Argo Real Estate: The Transition

THE BIG PICTURE

Boards normally look within the property to find people who they feel can contribute to the projects they plan for the next several years. The problem is that some of the new board members don’t fully understand their roles and how to deal with the other board members, the management company, and the residents themselves.

To give you an example, some of our recent experiences involved board members who come from professional backgrounds: architects, engineers, designers, and attorneys who have decided that they want to get more involved in the day-to-day operation of the buildings. These board members have taken it upon themselves to get involved in reviewing common areas, basements, boiler rooms, elevator motor rooms, and in some cases even apartments, to follow-up, inspect, and direct the work that’s being done by private contractors.

BE SMART

This practice is not always welcomed by the residents. Sometimes, these board members enter apartments to investigate (the residents will usually ask them to leave). Other times, they will interfere with professionals working in the building, such as plumbers and electricians (often giving them the wrong advice). Then there is the superintendent, who is responsible for protecting the residents and the building and who is put in the unfortunate and uncomfortable position of having to ask a board member to cease and desist.

While this can be confusing and embarrassing for everyone involved, an even more serious situation could occur: the directors and officers liability insurance policy might not cover some actions by the board. I’ll give you an example. We had a situation occur during the painting of the lobby. Outside contractors were brought in. The board member who was an architect and had a lot of experience in renovating apartments decided to take control of running that project. At that time, he was there every day, supervising and instructing the contractor, commenting on what he was doing, how he was doing it, and where he was going to work. He even directed where drop cloths should be placed.

A short while later a resident – not aware that they were painting the lobby – tripped on the drop cloth and fell. He then sued the contractor for putting drop cloths where they could be hazardous. The insurance company came in to investigate the loss, and the contractor claimed that the direction to put the drop cloths there was given by the board member. The insurance company then refused to cover the board member because his actions were considered to be outside what would be usual and customary.

Besides liability, board members ultimately have to respond and answer to the shareholders or the unit-owners. How does that board member continue to be effective if he or she is being called out for being contrary to what’s in the best interests of the building?