By Alyssa Gautieri
The unit owners’ constant echo of “more transparency” is prevalent in many associations. Some owners have the opinion that they should be presented with every contract before it’s decided upon and be involved in every decision. However, most unit owners don’t understand the amount of research and due diligence that has been devoted to these decisions during many hours by members of the board along with their management teams and professionals. Some unit owners want to be presented with these things in the matter of a few minutes at a board meeting and be given the same authority to decide as those who have done the work and also have the fiduciary responsibility in making these decisions. How can a board uphold the feeling of transparency while ensuring the association is protected, with confidential information remaining confidential?
“Successful boards, in my opinion, don’t keep anything a secret unless they have to,” said David L. Dockery, an attorney at Becker & Poliakoff, in Morristown, New Jersey. “I think a properly functioning board should be as transparent as possible..”
He noted information that should remain confidential includes certain matters, such as litigation-related items, employment contract items, discussions of employee discipline or behavior, and any information that will affect competitive bidding in contract negotiations.
Some states, including New Jersey, have mandatory laws or regulations that require that unit owners have access to view financial records. “I take the position that financial records — like what a unit owner owes — should be private unless a legal requirement dictates otherwise” Dockery said. “At the same time, unit owners have the right to understand the health of the association.”
Dockery said that unit owners do not have the right to see contracts before they are decided upon by the board. However, he said that even though a lot of discussion has to happen behind closed doors for legal reasons, the association should not announce plans for a large project at the last minute. “There should be education and discussion where members are allowed to ask questions throughout the process,” he said.
Unit owners do not get to decide what projects take priority in a community. According to Dockery, a board legally does not need to justify their reasons for choosing one project over another. However, “the board needs to listen to its owners and I encourage as many open forums as the board is reasonably able to entertain,” he said.
Dockery explained that it is the board’s fiduciary responsibility to complete the projects in the order that is best for the association. For example, if there is a water infiltration issue being addressed immediately, and unit owners are calling for a new dog walking area, the board would not be upholding its fiduciary duty to the association if it were to prioritize the dog walking area.
Within some associations, there may be bylaws in place that require certain projects to be approved by unit owners. Capital issues — such as construction of a new club house — may need to be voted on by the membership. According to Dockery, there may be other bylaw requirements that require any special assessment to be voted on by unit owners to fund a project.
When it comes time for the board to select a contractor, the board must satisfy the call for transparency while maintaining the integrity of the bid process. “The theory is that if word spreads about other contractor’s prices, it will squelch competitive bidding,” explained Dockery. “I believe that laws in most states would encourage a frank discussion of vetting out contractors in an executive session which is not privy to the membership.”
“I take the position that a unit owner would be entitled to see a version of a final contract, but they would not be privy to bid proposals or discussion regarding what contractor to choose,” Dockery added.
During the process of hiring a contractor, board members have a duty to disclose personal or business relationships with any contractors being considered for projects. “Your fiduciary duty as a board member requires you to disclose any perceived conflict of interest and some states, including New York, now have certain mandatory disclosures by its board members” said Dockery
While a board does not necessarily have to explain the reason why certain information cannot be disclosed, Dockery encourages the board to respond to all questions with an honest answer — even if the answers have to be general or ambiguous. “I think for a board to be seen as transparent, they need to let unit owners say what they have to say — whether they’re required to actually act on it is another issue.”
Unit owners do have recourse against boards that don’t provide a certain level of transparency, according to Dockery. You can seek legal action to compel disclosure and demand access to documents in accordance with that state’s particular law. In New Jersey, for example, you can also file a complaint with the Department of Consumer Affairs (DCA). However, Dockery said “if a unit owner feels they are not getting the information they need, I think they should first try to work with the board and express their grievances. Boards should be open to working out these differences and whenever possible, even with owners they perceive as difficult.”
Legally any disclosable information is only available to unit owners, which means it should be not disseminated to the general public at large. Although it is difficult to ensure information does not get out to the public, Dockery said associations will either make records available for viewing and copying at the clubhouse or management office, or the association may create an online portal for frequently requested documents, such as meeting minutes, and a copy of the governing documents where only members can log in and view records.