One of the unique aspects of life in an HOA, condo, or co-op is that in many ways, a building or association is a microcosm of the larger world outside it. It can suffer from the same factionalism and partisan bickering as any political entity, only on a much smaller, more intimate—and therefore potentially more damaging—scale. Conflict and divisions in HOAs and other multifamily communities can and often do bleed into the community’s administration: the manager and board of directors. Even a seemingly minor conflict can upend a residential community if it’s not dealt with diplomatically—so trustees and managers must be prepared to step up, step in, and do their part to defuse such issues before they turn into something worse.
Michael Davidson is the president of BoardCoach.com, a New York City-based company that specializes in nonprofit board development and management support, including coaching. Davidson explains that board members of nonprofit entities (including HOAs and co-ops) have three main duties to which they must adhere: “The duty of care, the duty of loyalty, and the duty of obedience.”
With regard to the first, the duty of care, “Board members and trustees must basically understand what’s going on in terms of the building,” Davidson says, adding that their primary responsibility is to make sure the property is well and effectively managed.
The second duty, the duty of loyalty, “Requires adherence to conflict of interest obligations.” In simple terms, that means that a board member must put the HOA, condo, or co-op’s welfare before their own interests or agenda. A good example would be that if your brother (or any other family member) owns a roofing company, you shouldn’t recommend him for roof repairs to the building—or at the very least, if your brother’s firm bids on the job, recuse yourself from voting on which roofer is ultimately hired.
Davidson points out that adherence to this duty is less clearly defined in an HOA or condo context than it may be in other not-for-profit organizations, because in a residential setting, every board member presumably owns a unit—or shares, if the community is a co-op—and may make decisions based on what may benefit them, but not necessarily their neighbor.
“While co-op and condo boards represent nonprofit corporations and associations, they are, at their core, somewhat different from non-residential nonprofits,” he says, “because the board members are investors or owners in the nonprofit, and their board positions carry a heavy fiduciary responsibility.” An example might be voting to permit Airbnb rentals. Doing so might provide a particular board member with additional income, but their neighbor(s) might not want strangers in the building. Both have vested interests, but those interests may not always align seamlessly.
The third duty incumbent upon board members—the duty of obedience—is of the most importance for co-op and HOA board members. It calls upon them to understand, fairly enforce, and personally abide by the governing documents, policies, and protocols of their community. “The members of the board owe a duty to keep within the powers of the corporation and within those of the board of directors,” explains Davidson, adding that “The problem is that co-op boards are very different from other nonprofit boards in that everyone on the board has a personal interest in every issue. This makes them inherently more conflict-prone.”
When it comes to upholding these three administrative pillars, “Successful, functional boards need persons who work in tandem, work well as a team, are well organized, and have different areas of expertise to offer,” says Robert Silversmith of the New York City-based Silversmith & Associates Law Firm, PLLC. “Boards should openly and amicably communicate with all board members as a collective group.”
The Reality of Conflict
Howard Goldman is a partner with Goldman & Pease, a law firm located in Needham, Massachusetts that represents numerous condominium associations. “Yes,” he says, factionalism definitely happens. And when it does, typically “There is a controlling group on the board, and those not in agreement feel out of control and frustrated. Often, those in these roles feel disenfranchised and that no one is listening to them.”
Goldman says there are two potential approaches to getting controlling board members to listen: One is to take a derivative action; the other is to remove and replace the board. A derivative action is essentially a lawsuit brought by a corporation shareholder against the directors/trustees, management, and/or other shareholders of the corporation, usually for a failure by management. In the world of condominium associations, a derivative action can be brought by an individual or group of residents to force the board to perform their fiduciary responsibility as outlined in the community’s governing documents.
A good example of how and why this approach is used would be when a board of directors doesn’t want to undertake a large or expensive project—extensive roof repairs, say—but the majority of unit owners want the work done. A derivative action would force the board to acquiesce to the community members, despite their own preferences.
Odd Numbers, Staggered Terms, & the Limits of Power
According to Goldman, Massachusetts condominium owners who are displeased with their board can call a meeting of the association and demand to hold new elections. They can air their grievances and hold a vote. If a majority of owners vote to remove the board a new election is held, and a new board is elected. Hopefully, the new board will be more amenable to listening to what the unit owners want.
What happens when a minority of shareholders or unit owners controls the majority of board votes? How can that even happen? Many boards have staggered board service terms to provide continuity for management and supervision. So, if there are seven seats on a board, but only three come up for election in a given cycle, and the majority of residents are unhappy with the existing board, they might elect three new members—but voting control of the board still stays with the four prior board members not subject to the current election cycle. Basically, the dissatisfied residents and their newly-elected board members are stuck till the next election.
Actions within the board itself are handled a little differently (and of course according to rules set forth in a given building or HOA’s governing documents).
When the issue is a ‘bad apple’ who is compromising a board’s ability to do its job and uphold its duty to the community it governs, says Frank A. Lombardi of Lombardi Law Group in Lincoln, Rhode Island. “A ‘bad’ board member can present a real, serious problem for a community association. Board members stand in a fiduciary role, and owe duties of loyalty and care to the associations they serve.”
If your board is afflicted with such a person—someone who’s acting out of self-interest, or in bad faith, Lombardi continues, “You have to decide how best to deal with them. Occasionally, an honest conversation—rather than confrontation—behind closed doors about the offensive behavior may help to right the ship. Depending on the nature of the bad actor’s conduct, however, more drastic measures may be required. Generally, if there is consensus among the other board members that it is only one of their number who is ‘bad,’ it may be possible (and less disruptive to the community) to seek their resignation. As counsel, we have made demands upon individuals ‘requesting’ their resignations—lest the association explore more aggressive methods to address their ‘bad’ actions. This can be a face-saving measure for the individual in question, as well as a more economic and expedient route for the association.
“If worse comes to worst, however,” continues Lombardi, “the association may have to consider formal removal of the ‘bad’ member pursuant to its governing documents. Most documents—whether trusts or bylaws—provide a mechanism for removing board members. These provisions almost always require a vote of the ownership, rather than just the board members, to accomplish removal. The best of these provisions allow for removal ‘with or without cause.’ Some provisions require a ‘due process’ hearing before the board or association prior to removal.
“If you find yourself in a position where you have to remove a board member, it is critical to carefully consult the governing documents to ensure that you follow the correct procedure. Assuming that you do abide by the terms of the documents, the courts of this Commonwealth have generally upheld removals as proper acts.”
Andrew Freedland, an attorney with New York-based firm Herrick, Feinstein LLP, agrees, and says he often gets questions from directors about removing other directors. And while the chain of events and emotions that would lead to that level of infighting might be complex, the answer to the question of board members giving a particular colleague the boot is straightforward: Generally, absent very specific language in their documents, “Directors can’t remove other directors from a board,” says Freedland. “They can only be removed by shareholders. But they can remove a director from a specific position, say president or secretary.” So board members can make an officer a non-officer via a vote—but that doesn’t remove the board member from the board entirely.
Real Life Examples
“Conflict can happen because people just don’t jive,” says Michele Schlossberg, a property manager with Gumley Haft, a management firm in New York. “They will nitpick each other. When you live in a condo or co-op, you have to realize you live in a community, and when people don’t it can become contentious.”
Schlossberg describes a situation in one community where there was a ‘coup’ on the board. A contingent of shareholders was unhappy with how the board had handled the planning and management of a large project to replace one of the building systems. A large group of shareholders didn’t feel they were being heard by the existing board, so they called for an election, collected a large number of proxies, and replaced three board members with new directors they felt would helm the project more effectively. The overall effect of the change, however, was to stymie the project even further. The new board members wanted to examine every document involved with the project to that point—then they announced they wanted to start the project over from scratch. It then took an additional three years—for a total of five—to complete a project that should have taken a year or two at most. So in that case at least, the infusion of new blood into the board had quite the opposite of the desired effect.
In another situation, Schlossberg recalls a board where the president was suspected of dishonest dealing. The rest of the board asked him to step down—but he refused. Ultimately, the co-op had to call a special meeting, and the president was removed from both his position and the board as a whole by a vote of the shareholders.
Davidson acknowledges that board environments can become combative. “Often there is friction,” he says. “I suggest that co-op and condo boards consider adopting a method common in nonprofit organizations, which is the board member agreement.” A board member agreement is kind of like a rulebook and lays out what’s acceptable behavior for board members. “It should be in writing, and every new board member should be required to say they are prepared to agree to these rules,” says Davidson.
Lombardi concurs, though not without caution. “A board code of conduct can help to establish rules and expectations for how members of the governing body should conduct themselves,” he says. “We have prepared a number of such documents to guide board members in their interactions with each other and their community. However, the presence or absence of a code of conduct is not always a cure-all for bad behavior.”
Another idea is that of a grievance committee—a common feature of non-residential nonprofits—tailored to a building or HOA’s board policy. Davidson explains that a grievance committee can perform an annual assessment of each board member. “Sort of like a, ‘how am I doing?’” he says. “The member meets privately with someone from the grievance committee every year to talk about their performance.” Such accountability and the opportunity to ‘check in’ in a calm, non-combative setting can help boards or residents course-correct before something relatively minor balloons into a bigger problem.
What Can a Manager Do?
Schlossberg suggests that the best way to handle conflicts among board members—or among warring resident factions—is to try to arrive at some sort of reconciliation between the two opposing groups, whether that’s in the community as a whole or on the board. “People want to be heard,” she says, and recommends that at the first board meeting after an election, it’s often very helpful to simply ask the minority what it is they want to see—what kind of changes they’re looking to effect by joining the board. It’s also crucial to understand what the shareholders want, and to remember that the board is there to govern everyone—not to champion pet projects or to stick it to anyone who doesn’t necessarily share one’s opinions or priorities. Put simply, “The goal is to create a cohesive board,” says Schlossberg, and the most important component of achieving that is a commitment to listen and take others’ concerns seriously.
Davidson shares a similar approach. “Identify solutions to each conflict,” he says. “Create rules for decision making. Then survey the board members. How do they rank the suggested solutions, ranging from ‘strongly agree’ to ‘strongly disagree’? Produce a summary of the results.” Davidson points out that in his experience, there is often nearly 100% agreement among board members, because solutions are usually pretty simple. “If there are disagreements,” he says, “hold a discussion. And importantly, acknowledge areas of conflict to work toward a common solution. Once you have rules of the road, you can manage conflict.”
Freedland concurs, summing up with the assertion that “Dissention shouldn’t permeate every issue. Work it out and get on with it.”
A J Sidransky is a staff writer/reporter with New England Condominium, and a published novelist.