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Is it Okay for an HOA Board to Run Its Own Construction Projects?

June 5, 2020 / by HOA Manager

construction project conceptDo you live in a community where the HOA board is running its own projects? Are you feeling as if you’re not getting the proper information and updates about the project?

HOA managers are often the face of all projects and correspondence to the owners. This helps the membership to feel secure and helps ensure the projects are run in a professional and accurate manor. Board of director’s have every right to maintain and oversee their own maintenance and construction projects for their property, however, many homeowners are used to having management overseeing these projects and can create some problems. The lack of communication from the Board to management can also create problems.

Conflicts of Interest

Conflicts of interest can occur when a board member’s decisions are influenced by his/her personal interests rather than the interests of the association, which can lead to breaches of their fiduciary duties. Moreover, the director loses the protections of the Business Judgment Rule.

For example: An HOA board member votes to award a landscape contract to a company owned by the director or the director's spouse, brother, son, granddaughter, etc. The award of the contract results in a personal benefit to the director. Such contracts are voidable and understandably why.

Other times board members vote on matters that result in a benefit to them that is not a conflict of interest because the matter also benefits the membership as a whole. For example, if a board member votes to add security patrols to the development, there is no conflict of interest since the benefit he receives from the patrol is the same benefit received by all members of the association.

Potential Liability

Conflicts or potential conflicts of interest, however, do not necessarily create personal liability if:

  • The interested director makes full disclosure of the conflict.

  • There is no influence on the vote. The interested director should leave the room so remaining directors can discuss the issue fully and freely, and take vote without the interested director.
  • It's just and reasonable. Even if the director makes full disclosure and avoids influencing the vote, the transaction must be fair and reasonable as to the association at the time it is authorized, approved or ratified.

Failure to Relay Information to the HOA Manager

There have been instances where Board’s do not relay any information on projects to management and they are left in the dark. The manager will receive calls from owners asking about timelines, completion date, and vendor information and the manager will simply not know due to the information not being relayed properly.

The HOA board has every right to run its own maintenance or construction projects, however; it’s crucial to not have conflict of interest, run the risk of liability, and most importantly make sure the HOA manager is up to date on all projects – including who the vendor is, timelines and project end and start dates. The owners also like to see memos from management regarding the process or updates.

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Topics: HOA Management, HOA Contractors, Construction Projects