As a nonprofit entity, your condo, homeowner, community or apartment association must meet relevant state laws. What’s more, association board members who aren’t often familiar with the legalese of association practice may not understand the bylaws, covenants, or other legal documents that the association has adopted. Worse, if your board has no standing experience with writing, amending, or interpreting your bylaws, any move by the board could open your association up to legal entanglements.

Suppose your apartment association bylaws do not allow pets. However, several unit owners have aquarium fish, guinea pigs, or reptiles. How is your regulation being enforced? Is that enforcement opening your association up to debate or legal action? As for noise levels, do you address specifics in your bylaws as to what constitutes disruptive levels of noise? Do crying babies receive the same treatment under your bylaws as revving car engines? And are you sure your board members are able to make such determinations?

 That’s why directors and officers insurance coverage (D&O) is a must for any association board. While well-meaning board members may act in what they think is the best interest of their association members, their actions, or lack thereof, could expose your association to a number of potential losses.

 Take your bylaws to your condo or apartment association insurance broker. A broker specializing in association coverage will be able to determine if your bylaws are conforming to state statutes, and can discuss with you any potential loss areas that may be covered by a sound insurance program. Consider also having a risk assessment done on your board’s bylaws and practices. Make sure your association board’s attempts to serve aren’t leading you down a risky path.

Flickr photo credit: mbgrigby

 Yet some condo associations are finding the first right of refusal arrangement, that which allows the condo association board the opportunity to either buy or refuse to buy any unit up for sale, a godsend in a mighty tough market. One condo association in Chicago has developed a plan to become its building’s landlord, offering to buy up vacant units under the first right of refusal clause, rent them out, and resell them after the market conditions improve.

 Another reason condo associations are resurrecting what was once considered a discriminatory practice – to ensure the new owners can afford the condo unit. With more foreclosures in the market than at any time in recent history, condo associations are eager to curb the loss of association fees and residents by hand selecting the next wave of residents.

 A number of states have prohibited the first right of refusal action. New Jersey passed the New Jersey Condominium Act, which expressly prohibits the practice. Still, many condo associations do have this provision in their bylaws, though it isn’t often exercised due to the risk of discrimination claims.

 Should your condo association use first right of refusal to ride out a tough economy? Talk with your insurance broker. Understand what your state’s laws are, and determine if the benefits of purchasing units and becoming a landlord outweighs the risks. It’s a drastic change from the original function of a condo association, but if foreclosures are plaguing your property, it may be a viable alternative.

Flickr photo credit: allaboutgeorge

Flickr photo credit: loop oh

If you know what directors and officers insurance is, you know that major corporations won’t operate without it. The liabilities created by a board of directors or by senior management are of the business-crippling kind. D&O coverage allows boards and management to conduct business with one more safety net should decisions go awry and shareholders or customers become litigious.

 So why is it important for your association to have D&O coverage? Because those same liabilities apply to your condo or homeowners association. While your board or your management team may not be determining shareholder value or stock prices, they are making decisions that directly affect residents and the value of their properties. Board members not used to running associations could inadvertently (or on purpose) override existing covenants or bylaws. Not only that, boards could underinsure, or fail to insure the property common grounds, exposing the association to a myriad of liabilities.

 Today’s board members are usually in charge of maintenance oversight and property management. This opens up the association to more claims should board members fail to maintain or manage the property.

 Add to that the number of amenities in many condo and apartment complexes. Security issues abound with each additional “feature” and if these issues are not addressed properly by the board, lawsuits and claims could arise. Also, should the board vote to hire a security firm that is somehow negligent, the board is liable for its part in hiring that company. Mind you, the security firm itself bears the brunt of the liability, but there is still a risk to the association for the board’s actions.

 Make sure your association is covered.  Ask for a free policy review from an independent agent who specializes in condo association and homeowner association insurance. Coverages vary.  Amounts covered vary. There could easily be more comprehensive coverage available with better rates.  Do you know how your insurance company is rated?  Is it solvent or borderline? 

 If your association doesn’t currently have directors and officers coverage, you could be open to a financially crippling lawsuit.  Ask to have it added today!

I mean we’ve all heard stories about the waiters and waitresses at our favorite restaurant swiping our credit card numbers on a little theft gizmo before running the charge through for the meal.  I’ve actually been a victim of something similar.  Although I love the restaurant dearly (it serves the best Mexican food) I only pay with cash. period. 

Every month large sums of money moves through your books.  Rents come in as income, and then there are expenses – utilities, maintenance, staff, supplies, insurance, taxes, advertising, legal fees, tenant damage, etc.  Do you have safeguards in place to deter sticky fingers?

Do you have one person write checks and another person sign them?  Who reconciles the bank statement each month?  Direct theft is one form of employee dishonesty. 

Another form would be when an employee uses tenant information – credit card numbers, social security numbers, birthdates, etc. to make fraudulent purchases for personal gain.  This form of theft is more difficult to identify.  And yet, you could be named as a party in the lawsuit.

All forms of theft are damaging – not only to the Apartment owner but to the reputation of the property and the ability to keep maximum occupancy. So, what’s the remedy?  Aside from the obvious of doing everything yourself, which assumes you’re an honest person, is to have certain policies in place.

1.  Bond your employees.   Fidelity bonds protect you (the policyholder) for losses incurred as a result of theft or dishonesty by the bonded employee.

2.  If your business is a corporation, LLC, etc. you should have Directors and Officers (D&O) liability insurance in place.  This coverage will protect the organization from legal/litigation costs resulting from mistakes (yes, that’s a broad term) for which they are liable.

3.  Is it a standard part of your application process for prospective tenants to provide proof of tenant/renter’s insurance?  What about the maintenance person or exterminator who likes bright shiny objects?  Proof of tenant/renter’s insurance should be standard for all approved applications.

When you protect your business, you’re protecting others from losses that can and will occur.  Legal fees and shattered reputations can ruin a business.  Be proactive and have policies (employer and insurance) in place to deter dishonesty and prevent holes in your office.