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Q & A
Each month we answer legal related questions submitted by our readers:
Q: I recently was elected to the board of my voluntary association. In the past, some boards enforced the covenants, while others did not, believing that enforcement was unnecessary. What is a board’s responsiblity for enforcing the covenants of a voluntary association?
A: Look to your governing documents. Some associations’ documents remove any discretion from a board by mandating it to enforce the association covenants consistently. Other associations’ documents provide a board with the discretion to enforce by using such discretionary language as the board has the “right” to enforce the covenants. Often this type of document will also grant the owners a “right” of enforcement. However, your board should be aware that even if the documents do not require board enforcement, failure to do so may lead to board liability. This is especially true if your board randomly enforces the covenants without a uniform decision making process.
Your board has a fiduciary duty to act reasonably, in good faith and with the best interests of the association in mind. These requirements might mean your board should adopt a policy regulating general covenant enforcement, which will promote community morale and preserve your association’s property values. Such a policy should provide for uniform and consistent enforcement. For a detailed discussion of covenant enforcement, click here to read: “Successful Enforcement of Covenants, Rules and Architectural Standards/Guidelines."
Q: When should a property manager be bonded by a property management company? Is there a difference between bonding and fidelity insurance?
A: First, anytime a management company deals with the property or funds of another, it should obtain fidelity coverage to protect against theft by employees of the company. Since a property manager is often responsible for writing or signing checks for the association, the management company should make sure to have appropriate fidelity coverage. Although general liability policies often include fidelity coverage up to a certain amount, a property management company can likely obtain an endorsement to increase the amount of coverage. This coverage increase might be advisable for companies with many employees or many associations.
Second, according to insurance professionals, there is no difference between a fidelity bond and fidelity insurance. Either one will protect against employee theft.
* Please email or fax your questions with your name and contact information to: QAcolumnist@ortenhindman.com or 303.432.0999. Due to the volume of questions received, we cannot guarantee an answer.
[PRINTER FRIENDLY VERSION]
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Community Associations Institute
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The Community Associations Institute (CAI) is a nonprofit organization that provides education and resources to community associations. To find out more about CAI visit www.caionline.org
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