Connection Boards Need to Ensure Management Agreements Include Fiduciary Clauses
By: Charles H Maness, MSACC, Principal and also Managing Broker for M Management LLC DBA M Brokerage firm Services and Accountants and Principal for that Tax Advisers LLC
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Discord of interests in between condominium boards as well as management often center on perhaps the management company has exterior influences that has an effect on the fiduciary relationship among broker and buyer. For example, new apartment associations are managed by the builder or perhaps developer for a certain period of time or till a certain number of units are sold. The contractor or developer generally makes the choice for the 1st management company. The relationship between the builder and developer is well sitting down with the management referral and also this referral action frequently and directly conflicts with the company fiduciary obligation to the board as well as the association as a whole.
Let’s look at a recent scenario which led into the elimination of a management company for perceived conflicts appealing. Management was contracted with the builder while the designer had control of Relationship. Do you see the conflict of interest building?
The particular builder had a number of defects in the top construction causing key water intrusion troubles. The builder would not want to spend more funds to make vehicle repairs to the roofing program. Management recommended that the connection accept a roofing guarantee vs. incurring a legal suit on replacing of the defective roof structure. Was this a compromise between parties as well as was this the place that the conflict of interest actually crossed the line.
The actual management company should have free their recommendation along with referred the connection and builder in order to legal counsel or arbitration. By making the recommendation towards the association to accept a guarantee in lieu of a replacement in the defective roofing method, the manager still did not provide a fiduciary duty for the association. The connection needed to be aware consequences of their decision to just accept a warranty to their upcoming ability to litigate. They also should be aware that the warrant was issued without third-party assurances and assures. Essentially, the manufacturer’s warranty was only as good as the actual builder’s word.
Why had been the recommendation a fiduciary breach for the management company? The actual management company recommendation along with association acceptance started the Statute associated with Limitation for match against the builder and also the warranty failed to present assurances that upcoming repairs would be thankful. If Management had known both parties to legal counsel or arbitration, every parties counsel may have provided full reports of the legal dangers and benefits to each party. In essence, the breach deprived the organization of such counsel and they specifically relied on the actual management’s recommendation. The recommendation along with reliance thereof caused your breach of fiduciary responsibilities.
Should the association file suit the management company? Of course, is the answer; nevertheless, the Statute of Limitations also started for management when the recommendation was recognized or relied on by the Board? In order to retrieve, the Board has got to show damages through the reliance and that the actual breach of fiduciary duty was the causative agent for the damage. The particular Statute of Limitations will depend on the state statute. In this case, two years was the statute.
What damages you may well ask? Between three and five after the break and warranty, your builder relocated to an alternative state and shut his company. The actual association began encountering leaks shortly later on from the failed roofer system and yes, you have it- the builder has been long gone. The helpful management agent recommended how the board not assume a suit with regard to breach of warranty as the company has been closed and the chance for financial recovery will be minimal. This advice had been somewhat correct in relation to incorporated businesses without having personal guarantee; nonetheless, the association still did not consider that the management agent was the one who suggested the warranty for the association and that the particular agent was guarding their own liability exposure.
So to emphasize the key components here, the particular association placed a lot of trust and reliance upon the management and their brokers. As a result of that rely on and reliance, your association was expected to invest in a new 6 digit roof. Similarly, the management contract didn’t provide any assurances in the fiduciary relationship and also the indemnification clause essentially left no recourse for suits against the management company. On further inspection, the particular Board failed to consult corporate counsel to review or approve anything. This was a valuable training for the association; nevertheless, the costs for the lesson were extremely agonizing.
Be wary of any management company that does not recommend that your Board have aide to review contracts. When the management company recommends the attorney group, have the legal professional to give the organization in writing that he or she is working on their account in the contract assessment. Always insist on some type of remediation when experiencing builder issues or other conflicts of interest. The remediation contractor really should not be recommended by the management firm or the builder/developer. An independent party should be insisted about by the Association. Often ensure that the management company gives fiduciary assurances with a fiduciary commitment in writing.
If you would like more details or a consultation about professional management services, check out Charles H. Maness, Managing Agent or Kristen E. Richbourg, ESQ, Corporate Attorney at M Management LLC DBA M Brokerage Solutions website: http://www.mbrokerageservices.com
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