Community association and co-op boards typically consist of elected volunteers whose job is to serve the best interests of the community in day-to-day decisions both big and small. In an ideal world, every board would live and die by its fiduciary duty, making well-informed choices that not only keep its community or building solvent, but also maintain a pleasant environment in which to live. But would even that ideal scenario be enough? If a board is doing all the right things but fails to communicate the hows and whys of its decisions to its constituents, will those decisions be received approvingly?
Truth is, in addition to making good decisions, it also falls to the board to communicate those decisions – as well as how they were reached – to its community in a clear and digestible way. The reasoning for this goes beyond just getting reelected; to a diligent and capable board, optics may seem performative, but they’re actually a crucial part of being open and transparent with the residents that board represents. A certain amount of marketing and salesmanship is often needed to get buy-in from the folks most directly impacted by a given board decision. A board that does the right thing without showing its work can still face backlash from residents who interpret the board’s discretion as secrecy, or who don’t see immediate positive results from the board’s endeavor.
The Messaging Matters
“Optics are extremely important,” says Thomas O. Moriarty, a principal at the law firm of Moriarty Troyer & Malloy in Braintree, Massachusetts. “While perception of performance alone is obviously not enough to deliver results, results alone are not enough to ensure contentment among unit owners. The fact of the matter is that unless a board has systems in place to ensure that unit owners believe they have a voice in the process of governance, those owners may never be happy with the results. In addition, if the actions and deliberations of the board are not transparent, unit owners may not even be aware of the issues the board is confronting – nevermind whether the board has done a competent job pursuing resolutions.
“Knowledgeable unit owners understand and expect that when they buy a unit, they become members of a self-governing association,” Moriarty continues. “While they might not volunteer to serve on the board, they nevertheless have an important economic and personal interest in how the board conducts its business. A unit owner who cannot obtain enough information to reasonably assess the merits of his or her board’s decision making is not going to develop confidence and trust in that board. This can lead to frustration and skepticism.”
Moriarty goes on to say that when boards fail to communicate their process to owners, owners nearly always perceived that as negative. “While there are always exceptions based upon the need for confidentiality – attorney-client privilege, for example – or because statutes may prevent the disclosure of certain information,” he says, “in every other circumstance it is almost always better to communicate as much information as possible, even if the information is not what the owners want to hear. Reasonable unit owners will understand that not all news is good news, and they will be more content with board operations and governance if they have more accurate and reliable information, good or bad.”
A current board can make association business easier for its eventual replacement by being explicit with its decision-making methodology. “It’s essential to pay attention to the details, or there can be problems in the future,” warns Mark N. Axinn, a partner with the New York City-based law firm of Brill & Meisel. “For example, when files are reviewed by a future board, it should be clear what the people at the time were considering, and why a particular decision was made. Records should be kept in such a manner that someone who is not familiar with an issue can easily ascertain what happened and why certain decisions were made.”
According to Jacqueline Abraham, Regional Director for Lieberman Management Services, which has offices in Chicago and Elk Grove Village, Illinois, a resident will occasionally run for the board with the intended goal of improving its optics. “Once elected, these board members realize that there is a need for greater transparency, and make efforts to steer the other members to communicate more with the community,” Abraham says. “This could mean forming a committee to create and send a monthly or quarterly newsletter; sending meeting minutes to owners electronically immediately following a board meeting; installing a bulletin board in the common area on which they’ll post community updates and notices; or utilizing a community website to store documents and share information.”
For a board, neglecting optics and ignoring the public relations aspect of its job can have abject consequences.
“Boards often forget the messaging aspect inherent in getting information to owners before a new policy takes effect,” notes Axinn. “This is especially true if there is a new restriction or a new charge being considered. For example, if a board decides to implement a fee for subletting, it is important to convey to the owners that [the purpose] of the fee is to raise funds to help limit future maintenance increases.”
Different states have different laws concerning how information can be distributed to condo or co-op residents; some allow for electronic communications, and some require actual hard copies to be sent via registered mail or to be hand delivered. Regardless of the rules where you live, it’s important to note that impersonal methods of outreach – like email – should not be a substitute for actually interacting with constituents in person.
“Email should not be used to eliminate or avoid discussion at board meetings,” warns Allison L. Hertz, a senior associate with Kaye Bender Rembaum, a law firm that has offices in Pompano Beach and Palm Beach Gardens, Florida. “In most circumstances, board meetings are required to be open to members [so] the members of the association are able to hear how the board makes its decisions.
“That said,” she continues, “meeting minutes should be minutes. They should not be a transcription of the entire meeting. Such a document could be used against the association and could result in association liability.”
Even when withholding some information from unit owners seems like the prudent thing to do, a board should still consider how owners may react to the basic idea of being left out of the loop. Moriarty recalls one instance in the middle of a construction defect litigation: “A group of unit owners were demanding the release of the board’s expert engineering report. On advice of counsel, and to preserve privilege, the report – which had been prepared in anticipation of litigation with the developer – was not disclosed. The board didn’t withhold the report to keep it from the owners; it was withheld to keep it from the developer and other defendants in the lawsuit. This was a perfectly reasonable decision, and it could have been easily communicated to unit owners, but it was not. Because of this, a group of unit owners actually started to act against the interests of the association with regard to the report, simply because they did not understand the reason why the board was withholding it. This resulted in months of conflict, acrimony, and cost.”
“Even fairly minor changes, like altering the hours of the laundry room, can create issues for some residents,” adds Axinn. “Any change in policy should first be fully disclosed in a memorandum to all the shareholders at least 30 days before it goes into effect.”
The Perils of Oversharing
Of course, there is a point at which revealing too much information to residents can be detrimental (or just overwhelming), and as such it needs to be withheld for the greater good. A board must know how to walk this delicate line.
“In addition to instances where information cannot be disclosed because of privilege or legal prohibition, there are times when specific information cannot be conveyed,” says Moriarty. “For instance, if the board were in the middle of negotiating a landscaping contract, the board could not divulge to the unit owners its bottom-line contract price because of the risk that the other party to the negotiation would learn that information, and all leverage would be lost. Similarly, if the board were suing the developer for construction defects, the board could not communicate every detail of its settlement strategy to the unit owners for fear that it would undermine its bargaining position in the case.”
“Many owners think that they are entitled to documentation and information that they are not, and that the law actually prohibits the board from disclosing,” adds John E. Leach, a partner with Leach Kern Gruchow Anderson Song, a law firm with offices in Las Vegas and Reno. “I think that the owners need as much education on this issue as boards do. The fact that confidential and privileged records are occasionally produced is further evidence that even community managers and association officers and directors may also misunderstand what records must be provided.”
“How much to disclose and when may, in those instances, be more of an art than a science,” Moriarty concludes, “but the default position for the board should be to disclose as much as it safely can and explain why it cannot disclose additional information. A board that explains where it is in negotiations with another party, how it got there, and what its goals are will then be able to say with some credibility to the unit owners that certain information must be withheld, if only so their position is not compromised. Owners will get it, and will likely be more appreciative and more confident in the board as a result.”
Mike Odenthal is a staff writer/reporter with The Nevada Cooperator.