Condo Media - May 2019 - 24

CONDOMINIUM DOCUMENT Triage

Expenditure
Controls
Many association governing documents
contain expenditure controls. The expenditure controls may limit who or how
many board members must consent to
a particular contract or payment. There
may also be limitations on the authority
of a board's managing agents to enter into
contracts on behalf of the association,
make payments and/or sign checks.
These limitations may exist not only on
discretionary expenditures, but also on
budgeted expenses.
It is critical to understand what controls exist, whether they are being met,
and if they hurt or help the basic operation of the association.
Managers and Trustees should review
documents to see what controls exist:
l Do your documents require a certain
number of board members or trustees to approve payments or enter
into contracts?
l Can that authority be delegated?
l Is there a cap on board-allowed or
management-allowed expenditures?
Once you have determined controls
exist, determine whether your operations conform to the document requirements. You should also think about
whether the process and limits imposed
make sense and allow the community to
function appropriately. Are the caps and
restrictions outdated?
If the restrictions have not been
followed, either by the board or management, an attorney can help you understand what processes may be available to
ratify past contracts and payments and
offer an opinion on how to comply with
expenditure limitations on a go-forward
basis. If the process is impeding basic
condominium operations, an attorney
can also help you understand what

CONDOMEDIA May 2019

options may be available to amend the
documents or adopt different processes
to adequately meet the operational needs
of the association while maintaining appropriate oversight and safeguards.

Insurance
Insurance requirements and
procedures are another source of
questions and a potential trouble spot.
The governing documents should be
specific and adequate as to both the
master insurance policy coverage
requirements and the responsibility
of unit owners to purchase insurance.
MASTER INSURANCE
It is important that an association
has appropriate insurance coverage.
What do the documents say about the
master insurance policy, the type of
coverage required, exclusions and limits?
The most likely types of coverage are:
l All-in coverage (covers interior minus
personal possessions).
l Bare walls coverage (no coverage for
interior finishing, unit improvements
or buildouts, or personal possessions).
l Original specifications (covers the unit
minus personal possessions as it existed on the first deed out; it would not
cover subsequent improvements).
In most cases, the association should
have "all-in" coverage and should look
for this specific language in its governing
documents. In any case, the association
should not have bare walls or original
spec coverage if the documents require
all-in. If there are other minimum coverage requirements, those should be met as
well. Other types of insurance required
may include D&O or fidelity coverage.
Another area to check is what, if any,
deductible cap may exist. If there is one,
it can be a horrible trap. If the association has had several losses, they may not

be able to obtain coverage with a low
deductible. If the association does not
obtain coverage with a deductible below
the cap, they could be exposed to a claim
that it failed to follow the requirements
of the governing documents even though
satisfying these requirements was impossible under the circumstances.
An insurance agent can help explain
what coverage the association should
have and an attorney can help to ensure
the documents conform to the best
extent possible.
UNIT OWNER POLICIES
Even with an all-in master policy, there
are additional unit owner insurance
needs and responsibilities. Time and
time again managers come across unit
owners who did not understand the need
for their own insurance policy (an H06
policy) to protect their personal property,
loss of use or to cover the master insurance deductible.
If unit owners do not have insurance,
or adequate insurance, conflicts with
management and other unit owners
are likely to develop if a loss occurs. Associations can and should ensure that
the documents require owners have
insurance policies and may also want
to specify certain coverage types/minimums. An attorney can help the manager
determine whether an amendment to
the association documents is achievable
for this purpose and/or what may be accomplished via insurance resolution and
what enforcement risks exist.

Rules,
Rules, Rules
Have the rules aged well? Technology
changes. Preferences change. Laws
change. The rules of the association
should reflect those changes.
RULES TO LIVE BY
Short-Term Rentals. In the age of Airbnb, VRBO and other platforms for short-

Condo Media - May 2019

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