Real Estate & Property Law

Managers Recommending Contractors - Is it Kosher?

As a followup to a very recent blog, another possible issue has been raised by some boards and owners that I should discuss. Some management companies own maintenance companies and some have their own affiliations with maintenance and construction contractors, landscapers and the like. In other words, some management companies benefit by the Association or owners hiring the contractors recommended by them.

Is that legal?

I know of nothing making it illegal.

Must the management company or contractor make that clear to the HOA and/or owners? In other words, are there disclosure requirements?

That is an interesting question because there are disclosure requirements if a corporate (which in California includes most HOA and Condo Associations) board member gains financial benefit in any contract being considered by the Board. If such benefit is not disclosed, the board member has breached their fiduciary duty. However, if it is disclosed, the transaction is legal, and the benefit does not subject the board member to a conflict of interest claim.

With a manager it is different. To the best of my knowledge, there is no legal duty to disclose such an affiliation.

So the question is - is it "Kosher" (or... is it "right")?

"Kosher" (which is really a derivative of "Kasher", which has connotations relating to Jewish food, is defined in Wikipedia (which is more interesting than Websters being a free web based dictionary that gets its definitions from real people contributing their thoughts). It encompasses a broader meaning than just the food-related connotations, including meaning whether the items being described is: "legitimate, acceptable, permissible, genuine, or authentic, or virtuous.

Then I say, with regard to the question of whether it is "kosher" for managers to refer HOAs and Condo Associations to maintenance people that are an affiliate or subgroup of the management company, is it...

Legitimate - Yes - see no barriers in the law
Acceptable - Yes, with meaningful disclosure to those affected
Genuine - Yes, with meaningful disclosure to those affected
Authentic - Yes, with meaningful disclosure to those affected
Virtuous - with meaningful disclosure to those affected

And as a cavaet to all of those, I would have to say, assuming it does no harm to the HOA or Condo Association.

Full post as published by California Condo & HOA Law on February 23, 2009 (boomark / email).