Real Estate & Property Law

Can an HOA Manager Be Sued? And What About Authority?

Here is a question from a reader about management and the proper role:

"I have a question about delegation of authority to managers in HOAs. Our HOA never gets legal advice but delegates all/most matters to the manager. For example, if the manager writes a letters with illegal demands, or illegal threats, or accusations to a homeowner without proof, can the manager be sued? It is my understanding that the board would be legally liable, but they don't know all the answers. I don't see how this could be acting with good judgement."

There is a lot of frustration packed into this email. It seems to me that the frustration is focussed on two things: (1) That the owner does not believe the manager is acting with any knowledge of the law and (2) That the board does not know anything either. And so the board maybe gives the manager more authority than he or she should have.

First of all - with regard to illegal demands, it is certainly possible that the manager is making some demands that are not supported by the documents or the law. The truth is some boards do the same. When either party does not understand what is authorized by the documents or law, or what clearly is not authorized, then it can get the association into trouble and YES, the association can be sued and YES, often the manager's contract protects them to the extent the association has to provide a defense if they are sued for something they did that was illegal. Take for example something like inconsistently enforcing the CC&Rs (maybe enforcing against some and not others, or against non board members but not board members). This would be unfair and there have been lawsuits on this very subject against associations (without regard to whether the manager was in charge of the enforcement or the board was). In fact, this has been the #1 cause of breach of fiduciary duty lawsuits in HOAs for a few years.

Managers are not insulated 100% for all acts as there have been some cases where the management company and the association shared responsibility by having a court hold both parties accountable. But most of the time they are. And it often makes sense because the responsibility of the board is to set policy and reasonable limitations on what management can do (such as limiting check writing and spending of HOA funds). And if the board fails in its obligation to set legally correct policies, and commands management to carry them out, should the manager be responsible? Should management be responsible when an owner feels they are being mistreated and sues?

Sometimes managers do things without asking the board or without having the authority. Should the manager be responsible for those actions? Sometimes the board is completely ineffective and the association would fall apart if the manager did not act. If the manager was sued in that instance, should he or she be held responsible?

The answer to all of these questions is that it "depends" on a lot of factors, and it's better not to find out who is held responsible for negligent or illegal acts. It is better to have enough of an understanding of the law (as a board member or manager) to know when legal assistance is needed, such as knowing what California law says about rule setting, imposing and collecting assessments, providing disclosures, distributing information to owners, allowing inspection of records and things like parking and towing restrictions. How better to get this basic understanding than attending seminars and getting educated through publications and the right kind of help.

Check out the Guru website and all the free articles and also the publications in the webstore (now more than 40 items offered on various HOA and Condo subjects). Especially check out the Primers. They contain valuable information gained through my experience, education and participation as an attorney, mediator and problem solver in the HOA industry for more than 25 years.

Full post as published by California Condo & HOA Law on December 15, 2010 (boomark / email).