On and Off the Record Confidentiality is a Tightrope for Association Boards

On and Off the Record

To disclose or not to disclose? That is the question community association boards wrestle with on a regular basis. If homeowners want to see the association’s financial records, should the books be open to them? What about a list of owners who are in arrears with their condo fees? Or details of the current snowplowing contract? Should boards let neighbors know that a registered sex offender has moved into the community? What if an association employee is under investigation for stealing or other criminal activity?

Balancing the community’s right to know with the individual’s right to privacy can be a challenge – but industry professionals say that for the most part, board members using common sense tend to make the right decision. And when they’re not sure, they should have an attorney handy.

“It’s all about balance,” says David J. Levy, principal of Sterling Services, Inc., a Holliston, Massachusetts, management firm. “The manager and board have to be aware of the mutually-conflictinggoals. You need to be as transparent and open as possible, but on the flip side, some things have to remain confidential. There’s a conflict between the need to disclose, and the need for privacy.”

One job of the association manager, he said, is to “constantly remind trustees about that balance.”

The Community Associations Institute (CAI), in a set of 12 “Governance Guidelines” designed to help association board members “increase harmony, reduce conflict and build stronger, more successful communities,” promotes open communication between homeowners and boards. “Share critical information and rationale with residents about budgets, reserve funding, special assessments and other issues that couldimpact their financial obligations to the association,” the guidelines suggest. “Give members an opportunity – before final decisions are made – to ask questions of a representative who is fully familiar with these financial issues.”

Belief in Transparency

Levy admits that early in his career, “I probably erred on the side of not being transparent enough.” Today, he’s a big believer in transparency. “You don’t want it to look like you’re hiding something,” he cautions board members. “I think most managers, as they age, and as they become more certified (through professional organizations), find that the truth sets you free.” Most often, he adds, board members have a good sense of what should be public knowledge – and what shouldn’t.

As much as many issues seem to be a matter of common sense, attorney Frank Flynn cautions that more than gut feelings govern these issues. There’salso the law.

“In Massachusetts, there are documents that are required to be shown to unit owners, under Section 10 of the Condominium Statute, Massachusetts General Laws Chapter 183A,” says Flynn, a partner at Downing & Flynn in Boston. That law requires associations to keep records and allow unit owners to see them, including contracts with vendors and outstanding bills, along with the Master Deed, bylaws, insurance policies, meeting minutes and a host of financial records. Homeowners also have the right to get copies of documents covered by the law; the copies are at the expense of the personseeking them.

Association finances are among the most-disputed issues in regard to openness, industry professionals agree. “Homeowners should know about the association finances,” Levy says, “but they don’t need a list of who’s past due on their common fees. The balance sheet will tell you about total receivables, and that’s what you need to know.” Openness about association finances will go a long way toward dispelling distrust of the board – and avoiding unpleasant financial surprises.“Special assessments shouldn’t be coming up as surprises to owners,” Levy says. “Most are due to a lack of planning, by trustees acting like politicians rather than acting as true trustees.

“No one wants to be the bearer of bad news. No one wants to be the one to raise taxes, or common fees. Everyone wants Republican taxes and Democratservices,” he says. “Trustees often end up keeping common fees artificially low.” If homeowners have easy access to financial information about the community, they’re more likely to see problems that are brewing, before they become major expenses.

Lack of Knowledge

While association boards will sometimes refuse access to some of those documents, Flynn says, “I think that’s mostly because there are trustees than just don’t know” the law. “They may not know they’re supposed to keep these records and allow the owners access to them.”

Connecticut association boards should have clear guidance about records disclosure under the state’s updated Common Interest Ownership Act (CIOA). The act requires that “all financial and other records of the association of unit owners must be made reasonably available for examination by any unit owner and his authorized agents.”

At the same time, boards must be careful about violating other laws, such as various state statutes governing debt collection. Flynn says he often fields calls from association boards wanting to be sure to stay on the right side of the law.

In Massachusetts, the Fair Information Practices Act (MGL Chapter 66A) requires some landlords, for example, to keep a tenant’s personal information private. “Data holders” – anyone who keeps data about a group of people – is also supposed to keep certain information private if the partiesinvolved are receiving state or federal subsidies, Flynn says.

A new Massachusetts law, Chapter 93H, he adds, will have a larger impact on the privacy issue. Taking effect on March 1, 2010, pursuant to 201 CMR 17.05, Chapter 93H covers a long list of “personal information that has to be kept secured,” Flynn says, including Social Security numbers, driver’s license numbers, financial account information, access codes, personal identification numbers, and passwords to financial accounts. “Only trained personnel can look at that stuff,” he says, “and documents containing that personal information must be shredded or locked up.” The law also requires computerized information to be “secure.”

Most states, Flynn says, have similarlaws, although the Massachusetts law may be stronger than many. Much of the recent push about privacy issues is the result of concerns about identity theft. “A lot of states have been passing privacy laws. They don’t want information lying around on someone’s desk” – or on an accessible computer file.

Technology Complicates

Advances in technology have both complicated, and eased, the information issue. “Technology has been a great facilitator of transparency,” Levy says. “If you send the minutes out to everyone, it doesn’t look like you have anything to hide. We invite everybody, every time, to attend meetings; every meeting we have is open to the public.” With the widespread availability of computer access, board agendas and minutes are easily accessible to all homeowners.

But boards should be careful about what’s included in those documents, or what’s said at public meetings. “Suppose you find that a homeowner is having problems, his unit is unkempt, the board has become involved because of the problem and the owner’s family is out of state and is not coming to help resolve the problem. Or suppose there are allegations about an owner’s behavior, or a family disagreement about someone who should be in a nursing home. You don’t want all of that discussed publicly.” And while some residents might ask why the board is “hiding” information, Levy says, “My response is, ‘What would you do if it was your mother, or your family?’ ”

The manager, he says, “has to guide the board. We’re here to advise them. There’s a balance between under-advising, and over-advising. Sometimes, it’s like threading a needle.”

Pat Gale is associate editor of New England Condominium magazine.

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