidding the contract, selecting the best bid, legal review, environmental concerns and contractor evaluation. Includes sample documents. (Community Associations Institute, 2007.) Management Companies: How to Find the Right Community Association Professional, A Guide for Association Practitioners, by Michael E. Packard, PCAM, CPM. Heres guidance for deciding on a company to manage your communitycovers bid specifications, identifying candidates, requests for and analysis of proposals, onsite meetings, the interview process and working successfully with your management company. (Community Associations Institute, 2007.) On-Site Managers: How to Find the Right Community Association Professional, A Guide for Association Practitioners, by Thomas Burgess, PCAM, and Pam Washburn, CMCA, AMS, PCAM. Helps you determine whether your association needs an onsite manager; establish job criteria; find, screen and investigate leading candidates and make the partnership work. Includes sample documents. (Community Associations Institute, 2005.) Community Association Legal Counsel: How to Select & Use an Attorney, Guide for Association Practitioners No. 13, 2nd Edition, by Thomas J. Hindman, Esq., and Loura K. Sanchez, Esq. Find out how to get the best out of your association attorney, what to consider when searching for a new lawyer, working out fee structures and more. Includes a sample request for proposal, interview questions, evaluation criteria and sample billing statement. (Community Associations Institute, 2002.)
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Overview
Introduce the lesson Say The topics of this session are risk management and insurance for community associations. The manager:
Must know the types of exposures that can cause a loss for a community association and how to manage the risks associated with that exposure. Must understand the requirements for insurance and the various types of insurance available to community associations. Must be involved in the insurance bidding process and be aware that there are limitations to the role. Must be involved in the insurance claims process when a loss occurs, and be aware that there are limitations to the role.
We will discuss the areas in which community associations are exposed to loss and how to control and manage those risks. In most cases, risk management will be through the purchase of insurance coverage. We will discuss the requirements for insurance as well as the various types of insurance coverage available to community associations. The board of directors will expect the manager to play a critical role in the bidding of insurance coverages. We will discuss what your role should be. The board of directors will expect the manager to play a critical role in the insurance claims process when a loss occurs. We will also discuss your role in this process.
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Overview
Go through the Lesson 3 learning objectives with the class.
Slide 87
Point out the Key Terms on PAGE 275 in the Participant Workbook. These words are defined within the lesson on the specified page.
Define Risk Management: Risk management is the process of making and carrying out decisions that will minimize the adverse effects of accidental losses upon the community association.
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Key Terms:
Actual cash value (ACV) Advertising injury Aggregate amount Agreed amount endorsement Assessments receivable insurance Bodily injury (BI) Building ordinance insurance Business income insurance Claims made coverage Coinsurance Commercial general liability insurance (CGL) Commercial umbrella insurance Common declarations Contingent liability Contractual transfers Covered cause of loss Deductible Demolition Directors & officers liability insurance Electronic data processing (EDP) Employers liability insurance Exposure avoidance Extra expense insurance Fidelity insurance Flood insurance Hired & non-owned automobile liability insurance HO-1,-2,-3,-4,-5,-6 policies Income exposure to loss Increased cost of construction Inflation guard endorsement Insurable replacement cost Insurance Liability exposure to loss Loss prevention Loss reduction Mechanical equipment breakdown insurance Medical payments Occurrence Ordinance law insurance Personal injury (PI) Personal property Personnel exposure to loss Property damage (PD) Property exposure to loss Real property Risk control Risk management Segregation of exposures Waiver of subrogation Waiver of the transfer of recovery rights Workers compensation & employers liability insurance Wrongful acts
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This lesson provides an introduction to risk management and insurance for community associations. The lesson explains the: Risk management process Insurance coverages and related insurance issues for community associations Risk management is the process of making and carrying out decisions that will minimize the adverse effects of accidental losses upon the community association. Implementing these decisions requires the performance of four activities to all types of management: planning, organizing, leading, and controlling.
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The creation of a comprehensive community association insurance program lies at the heart of an effective risk management program. Although the duty to purchase insurance for a community association lies with its board of directors, a manager is expected to advise and lead the board in implementing this financial responsibility.
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Overview
Say There are four types of exposure to loss for an association. 1. Property exposure to loss: Property losses can be tangible community association property (buildings, contents, etc.) or intangible association property (information, proprietary website, etc.). 2. Liability exposure to loss: Liability losses include damage to non-association property or to a person, and arise when a person or entity threatens or actually brings a legal claim against the community association, its members, or others whom it must indemnify by contract (such as a management company). 3. Income exposure to loss: Income losses involve a reduction in income or an increase in operating expenses, or both. 4. Personnel exposure to loss: Personnel exposures usually involve claims by employees regarding discrimination in hiring or firing, harassment, or other allegation.
Slide 88
Exposures to Loss
1. Property Exposure tangible or intangible Real property buildings, land, information Personal property inventory, furniture, supplies 2. Liability Exposure Third-party claim of personal or property damage 3. Income Exposure net loss reduction in income/increase in operating expenses 4. Personnel Exposure claims of employees
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Overview
Say There are four ways to attempt to control the risks: 1. Exposure avoidance, e.g. remove the diving board at the swimming pool. 2. Loss prevention and reduction, e.g. fire alarm monitoring systems or the installation of fire extinguishers. 3. Segregation of exposures, e.g. computer back up files stored off premises. 4. Contractual transfers, e.g. contracting for maintenance rather than employees doing the work.
Slide 89
Risk Control
1. 2. 3. 4. Exposure avoidance Loss prevention and reduction Segregation of exposure Contractual transfers
89
Ask students for additional examples of ways to control risks and to define the category it represents.
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Slide 90
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4. Secondary mortgage market, agency, and lender requirements: The four important entities that usually have an impact on community association insurance obligations include: 1) Fannie Mae (Federal National Mortgage Association) 2) Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) (The following are technically government sponsored enterprise or GSEs. Both of these GSEs buy mortgages from lenders and in doing so require certain types of insurance to be in place.) 3) Federal Housing Administration (FHA) 4) Veterans Administration (VA) (Fannie Mae and Freddie Mac are private agencies backed by the federal government and insure the mortgages, paying the lender if the borrower defaults. FHA and VA guarantee mortgages and require certain types of insurance coverage on the unit and the community before agreeing to buy the mortgage from the lender.) 5. Contractual obligations: Community associations may have entered into contractual obligations with a private trash company for trash removal or other activities, and requires that the trash company indemnify the association against any claims or damage. Management company contracts also contain an indemnification provisions that requires the associations insurance to pay for defense, settlements and judgments in the event of a claim. 6. Good business judgment: The absence of explicit requirements from any of the sources listed above should not preclude the community association from obtaining coverage if the exposure is present and selffunding is not a viable option. The absence of an explicit requirement will not excuse a managers failure to fulfill his or her professional duty to recommend insurance coverageor a board from fulfilling its fiduciary duty to obtain coverage.
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Insurance Coverages
Due to limited time, the instructor cannot dwell on any particular area of coverage. Emphasize the need for the students to thoroughly read the workbook section on insurance and ask questions of the instructor. Emphasize that each state and each association will be unique in its insurance needs and that the manager must seek advice from competent insurance professionals. Say Property coverages that are available to community associations include: 1. Property coverage. Commercial package policy o Real and personal property from all perils except exclusions o Obtain replacement cost coverage, not Actual Cash Value (ACV) o Obtain agreed amount endorsement o Choose affordable deductibles Mechanical/Equipment Breakdown insurance (boiler and machinery) o Mechanical breakdown of elevators, HVAC, transformers, etc. Ordinance/Law insurance o Contingent liability o Extra demolition o Increased cost of construction Flood insurance o Provided only through National Flood Insurance Program if the building is in a flood plain Electronic data processing o Needed for computer equipment, networks, websites, security systems, protection from hackers, and similar information technology exposures o Every community association should have internal procedures governing the proper use of information technology
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Insurance Coverages
Slide 91
Property Coverage
Commercial package policy Mechanical/equipment breakdown insurance Ordinance/law insurance Flood insurance Electronic data processing
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For insurance purposes, property consists of: 1. Real propertye.g. buildings, land, and the newest type of property exposureinformation such as websites, logos and similar electronic information and data processing (EDP). Information loss is an exposure for some community associations that have websites and use e-mail to communicate electronically with members. 2. Personal propertye.g. inventory, furniture, fine arts, equipment, supplies, machinery and valuable papers and records.
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Ordinance insurance covers three areas: Contingent liabilitycovers the value of any undamaged portion of a building which may have to be replaced because it is impossible to tie in the remaining section to the rebuilt section because of changes in building codes over the years. Demolitioncovers the cost of demolishing any undamaged portion of the building. The basic property insurance pays for demolishing the damaged portion of the building. Increased cost of constructioncovers construction costs due to changes in the building code since original construction took place, e.g. wider door frames, installation of sprinkler systems, and code changes because of "green requirements" such as reflected roofs, complying with water saving specifications, etc. Policy limits should reflect the community associations risk managers estimate of its actual exposure. As a manager, you should encourage the board to hire a professional to determine what changes in building code to which your community association would have to conform if it had to rebuild. 4. Flood insurance: This type of insurance is available only through the National Flood Insurance Program (NFIP), a federal insurance program, if a building is in a flood plain. It provides coverage for damage caused by flood (rising water) and mudslides to buildings and contents. Policy limits are driven by the internal requirements of the NFIP. The NFIP program is predicated on the association insuring to full insurable replacement cost or a maximum of $250,000 per unit. If a building is not in a flood plain, premiums are much more reasonable and can usually be obtained as an endorsement to the CPP. 5. Electronic data processing (EDP): This insurance may be needed for computer equipment, networks, websites, security systems, protection from hackers, and similar information technology exposures. Coverages vary so much that the community association needs to carefully evaluate its exposures and the ability of the EDP to meet those potential exposures to loss. Exposures to loss from information technology components may also need coverage by special liability insurance and special income insurance. Every community association should have internal procedures governing the proper use of information technology.
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4. It is to a community associations benefit to have the property insurance deductible apply to all of its buildings on a blanket basis, rather than to each building separately. If a covered cause of loss (such as a fire) occurs for more than one building, it will be less expensive to pay one deductible as opposed to paying a deductible for each building. However, it may not always be possible to obtain this; many insurance companies insist that deductibles for water damage and other claims apply separately to each unit or each building in which damage occurs. 5. The standard property policy for a condominium contains several basic statements or endorsements (condominium endorsement). For example, the condominium association policy is primary with respect to an owners policy for the same loss, which means that the associations policy will pay the loss. It also eliminates the associations right to seek reimbursement for a covered loss from the owner who caused the damage. The endorsement that deletes this right is called a waiver of the transfer of recovery rights (formerly a waiver of subrogation). Property policies for cooperatives and planned communities often do not have the benefits of those features found in the standard condominium endorsement. They can usually be added for no extra premium. Guaranteed Replacement CostSome insurance companies will offer guaranteed replacement cost, which means that the insurer will pay whatever it costs to rebuild the property (as defined in the insurance policy). A variation on this type of coverage is sometimes called "Extended Replacement Cost." This latter coverage will use a sub-limit extension, e.g. "we will pay up to 120% of replacement cost."
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Slide 92
Liability Coverage
Commercial general liability Hired and non-owned automobile liability Commercial umbrella liability Directors and officers liability
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For a community association to be held liable, a civil legal claim must be brought against it because of a legal wrong it is alleged to have directly committed or for which it is supposedly responsible. This alleged legal wrong must have led to property damage (PD), bodily injury (BI), personal injury (PI), or advertising injury (AI) to a third party if there is to be coverage in commercial general liability insurance (CGL). Wrongful acts that do not lead to property damage, bodily injury, personal injury, or advertising injury claims could be covered under Directors and Officers liability insurance. The associations liability policy also includes Medical Payments insurance which is technically an accident policy that pays third parties for limited medical expenses without the injured party having to file a lawsuit against the association. For example, a visitor may trip over a sprinkler head and twist her ankle. The community association and manager should always ask to be an additional insured on the liability policy of every contractor or vendor doing work for the association. In the event of a claim involving both the association and the contractor, the claim can then be tendered to the contractors CGL insurer instead of the associations paying the loss.
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Liability claims can be brought against a community association because of: 1. Property damage: For examplean improperly maintained light pole falls on a car. 2. Bodily injury: For examplea slip-and-fall on a crumbling sidewalk. 3. Personal injury: Injury arising from libel, slander, false arrest, invasion of privacy, wrongful entry, or malicious prosecution. For examplea community newsletter inappropriately and incorrectly lists an owner as delinquent in assessments. 4. Advertising injury: Advertising injury provisions in CGL include language providing coverage to the community association with respect to damages resulting in misappropriation of advertising ideas or style of doing business or infringement of copyright, slogan, or title. Community associations with newsletters, directories, and websites that contain advertising and use online, magazine or newspaper articles without reprint permission have this exposure. Even the best managed community association can be the subject of liability claims in the areas of property damage, bodily injury, personal injury, and advertising injury. But these associations are likely to experience fewer of these claims than does a poorly managed one.
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Slide 93
Income Coverage
Fidelity insurance Business income insurance Assessment fees receivable insurance Extra expense insurance
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Be sure to apply the risk management decision-making process to all sources of income for your community association. Review the associations revenue & expense statement and budget to determine its sources of revenue.
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Here are some common risk management issues related to income exposures to loss: Dealing with income loss exposures primarily requires sound financial practices. Does your management company require and practice: o Separation of duties for recording income and paying expenses? o Multiple signatures on bank and investment accounts? o Monthly reconciliations of bank statements with financial reports? o Performance of an independent compilation, review, or audit of every managed association?
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Slide 94
Personnel Coverage
Workers Compensation insurance Employers Liability insurance
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In this section, personnel exposures to loss are limited to loss of services due to injuries received while working on behalf of the community association. This section will not address medical, dental, hospital, life, disability, pension, or retirement coverage. Traditional personnel exposures to loss involve death, disability, retirement, unemployment, and resignation.
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The managers role in the bidding process should not include creation and approval of the bid request form or determining the types and limits of coverage. The board of directors should decide what coverages and amounts should be purchased. The manager can give recommendations but should not make the final decision. If needed, an independent insurance counselor should be hired to assist the board of directors in making their decision. CAI strongly recommends that associations retain a professional to conduct an insurance appraisal to ensure that the association is not over- or under-insured. Managers should evaluate agents/brokers in terms of their Experience Specialty in the field Knowledge of community associations Claims processing history Participation in professional and trade associations, such as Community Associations Institute Professional standing, types of insurance licenses, or bonding
Be sure to point out the sample Comparison of Bids form on the following pages.
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This last section of the lesson discusses: Basic components of a community association insurance program Insurance claims Relationship between community association insurance coverage and owner coverage
2) Program Maintenance
Insurance coverage is on an annual basis, typically called a policy period. Different policies will have different annual renewal dates. It is necessary for a manager to maintain a chronological schedule of the coverage inception dates for the associations various policies. This will prevent policy lapses through oversight. Whenever possible, all policies should have the same expiration date.
3) Program Evaluation
A community association should assign a specific person, committee, employee, manager or consultant the responsibility of handling the bidding process. The dynamic, technical nature of insurance issues requires conscientious attention to an associations insurance program in order to protect its assets. Some CC&Rs and bylaws require that an insurance trustee be appointed for the community association in the event of a property loss in excess of some given amount.
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Property Coverages Bldg. Limit Bldg. Deductible Replacement Cost Guaranteed Replacement Cost Special Form Agreed Amount Broad Form Water: Sewer/Drain Backup Wind-Driven Rain Exterior Damage required Surface Water Leakage/Seepage Building Glass: Deductible Limit per Pane Limit per Loss $ $ Yes Yes No No $ $ Yes Yes No No $ $ Yes Yes No No
Yes Yes
No No
Yes Yes
No No
Yes Yes
No No
No No No No No
No No No No No
No No No No No
Yes $ $
No $ $
Yes
No $ $
Yes
No
Hint: A complete comparison [or bid] would list all the property coverages sought, as well as coverages for all liability, income, and personnel exposures to loss the community association wants to insure.
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Insurance Claims
Say Any possible claim that could have an adverse impact on the association should be reported to the insurance company. Neither the board nor the manager should decide whether there is coverage for a claim or not. It should be submitted to the insurance company for their determination, and rejection, if no coverage is available. The manager should coordinate all insurance claims. For complex claims such as a large fire loss, the board may need to hire a public adjuster. If the manager becomes involved in the oversight and supervision of property restoration due to an insurance claim, the manager or management company should receive additional compensation or assistance for the extra, unplanned work which is not covered in the management contracts day-to-day operations of the association.
Review the following tips about filing insurance claims: Every insurance contract has its own requirements for filing claims. If these requirements are not met, the insurance company could void the coverage for the claim. Any possible claim that could have an adverse financial impact on the community association should be reported to the insurer. If the claim is not acted upon or reported immediately, it can be denied or refused at a later time. For example, if an owner threatens to sue over a perceived injustice, the manager should report the conversation to the associations insurance agent. Claims may require the filing of formal proofs of loss, such as: challenges to elections, claims of misappropriation of funds, etc. The preservation of life and property are paramount concerns in any insurance contract. Do not hesitate to minimize further loss; it is incorrect to believe that nothing can be touched until the adjuster arrives. Claims involving liability issues should be sent to the insurance company without any admission of negligence on the insureds part.
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A management company should specifically designate someone to be in charge of filing and monitoring claims, so that requirements are met and reports are made in a timely fashion. Here are some important tips about filing insurance claims: Every insurance contract has its own requirements for filing claims. If these requirements are not met, the insurer could void the coverage for the claim. Any possible claim that could have an adverse financial impact on the community association should be reported to the insurer. Claims may require the filing of formal proofs of loss. The preservation of life and property are paramount concerns in any insurance contract. Do not hesitate to minimize further loss; it is incorrect to believe that nothing can be touched until the adjuster arrives. Claims involving liability issues should be sent to the insurance company without any admission of negligence on the insureds part.
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Summary
Say You have learned: About controlling potential risks for loss in your community association by using risk management techniques, including the purchase of insurance coverage. About different types of community association insurance. That your role in the insurance bidding and purchasing process is to assist the board of directors. You should never decide on the amount, limits or type of coverages to be purchased. That you should coordinate all insurance claims on association policies and use experienced insurance professionals, if needed, for complex issues. To always seek the advice of a competent insurance agent regarding any risk management or insurance questions or concerns that you or the board of directors may have.
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Module 3: Facilities Management Once again, review the Key Terms with the participants.
Key Terms:
Actual cash value (ACV) Advertising injury Aggregate amount Agreed amount endorsement Assessments receivable insurance Bodily injury (BI) Building ordinance insurance Business income insurance Claims made coverage Coinsurance Commercial general liability insurance (CGL) Commercial umbrella insurance Common declarations Contingent liability Contractual transfers Covered cause of loss Deductible Demolition Directors & officers liability insurance Electronic data processing (EDP) Employers liability insurance Exposure avoidance Extra expense insurance Fidelity insurance Flood insurance Hired & non-owned automobile liability insurance HO-1,-2,-3,-4,-5,-6 policies Income exposure to loss Increased cost of construction Inflation guard endorsement Insurable replacement cost Insurance Liability exposure to loss Loss prevention Loss reduction Mechanical equipment breakdown insurance Medical payments Occurrence Ordinance law insurance Personal injury (PI) Personal property Personnel exposure to loss Property damage (PD) Property exposure to loss Real property Risk control Risk management Segregation of exposures Waiver of subrogation Waiver of the transfer of recovery rights Workers compensation & employers liability insurance Wrongful acts
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 3 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review. Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. Explain risk management and risk control. 2. List the five steps in the risk management decision-making process. Illustrate each step with an example that could be applied to your community associations). 3. What are the four types of accidental loss to which a community association is exposed? 4. List some different ways to identify a community associations exposure to possible loss. Give an example of each that could be applied to your community association(s). 5. Name and define four different risk control activities. Give an example of each that could apply to your community association(s). 6. List the different sources of community association insurance requirements. 7. What are some examples of real property that your community association owns? 8. What are some examples of personal property that your community association owns? 9. What endorsements are needed for full insurable replacement cost coverage for property? 10. List some types of insurance that commonly provide coverage for a community associations property exposures to loss. Explain how they differ in their coverage. 11. What does liability consist of for a community association? 12. What are the four basic types of liability claims that can be made? Give an example of each. 13. List some types of insurance that commonly provide coverage for a community associations liability exposures to loss. Explain how they differ in their coverage. 14. What types of claims does directors and officers liability insurance cover? What types of claims does it not insure against? 15. List some types of insurance that commonly provide coverage for a community associations income exposures to loss. Explain how they differ in their coverage. 16. Explain the key risk management issue for a community associations personnel exposures to loss. 17. List the two related types of insurance that commonly provide coverage for a community associations personnel exposures to loss. Explain how they differ in their coverage. 18. What are some criteria that should be used to evaluate an insurance agent or broker? 19. Why is it necessary to maintain a chronological schedule of the coverage dates for a community associations various policies? 20. Why is it necessary to explicitly assign someone responsibility for the bidding and review processes for an associations insurance program? 21. List some important tips for filing insurance claims for a community association. Explain why each is important. 22. What is the difference in emphasis between condominiums or cooperatives and planned communities when explaining the relationship between community association and owner insurance coverages?
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to a community association you manage. 1. How would you determine exposures to loss for each of the following: Property Liability Income Personnel 2. Keeping the four types of exposure to loss in mind: What exposures to loss has the community association decided to self-fundwhether purposefully or through inaction? What exposures to loss has the community association financed by means of insurance? 3. What insurance requirements are set for the community association by: The governing documents Applicable federal regulations Any state statutes Applicable local and federal laws 4. Does the community association have any exposures to loss that it has identified as uninsurable or too expensive to insure? If so, what alternative means of risk control and has it adopted? 5. Does the community association know the insurable replacement cost valuation for its property? What is it? How recent is it? 6. Which of the insurance contract issues for property exposures to loss are issues the community is addressing or needs to address? 7. What insurance coverages and endorsements does the community association have for property exposures to loss? 8. What insurance coverages and endorsements does the community association have for liability exposures to loss? 9. What risk management techniques does the community association apply to its internal financial practices? 10. What risk management techniques are used by any organizations (such as management company, bank, or investment firm) that handle their community associations funds? 11. What insurance coverages and endorsements does the community association have for income exposures to loss? 12. What insurance coverages and endorsements does the community association have for personnel exposures to loss? 13. What bidding process does your management company use to obtain insurance? Can you think of any ways to improve the process? 14. Does the association have a chronological schedule of the coverage dates for its various insurance policies? If not, can you set one up? 15. What procedures has your management company set up for evaluating its associations ongoing insurance program? Can you think of any ways to strengthen its procedures? 16. Does your management company have any written or unwritten policies and procedures for filing and monitoring insurance claims? If so, what are they? If not, what are some basic policies and procedures to begin with? 17. What is the relationship between the community associations insurance coverages and its owners coverages? (Hint: If you cant find any written explanation, ask the associations agent or broker.)
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Lesson 3 Quiz
1. Which of the following types of exposure to loss for a community association is characterized by net losses that may involve a reduction in income or an increase in operating expenses or both? a. property exposure to loss b. liability exposure to loss c. income exposure to loss d. personnel exposure to loss RATIONALE: There are four types of accidental loss to which a community association is exposed. Income exposures to loss are net losses that may involve a reduction in income or an increase in operating expenses or both. 2. Which of the following demonstrates the risk control technique of exposure avoidance? a. a community association rule prohibiting the use of alcohol in the clubhouse b. conducting weekly fire safety inspections where flammables are stored c. contracting for landscape services d. backing up all computer files and storing the backup files in a separate place RATIONALE: Exposure avoidance involves avoiding the circumstances that would expose the community association to certain type of loss. For example, to avoid problems with serving alcohol in the clubhouse, the community association has a rule prohibiting the use of alcohol in the facility. 3. True or false. The insurance industry is unregulated at the state level. (False) RATIONALE: The insurance industry is a highly regulated legal environment at the state level. Insurers are either admitted or non-admitted at the state level: both, if licensed, can write insurance, but only admitted insurers are eligible for state guarantee funds if the insurer becomes insolvent. Nonadmitted insurers are often called Excess & Surplus (E&S) Lines insurers. The insurance industry is highly regulated at the state level in terms of policy forms and rates, claims practices, financial operations, and other basic business practices. 4. Commercial package policies contain all of the following EXCEPT: a. common declarations b. a selection of forms c. claim form d. glossaries RATIONALE: Community associations purchase commercial package policies (CPP), sometimes called package policies, which combine property and liability insuranceand possibly other insurance coverages. All commercial package policies contain common declarations, common policy conditions, a selection of forms, optional endorsements, and glossaries. Claim forms are not included in the commercial package policies.
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Additional Resources
For further information on risk management and insurance, we suggest the following: Insurance: How Community Associations Protect Themselves, A Guide for Association Practitioners, by Clifford J. Treese, CPCU, ARM and Katharine Rosenberry, Esq. What are your associations insurance obligations? Whats available, and how much do you really need? A comprehensive overview of an important topic. (Community Associations Institute, 2006.) Risk Management: How Community Associations Protect Themselves, A Guide for Association Practitioners, by Clifford J. Treese, CPCU, ARM. This informative guide explains how to manage risk and implement a risk management program. Learn why insurance alone isnt enough to control risk. Addresses the growing risks for community associations in the Internet age, and how to integrate replacement reserves and risk management programs. (Community Associations Institute, 2006.) Community Insurance and Risk Management Specialist (CIRMS) designation, offered by CAI, recognizes a demonstrated high level of competency within the risk management profession. This designation is useful for managers and community board members looking for qualified professionals to help them protect their most valuable investments. Before Disaster Strikes: Developing an Emergency Procedures Manual. How to minimize or prevent injury, loss of life and property damage; developing emergency plans, teams and manuals; evaluating security systems and evacuation plans; creating a public relations effort and much more. Includes a CD-ROM of resource materials. (IREM, 2004.) Natural Disasters: How Community Associations Protect Themselves, A Guide for Association Practitioners, Outlines how to prepare residents for natural disasters and catastrophes resulting from mechanical breakdown or equipment failurehow to begin, analyze needs, develop a workable plan and familiarize all residents with its execution. (Community Associations Institute, 2006.) Tips for Community Association Insurance. A handy brochure to help associations define insurance needs, outline steps for buying property and liability insurance, and ease the insurance buying process. (Community Associations Institute.)
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Overview This section of the program will cover: Your role and responsibilities as a manager in relation to the roles and responsibilities of your communitys owners and volunteer leaders (Community ManagementLesson 1)
The effective use of board meetings for decision-making (Board Meetings and Decision MakingLesson 2) Management ethics (EthicsLesson 3)
Materials Needed
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Slide 96
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Slide 97
Community Management and Leadership
This section of the program will introduce you to: Your role and responsibilities as a manager in relation to the roles and responsibilities of your communitys owners and volunteer leaders (Community ManagementLesson 1) The effective use of board meetings for decision making (Board Meetings and Decision-Making Lesson 2) Management ethics (EthicsLesson 3)
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Overview This session should be of great interest to the novice manager. It may prove to be another of many awakenings the manager may encounter in this course. You may find students who currently perform tasks that they should not be. It is not uncommon for novice managers to be acting as a surrogate board by making decisions that should only be made by the directors. You may find managers performing extraordinary tasks outside their stated and expected scope of duties. It will be important to make sure every manager employed directly as a manager of an association understands the need to have an employment agreement with the association. This is to protect the manager from the clean-sweep mentality that unfortunately occurs too often in community associations. The managers employmentand compensationshould not be subject to the whims of volunteers without appropriate deliberation and notice.
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Overview
Introduce the lesson Say
The topic of this session is the managers role in the community association and the principles by which the manager should perform the appropriate duties. The managers role is of critical importance to the community, yet it requires the manager to work within limitations imposed by others, thereby potentially making it more difficult to succeed.
The role of the community association manager in dealing with volunteer leaders, members, staff, and contractors. The duties a community association manager should be able to perform and, equally important, those tasks which a manager should not agree to performand how to explain to the board your role in the community. How to review management contracts and employment agreements to make sure all necessary components are included for your success and protection. The role of the community manager in overseeing an associations human resources program.
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Slide 98
Point out the Key Terms on PAGE 311 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Ad hoc committee Association-employed manager Board liaison system Business judgment rule Employee handbook Employment agreement Employment at will Fiduciary duty Human resources management Job description Management Management audit Management contract Management plan Mandatory committee Performance evaluation Performance goals Performance planning Performance standards Personnel manual Progressive discipline system Standing committee Transition Turnover Volunteer or self-management
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Review with the class the various methods for obtaining owner input. Resident/owner forum at board meetings Participation of owners on committees Annual membership meeting Newsletters and surveys Internet access/online surveys
Review some of the rights and responsibilities of owners in a community association as outlined in Rights and Responsibilities for Better Communities.
Ask participants if they have any questions or comments about the role of the owners in a community association.
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Association boards of directors play various roles in the community and have numerous responsibilities. The role of the board of directors is to: Act in the best interests of the association Be responsive to the needs and desires of the owners Be familiar with the governing documents, state statutes and federal laws that impact the association Enforce the governing documents fairly and uniformly. Set the policies, standards, procedures, programs, and budgets for the community association. Not micromanage the manager, volunteers, contractors, and other service providers.
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Module 4: Community Management and Leadership Page 315 Role and Responsibilities of Board of Directors
Leader Guide
The board of directors is charged with the ultimate responsibility and authority for operating the community association on behalf of its owners. The boards legal authority to act on the owners behalf typically is found in: Specific state statutes establishing condominiums, cooperatives, or planned communities. These specific statutes may set broad guidelines within which a board may act or may list specific responsibilities that it must meet. General state statutes that provide for the general authority and responsibilities of all corporate boards of directors such as the nonprofit or not-for-profit corporation act. Uniform state statutes that, similar to specific state statutes, set broad guidelines for the management and operations of community associations. Community association governing documents which give the board authority to act on the owners behalf. Typically, this authority is found in the declaration, articles of incorporation, and/or bylaws. A board of directors cannot delegate its responsibility for everything that happens in their community. While the board can delegate authority, it can never delegate its responsibility.
Role
It is the role of a board to: 1. Always act in the best interests of the association. 2. Be responsive to the needs and desires of the owners. 3. Be familiar with the governing documents, state statutes and federal laws that impact the association. 4. Establish and enforce the governing documents fairly and uniformly. 5. Set the policies, standards, procedures, programs, and budgets for the community association. 6. Not micromanage the manager, volunteers, contractors or other professional service providers. A board may implement its own decisionsor delegate implementation to a manager, committees, or an independent contractor.
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Slide 101
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Ask students to briefly review the complete list of rights and responsibilities of a board member as outlined in their Participant Guides.
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Page 318
Rights
Board members have the right to: 1. Expect owners and non-owner residents to meet their financial obligations to the community. 2. Expect residents to know and comply with the rules and regulations of the community and to stay informed by reading materials provided by the association. 3. Respectful and honest treatment from residents. 4. Conduct meetings in a positive and constructive atmosphere. 5. Receive support and constructive input from owners and non-owner residents. 6. Personal privacy at home and during leisure time in the community. 7. Take advantage of educational opportunities (e.g. publications, training workshops) that are directly related to their responsibilities, and as approved by the association.
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Slide 103
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Fiduciary duty
A board has a fiduciary relationship to the community association. Fiduciary duty requires directors to act in the best interests of the community as a whole, and for the benefit of the corporation. This fiduciary duty has two components: 1. Board members are required to avoid conflicts of interest and acting out of self-interest. 2. They are also required to act as reasonable people in managing the associations affairs. Although they may delegate some of their authority to others, they cannot delegate their legal obligation to protect the asset that is the total community. It is the board that is ultimately responsible for the management of the association. The board can direct or empower the manager to take certain actions on behalf of the community association. However, the board is still responsible to the owners. Through court decisions, a substantial body of law has developed concerning the standards to which directors must conform while conducting a community associations affairs. Courts apply the business judgment rule to a boards actions. That is, if a board has exercised reasonable due diligence in making a decision, the court will generally not consider the board negligent in its fiduciary duty. Nor will the court substitute its judgment for that of the board. However, the board must demonstrate how it reached a decision with good faith, loyalty and due care. It is up to the court to decide if the board has exercised reasonable business judgment.
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Slide 104
Types of Committees
Mandatory o Required by the governing documents o Typical mandatory committees: - Elections - Nominations - Architectural standards
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There may be standing committees that meet some ongoing need of the communitysuch as the newsletter committee. There may also be ad-hoc committees or tasks forces that meet some specific need and are then dissolvedsuch as a lobby refurbishing committee.
Slide 105
Types of Committees, continued
Standing o Ongoing to meet a basic community need o For example: - Budget/finance - Social - Newsletter o Established by board resolution Ad Hoc o One-time issue o Established by board resolution
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Role
Community association committees typically consist of owners appointed by the board of directors. The role of these committees is to: Assist the board in meeting its responsibilities Broaden the communitys input on decisions by serving as a: o Means of gathering owners opinions and attitudes o Training ground for future leaders o Means of explaining board actions to the community Perform research and prepare recommendations for the board, not act on recommendations instead of the board The number and type of committees will depend on the size of the community, willingness of the volunteers and the complexity of its activities. The more activities a community is involved in, the more a board may need additional groups to collect information, develop recommendations, and carry out activities.
Responsibilities
A mandatory committee is one that is required by the governing documents. Mandatory committees typically are assigned responsibilities related to: Elections Nominations Architectural Standards If the bylaws do not name certain committees that the board has determined it needs on an ongoing basis, an administrative resolution should be used to create a standing committee. These committees meet a basic community association continuing need. Examples of typical standing committees that are not mandated include: Budget/finance Grounds Social/welcome Newsletter Recreation, pool, or swim team Public relations Rules/dispute resolution
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Slide 106
Guidelines for Successful Committees
Serve in an advisory capacity Have an appeals process, if needed Have specific job descriptions Keep minutes and make recommendations Have meaningful tasks Have guidance to complete tasks Consideration of their recommendations Recognition of their work
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Slide 107
Role of the Manager
Provide information, training, and leadership on community association operations to the board, committees, and the community at large Foster a sense of community awareness and spirit within the residents Develop a body of leadership through the committee structure Provide the necessary administrative tools to the board to enable it to make wise, informed decisions on both shortterm and long-term actions and goals Facilitate board meetings Provide practical, technical and administrative advice
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Say There are limitations to the managers authority and responsibilities that are defined in several different sources. The governing documents of the association will define the duties of the board of directors and which of those duties may or may not be delegated to the manager. The management contract or employment agreement should establish the scope and duties of the manager, including limitations of the managers authority. The board of directors may place additional limitations on the manager.
The manager must be aware at all times of the limitations imposed by these documents and the board of directors.
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IMPORTANT NOTE
Agency Relationship Between the Board and the Manager The manager is considered an agent and is required to represent the best interest of the community association (client). This is different from an independent contractor who is responsible for providing the services, but is generally not working as an extension of the community association, as is the case with a manager.
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Class Exercise
Allow 15 minutes for this Class Exercise.
Run the Class Exercise. Review the sample bylaws from Bayview Towers to find the duties and limitations of the manager. List at least five (5) limitations or prohibitions placed on the manager by these documents. Allow 10 minutes for students to complete their review and compile a list. Then, discuss the exercise (5 minutes). Note that the managers duties and limitations were easily located and identifiable in Article 3.2 of the bylaws. Ask a student to give the class one of the limitations found during the review. Continue with other students with each providing a limitation until all the following answers are covered. Answers: The manager is prohibited from the following tasks as noted in Article 3.2(b) of the sample documents. Make assessments against the owners. Establish the collections policy. Establish installment payments of the annual assessment. Adopt and amend rules and regulations. Open bank accounts. Designate the bank signatories. Note this does not say that the manager cannot be a signatory on the account; it states the manager cannot designate who is a signer. Borrow money on behalf of the association. Acquire, hold, mortgage, and dispose of units. Designate common elements as limited common elements. Grant and accept easements.
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Class Exercise
The manager is prohibited from the following tasks, unless instructed otherwise by the board of directors, as noted in Article 3.2(c) of the sample documents: Commingling the associations bank accounts with any other entitys accounts. Accepting commissions or fees from vendors or contractors.
Note that Article 3.2, in describing the managers duties and limitations, refers to the powers and duties of the board of directors in Article 3.1which provides a list of those board duties that may and may not be delegated to the manager. The manager may not engage in the actions noted above in the class exercise. However, note that subsections of Article 3.1 have not been identified in Article 3.2 as either an allowed or prohibited duty of the manager. Pose this scenario to the class and ask how they would handle the omission. Answer: Have the board of directors adopt an administrative resolution authorizing the manager to deal with the master association. Since this provision is not included in Article 3.2s itemized list of prohibitions, it falls under subsection (t) which provides for such other things as authorized by resolution.
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Bayview Towers ARTICLE 3 Board of Directors Section 3.1. Powers and Duties. The Board of Directors shall have all of the powers and duties necessary for the administration of the affairs of the Bayview Towers Condominium Association and may do all such acts and things as are not by the Condominium Act or the condominium instruments required to be exercised and done by the Association. The Board of Directors shall delegate to one of its members or to a person employed for such purpose the authority to serve as liaison to the managing agent and to act on behalf of the Board on such matters relating to the duties of the managing agent (as defined in Section 3.2) if any, which may arise between meetings of the Board as the Board deems appropriate. In addition to the duties imposed by these Bylaws or by any resolution of the Association that may hereafter be adopted, the Board shall on behalf of the Association: (a) Prepare and adopt an annual budget, in which there shall be expressed the assessments of each unit owner for the common expenses. (b) Make assessments against unit owners to defray the costs and expenses of the Condominium, establish the means and methods of collecting such assessments from the unit owners and establish the period of the installment payment of the annual assessment for common expenses. (c) Provide for the operation, care, upkeep and maintenance of all of the Property and services of the Condominium. (d) Designate, hire, and dismiss the personnel necessary for the maintenance, operation, repair and replacement of the common elements and provide services for the Property and, where appropriate, provide for the compensation of such personnel and for the purchase of equipment, supplies and material to be used by such personnel in the performance of their duties, which supplies and equipment shall be deemed part of the Property. (e) Collect the assessments against the unit owners, deposit the proceeds thereof in bank depositories designated by the Board of Directors, and use the proceeds to carry out the administration of the Property.
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(f) Adopt and amend any rules and regulations in accordance with Section 5.8(b); provided, however, that such rules and regulations shall not be in conflict with the Condominium Act or the condominium instruments. (g) Open bank accounts on behalf of the Association and designate the signatories hereon. (h) Make, or contract for the making of, repairs, additions and improvements to or alterations and restoration of the Property, in accordance with these Bylaws, after damage or destruction by fire or other casualty, or as a result of condemnation or eminent domain proceedings. (i) Enforce by legal means the provisions of the Declaration, these Bylaws and the rules and regulations, act on behalf of the unit owners with respect to all matters arising out of any eminent domain proceeding, and notify the unit owners of any litigation against the Association involving a claim in excess of ten percent of the amount of the annual budget. (j) Obtain and carry insurance against casualties and liabilities, as provided in Article 6, pay the premiums therefore and adjust and settle any claims thereunder. (k) Pay the cost of all authorized services rendered to the Association and not billed to unit owners of individual units or otherwise provided for in Sections 5.1 and 5.2. (l) In accordance with section 55-79.74:1 of the Condominium Act, keep books with detailed accounts in chronological order of the receipts and expenditures affecting the Property, and the administration of the Condominium, specifying the expenses of maintenance and repair of the common elements and any other expenses incurred. Such books and vouchers accrediting the entries therein shall be available for examination by the unit owners, their attorneys, accountants, Mortgagees and authorized agents during general business hours on business days at the time and in the manner set and announced by the Board of Directors for the general knowledge of the unit owners. All books and records shall be kept I accordance with generally accepted accounting principles, and the same shall be audited at least once each year by an independent auditor retained by the Board of Directors who shall not be a resident of the Condominium. The cost of such audit shall be a common expense. (m) Notify a Mortgagee of any default hereunder by the unit owner of the unit subject to such Mortgage, if such default continues for more than sixty days. (n) Borrow money on behalf of the Condominium when required in connection with any instance relating to the operation, care, upkeep and maintenance of the common elements; provided, however, that (except during the Declarant Control Period) either a Majority Vote obtained at a meeting duly called and held for such purpose in accordance with the provisions of these Bylaws or the written approval of unit owners of units to which more than fifty percent of the votes in the Association appertain, shall be required to borrow any sum in excess of twenty percent of the total annual assessment for common expenses for that fiscal year. If any sum borrowed by the Board of Directors on behalf of the Condominium pursuant to the authority contained in this subsection (a) is not repaid by the Association, a unit owner who pays to the creditor a percentage of the total amount due equal to such unit owner's Common Element Interest in the Condominium shall be entitled to obtain from the creditor a release of any judgment or other lien which such creditor shall have filed or shall have the right to file against such unit owners condominium unit, and the Association shall not be entitled to assess the unit for payment of the remaining amount due such creditor. (o) Acquire, hold and dispose of condominium units and mortgage the same without the prior approval of the Association if such expenditures and hypothecation are included in the budget adopted by the Association.
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5) Any financial or other interest which the managing agent may have in any firm providing goods or services to the Association shall be disclosed promptly to the Board of Directors; and (6) A monthly financial report shall be prepared for the Association containing: (A) A revenue statement reflecting all income and expense activity for the preceding period on an accrual basis; (B) An account activity statement reflecting all receipt and disbursement activity for the preceding period on a cash basis; (C) An account status report reflecting the status of all revenue and expense accounts in an actual versus projected (budget) format; (D) A balance sheet reflecting the financial condition of the Association on an unaudited basis; (E) A budget report reflecting any actual or pending obligations which are in excess of budgeted amounts by an amount exceeding the operating reserves or ten percent of a major budget category (as distinct from a specific line item in an expanded chart of accounts); and (F) A delinquency report listing all unit owners who are delinquent in paying condominium assessments and describing the status of any actions to collect such assessments. (d) Limitations. During the Declarant Control Period, the Board of Directors shall employ a managing agent for an initial term not to exceed one year. The Association and the Board of Directors shall not undertake selfmanagement or fail to employ a managing agent without the consent of at least sixty-seven percent of the unit owners and at least fifty-one percent of the Mortgagees. Any contract with the managing agent must provide that it may be terminated, without payment of a termination fee, without cause on no more than ninety days written notice and with cause on no more than thirty days written notice. Section 3.3. Number and Term of Office. (a) Designated Members. During the Declarant Control Period, the Declarant shall be entitled to designate directors not elected pursuant to Section 2.4. The initial Board of Directors shall consist of no less than three and no more than five persons, all of whom shall be designated by the Declarant. The term of office of at least two directors shall expire at the third annual meeting after the special meeting held pursuant to Section 2.4(b); the term of office of up to two additional directors shall expire at the second annual meeting after the special meeting held pursuant to Section 2.4(b); and the term of office of any other directors shall expire at the first annual meeting after the special meeting held pursuant to Section 2.4(b). The term of each designee shall be fixed by the Declarant. The persons elected shall serve for the remainder of the terms of office of the resigning directors who such persons replace, or if no resignation was required, for the terms of office necessary so that the term of office of onethird of the directors shall expire at each of the first three annual meetings after their election. The directors receiving the greatest vote shall be elected for the longest available terms. At the expiration of the term of office of all directors designed by the Declarant or elected at the special meeting held pursuant to subsection (b) of Section 2.4, all successor directors shall be elected to serve for a term of three years. For a period of one year following the termination of service by the directors designed by the Declarant, the Declarant may appoint and replace from time to time a representative who shall be entitled to notice of all meetings of the Board of Directors and to attend and speak (but not vote) at all Board meetings, in all respects as if such delegate were a member of the Board.
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Emphasize that: Each community association must decide which form of managementor possible combination of methodsbest meets its need. Review the advantages and disadvantages of each method.
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Forms of Management
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Discuss the importance of reading and knowing the management contract. The management contract outlines your job responsibilities, i.e., what you are supposed to do. Extra pay for services: Your community may be required to pay extra fees for any services you perform over and above what is delineated in the management contract.
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Fiscal servicesThis involves responsibility for such services as: Preparation of the annual budget Depositing association funds and developing effective assessment collection and accounts payable procedures Maintenance of the community associations fiscal records in accordance with recognized and acceptable procedures Preparation of regularly scheduled financial statements and reports Risk management and insurance o General supportThis involves responsibility for such services as: Preparation of a periodic newsletter Dealing with and assisting sellers and prospective buyers Dispute resolution/rules enforcement 4. InsuranceThe contract should specify the minimum limits of various types of insurance to be carried by both the association and the management firm. 5. Term of agreementThe contract should specify the length of its initial termgenerally one to five years. (Some governing documents limit the length of management company contracts.) 6. TerminationMost contracts also have some type of termination provision. It allows either or both parties the right to terminate the contract at anytime, with or without cause, with a certain number of days noticetypically 60 days. The management firm needs to provide the association with enough time for a new management company to perform the financial management functionsif the agreement were to be terminated. 7. Indemnification and hold harmless provisionMost contracts include a provision indemnifying and holding harmless the management firm, with certain limitations. According to the definition in Module 1, Lesson 1, to indemnify and hold harmless a management firm is to exempt it from responsibility for claims made against the association (with certain exceptions) and to agree to reimburse the management firm for damages or expenses it incurs as a result of such claims or thirdparty actions. 8. CompensationThe management compensation, or the method of calculating it, must be specified in the contract or in a fee schedule attached to the contract. The fee schedule should also include any additional charges, such as: Reimbursement for specific out-of-pocket expenses on behalf of the community association Charges for specific additional services provided to the community association
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Say There are various provisions in an employment agreement similar to those of the management contract; however, there are other provisions as well. The provisions in an employment agreement include: 1. Terms of employment. The agreement should specify the length of its term, which is usually one to three years. 2. Duties and services to be performed. The agreement should clearly describe the managers authority, responsibilities, and duties. 3. Compensation. The managers compensation, including salary and benefits, should be included as well as provisions for performance reviews and compensation adjustments. 4. Termination procedures. The agreement should include provisions for terminationespecially termination without cause. Many times a newly elected board of directors may wish to terminate a manager for personal reasons or personality conflicts. The manager should include adequate protection from this kind of action. 5. Associations obligation to provide facilities, equipment, and personnel. The association must agree to provide this support for the manager to fulfill the duties and responsibilities of the agreement. 6. Exclusiveness of agreement provisions. The agreement should clearly state that this is the entire agreement between the parties. 7. Waivers or modifications must be in writing. The agreement should not be subject to verbal or oral modifications.
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Management Plan
A management plan is a statement of goals and objectives approved by the board. It includes the yearly cycle of tasks that management should perform on the community associations behalf. Whether you are a manager who is employed by your community or by a management company, you should have a management plan so you and your board are clear on what is expected of you. In most instances, it will be up to you to propose a plan to your board for approval. Set your goals for the year in relation to your community associations budget. Typically, a management plan includes tasks that address the community associations governance, business, and community operations: Rules enforcement (for exampleviolations of the association documents or rules) Property maintenance (for examplesite visits, repairs, preventive maintenance, bidding, scheduling replacements) Services (for examplegrounds, trash or snow removal, security systems, opening the pool) Communications (for exampleflyers, newsletters, websites) Finances (for examplebudgets, collections, payables, financial reports) Administration (for exampleprepare correspondence and meeting notices, conduct annual meetings and elections, maintain records and personnel files) Asset protection (for exampleinsurance, audits, security) Policy development (for exampleassist board to award contracts, select professional assistance [such as attorney and accountant], and develop standard operating procedures) The regular board meeting should periodically be used to monitor, adjust, and review the annual management plan.
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It is necessary for a board to evaluate management performance, as well as to monitor it. Because interpersonal relationships are involved, it is important that objective criteria be used. The management plan and specific information from the management contract or employment agreement should establish this basic criteria. Typical means are the: Owner/resident survey Management audit A management audit, similar to the Case Study which is the last CAI course before achieving the PCAM designation, consists of a review of: Governing documents and existing policies and procedures Current condition of the property Owner/resident satisfaction Fiscal operations This review can be done by the board and manager together, or a third-party management consultant can be hired. Here are some warning signs of a weak management situation that a management audit may bring to light or that is apparent even without an audit: An increase in assessment delinquencies that is not due to a poor economy An increase, instead of a decrease, in the list of action items for management carried over from one board meeting to another An increase in owner attendance at board meetings and in complaints about poor service An increase in the response time for maintenance of common elements or areas Contractor or employee performance becomes sloppy and employees become defensive when questioned Board members start resigning for personal reasons An unusually large number of owners volunteer to run for the board because they have an ax to grind An unusually high turnout at a general or annual meetingwhich is not related to some other issue Any one of these items by itself may or may not indicate a management failure. But dont let matters slide! When one of these situations develops, investigate it as soon as possible and as objectively as you can. In addition, if the demands of the community association and the board of directors are unreasonable or exceed the managers ability to perform the required services, it is the managers responsibility to communicate this to the board before it creates a weak management situation.
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Run the Work Group Exercise activity. Three work group exercises are described here. Divide the class into work groups of 3 to 6 persons depending upon the size of the class and assign an exercise to each group. (Feel free to assign the same exercise to multiple groups.) Allow approximately 10 minutes for the work groups to complete their exercise. After the work groups have completed the exercises, have them share the problem and recommended solution with the remainder of the class (5 minutes).
Work Group Exercise #1 Review the employment agreement. Describe any weaknesses or strengths you note in the agreement. Answer: Weaknesses: 1. The duties and services to be performed are too general in nature. 2. There is no obligation for the association to provide facilities, equipment, or personnel that will be needed to perform duties. 3. There is no requirement to keep information confidential. Strengths: 1. There is a good compensation and benefits section with performance review and salary adjustments. 2. There are appropriate termination provisions to protect the manager. 3. The agreement includes term of employment, written amendments, and notice provisions.
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Module 4: Community Management and Leadership Page 338 Work Group Exercise #1
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Review the sample employment agreement. Describe any weaknesses or strengths you note in the agreement. Weaknesses: 1. _________________________________________________________ _________________________________________________________ 2. _________________________________________________________ _________________________________________________________ 3. _________________________________________________________ _________________________________________________________ Strengths: 1. _________________________________________________________ _________________________________________________________ 2. _________________________________________________________ _________________________________________________________ 3. _________________________________________________________ _________________________________________________________
2.
3.
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5.
6.
Termination Without Cause. At any time during the term of this agreement, Association may terminate Manager for any reason without cause. In such event, Manager shall be provided three (3) months notice prior to the termination date. Should Association fail to provide such notice, Manager shall receive compensation for three (3) months including salary and benefits. Self-Initiated Termination. Manager may voluntarily elect to terminate employment with Association by providing written notice no less than thirty (30) days prior to the date of termination. Governing Law. The parties agree that the interpretation, construction, enforcement, and validity of this agreement shall be governed by the laws of the state of Virginia and each paragraph hereof is divisible and separable to the extent necessary to preserve the validity and legality of the remainder.
7.
8.
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Entire Agreement. This is the entire agreement between the parties. No oral or verbal agreement exists. Any modification must be in writing and agreed to by both parties. Attorneys Fees. In the event of any litigation between the parties as a result of the execution of this agreement or any alleged breach thereof, the prevailing party in such litigation shall be entitled to recover reasonable attorneys fees and reasonable costs of litigation in addition to any other award or decree granted or given by the court. Notices. Written notice, as required in this agreement, shall be given to each party as follows: To Association: _________________________ _________________________ _________________________ _________________________ _________________________ Or such other address as Association hereafter may direct in writing. To Manager: _________________________ _________________________ _________________________ _________________________ _________________________ Or such address as Manager hereafter may direct in writing.
10.
11.
IN WITNESS WHEREOF, the parties have executed this agreement as of the _____ day of _____ (month and year) _____. ASSOCIATION:
By:
_________________________________________________________
Its:
_________________________________________________________
MANAGER:______________________________________________________
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Answer:
Answer:
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Module 4: Community Management and Leadership Page 342 SAMPLE MANAGEMENT CONTRACT
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THIS MANAGEMENT AGREEMENT (Agreement) made as of this first day of January 2012 by and between Bayview Towers, a condominium association organized under the laws of the Commonwealth of Virginia (Association), and Excellent Management Company (Agent), a Virginia Corporation, having its principal office at 123 Main Street, Alexandria, Virginia 22300. WITNESSETH THAT: 1. Appointment:
In consideration of the mutual terms, covenants and conditions set forth herein below, the Association hereby appoints Agent for certain and specific duties included herein, and Agent hereby accepts that appointment in mutual agreement as to all items listed as part of this Agreement. 2. Terms:
The commencement date of this Agreement shall be the first day of January 2012 which date shall constitute the time Agent will be required to begin performance of its duties hereunder. This Agreement shall have an initial term of twenty-four (24) months and shall automatically be renewed at the end of the original term for successive terms of one (1) year each unless sooner terminated in accordance with Section 7 of the Agreement. Said renewal is to be upon the same terms and conditions stated herein, unless otherwise amended in writing and approved by both parties. 3. Liaison with the Board:
Agent shall principally communicate to the Board of Directors (Board) and to the Association membership, to the extent practical, through the Boards appointed liaison. In the absence of an appointed liaison, the President of the Board will be the liaison with the Agent. The Board liaison shall be authorized to act on behalf of the Board with Agent on any matters related to those specific duties of Agent. 4. Compensation:
The total compensation to which Agent shall be entitled during the terms of this Agreement shall consist of fees for recurring routine services, nonrecurring services and for non-routine services, as stated in the attachments hereto and incorporated herein by this reference. 4.1 (a) Recurring Routine Services: Agent shall be compensated according to the listed schedule(s) listed herein. The current fee will be due and payable on the first of the month. Such compensation includes the overhead expenses of Agent including salaries of employees, general and administrative expenses, and travel expenses of officers and employees incurred under this Agreement, and covers fees for basic services as outlined in this Agreement and attachments hereto.
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Agent shall perform certain non-recurring services as necessary and in accordance with the fees set forth in Attachment C to this Agreement. Said fees shall be subject to adjustment by Agent from time to time-upon thirty (30) days notice to Association. 4.3 Non-Routine Services:
Agent shall maintain an availability for services related to certain nonroutine activities for which the need may or may not arise and which are not specified in this Agreement under any other section. Non-routine service shall be performed with the authorization of the Board or as directed by the Board liaison. Charges for services performed under this section shall be negotiated at the time the work is authorized and Agent is hereby authorized to deduct and disburse to itself; from common funds collected, received, or held by Agent in its authorized capacity hereunder the sums necessary as compensation for said charges. 5. Agency Relationship:
Everything done by Agent under the provisions of this Agreement shall be done as Agent for the Association and all obligations or expenses incurred thereunder shall be for the account, on behalf of, and at the expense of the Association, except that the Association shall not be obligated to pay overhead expenses of Agent's offsite office including the salaries, office expense and transportation and other expenses of officers and employees of the Agent. Any payments to be made by the Association shall be made out of the funds of the Association, or as may be provided by the Association. Agent shall not be obligated to make any advance to or from the account of the Association or to pay any sum, except out of funds held or provided as aforesaid, nor shall Agent be obligated to incur any liabilities or obligation for the funds for the account of the Association without assurances that the necessary funds for the discharge will be provided. 6. Documents and Plans:
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The Association shall deliver to Agent true, complete, and correct copies of all governing documents, financial reports, rules and regulations, minutes and other documents of the Association as the Agent may require. The Association will furnish to the Agent all the available architectural, electrical, mechanical, and other plans of the Association as Agent may request. All such documents shall remain at all times the sole property of the Association and, upon expiration or termination of this Agreement, shall be delivered by Agent to the Association. Records older than two (2) years will be returned to Association for retention or disposal. 6.2 Time of Delivering:
Association shall deliver to Agent, at least twenty (20) days prior to the commencement date stated in Section 2 herein, all current owner records, including ownership, financial and delinquency reports for all units governed by Association. 7. Termination:
This Agreement may be terminated with no termination or cancellation charge, with or without cause, upon sixty (60) days written notice. Said termination may be by either party before the time of expiration specified in Section 2 of this Agreement by written notice to the other party, sent via certified mail or hand-delivered with a signature receipt. 8. Indemnification:
The Association agrees to indemnify, defend, and save Agent harmless from all suits in connection with the Association and the property and from liability for damages to the property and injuries or death of any employees or other persons whomsoever, other than caused by the willful or grossly negligent conduct of Agent or its employees. The Association further agrees to pay all expenses, including attorneys fees incurred by Agent in any proceeding or suit involving an alleged violation by Agent, the Board, or the Association, of any constitutional provisions, statute, ordinance, law, or regulation of any governmental body. 9. Notices:
All Notices and demands of any kind which either party hereto may require or desire to serve upon the other party, under the terms of this Agreement, shall be in writing and shall be served upon such other party by personal service, or by having a copy of such notice or demand served at the address hereinafter set forth, whereupon such service shall be deemed complete, or by mailing a copy thereof by certified or registered mail, postage prepaid, with receipt requested addressed as follows: If to Agent: If to Association:
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Agent and its staff are hereby authorized to occupy without charge or expense to Agent, such portions of the Association as Agent and the Board may from time to time determine to be reasonably required to provide office, storage, parking, and related facilities for the exclusive use of Agent and its staff in conducting and performing the services contemplated hereunder. 10.2 Not Responsible for Units:
Except for such repairs to individual units as may be authorized as being necessary to avoid significant risks of loss or injury to other portions of the Project or the occupants thereof, Agent shall have no responsibility for and shall not be required to maintain or repair individual units or any other portion of the project, the maintenance and repair of which are the responsibility of individual unit owners. 10.3 No Partnership:
Nothing contained in this Agreement nor the relationship of Agent and the Association shall be deemed to constitute a partnership, joint venture, or other relationship between the parties hereto except that of principal and agent. 10.4 Attorneys Fees:
In the event of any litigation between the parties in connection with this Agreement, the prevailing party to such litigation shall be entitled to all costs and expenses, including reasonable attorneys fees, incurred in connection with such litigation. 10.5 Waiver:
No waiver or breach of any provision contained in this Agreement shall be construed to be a waiver of any subsequent breach of the same provision or waiver of any other provision herein. 10.6 Interpretation:
This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, supersedes all prior and contemporaneous agreements between the parties hereto with respect to the subject matter hereof and may not be modified, amended, or otherwise changed in any manner, except by a writing executed by the parties so to be charged.
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a. Surrender and/or deliver to the Board all papers, books, and records of the Association therefore maintained by agent, including, but not limited to, financial records, insurance policies, and existing contracts relating to the operation and/or maintenance of the Association, together with all keys, materials, supplies, and all funds collected, received or held by Agent, after deducting therefrom any Management Fee or prorated portion thereof, or any other amounts due Agent hereunder; b. Prepare and render to the Association within thirty (30) days after such termination, a written statement accounting for the common funds from the last such written accounting to the date of termination; and c. Use its best efforts to cooperate with the Association to accomplish an orderly transfer of the management and operation of the Association to the party designated by the Board. 10.8 Provisions:
Each of the articles, sections, paragraph, and provisions of this Agreement shall be deemed independent and severable and the invalidity or unenforceability of any article, section, paragraph, or provision hereof shall not affect the validity or enforceability of any other article, section paragraph or provision hereof. The headings of the several articles and sections of this Agreement are inserted solely for the convenience of reference and are not a part of and are not intended to govern, limit, or aid in the construction of any article, section, paragraph, or provision of this Agreement. Wherever the context so requires, the singular number includes the plural, the plural number includes the singular, the masculine gender includes the feminine and/or neuter and the neuter includes the masculine and/or feminine. This Agreement may be executed in three (3) counterparts, each of which shall be deemed an original and constitute one and the same instrument and shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties have affixed or caused to be affixed their respective signatures on the first day of January, 2012. EXCELLENT MANAGEMENT COMPANY BAYVIEW TOWERS CONDOMINIUM ASSOCIATION, INC. By: ______________________ President
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Module 4: Community Management and Leadership ATTACHMENT A FINANCIAL AND BOOKKEEPING SERVICES
1. Collection of Fees:
Agent will supervise the invoicing of all assessments due and processing of all assessments received from Association owners, contractors, and other sources (common funds). Payments will be mailed to the depository or office of Agent designated by Agent. Agent will mail reminder notices to all delinquent owners on the tenth th (10 ) day of each month, or as otherwise directed by the Association, the postage or distribution cost thereof to be an expense of the Association. At the direction of the Board and at the expense of the Association, in accordance with Attachment C, Agent will charge and collect special and/or additional assessments, late charges, and return check charges. 2. Payment of Association Obligations:
Agent will, from the common funds collected, pay all obligations of the Association. The Association shall provide sufficient funds to Agent to comply with this provision if for any reason funds in the possession of Agent are insufficient. 3. Financial Reports:
th
On or about the fifteenth (15 ) day of the month following the end of the accounting period, Agent will provide the following reports to the Association: 4. Balance Sheet Operating Statement of Revenue and Expense Monthly Disbursement Summary Accounts Receivable Status
Agent will deposit all receipts from all sources in a financial institution insured by an agency of the federal government. Agent will provide individual checking and savings account for Association. 5. Budget Preparation:
Agent will prepare, ninety (90) days prior to the start of each fiscal year, a proposed operating budget projection draft by line item categories setting forth the anticipated expenses and receipts for the fiscal year. The budget will be prepared based on expense history, the approved service level of the Association and the condition of the property. Agent recommends that a reserve study be contracted for with an outside independent agency specializing in that field.
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Agent will cause disbursement, in accordance with federal, state, and local wage and hour withholding tax and minimum wage regulations, bi-monthly, all wages and salaries, commissions and bonuses for all employees. Agent will abide by all local, state and federal laws, regulations and guidelines in administering the payroll for the Association. Agent will cause preparation and filing of all forms, reports, and returns as required by law in connection with unemployment insurance, workers compensation insurance, withholding tax, social security, and other similar taxes now in effect.
Agent shall oversee the operation, care, upkeep and maintenance of the common elements and other services of the Association as authorized by the Association and provided and funded for in the budget; and assist and/or advise the Association, and/or employees and contractors of the Association;. Agent maintains a twenty-four (24) hour answering service and on-call personnel to handle any emergency. 1.2 Contact:
Agent shall recommend to the Association for approval, contractors for work to be performed based on written specification approved by the Board of Directors. Whenever the size and nature of the contract dictate and the scope of the work can easily be defined and the estimated costs exceed One Thousand Dollars ($1,000.00), competitive bidding procedures may be used. Agent will bid and administer contracts for the following: pest control, trash pick-up, pool operation and maintenance, grounds care and maintenance landscaping, laundry equipment, and security, as applicable. 1.3 Site visits:
Agent will visit the property on a weekly basis in order to be knowledgeable and informed of the conditions of the property. Agent will conduct a complete site visit no less than monthly and prepare a site visit report with recommendations and a detail of the plan of action taken or to be taken. 2. Personnel Management:
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Agent shall, based on an operating schedule, jobs standards, and wage rates previously approved by the Association, interview, hire, pay, train, oversee and discharge the personnel necessary to be employed in order to properly maintain and operate the Association. Such personnel shall be in the employ of Agent, and compensation for the services of such employees, as evidenced by payroll documents including workers compensation and all other benefits as well as direct overhead, shall be considered an expense of the Agent, such cost to be reimbursed in total by the Association on a monthly basis. Association shall reimburse Agent actual costs involved plus three (3%) percent of gross payroll. 2.2 Onsite Manager and Staff:
If an onsite manager is employed as described in section 2.1 above, this person in most instances will be the person directly responsible for all onsite employees. All employees will be answerable to this person through an established and approved organizational chain. All staff will be given job descriptions that will outline specific responsibilities of all employees. Agent will prepare job descriptions and organizational chain as required, in accordance with Schedule C: Other Management Services, unless otherwise instructed in writing by the Board of Directors. This will ensure a clear understanding of Agents exclusive responsibilities and tasks that are joint between Agent and staff and those that are exclusive tasks of the staff. 3. Insurance:
Agent, in conjunction with and reliance upon a qualified insurance broker or brokers, will solicit insurance for the Association as required by the Associations governing documents and all other insurance reasonably necessary to cover the risks to which the Association and Agent are subject. Agent shall be named as an additional insured. Agent, in conjunction with and reliance upon qualified insurance broker or brokers, will also recommend modifications and additional coverage. Agent will file for insurance claims, followup for payment and act as the Association representative in negotiating settlement up to a maximum of five (5) hours per claim, and thereafter in accordance with Attachment C: Other Management Services or ten (10%) percent of total claim, whichever is greater. 4. Ordering:
Agent shall oversee placing orders for such equipment, tools, appliances, parts, materials, and supplies as are necessary to properly maintain the Association. All contracts and orders for such items shall be in the name of the Association. Agent shall use best efforts in taking bids and issuing purchase orders to ensure that the interest of the Association is served and that the best value and price available for the quality and quantity of services and materials ordered be obtained. Agent will credit any discount, commission, rebate, or concession obtained as a result of such purchases to the Association. 5. Administration:
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Agent will maintain and keep accurate and up-to-date all of the books and records of the Association, including: Minutes (to be taken by Association Secretary or volunteer); Association Contracts; Accounting and financial records; Correspondence, notices, and memoranda in connection with activities of the Association, its various Boards, and Committees.
5.2 All records older than two (2) years will be returned to the Association for retention or stored at the Associations expense. 5.3 Resale Certification:
Agent shall supply, in accordance with Virginia law, in proper form, a written statement regarding the sale of a unit containing such information that is required by law. The Resale Disclosure Statement shall be executed by an officer of the Association. Agent is authorized to charge a fee for each statement furnished as outlined in Attachment C. 5.4 Membership Notices and Communications:
At the direction of the Board and at the expense of the Association, Agent shall send all notices of meetings of Association owners or Board meetings to its members and all parties entitled to copies. 6. Association Support:
A representative of Agent shall attend the meetings of the Board including annual meeting, not to exceed six (6) meetings in a one (1) year period based upon a mutually agreed upon schedule established annually. Any meeting exceeding two (2) hours shall be separately billed by Agent at a rate of seventyfive ($75.00) dollars per hour, in accordance with Attachment C. Any meeting scheduled to begin after 5:30 PM or on weekends also shall be separately billed by Agent at the flat rate of $150.00. 6.1 Management Report:
Agent will prepare and deliver a report at a time preceding the regularly scheduled meeting of the board that will normally contain: (a) (b) (c) (d) (e) 6.2 Rules: Status of contracts Status of finances Status of administration Personnel activity Recommendations
Agent will assist the Association in the administration and enforcement of the governing documents by notifying and informing owners and other residents, in writing, who may be in violation of Association policies.
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Slide 111
Transition
111
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Say A smooth transition benefits both the developer and the owner. Cooperative efforts between both parties can result in a well-run association. Overview the objectives of a smooth transition:
Slide 112
Objectives of a Smooth Transition
Enhance community relations Minimize controversy Build trust Resolve issues before they escalate Minimize potential claims Retain management contract Ensure future developer work Less stressful life
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Turnover: That date upon which homeowners gain control of their association. Typically, turnover occurs at an annual or special meeting of the homeowners.
Slide 113
Definition
Transition - (tran-sis'-shun)
n. the gradual process by which the control and responsibilities of the governing board of an association are transferred from the declarant to the persons who bought units/lots in the common interest community.
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Definition
Turnover - (turn'-oh-ver)
n. the date on which the declarant no longer has the right to appoint a majority of the members of the board.
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Module 4: Community Management and Leadership Page 354 Managing a Developing Community
Leader Guide
Transition from developer control is not a definitive point in time. Rather, it is a process that begins when the community is a glimmer in the developers eye and ends after control of the association has been transferred from the developer to the owners. Transition from developer to owner control is one of the most critical phases in a communitys growth. If conducted properly, it will give the association the independence it needs to mature into a capable governing body. By helping your communities to transition the right way youll avoid dissent in the community and more importantly, those expensive legal problems. A smooth transition benefits both the developer and the owner. Cooperative efforts between both parties can result in a well-run association. A poorly planned transition with unproductive developer-owner relations can result in angry unit/lot owners, lawsuits, a bad reputation for the manager, management company and developer, and an ineffective association. The developer should strive for early and continuing owner involvement and education in association operations. The developer and the owners must recognize their mutual interests and cooperate and communicate with each other during the transition period. An interim set of committeesstaffed primarily by ownersfacilitates transition work and provides training for future leaders and ongoing committees.
What Is Transition?
Transition is a term that has evolved in recent years to describe the general process by which the control and responsibilities of the governing board of an association are transferred from the developer to the persons who bought unit/lots in the association. It includes the creation of the association, transfer of governance, the acceptance of ownership of the common property, and the accounting for funds. Transition is not a single event, such as the election of an owner-controlled governing board or the execution of a settlement agreement regarding construction defects in the common property. It is a multi-stage process of many events taking place over a period of timeranging from when the declarant decides to build until the declarant no longer has any financial obligations to the association.
What Is Turnover?
We use the term turnover to describe that date upon which homeowners gain control of their association. Typically, turnover occurs at an annual or special meeting of the homeowners.
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Slide 115
The Players
Manager Attorneys o Developer o Association Engineer/Reserve Specialist Accountant Insurance Agent
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Role of the Manager Say: The professional manager plays a very important role in the transition process, ranging from: Working with the developer to create a viable, operationallysound association Ensuring a clear delineation between developer and association financial responsibilities Assisting in the education of new board members with regard to the associations governing process Coordinating the work of the professional team retained by the board
Slide 116
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Overview the role of the manager in the various stages of the transition process, including: Initial Services Pre-Turnover Services Turnover Services Post-Turnover Services
Slide 117
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Slide 120
Post-Turnover Services
Community association management New board orientation Coordinate transition team Coach new leaders Follow up turnover meeting issues Leadership development
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Slide 121
The Managers Loyalty Conundrum
Developer: Consulting fees Sense of satisfaction More business Easier work No night meetings Manager runs the show
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Slide 122
The Managers Loyalty Conundrum, cont.
Association: Continue after turnover Use skills Challenges Word of mouth
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Slide 123
The Conundrum Winner
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When final reports are produced and furnished to the developer, the manager will assist in scheduling meetings and discussions, so the process of resolving any identified issues does not become overly protracted. All in all, the manager is much like an orchestra conductor, bringing together skilled musicians of varying types to produce a symphony that is pleasing to those he represents. This is done by establishing the context, creating the team, coordinating the efforts, refining the result, and resolving the issues. Managers, as the professional community association experts, are expected to educate and guide the developer and owners through the maze of governmental, regulatory, and internal laws and rules. Its not a one-time effort, but rather a continuing program to remind existing owners of, and introduce new owners to, their communitys culture. First-time deed-restriction violation? A phone call goes a long way to establishing a warm, personal relationship with the residents, much more so than a form letter that, no matter how much thought went into its language, will offend the recipient. The managers allegiance is to the association, and one of the indications of a truly talented manager is the ability to speak frankly to both parties about their obligations to each other.
Budgets
The preparation of an initial budget is a developers first look into the potential revenues and expenses of the association. In managing owners expectations, the developer and the management company preparing the budget should emphasize that the budget is based on proposed plans and developer estimates, and is always subject to change. Moreover, while developers typically have done an analysis of comparable projects and have a desired assessment figure in mind, the budget preparer should not be constrained by that figure. If the budget is prepared early in the development process, then there should be ample time to reconsider and possibly eliminate certain amenities or obligations of the association in the event that the developer perceives the budgeted assessment amount to be too high. Budgets which are manipulated to meet desired assessment levels, threaten the successful transition of the association. More than any other disclosure of the developer, the assessment amount is frequently the most remembered. Owners may not remember when a transition election is scheduled to occur, but they will invariably remember the exact amount of the assessment obligation as quoted by the developers salesperson. Certainly the amount of assessment creates an expectation as to the quality of service to be provided by the association. When this expectation is not met due to changes in the plans or market conditions, the association transition is usually more adversarial. Throughout the developer-control period, the developer should manage expectations. Budgets should be revisited and updated annually. With each new budget, an explanation as to why it may differ from the original should be provided, and input should be solicited from owners as to the level of services desired. Moreover, in communities where the developer initially subsidized the project, the amount of the subsidy should be accounted for and should also be explained to the owners with clear detail as to when that subsidy will end. Similarly, in certain circumstances, the developer should periodically update reserve studies during the developer-control period, in order to minimize any gap in replacement reserves once transition occurs.
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Job descriptions: Job descriptions should be created for each staff position and should include the required duties of the job, knowledge required to perform the duties, skills, and the reporting relationship of the position.
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Even if your community association has just one part-time employee, it should have a written set of policies and procedures that: Define the relationship between the community association and the employee Explain the rights and responsibilities of both the employer and the employee The content and wording of any manual or handbook have legal ramifications. As a result, any personnel specialist or attorney whom you consult may make one or both of the following recommendationsdepending on the state you are in. 1. One possible recommendation is that your manual or handbook contains an employment at will statement. This is a statement to the effect that the community association retains the right to dismiss an employee without cause at any time. 2. Your personnel advisor may also recommend that your manual or handbook contain a disclaimer to the effect that it is not an implied contract or promise of employment. Job Descriptions A job description is a specific description of the Required duties of a position Skills and knowledge necessary to perform required duties Reporting relationships of the position A written job description should exist before you hire an individual for a position: It tells you and the potential employee what is expected of the person in the position It is an aid for planning and budgeting for the use of personnel It is an aid for evaluating job performance For the above reasons, it is important to take the time to periodically review and update job descriptions. An outdated job description leads to misunderstanding at best and legal problems at worst.
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Applicable statutes, regulations, and case law at all three governmental levels address: Discriminatory treatment of employees based on non-work related characteristics Compensation Working conditions Hiring Promoting Dismissal Always consult an attorney if you have any questions about the legal aspects of a specific situation for your community association. Anti-Discrimination Statutes, regulations, and case law at all three governmental levels prohibit discrimination in hiring, promotion, dismissal, compensation, and working conditions based on specific personal characteristics. The federal government prohibits discrimination against otherwise qualified people based on Race and ethnicity Color National origin Age Gender Religion Pregnancy Disability State and local governments vary in terms of the characteristics which they recognize in their anti-discrimination statutes and regulations. For example, many states and localities also prohibit discrimination based on sexual orientation. The best way to avoid employee claims of alleged discrimination is to: Avoid any kind of preferential treatment of employees. Make all employment decisions based on bona fide job requirements. Document the basis for each employment decision. Compensation Statutes, regulations, and case law at all three governmental levels also regulate employee compensation or payment. Examples at the federal level include: Fair Labor Standards Act (FLSA): This act addresses minimum wage requirements, maximum hours of work, and overtime pay. Federal Insurance Contributions Act (FICA): This act requires employers and employees to make matching contributions to Social Security. The employer must withhold the employees share of the tax from his or her wages or salary.
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Examples at the state level include: Workers compensation laws: This legislation requires employers to obtain insurance that will provide most employees with medical benefits and compensation for loss of income due to injury or illness related to employment. Unemployment insurance laws: States administer unemployment insurance programs and jointly contribute to them with the federal government. Child labor laws: States also establish requirements for the employment of minors. One major source of confusion for community association managers is whether employees who supervise other employees should be salaried (exempt from overtime) or hourly (non-exempt) workers. A typical example is the maintenance supervisor who picks up the work orders, supervises a few maintenance workers, does the maintenance work with them, and reports to the community association manager. Many associations erroneously consider this position a salaried one because the person is supervising other employees. Under Department of Labor regulations, to be salaried, a person must: Spend 80 percent or more of the time in supervising Supervise two or more people Have control over hiring and dismissing people in the supervised positions Anyone who does not meet these requirements must be paid on an hourly basiseven if the persons title is supervisor. However, certain professional or executive positions may be salaried, even though they do not meet these federal criteria. In addition, both federal and some state laws require that nonexempt, hourly workers are paid time-and-a-half or double time pay under certain circumstances. When in doubt about salaried versus hourly status, consult your attorney or personnel specialist. If you classify someone as a salaried worker who should be classified as an hourly worker, you are violating federal labor laws and your community association is subject to penalties and back taxes. In addition, your worker may file a claim with the labor board for overtime pay for all hours worked over 40 hours in a given pay week or exceeding 8 hours in a given work day, depending on the state. Occupational Safety and Health Statutes, regulations, and case law at all three levels of government also regulate occupational safety and health on the job. The most common example is regulations established by the federal Occupational Safety and Health Administration under the Occupational Safety and Health Act (both called OSHA), as previously discussed in Module 1. However, state and local governments also regulate and monitor workplace safety and health. Various regulations require Specific working conditions Specialized training Safety equipment Posting of warnings related to products and work site conditions Reporting of accidents and/or deaths
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Performance evaluation is the process of reviewing an employees performance to determine if the established goals and standards have been met. Performance evaluations should be performed regularlyusually after the first 90 days of employment and annually thereafter. Conducting a performance review takes time and effort, but has many benefits. It is the basis for: Letting an employee know where he or she stands. A salary review. Consideration for promotion. Identifying training and development needs. Documenting unsatisfactory performance. Checking on the effectiveness of your efforts.
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Positive reinforcement and constant communication are key in developing and retaining staff. If a person is properly oriented, receives adequate initial and ongoing training, and receives regular feedback on work performance, then he or she will work more productively, there will be less job dissatisfaction, and costly turnover will be avoided. An organized approach to performance planning and evaluation will help you to provide regular feedback and motivation to your staff. Performance Planning Performance planning is the process of establishing performance goals and standards for an employee. Performance planning has several benefits. It is a means of: Linking the employees performance goals with the associations goals Planning and assigning work Motivating an employee Providing feedback to an employee on his/her performance Holding an employee accountable for meeting performance standards Performance goals are those regular and special tasks management expects an employee to perform during a certain time period. The job description can be the basis for setting goals. But goals are more specific than a restatement of duties listed in the job description. This is because they relate to the community associations current needs. Performance standards are a description of the results management expects an employee to accomplish during a certain time period. They are reflected in the criteria used for performance evaluation. Always involve an employee in his or her performance planning in some way to get the person to buy into the goals and standards. For example, you could: Offer the employee a set of goals and standards and ask for feedback Develop goals and standards together Ask the employee to propose some goals and standards and finalize them together Discuss the performance standards or evaluation criteria at the beginning of the time period involved Performance Evaluation Performance evaluation is the process of reviewing a persons work performance to determine the extent to which his/her established goals and standards have been met. When Review a new employees performance with him or her after hiringusually sometime within the first 90 days. Conduct a formal performance evaluation on an annual basis. Conduct an interim review at least once during the yearand whenever either party considers a discussion necessary.
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Leader Guide
Unacceptable or illegal reasons to terminate someone include: Because the employee has one of the characteristics protected by anti-discrimination laws. For example, terminating a female employee because she is pregnant is illegal. Because the employee is exercising a legal right such as trying to organize employees into a union. Because the employee refuses to perform an illegal or dishonest act.
Dismissal procedures: Discuss the following tips regarding dismissal procedures with the class. The process should be short and specific. Outline the facts. Speak about the issue causing the dismissal actionnever about the employee. If possible, have and distribute the final paycheck. Obtain all association property, keys, pagers, etc. in the employees possession. Advise the employee of the extension or termination of his or her benefits. Tell the employee what information you will provide when potential employers call for references. Attempt to resolve any other issues to avoid the need for further contact. Advise other parties affected by the dismissal such as other staff, the board of directors, contractors, or residents, if necessary.
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Dismissal procedures: The act of dismissing an employee should be short and specific. Just outline the facts and prior discussions. If you are dismissing for cause, anything you say or put in writing should focus on deficiencies in work performance, not on the person. Many employers provide only basic employment information regardless of the reason for a former employees departure to avoid possible claims against them by a former employee based on what was allegedly said. Try to resolve all issues at the time of dismissal in order to avoid the need for further contact between the former employee and the community association: Make arrangements for the employees final paycheck. There are two current legal requirements regarding final paychecks that employers tend to overlook. Most states specify how soon a dismissed employee should receive a final paycheckusually within 24 to 48 hours. And the employer cannot deduct from the paycheck any monies the employee owes to it, unless the employee agrees. Arrange for the employee to return any community association property in his or her possession. This includes such items as keys, credit card, tools, and uniforms. Discuss the extension or termination of the employees benefits. Tell the employee the information that you will provide when potential employers call asking for a reference o The person has been employed at your association o The dates of employment o The persons last job title and salary Notify other parties affected by the dismissal. Notify your other employees and your board immediately. Notify residents and contractors as necessary. After dismissing an employee make notes on your reasons for dismissal and what you said to the employee to help you when you complete unemployment forms.
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Summary
Say You have learned: The role of the owners, committees, and board of directors in the operation of the association. How effective committees are created and how they can operate successfully. About the limitations imposed on you in your role as a community association manager by the governing documents, the management contract, and the board of directors. What provisions should be included in your management contract or employment agreement. That human resources management requires a systematic approach to be successful. That the community association must follow the same regulations and laws as other businesses. You have learned that laws are always changing and to seek the help of a competent attorney or personnel specialist. How to use performance planning and evaluation to motivate and recognize employees. How to use a discipline system to document performance problems and how to dismiss an employee should the problems not be corrected.
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Summary
Page 369 Once again, review the Key Terms with the participants.
Key Terms:
Ad hoc committee Association-employed manager Board liaison system Business judgment rule Employee handbook Employment agreement Employment at will Fiduciary duty Human resources management Job description Management Management audit Management contract Management plan Mandatory committee Performance evaluation Performance goals Performance planning Performance standards Personnel manual Progressive discipline system Standing committee Transition Turnover Volunteer or self-management
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 1 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Page 370
Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. What three types of legal sources specify management authority and responsibilities for community associations? 2. List some specific types of management activities that community associations are empowered to engage in. 3. Explain the relationship between the owners authority and the board of directors authority in a community association. 4. List some means of obtaining owner input on community management. 5. What legal sources typically define a community association board of directors authority and responsibilities? 6. What is the role of a community association board of directors? 7. Who is responsible for supervising implementation of the boards decisions? 8. List some areas of responsibility for a community association board of directors. 9. What legal sources typically authorize the establishment of committees in a community association? 10. What is the general role of a community association committee? 11. List some guidelines for a successful community association committee. 12. Describe the role of a community association manager. 13. What sources typically define a managers authority and duties? 14. What are the three forms of community association management? 15. Compare their advantages and disadvantages in terms of cost, continuity, and professionalism. 16. What are some basic elements in a management contract or employment agreement? 17. List some of the different types of management tasks included in a management plan. 18. What resource can be used to develop the plans goals for the year? 19. List two means of evaluating management performance in a community association. 20. List some potential warning signs of a weak management situation. 21. What are the typical components of a human resources management system? 22. What are some typical topics addressed in the policies and procedures found in a personnel manual or employee handbook? 23. What are the benefits of having written job descriptions? 24. What are some things a manager can do to avoid employee claims of alleged discrimination? 25. What are the benefits of doing performance planning with employees? 26. What are some of the things a supervisor can do to effectively supervise the employees who report to him or her? 27. What are some typical grounds for dismissal following progressive discipline?
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Use the following questions to help you apply the information in this lesson to your own situation. 1. Locate any sections of state statutes that apply to the management of your community association. (Hint: Ask your communitys attorney or your nearest Community Associations Institute chapter.) What management-related authority and responsibilities, if any, do they assign to: Your community? Its board of directors? Its committees? You as a manager? 2. Review your community associations governing documents, including its resolutions. What management-related authority and responsibilities, if any, do they assign to: Your community? Its board of directors? Its committees? You as a manager? 3. What steps does your community association take to encourage owner input into board decision-making? 4. What mandatory committees must your community association have? 5. What other standing committees does it haveor should it have? 6. Can you identify any examples of ad hoc committees your community association has used recently? 7. What steps does your community association take to ensure effective communication between the board and committees? 8. How do your communitys committees measure up to the guidelines for successful committees? 9. What recommendations can you make to your volunteer leaders to improve your communitys committees? 10. What authority and duties, if any, are assigned to you as manager of your community association by: Your communitys governing documents, including its resolutions? Your management contract or employment agreement? Any other actions of the board of directors? 11. How do the provisions in your management contract or employment agreement compare to the lists of typical provisions in this lesson? 12. Do you have a management plan? If not, what steps can you take to develop one? If so, how is it developed? What does it include? After reading this lesson, are there ways you can improve your plans development or content? What are they? 13. What process does your community association use to evaluate your management performance? Are there any ways the process can be improved? Do you see any warning signs that suggest you need to improve your management efforts? If so, what steps can you take to address any warning signs?
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Lesson 1 Quiz
1. Each of the following legal sources specify management authority and responsibilities for community associations EXCEPT: a. survey data b. state statutes c. community association governing documents d. court decisions RATIONALE: All three types of legal sourcesstate statutes, governing documents, and court decisionsspecify the authority or power of different parties in a community association and the responsibilities or duties of the different parties.
2. True or false. The basic authority in a community association lies with the developer. (False) RATIONALE: The basic authority in a community association lies with the owners. In order for the association to govern effectively the owners elect a board of directors to act on their behalf. The governing documents delegate most of the associations decision-making powers to a board.
3. Complete the following sentence: The board of directors in a community association has a _____________ to act in the best interests and for the benefit of the community as a whole. a. bond b. fiduciary duty c. ballot d. quorum RATIONALE: The boards fiduciary duty has two components: (1) Board members are required to avoid conflicts of interest and acting out of selfinterest. (2) They are also required to act as reasonable people in managing the associations affairs.
4. True or false. The business judgment rule means that if a board has exercised reasonable business judgment in making a decision, the court will generally not consider the board negligent in its fiduciary duty. (True) RATIONALE: Through judicial decision, a substantial body of law has developed concerning the standards to which directors must conform while conducting a community associations affairs. Many courts apply the business judgment rule to a boards actions.
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6. True or false. The role of the professional community association manager is to make all decisions for the association and to delegate informationgathering and fact-finding support to the board of directors. (False) RATIONALE: The professional community association manager is charged with assisting the board of directors decision-making process by means of providing information-gathering and fact-finding support, implementing the decisions of the board; and administering the services, programs, and operations of the community association within the policies and guidelines set by the board.
7. In which of the following forms of community association management is the association managed by the board itself or by committees under the direction of the board? a. management company b. volunteer or self-management c. association-employed manager d. municipal management RATIONALE: Self-managed community associations make up a majority of all associations in the United States; in 2010, approximately 150,000 selfmanaged community associations currently exist in the U.S. In self-managed associations, the board itself is responsible for all community association functions, including maintaining accounting records, preparing budgets, collecting dues, enforcing the governing documents, and staying informed about association resources and best practices.
8. True or false. An increase in assessment delinquencies that is not due to a poor economy may be an example of a warning sign of a weak management situation. (True) RATIONALE: When assessment delinquencies increase, the manager should investigate the reasons for the increase as soon as possible and as objectively as he or she can.
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Module 4: Community Management and Leadership Page 373 Lesson 1 Quiz, contd
Leader Guide
9. Complete the following sentence: A ________________ is a statement of goals and objectives approved by the board that includes the yearly cycle of tasks that management should perform on the community associations behalf. a. management audit b. management contract c. management plan d. employment agreement RATIONALE: Typically, a management plan includes tasks that address the community associations governance, business, and community purposes. Managers should have a management plan so both they and their boards are clear on what is expected. In most instances, it will be up to the manager to propose a plan to the board for approval. Managers should set goals for the year in relation to the community associations budget.
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Additional Resources
For further information on community association management, we suggest the following: Management Companies: How to Find the Right Community Association Professional, A Guide for Association Practitioners, by Michael E. Packard, PCAM, CPM. Heres guidance for deciding on a company to manage your communitycovers bid specifications, identifying candidates, requests for and analysis of proposals, onsite meetings, the interview process and working successfully with your management company. (Community Associations Institute, 2007.) Conflicts of Interest: How Community Association Leaders Honor Their Duties, A Guide for Association Practitioners, by Tonia C. Sellers and Jay S. Lazega. Avoid conflicts of interest by reading about fiduciary obligations, conduct of directors, managerial conflicts, ethics policies and board conflicts. Contains sample policies, resolutions, code of ethics and cases. (Community Associations Institute, 2004.) Managing & Governing: How Community Associations Function, A Guide for Association Practitioners, by Clifford J. Treese, CPCU, ARM. An excellent overview of the various aspects of managing a community association and providing business and governance services. Contains a fascinating chapter on why community associations are successful forms of housing. (Community Associations Institute, 2007.) Rights and Responsibilities for Better Communities: Principles for Homeowners and Community Leaders. This brochure establishes an ideal standard to which communities can aspire, a goal-based statement of principles designed to foster harmonious, vibrant, responsive, and competent community associations. For a free, easily photocopied, single-page version, visit www.caionline.org/rightsandresponsibilities. On-Site Managers: How to Find the Right Community Association Professional, A Guide for Association Practitioners, by Thomas Burgess, PCAM, and Pam Washburn, CMCA, AMS, PCAM. Helps you determine whether your association needs an onsite manager; establish job criteria; find, screen and investigate leading candidates and make the partnership work. Includes sample documents. (Community Associations Institute, 2005.) Self-Management: A Guide for the Small Community Association, 3rd Edition, Ellen Hirsch de Haan, Esq., Editor. For volunteers who are managing their communities. Covers finances, insurance, budgets, developer transition, meetings, rules, role of the board, working with professionals, maintenance, legal considerations, information technology and more. Includes sample documents. (Community Associations Institute, 2010.)
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Time 1 hour and 20 minutes Session Time Breakdown 45 minutesFaculty presentation 25 minutesWork group exercises 10 minutesSummary/quiz
Overview Meetings: The continuing challenge for managers. Probably the leading factor in manager stress, frustration, and burn out. It is especially true of long, unproductive meetings that last late into the night. This session touches on many of the key aspects covered during the course. In addition to your facilitation of this session, students will use exercises to help them learn how to prepare for meetings and work with volunteers. Materials Needed
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Overview
Introduce the lesson Say The topic of this session is conducting effective meetings.
Community association managers must regularly attend numerous meetings with association leaders and owners. The involvement of owners, board members, and committees in the operation of the community association has an impact on the job duties and responsibilities of the manager and require additional meeting time. The manager must be able to prepare for and facilitate an effective meeting.
The roles of managers in the operation of the community association. How to prepare for an effective and successful meeting. How to facilitate an effective and successful meeting. You will complete work group exercises that will help you prepare for meetings.
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Slide 125
Point out the Key Terms on PAGE 377 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Abstention Action item list Agenda Ballot Committee report Debate Executive session Financial report Management report Minutes Motion Notice of meeting Parliamentary procedure Proxy Quorum Residents forum Roberts Rules of Order Timed agenda
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At the center of the management of any community association are boards of directors meetings. These meetings are the source of policy decisions that: Impact the quality of life in the community Enhance the overall value of the assets commonly held and individually owned Set the boundaries within which management will function Define how the association will operate. The emphasis of board meetings should be on timely attention to policy mattersleaving the day-to-day administration of the community association to the manager. Authorization of specific actions and approval of contracts and committee recommendations allow the governance, business, and community life of the community association to function smoothly. For this to happen, the manager must play an integral role in guiding the board president and secretary to prepare, organize, and properly conduct association meetings. This lesson explains four aspects of board meetings that contribute to effective decision-making: 1. Focus 2. Preparation 3. Conduct 4. Managers role
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Slide 126
Board Meeting - Policy Matters
The emphasis of board meetings should be on timely attention to policy matters. And, the day-to-day administration of the community association should be left to the manager.
126
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Board meetings are a means of effective decision-making when they focus on: The areas in which a board is authorized to make decisions The decision-making process itself
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Slide 127
Legal Requirements
State statutes and governing documents establish requirements for board of directors meetings. Legal requirements commonly address such issues as: Frequency of meetings When meetings should be open or closed Notice of meetings Voting Executive session Violation hearings 127
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Adequate preparation for a board of directors meeting includes: Conforming to legal requirements for board meetings Preparing for decision-making Distributing a notice of meeting, agenda, and supporting materials Selecting and preparing a meeting site
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Meeting materials to be distributed with the notice and agenda should include: Minutes of the last meeting. Financial report. Committee reports, if any. Management report. Other information applicable to issues being discussed.
Be sure to point out the sample timed agenda. Note that timed agendas can be set up for 90-minute meetings if needed.
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There are four things a manager should provide to board members before each meetinga notice of meeting, an agenda, management report and other supporting materials.
Agenda
Meeting agendas follow a standard format, based on parliamentary procedure. (See sample pictured here.) The various agenda items are discussed in the pages that follow. An agenda is more than an announcement of the order of business for a meeting. It is a meeting management tool. For example, by specifying the duration of a meeting in the agenda or allotting agenda items specific amounts of time, you are helping the board to proceed with its business in a timely manner. Note that meetings that run more than two hours often degenerate into an unproductive effort. Where the agenda allows discretion in the order in which items are considered, give some thought to the order in which you list them. Should some decisions precede others? Will the board feel a sense of accomplishment if it makes a number of small decisions before tackling a complicated one? When an item requires discussion, but a decision is inappropriate or premature, label the item for discussion only on the agenda. This allows for the free flow of ideas. But the discussion must be restricted to the specific topic listed. During a meeting, a presiding officer can appeal to the agenda as a way to keep a group moving and focused on decision-making. If possible, post a meeting agenda in a central common area before each meeting. Any owner who attends a board meeting should be given an agenda. The residents forum, typically held at the beginning of a board meeting, is an open forum for owners and residents to speak. This gives them the opportunity to raise items for future board consideration. Some boards prefer to hold the open forum at the end of the meeting because many issues the owners want to raise may be addressed during board discussion.
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Supporting Materials
In addition to a meeting agenda, board members should receive such supporting materials as: Management reportThis is the managers report on the associations current management and administrative activities. It is the managers opportunity to both update the board on action items of interest or concern (see the sample below) and to demonstrate all the accomplishments the manager performed on the associations behalf. Minutes from the last meeting Financial reportThis is a report on the communitys financial condition and activities. Committee reportsThese written reports should highlight recommendations for board decision. Supporting research should be included in the reports. Committees need to clearly state the actions they are asking the board to take. Provide your committees with a suggested format for their reports and a sample. Committee reports submitted with the board packet will preclude the necessity for oral reports at the meeting. Special reports, memos, or correspondence on issues to be discussed In a properly prepared board meeting, all members should have had the information needed for discussion before the meeting.
3. AAA Pipe has flushed out the main sewer lines; this is done on a quarterly basis. 4. The City of Houston advised that the annual safety inspections for the elevators were due and we initiated the work, now completed. We have received our Annual Operating Certificates.
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5. Texas Lawns is doing an excellent job; unfortunately many shrubs were lost during the freeze. 6. Deed restriction letters have been mailed on a regular basis; most residents comply upon receipt of our phone call or the letter. The photographs I include in the letter make it very clear what the violation is. 7. Best A/C Repair has inspected all lobby air conditioners. Fire extinguishers will be inspected in January. 8. We had a gas leak on the property; therefore, the gas to the entire complex was turned off. It was necessary to get re-permitted and inspected by the City Inspectors. Total cost for the repair and inspections came to $19,262.50. 9. Our property Insurance came due in November. With board approval, we changed to Associations Insurance Agencys property coverage because it had a better rate at $169,521 and lower deductible. AIAIs policy runs from November to November. ABK Insurance Agencys proposal was $185,386.27. Our liability insurance came due on October 15, 2011, and at the boards instructions was renewed with Town & Country in the amount of $24,942.24. This includes D & O Insurance. 10. Unfortunately, we are still dealing with the elevator problems in buildings 8421 and 8423. The problems actually started with the original construction from the developer in the mid-1990s. It was discovered that there was no foundation in the elevator pit. It was necessary to hire an engineer to give instructions to the elevator company in order to perform the repair work. There was also water in the pit, which made it necessary to check for leaks in the water lines. 11. Besides routine maintenance, the onsite staff has checked all the emergency lights, replaced batteries where needed, cleaned the PVC drains along the sidewalks, cleaned the gutters and roofs, repaired the ladders in the roof stairwells, and cleaned the carports and light globes. 12. The board approved a budget for 2012 with a 2% increase. Coupons and letters have been mailed to all homeowners. 13. Pool pass bracelets are being given out again this summer. We locked the pool gates on several occasions last year because of non-compliance with the rules and regulations. 14. Trees are being trimmed in anticipation of the hurricane season. Texas Lawns gave us a very good price for the work. 15. Andre Jones, CPA has begun your 2011 audit as approved at the last meeting. Respectfully submitted, Meticulous Manager
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The meeting room set up is important. Comfortable size, climate, and lighting. Serve refreshments after the meeting. No alcoholic beverages. This is a business meeting. Adequate guest seating. Provide for a meeting table, with the chairman to sit at the head of the table.
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Site Preparation
Here are some tips on site preparation from experienced managers. Make arrangements in advance for a well-lighted, comfortably warm or cool environment. Serve any refreshments after the meeting (unless the management company has made arrangements to feed the board as an incentive for attending). Avoid alcoholic beverages. This is an official meeting. Provide adequate seating for all the owners who attend. Inadequate seating may make people feel like unwanted or unexpected intruders. If possible, avoid having the board members sit with their backs to the owners in attendance. The presiding officer should sit at the head of the table with the manager beside him or her. This will make it possible for the manager to give the presiding officer immediate assistance if needed.
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Establishing a Quorum
The basic requirement for effective decision-making that parliamentary procedure establishes is the need for a quorum. A quorum is the number of members required to be present for the board to legally conduct the business of the association. In the absence of a quorum, the only formal actions a board may take are to recess, adjourn, or take measures to obtain a quorum. Your communitys bylaws set the quorum for a board meeting.
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To abstain is to not cast a vote. Board members should abstain from voting only for clearly stated reasons such as a conflict of interest or ignorance of the matter at hand. In small groups like boards of directors, abstentions should be discouraged. A board has the fiduciary duty to act on matters brought before the community association. The abstentions should be recorded in the minutes. A majority of the votes cast decides the issue. Abstentions do not count as negative or positive votes unless the abstention keeps the board from a majority vote. In that case, it might be wise for the board to table the decision until the abstaining member can be brought up to speed with the facts and feel comfortable to complete the vote.
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Executive Sessions
There are times when a board must hold a discussion or make decisions of a sensitive nature. Many states have so-called sunshine laws which limit the reasons why a governing board may go into a closed or executive session. The topics that commonly require an executive session and are allowable by law usually include: Personnel issues Contract negotiations and discussions Lawsuits and other legal matters Issues of a sensitive nature While discussions in executive sessions are secret, any decisions made must be brought to an open session and voted on there. However, requirements vary by state and governing documents. Consult with your attorney for your states requirements.
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Owner Meetings
Say There are two types of owner meetings: 1. Annual meetings Requirements for conducting the annual meeting may be detailed in state statutes. The governing documents will set forth requirements for the annual meeting. These include: o Time o Place o Notice o Quorum o Order of business o Conduct of meetings o Voting Annual meetings should be used not only as an official business meeting of the association but also to recognize and reward volunteers and leaders for their efforts and contributions to the community.
2. Special meetings Requirements for conducting special owner meetings may be detailed in state statute. The governing documents will set forth requirements for a special meeting. In most cases, the notice of a special owners meeting must state the purpose of the meeting and no business, other than what is included in the notice, can be transacted.
Define ballot and proxy. Owners meetings often require the use of ballots. A ballot is a written means of voting when secrecy is desired. A proxy is a written statement authorizing another person to cast a vote on the signers behalf. The associations governing documents may dictate when and if proxies are permissible.
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Owner Meetings
Although the focus of this lesson is on board of directors meetings, we would like to end this section with some basic information on owners meetings. Owners meetings can be annual or special. Special meetings are devoted to a specific issue. Usually a special meeting is called when the bylaws require the vote of owners on some action the board would like to take. Your bylaws will state the quorum needed for an owners meeting. Whether a motion requires a plurality, a majority, or two-thirds approval will depend on your governing documents and the issue. Owners meetings often require the use of ballots. A ballot is a written means of voting when secrecy is desired. Your governing documents will also tell you when and if proxies are permissible. A proxy is a written statement authorizing another person to cast a vote on the signers behalf.
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Module 4: Community Management and Leadership Page 391 The Managers Role
Leader Guide
As a manager, you are also a key element in effective board meetings. This final section of the lesson will discuss: The dual role of a manager How to facilitate a meeting The role of personalities in meetings
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Helping to Facilitate a Board Meeting
Help keep discussions on target Offer alternatives when discussion stalls Call attention to previous board actions Be a timekeeper Be aware of governing documents Urge consistency in action Support fairness Elaborate on the management report
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As a professional advisor, a community manager is expected to facilitate board meetings in a low-key manner. To facilitate is to help a process or action move forward. The challenge for a manager is to do this without taking charge of a meeting. Here are some things to do to keep a meeting moving. The challenge is to do them with a simple question or appeal to parliamentary procedure so you wont appear impatient or condescending. Help keep discussions on target. For exampleCould the secretary repeat the motion thats on the floor? Offer alternatives when discussions stall. For exampleWould it help if we tabled that motion until the next meeting to enable the Recreation Committee to get some answers to those questions from the bidders? Call attention to past board actions when they are relevant to the current matter and overlooked. For exampleSome of you will recall that the board considered that issue last spring and decided to wait until after the parking lots were repaved. Be a timekeeper. For exampleUnobtrusively, keep an eye on your watch. If time starts to slip away during a discussion, quietly let your presiding officer know with a prearranged signal or note. Be alert to proposed actions that might be in conflict with your communitys governing documents. For exampleAlways bring a set of the governing documents to board and owner meetings. Urge consistency in actions of the board. For exampleIf a board imposes a late fee in one case, it should impose a late fee in all similar cases. Support the principle of fairness. For exampleIf a board replaces a dead tree on a common area in front of one owners home, it should be prepared to replace other dead trees as the issue arises. Elaborate on your management report. For exampleHighlight the key points in your report at the meeting. Respond to questions and offer additional explanations as needed.
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Here are some final tips from experienced community managers: Do not make personal judgments about people. This type of judgment about others will hamper your effectiveness. Identify the decision makers in a group early and work through them. Dont immediately dismiss a complainer. The complaint may be legitimate! On the other hand, dont change your efforts in response to every complaint you receive. Recognize that chronic complainers are bothered by something other than the issue they are complaining about. When people are angry, try to understand why. Ask for an explanation. Sometimes the opportunity to be heard calms people down. When someone gets too hot under the collar to calm down, call for a break. In severe situations, reschedule your meeting. Finally, remember that you are but one element in an effective meeting. When a meeting goes well, take pride in your contribution to its effectiveness. But when things beyond your control go wrong, dont blame yourself. Youre going to participate in a lot of meetings over the course of your career in community management. Some will go smoother than others.
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Run the Work Group Exercise activity. Three work group exercises are described here. Divide the class into work groups of 3 to 6 persons depending upon the size of the class and assign an exercise to each group. (Feel free to assign the same exercise to multiple groups.) Allow approximately 15 minutes for the work groups to complete their exercise. After the work groups have completed the exercises, have them share the problem and recommended solution with the remainder of the class (10 minutes).
Work Group Exercise #1 Review the sample meeting minutes for Bayview Towers. Comment on any strengths or positive attributes you note. Comment on any negative attributes or weaknesses and make recommended changes. Answer: There are no particular strengths or positive aspects of these minutes. The minutes are too wordy. They include a narrative description of what was said rather than what actions were taken. Actions are not clear. The action to approve the previous minutes as corrected does not state what the correction was. Motions are not properly recorded with the maker, second, and vote, as with the motion to purchase a certificate of deposit (CD). Details of motions are not properly included. For example, the motion to purchase a CD does not include maturity, rate, or applicable information. The minutes include action items for the manager which should not be included. The minutes should be signed and dated by the secretary.
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BAYVIEW TOWERS SAMPLE BOARD OF DIRECTORS MEETING MINUTES SEPTEMBER 19, 2012
This meeting of the board of directors of Bayview Towers was held on September 19, 2012. Present were directors Jim Jones, Sue Smith, Dan Doe, Pat Parks, and Beth Bell. Also present were Gene Green, manager, and Keith Kent, representing the covenants committee. President Jones called the meeting to order at 7:26 p.m. Sue Smith moved and Beth Bell seconded that the minutes from the previous meeting be approved as corrected. Pat Parks and Gene Green presented the financial report for August. It was agreed that we could buy a $50,000 CD at First Amalgamated Bank. No written committee reports were received. The management report was presented by Gene Green. Old Business: Keith Kent, chairman of the covenants committee reports that the committee did not receive any comments from owners regarding the proposed rule on parking RVs on the property. He recommends the board adopt the rule now. Sue Smith said she was still afraid the rule would make the property look run down by allowing these kinds of vehicles on the premises. Beth Bell said she and her husband just bought a new one and they love it and they would not have bought it if they knew they could not keep it here. Dan Doe said it did not make any difference because the rule had everybodys agreement except for Sue. Sue responded that she was not opposed, just concerned, and would like to think about it some more. It was agreed to put this on next months agenda. New Business: After much discussion, it was decided to continue to contract for landscape services and not hire staff to do the work. The manager will get bids for the next board meeting. Jim Jones noted the light fixture outside his front door is still broken. Beth Bell asked if we have insurance if someone falls and get hurts. Beth also reminded Gene to make sure the landscapers who bid have insurance. The meeting was adjourned at 10:03 p.m.
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Answer:
Strengths/positive attributes:
Negative attributes/weaknesses:
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Answer:
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5:32 p.m.
6:05 p.m.
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Answer:
SAMPLE AGENDA Agenda Item 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Time
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Summary
Say You have learned: How to assist the board of directors in making decisions. How to properly prepare for a board of directors meeting. How to help facilitate a successful board of directors meeting.
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Key Terms:
Abstention Action item list Agenda Ballot Committee report Debate Executive session Financial report Management report Minutes Motion Notice of meeting Parliamentary procedure Proxy Quorum Residents forum Roberts Rules of Order Timed agenda
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 2 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. What should the focus of board of directors meetings be? 2. What are the three functions of a board of directors? For each function, list at least one corresponding board responsibility. 3. What does adequate preparation for a board of directors meeting include? 4. What are some things a manager can do to prepare for decision-making at meetings? 5. Who should receive a notice of a board meeting? 6. What items should be included with the notice? 7. What is the standard order of items on a meeting agenda? 8. What are the various uses of an agenda? 9. What are some considerations when selecting and preparing a site for a board of directors meeting? 10. Why is a quorum for a meeting important? 11. Describe some things a presiding officer can do during a meeting to facilitate decision-making. 12. What are some rules that apply to debate at meetings that help to keep discussion focused and disagreements impersonal? 13. What is the purpose of an executive session? 14. What are some topics for an executive session that the law usually allows? 15. Who is responsible for taking minutes at a board meeting? 16. What items of information should be included in the minutes of a meeting? 17. Explain the dual role of a community manager. 18. List some of the things a manager can do to facilitate an effective board meeting. 19. Explain the role of personalities in meetings and how a good facilitator should take them into account.
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Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. Are there any improvements that can be made in the focus of your board meetings that would lead to more effective decision-making? 2. How can you work with others to make those improvements? 3. Are there any improvements that can be made in the preparations for your board meetings that would lead to more effective decision-making? 4. How can you work with others to make those improvements? 5. Are there any improvements that can be made in the conduct of your board meetings that would lead to more effective decision-making? 6. How can you work with others to make those improvements? 7. Are there any improvements that can be made in your role at board meetings that would lead to more effective decision-making? 8. How can you work with others to make those improvements?
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Lesson 2 Quiz
1. Which of the following responsibilities relate to the governance function of a community association board of directors? a. Decide issues of policy for the owners in the community b. Promote harmony through service programs and regular communication with owners c. Monitor financial matters for the purpose of preserving and enhancing the community d. Hear appeals of committee and management decisions that are protested by groups of owners RATIONALE: There are three areas of board decision-making which relate to the three functions of a community association board of directors: business, governance, and community. As volunteer leaders responsible for governing an organization, a board must decide issues of policy for the owners in the community. 2. Complete the following sentence: A notice of meeting should be sent in writing to board members at least _________ before a meeting. a. a year b. 1 day c. 3 months d. a week RATIONALE: Community managers should send a notice of meeting in writing to board members at least a week before a meeting. Exactly how far in advance a notice of meeting can be sent may be set by a community associations governing documents. 3. True or false. An agenda is more than an announcement of the order of business for a meeting; it is a meeting management tool. (True) RATIONALE: By specifying the duration of a meeting in the agenda or allotting agenda items specific amounts of time, managers are helping the board to proceed with its business in a timely manner. Note that meetings that run more than two hours often degenerate into an unproductive effort. 4. In addition to a meeting agenda, board members should receive each of the following supporting materials prior to a meeting EXCEPT: a. Minutes from the last meeting b. Financial reports c. Community newsletter d. Committee reports RATIONALE: In a properly prepared board meeting, all members should have had all the information needed for discussion before the meeting. The community newsletter is not typically an item required to conduct a board meeting.
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Additional Resources
For further information on board meetings and decision-making, we suggest the following: The A-B-Cs of Parliamentary Procedure. A brief, illustrated booklet that outlines the basic process involved in running a meeting according to Roberts Rules of Order. Roberts Rules of Order: IN BRIEF. This pocket-guide version of Roberts Rules of Order distills and summarizes all the complexities of parliamentary procedure in a handy guide thats suitable for board members, managers and even homeowners attending their associations meetings and elections. 2004 Roberts Rules of Order. A number of inexpensive paperback versions are available. The League of Women Voters publishes an excellent flyer that summarizes the basic points. Conducting Meetings: A Guide to Running Productive Community Association Board Meetings, 2nd Edition. Find out how to prepare for a meeting, stay on the agenda, take good minutes, use resolutions, tape record meetings and conduct executive sessions. (Community Associations Institute, 2005.) Decision Making in Communities: Why Groups of Smart People Sometimes Make Bad Decisions, by Jasmine Martirossian. Presents a fascinating look at the unseen forces that affect groups of people in community associations including boards, management teams, and committeesand the decisions they make. (Community Associations Institute, 2001.) Meetings & Elections: How Community Associations Exercise Democracy, A Guide for Association Practitioners, by P. Michael Nagle, Esq. An excellent reference for all aspects of conducting meetings and electionsquorums, parliamentary procedures and organizing and implementing elections. Addresses electronic notice, e-ballots and e-proxies. Includes a checklist of election procedures. (Community Associations Institute, 2005.) The Board Secretary: Roles and Responsibilities in Community Associations, A Guide for Association Practitioners, by Anita Hagerty Schenk, PCAM and P. Michael Nagle, Esq. A must-have for all community association secretaries. Full of advice on meeting preparation, record keeping, effective filing and more. Includes samples of agendas, minutes, and forms. (Community Associations Institute, 2003)
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Lesson 3: Ethics
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Lesson 3: Ethics
Goal At the end of this lesson, students will be able to understand what constitutes a conflict of interest and how to avoid it as well as understanding how not to engage in unethical or improper behavior.
Time 50 minutes Session Time Breakdown 25 minutesFaculty presentation 15 minutesStudent exercise 10 minutesSummary/quiz
Overview Many managers do not always see the potential conflicts of interests that occur almost daily in the role of managing a community association. In fact, many managers act as if they believe gifts, lunches, golfing, and other entertainment from owners and vendors is simply part of the package. They believe this practice does not affect their decision-making process. This session has class exercises to analyze problems and situations and arrive at a recommended solution or plan of action. While the exercise will provide a break to the session and probably some levity as well, it should be considered a serious learning experience. Suggested answers to the exercises are provided for you; however, you may find class discussion and work group recommendations to provide equally sound answers. Materials Needed
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Overview
Introduce the lesson Say
The topic of this session is ethics and the principles by which the manager should perform the appropriate duties. Managers of community associations should avoid conflicts of interest, both real and perceived, at all times.
The various definitions of ethics and how it relates to the community association industry. What factors constitute a conflict of interest and how to avoid it. CAIs Code of Ethics for Managers
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Slide 130
Point out the Key Terms on PAGE 405 in the Participant Workbook. These words are defined within the lesson on the specified page.
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Key Terms:
Business ethics Code of ethics Conflict of interest Duty of care Duty of loyalty Ethics Moral principles Moral values Professional ethics
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What is Ethics?
Simply put, ethics involves learning what is right and wrong, and then doing the right thingbut the right thing" is not nearly as straightforward as conveyed in a great deal of business ethics literature. As we have seen in many segments of our society, what is an ethical guideline today is often translated to a law, regulation or rule tomorrow. Values which guide how we ought to behave are considered moral values. These include values such as respect, honesty, fairness, and responsibility. Statements defining how these values are applied are sometimes called moral or ethical principles. As a community association manager of primary importance is your integrity. You represent you and your company. You will enjoy a positive reputation if you act ethically and honor the trust you are given. A mistake or an error in judgment can be very harmful to your reputation and take years to repair.
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Definitions
Say
Ethics involve learning what is right and wrong, and then doing the right thing. Business ethics is knowing what is right or wrong in the workplace and doing what's right. Business ethics applies to the delivery of products or services, and to our relationships with customers, employers, vendors, and colleagues. Professional ethics are the rules or standards that govern the conduct of members of a profession.
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Ethics for Community Managers
Diligent service Full disclosure Reasonable care Avoid competition/conflict No undisclosed monies Accountability Prudent use of authority
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Conflict of Interest
Say A conflict of interest is a situation in which an individuals duty to one leads to the disregard of a duty to another. Offer an example from your experience.
Review the two questions that must be answered yes for a conflict of interest to exist.
Slide 132
Conflict of Interest
1. Is the transaction which results in compensation to the management company or agent directly or indirectly related to managements relationship with the community association? 2. Will management directly or indirectly receive some compensation from the community association, or a third party, other than the compensation described in the management contract?
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Slide 133
Full Disclosure
1. Make full and complete written disclosure of all relevant facts to your board prior to any dealings which may be, or appear to be, a conflict of interest for you. 2. Obtain specific authorization from the board in writing before proceeding with any action which may present a conflict of interest. 3. Even after full disclosure, avoid any actions which areor may be perceived asa conflict of interest.
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Recognizing and addressing a conflict of interest or the appearance of one is a common ethical problem faced by community association managers. A conflict of interest is a situation in which an individuals duty to one leads to the disregard of a duty to another. For example, a manager or management firm acquires an interest in a company that is eligible to do business with the community associationsuch as a landscape company. For a real conflict of interest to exist, two questions must be answered with a yes: 1. Is the transaction which results in compensation to the management company or agent directly or indirectly related to managements relationship with the community association? Continuing with the landscape company example, management is tasked with or is responsible for maintaining landscaping in the community associations common areas. 2. Will management directly or indirectly receive some compensation from the community association, or a third party, other than the compensation described in the management contract? An example of extra direct compensation would occur if the manager receives a share of the profit earned by the landscape company that does business with the community association. An example of extra indirect compensation would occur if the landscaper provides free lawn maintenance of the managers yard. Be sure to take the following steps to disclose a conflict of interest. 1. Make full and complete written disclosure of all relevant facts to your board prior to any dealings which may be, or appear to be, a conflict of interest for you. 2. Obtain specific authorization from the board in writing before proceeding with any action which may present a conflict of interest. This authorization should also be recorded in the minutes of a board meeting. Best Practice Annual Authorization for Continuing Agreements: Present the authorization to the board annually to assure all board members, including those recently elected, have participated in the authorization. 3. Even after full disclosure, avoid any actions which areor may be perceived asa conflict of interest. Individual owners may not be aware of all the facts and may view your actions as improper.
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Code of Ethics
Say CAI has a professional code of ethics for managers. Anyone who obtains the following credentials from CAI must sign off on this code and agree to abide by the stated principles. CMCA AMS LSM PCAM AAMC (for management companies)
Note that the 15 separate tenants of the code are reproduced in the Participant Guide. Point out the various best practices for helping managers live by the code and fulfill their duties in an ethical manner. Carefully choose your words and your assignments Develop an annual calendar Use a trusted method for sending and tracking homeowner communication Management transition Support the profession Management firm support
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Community Associations Institute has developed a Code of Ethics for Management that applies to manager members and member companies who have achieved specific credentials (CMCA, AMS, LSM, PCAM, AAMC). The code of ethics sets forth the general and technical standards for integrity and objectivity, professional courtesy, conflict of interest, use of client funds, and limitations of practice. All managers should follow this policy to ensure their duties to the client are met. (Note: CAI has also adopted Code of Ethics for the Reserve Specialist (RS) and Community Insurance and Risk Management Specialist (CIRMS) designations and for board members.) The Manager Shall: 1. Comply with current bylaws, standards and practices as may be established from time to time by CAI subject to all federal, state and local laws, ordinances, and regulations in effect where the manager practices. 2. Participate in continuing professional education through CAI and other industry related organizations. 3. Act in the best interests of the client; refrain from making inaccurate or misleading representations or statements; not knowingly misrepresent facts to benefit the manager. 4. Undertake only those engagements that they can reasonably expect to perform with professional competence. Best Practice Carefully choose your words and your assignments: In the process of working with the board of directors it is important for them to have confidence in our abilities and provide us with exciting challenges. Be careful not to answer questions too quickly without the appropriate research. Always use care in accepting additional assignments and obtain guidance from a supervisor if you do not have the technical expertise. 5. Exercise due care and perform planning and supervision as specified in the written management agreement, job description or duly adopted board policies. Best Practice Develop an Annual Calendar: To assure that all association obligations are performed in a timely manner, develop an Annual Calendar to track routine tasks and special projects. 6. Disclose all relationships in writing to the client regarding any actual, potential or perceived conflict of interest between the manager and other vendors. The manager shall take all necessary steps to avoid any perception of favoritism or impropriety during the vendor selection process and negotiation of any contracts.
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Promptly responding to board, owner and new management company requests Transferring hard-copy and software data as quickly as possible Not acting on behalf of the association after the contract ends, including writing checks for company reimbursement Not burning bridges; perhaps the board will realize what it is missing and ask to return to your company
12. Refrain from criticizing competitors or their business practices; act in the best interests of their employers; maintain a professional relationship with our peers and industry related professionals. Best Practice Support the Profession: Involvement in CAI provides the opportunity for mentoring and supporting each other as we enhance our professional development. It is unethical to speak negatively about another manager or harm someone for your own personal gain. 13. Conduct themselves in a professional manner at all times when acting in the scope of their employment. 14. Not engage in any form of price fixing, anti-trust, or anti-competition. 15. Not use the work products of colleagues or competing management firms that are considered proprietary without the expressed written permission of the author or the management firm. Best Practice Management Firm Support: In addition to the Duty of Care and Loyalty we extend to our clients we also owe this duty to our employer. As you proceed through your career and have opportunities with new firms and communities, honor the work products, client list, and technology used by your former employers. It is unethical to use a former employers proprietary reports, forms or information in your new management position.
Summary
As community association managers we have an impact on the most expensive asset most people will own: their homes. We are extended a large degree of trust when given the opportunity to participate in the management of a community association. We honor that trust and present a positive image for the industry when we conduct ourselves ethically and apply strong ethical principles to our work.
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Class Exercise
Allow 15 minutes for the Class Exercise.
Run the Class Exercise. Give the participants 15 minutes to read the following statements and answer the question What would you do? Facilitate a class discussion by asking for volunteers to share their answers. It is appropriate for there to be differing points of view expressed during the discussion. Use the guide below to emphasis the key points and ethical principles for each of the following situations. 1. John Smith works for a large community association management firm. Over the years he has worked with ABC Construction Company when his communities need major repairs. The President of ABC Construction recently called John to ask him for the name and phone number for the Board President of an association Johns firm previously managed. What would you do? John continues to have a Duty of Loyalty and Duty of Care to the former client. This duty exists even if John was not the manager assigned to the association. The duty of confidentiality exists and John should not provide the information to ABC Construction. 2. Betty Jones is an onsite manager of a large high-rise condominium. At Christmas time some of the owners give Betty gifts to show their appreciation. Recently some of them have started to give her gift cards and cash.
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What would you do? These gifts represent a conflict of interest. Betty should make a written disclosure of the gifs to the Board of Directors and obtain written authorization to keep the gifts. Even after proper disclosure this may be perceived as an undesirable conflict of interest. It would be advisable for the board to adopt a policy about gifts from association members and provide this information to the owners on a routine basis. 3. To show her thanks for the policy renewal, the insurance agent of the association invites you to a round of golf on the new PGA course that recently opened. It is the one which you have been waiting to play, but could never find anyone with a membership to get you on the course. She only has one slot in the foursome. What would you do? Accepting this gift would create a conflict of interest and require disclosure and authorization from the Board of Directors. Even if approval is given you may see an owner at the course, thus creating a negative perception. 4. Bob Benson is a portfolio manager and shares an office with Marcia Johnson, who is also a portfolio manager. Yesterday they were both eating lunch at their desks and Bob overheard Marcia talking with the landscape contractors that works with Marcias largest client. The contractor was currently putting in a new patio for Marcia and he offered to forgive the bill for his services. Marcia thankfully accepted. What would you do? The focus of this question is on Bobs actions, not Marcias. Bob has a Duty of Loyalty and Duty of Care to his employer. It is important for him to honor these duties by telling them of Marcias actions. He may find it easier if he confronts Marcia with this information first and gives her the opportunity to make it right with the landscape contractor, or go to her supervisor directly with the information.
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2. Betty Jones is an onsite manager of a large high-rise condominium. At Christmas time some of the owners give Betty gifts to show their appreciation. Recently some of them have started to give her gift cards and cash. What would you do?
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3. To show her thanks for the policy renewal, the insurance agent of the association invites you to a round of golf on the new PGA course that recently opened. It is the one which you have been waiting to play, but could never find anyone with a membership to get you on the course. She only has one slot in the foursome. What would you do?
4. Bob Benson is a portfolio manager and shares an office with Marcia Johnson, who is also a portfolio manager. Yesterday they were both eating lunch at their desks and Bob overheard Marcia talking with the landscape contractors that works with Marcias largest client. The contractor was currently putting in a new patio for Marcia and he offered to forgive the bill for his services. Marcia thankfully accepted. What would you do?
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Summary
Say You have learned: Various definitions of ethics How ethics relates to community association management To be aware of both potential and real conflicts of interest and to avoid them at all times. If you do have a potential conflict of interest, you know to fully disclose it to the board and to ask for written approval. The importance of following CAIs Code of Ethics for managers
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Key Terms:
Business ethics Code of ethics Conflict of interest Duty of care Duty of loyalty Ethics Moral principles Moral values Professional ethics
Encourage the class to review the Discussion and Focus Questions to reinforce their learning. Ask the class to briefly complete the Lesson 3 Quiz and go over the answers with them as a class. (The answers are included in your Instructor Guide only.) Allow 10 minutes for this review.
Refer participants to the additional resources listed in their Participant Guides. Ask for any other questions or clarification of any item before leaving this session.
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Focus Questions
Use the following questions to help you identify and review the core concepts in this lesson. (Hint: Once you look up the answer to a question, you may want to jot down the page number next to the question for future reference.) 1. Give some examples of the ethical behavior expected of a professional community association manager. 2. What is necessary for a true conflict of interest to exist for the manager of a community association? 3. What are three steps to take to avoid either a conflict of interest or the appearance of one? 4. What are some of the tenants from CAIs Code of Ethics for managers?
Thought/Discussion Questions
Use the following questions to help you apply the information in this lesson to your own situation. 1. Have you faced any conflict of interest with your role as a community association manageror the appearance of conflict? If so, how have you handled the situation? 2. After reading this lesson, would you handle the situation any differently? 3. Do you know anyone who has faced such a situation? How did he or she handle it?
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Lesson 3 Quiz
1. The manager of a community association has a professional duty to do all of the following EXCEPT: a. Disclose and account for anything of value he or she receives as a result of managing the community association (for examplea valuable gift from a contractor) b. Delegate more authority than he or she has received from the board only under extreme situations. c. Decline to perform services that you are not qualified to perform d. Make full written disclosure of any matter that presents a potential conflict of interest RATIONALE: A manager must be able to recognize what is and is not an example of ethical behavior. B is wrong because the manager has a duty to avoid delegating more authority than he or she has received from the board. 2. Scenario: A manager or management firm acquires an interest in a landscape company that is eligible to do business with the community association. Based on this scenario, which of the below DOESNT qualify as a conflict of interest? a. Management happens to be tasked with or is responsible for maintaining landscaping in the community associations common areas. b. The manager obtains specific authorization from the board in writing before purchasing the landscaping company. c. The manager receives a share of the profit earned by the landscape company that does business with the community association. d. The manager receives a share of profit from a nursery which sells supplies to the landscape company that does business with the community association. RATIONALE: A manager must be able to recognize what does and does not qualify as an example of conflict of interest. B doesnt qualify as a conflict of interest because this is one of the three steps in disclosing a conflict of interest. 3. All of the following are steps that should be taken to disclose a conflict of interest, EXCEPT? a. Even after full disclosure, avoid any actions which areor may be perceived asa conflict of interest. Individual owners may not be aware of all the facts and may view your actions as improper. b. Obtain specific authorization from the board in writing before proceeding with any action which may present a conflict of interest. This authorization should also be recorded in the minutes of a board meeting. c. Make full and complete written disclosure of all relevant facts to your board prior to any dealings which may be, or appear to be, a conflict of interest for you. d. Acting on behalf of the community association after being terminated by the board (for examplegiving a contractor instructions on behalf of the community association after being terminated) RATIONALE: A manager must know what steps to take when a situation is or could potentially be a conflict of interest. Choice D represents unethical behavior by a manager.
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Additional Resources
For further information on ethics, we suggest the following From Good to Great Brochure. All homeowner and condominium associations share common characteristics and core principles. Thats why CAI developed, and included in one convenient brochure, the Community Association Governance Guidelines, Rights and Responsibilities for Better Communities and the Model Code of Ethics for Community Association Board Members. With practical, time-tested principles and guidance, all three can inspire effective, enlightened leadership and responsible, engaged citizenship. (Community Associations Institute.) Conflicts of Interest: How Community Association Leaders Honor Their Duties, A Guide for Association Practitioners, by Tonia C. Sellers and Jay S. Lazega. Avoid conflicts of interest by reading about fiduciary obligations, conduct of directors, managerial conflicts, ethics policies and board conflicts. Contains sample policies, resolutions, code of ethics and cases. (Community Associations Institute, 2004.) Policies & Procedures to Prevent Fraud & Embezzlement, by Edward J. McMillan, CPA, CAE. Is your association or management company vulnerable to fraud? It's no secret that corporate fraud is a real threat to business today. Fraud losses are devastatingbut they are also avoidable. Find out how to safeguard your associations' assets or your company's reputation from plots, schemes, and identity theft. 2006.
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Conduct the Review/Q&A session to wrap-up Day 2. Allow 25 minutes to respond to any questions participants may have about any of the material covered in Module 3 or 4.
Conclude Day 2
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Course Conclusion
Course Conclusion
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Course Conclusion
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Course Conclusion
Goal The course conclusion should include a wrap up/review of the entire course to prepare the class for the final exam. At the end of the course conclusions, students should be confident enough to complete and pass the course exam.
Time 3 hours and 15 minutes Session Time Breakdown 5 minutesDay 3 Introduction 55 minutesCourse Review/Question and Answer Session 15 minutesCourse Evaluations 120 minutesCourse Exam
Overview This session concludes each of the key aspects covered during the course. Briefly review each of the modules and lessons discussed during the past two days. Ask students for any final questions they may have. The course conclusion also includes the answers to each of the end of lesson quizzes for the students so they can check their work. Materials Needed
LCD projector Remote advancer Evaluation sheets Course exam booklets Pencils Exam answer sheets
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Course Conclusion
Summary
Announce that the class has reached the end of the course.
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Course Conclusion
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Summary, continued
Overview the various Modules and Lessons discussed in the course.
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Module 1: Legal Basis
This section of the program introduced you to: The legal nature of a community association, including the scope and limits of its authority (Legal Basis for Community AssociationsLesson 1) Proper rule development and enforcement (Rule Development and EnforcementLesson 2)
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Module 2: Financial Management
This section of the program introduced you to: Budgets and Replacement ReservesLesson 1 Collecting AssessmentsLesson 2 Financial Statements, Audits, Income Taxes, and InvestmentsLesson 3
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Course Conclusion
Summary, continued
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Module 3: Facilities Management
This section of the program introduced you to: MaintenanceLesson 1 ContractingLesson 2 Risk Management and InsuranceLesson 3
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Module 4: Community Management and Leadership
This section of the program introduced you to: Your role and responsibilities as a manager in relation to the roles and responsibilities of your communitys owners and volunteer leaders (Community ManagementLesson 1) The effective use of board meetings for decision making (Board Meetings and Decision-Making Lesson 2) Management ethics (EthicsLesson 3)
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Summary, continued
Say For more information on any of the topics discussed in this course, CAI offers a wealth of resources, including: Publications Articles Web resources Chapter network
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Additional Resources from CAI
CAI offers many excellent resources for those interested in obtaining additional information about community association management. For information on these products, call CAI for a bookstore catalog at (888) 224-4321 or visit the bookstore online at www.caionline.org/shop
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Course Conclusion
Say Please feel free to contact CAI anytime via phone, fax, or e-mail, or visit CAI on the web.
Slide 140
Contact CAI
6402 Arlington Blvd., Suite 500 Falls Church, VA 22042 (888) 224-4321 (M-F, 9-6:30 ET) (703) 970-9558 (Fax) caieducation@caionline.org www.caionline.org
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Summary, continued
Say Thank you for attending this CAI course and for investing in your career and professional development.
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Thank you!
For participating in this course For your support of CAI and the Professional Management Development Program
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Say CAI also offers many other courses to help you stand out from the crowd and enhance your career. By continuing your education and pursuing professional credentials, you will gain a competitive advantage, potentially earn more money, and obtain valuable experience.
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Course Conclusion
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Thank you for participating in The Essentials of Community Association Management (M-100). We hope that you have enjoyed the learning experience. CAI also offers the following Professional Management Development Program (PMDP) courses that provide community association managers the necessary information about insurance, law, leadership, governance, and finance to help create and maintain strong and vibrant communities. M-100: The Essentials of Community Association Management M-201: Facilities Management M-202: Association Communications M-203: Community Leadership M-204: Community Governance M-205: Risk Management M-206: Financial Management PCAM Case Study M-310: Management Company Administration M-320: High-Rise Maintenance and Management M-330: Advanced Insurance and Risk Management M-340: Managing the Large-Scale Association M-350: Manager and the Law M-360: Leadership Practices in Building Community M-370: Managing Developing Communities M-400: Contemporary Issues in Community Association Management For more information about any of these classes, or to obtain more information about the CMCA (Certified Manager of Community Associations) certification, or the AMS (Association Management Specialist), LSM (Large-Scale Manager), RS (Reserve Specialist), CIRMS (Community Insurance and Risk Management Specialist), AAMC (Accredited Association Management Company), or PCAM (Professional Community Association Manager) designations, please call 888-224-4321 or visit www.caionline.org.
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Course Conclusion
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Summary, continued
Conduct the Review/Q&A session to wrap-up the course. Allow 55 minutes to respond to any questions participants may have about any of the material covered in the course. Ask participants for any remaining questions or concerns.
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Final Questions?
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Course Conclusion
Course Evaluation
Say Before we begin the exam, we are going to now distribute the course evaluations.
Ask for a volunteer from the class to: Distribute the evaluations Collect the evaluations Place the evaluations in the envelope provided by CAI Seal the envelope and return it to you for inclusion in the red bag.
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Evaluations
Please be sure to fill out your course evaluations. Your feedback is important to us.
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Course Exam
Say Now it is time for the course exam. 100 multiple-choice questions Fill in the bubbles completely 70% is passing score 2 hours to complete
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Course Exam
100 questions Multiple choice Results will be available within four weeks, if not sooner Good luck!
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6402 Arlington Blvd., Suite 500 Falls Church, VA 22042 (888) 224-4321 www.caionline.org
Copyright 2011, by CAICommunity Associations Institute. All rights reserved. Reproduction in whole or in part is not permitted without the expressed, written consent of CAI.
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