Perhaps one of the most challenging, intimidating, and without a doubt most significant actions of the Board of Directors is engaging in contracts.  Of course, assistance in navigating the abyss of contract language is one of the roles your community manager/management company can play. (And if it is a large or complicated contract, it is always advisable to have it reviewed by the Association's attorney.)  

Whether it is a service contract for the lawn/snow company, a short and straightforward contract for "time and materials" to do touch up painting, or a multi-million dollar building envelope remediation project, there are a few key contract components to review and understand.

Parties to the Contract - the contract should state the complete legal names, addresses and contact information for all involved.  Typically, the parties include the Contractor and the Association. Important note: the contract should always be with the Association; not the management company. You'll need to pay special attention how your Association is named in the contract. It is vitally important that the legal entity names are 100% accurate. Don't assume you are just "Happy Valley Association." Check the Articles of Incorporation for exact wording. You may be surprised to see that it could actually be something like the "Happy Valley Condominium Association, Inc."

Scope of Work - If an RFP was utilized, it should be all that much easier - but the scope of work should be included (or attached) and spell out specifically what work is to be done. For the Association's protection, the more detail, the better.  Don't be afraid to ask for details to be spelled out.

Compensation - The contract should lay out the total amount to be paid for the project, when payments are due, retainers/down payments (if required) and the manner in which they are to be paid. And once again, the specifics of the legal company name being paid is extremely important.

Time Period - Whenever possible, you should try to get contracts to state a date when the work is to begin and when it must be completed by. If it is a dynamic or complicated project, consider negotiating cost reductions if timetables are not met.

Warranty - The warranty should cover four very basic components:
 
1.) What is covered - materials and workmanship often times being two separate, but equally important coverages.
2.) What is not covered.
3.) How long are the materials and/or workmanship covered.
4.) What is the process and timeline for workmanship or material defect corrections.

Indemnification - It is always advisable to have a clause that states the Contractor will indemnify and hold harmless the Association, and Management company, for damages or fees resulting in claims made against the Association due to the Contractor's work. This should also include legal costs incurred with defending any such claims.

Insurance, Licenses and Permits - Always request to see a Certificate of Insurance before work commences with a Contractor. Also consider putting language into the contract that says all federal, state and local laws, codes and ordinances are applicable.

Termination & Default - The Association should always have a path to terminate a contract, if so desired. Typical and recommended language is "with or without cause" - and often times it will give a specific period of time after giving appropriate notice. This is particularly important for running service contacts - lawn/snow contracts, as perhaps the most common example. The contract should also provide for specific language constituting a default or failure to fulfill the terms of the agreement/contract - and what each party's rights are in a default.

There are certainly other important elements to various contracts and agreements - and by no means is this content a comprehensive analysis of the components we have addressed.  To reiterate, if it is a large or dynamic contract - or even if it just a poorly worded or confusing contract - it is always advisable to have an attorney review.   

Hopefully you have a cohesive and harmonious Board that works collectively to accomplish the duties, goals and tasks of your Association. Many Boards, however, have levels of inner conflict. Conflict can be both good and bad. Minor disagreements on how to response to a homeowner request can lead to some constructive dialog. To a contrary example, major differences in opinion on the philosophy of Reserve savings can lead to passionate debate which can, in turn, lead to destructive attitudes corrupting the group dynamics of your Board.  

Functional Conflict -  An optimal level of conflict can prevent stagnation, stimulate creativity, allow tensions to be released, and initiate the seeds for change.  Often times a Board that has a long period of continuity can fall trap to the "if it ain't broke, don't fix it" mentality. A new member may be elected and that long-standing dynamic is disrupted. We've all seen the eyerolls when the "newbie" ask questions. Embrace it! Fresh ideas and, perhaps inadvertently conflicting opinions, if presented in constructive ways and embraced with open minds, can lead to wonderful things for your Board and Association.

Dysfunctional Conflict - Excessive levels of conflict can, without a doubt, be disruptive and destructive. It will hinder your effectiveness, reduce productivity, decrease satisfaction and increase turnover of your Board. Most commonly it is simply attitudes that lead to conflict. A lack of leadership and unwillingness to collaborate will make opinions become gospel, tensions will then inevitably rise and the Board will become fractured. Here are a few things you can do to reduce this type of conflict buildup.

1.)    Positive Assumptions - as hard as it may sometimes be, assume everyone joined the Board because they want to make the Association a great place. We know there are exceptions, but put positive thoughts first.
2.)    Add Your Full Value - prepare for, show up at, and contribute to meetings. Meetings take a democratic process for a reason. Everyone has a voice and vote. Everyone is of value.
3.)    Empower Others - be the one that enables and encourages others. Not everyone is good at the points mentioned above. Everyone is of value, so help bring that out.

So long as there are people coming together in groups, there will always be some level of conflict. Just remember that a low level of conflict within your Board is not all bad. Embrace the functional type and help rid the dysfunctional kind.

Did you know that Community Associations, as registered non-profit corporations in the eye of the State of Minnesota, are required to file Federal and State taxes?  It is also important to be aware of any requirements of your governing documents for an annual financial review or audit. If you are governed under MCIOA (Minnesota Common Interest Ownership Act), you are required to have, at minimum, an annual financial review. These two components - audits/review and taxes - are done simultaneously.

Financial reviews and audits do differ; however, they achieve the same goal. That is to have an independent, licensed CPA review the Association's financials and the accounting practices of its management company. 

Your property manager and staff at Sharper Management are working hard behind the scenes to provide the engaged CPA firm with all of the materials required. Bank statements, reports, invoices, etc. all must be provided.  

Be ready for your manager to ask for the Treasurer's signature on tax docs.  And lastly, know that it is very common for the CPA to file tax extensions, as reviews/audits are an involved process and can take time.

matt@sharpermanagement.com

Sharper Maintenance