Condo Media - November 2011 - 22

ASKED & ANSWERED

A Home and a Business
Boards Must Manage in a Business-Like Way

Q A

QUESTION: Although most condominiums in New England aren’t registered corporations, as they are in some states, they still have to be managed in a business-like way. How do I impress that point on some of my fellow board members, who are running the community more like an “old boys’ club” than a business?

ANSWER: You might point out that association trustees have a fiduciary obligation to preserve and enhance the value of the community and could be sued if they fail to fulfill their responsibilities. But Jarred McNabb, CMCA,

PCAM with Crowninshield Management Corporation, AMO, thinks it is better to begin by educating board members than by threatening them. The idea that the condominium community that is their home is also a business is difficult for many board members to grasp, McNabb says. Accounting and financial management basics aren’t instinctive to those who don’t have a financial background, which is the case for association volunteers, McNabb points out. “Many don’t know how to read financial statements, and are often embarrassed to ask questions.” The fact that community associations are

structured as nonprofits further complicates the issue, making it hard for some to understand that the community association is, in fact, a business. When dealing with a new client, McNabb always offers to do an introductory session with the board, to go over the financial statements and “that is absolutely crucial,” he says. “If they don’t understand operating accounts and reserves and the difference between them, they won’t be able to make sound decisions.” McNabb is finding condominium owners “more savvy” than in the past, quicker to grasp the notion that governing a community association is like running a small municipality or a business, and that revenues must cover expenses. He credits the difficult economic climate with making board members and owners more aware of the financial implications of the board’s decisions. “A few years ago, if you bought a condo and held it for a few years, you were more or less guaranteed the value would increase. That’s not the case anymore,” McNabb says. As a result, there is more understanding that maintenance is related directly to property values. “People are more in tune with what they need to do. There’s more awareness of how their actions as owners and board members can affect sales.” There are the occasional “rogue” board members, who joined because they had a personal “axe to grind,” and who are unwilling to accept their broader responsibilities. If education alone doesn’t work with them, then more pointed reminders of their fiduciary obligations and potential legal liability may be necessary. You either get them in line, or you elect board members who understand or are willing to learn. CM

CONDO MEDIA • NOVEMBER 2011

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Condo Media - November 2011

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