What I Learned As A Director

Q: How does the organization of a corporation like the HOA differ from an ordinary club?

A corporation is a legal entity. It must file an incorporation charter with the State of Florida; it must have a stated number of directors; it must have properly prepared financial statements; it must file a tax return; it must issue annual reports, both with the State and with the members; it must conduct annual elections in accordance with State rules and regulations. In other words, it quite different from a club, which is an informal organization. While many clubs do have charters, they do not have to file their charter with the State, nor are they regulated by the State. Also, many clubs vote by raising hands at a meeting or by yelling out aye or nay; whereas all corporations have a Board of Directors that the members or shareholders elect, usually once a year at the annual meeting. The Board appoints or elects several Corporate Officers to run the corporation. At a minimum, the law requires that at least a president, a treasurer, and a secretary be elected or appointed and that their names be entered into the minutes of the Board. Without these officers, the corporation may not conduct any business or sign any contracts.

Q: What is the purpose of a corporation’s board of directors?

The Board of Directors is a formal body that is elected once a year by the shareholders or members to conduct the daily business of the corporation. It is the responsibility of the Board to negotiate and sign contracts, enforce contracts, see that the property of the corporation is maintained and preserved, collect monies to cover wear and tear of the physical plant and provide for their replacement with depreciation reserves. Once a Board of Directors has been elected the shareholders no longer are involved in the day-to-day operations of the corporation, except to advise the board of new developments or changing circumstances. All meetings of the board must be announced ahead of time and must be open to all members except in limited circumstances. Minutes of the meetings must be taken and later approved by the board and generally be made available to all members or shareholders within a reasonable time period. Likewise, all committees organized by the board must never hold closed-door or unannounced meetings and must always prepare for the minutes of every such meeting held and make those minutes generally available to the membership.

Q: What are the duties of a Board Member?

Aside from the day-to-day responsibilities for operating and maintaining the assets of the corporation — which include the pool, the clubhouse, the gate system, the landscaping, the irrigation system, the streets, roads, and lights, the electrical system, the fences, the dry ponds — the Board has several additional duties. For example, the board must make every effort to see that the corporation operates in accordance with Florida law. The State of Florida has set out some very specific rules that govern how homeowner associations are to function. It is for this reason that every director, without exception, must complete a certification within 90 days of becoming a director. The rule states in part that — A director who does not timely file the written certification or educational certificate shall be suspended from the board until he or she complies with the requirement. — The rule in its entirety reads:

(1)(a) Within 90 days after being elected or appointed to the board, each director shall certify in writing to the secretary of the association that he or she has read the association’s declaration of covenants, articles of incorporation, bylaws, and current written rules and policies; that he or she will work to uphold such documents and policies to the best of his or her ability; and that he or she will faithfully discharge his or her fiduciary responsibility to the association’s members. Within 90 days after being elected or appointed to the board, in lieu of such written certification, the newly elected or appointed director may submit a certificate of having satisfactorily completed the educational curriculum administered by a division-approved education provider within 1 year before or 90 days after the date of election or appointment.

(b) The written certification or educational certificate is valid for the uninterrupted tenure of the director on the board. A director who does not timely file the written certification or educational certificate shall be suspended from the board until he or she complies with the requirement. The board may temporarily fill the vacancy during the period of suspension.

Q: What is a fiduciary duty?

As was mentioned above, aside from the day-to-day responsibilities for operating and maintaining the assets of the corporation — which include the pool, the clubhouse, the gate system, the landscaping, the irrigation system, the streets, roads, and lights, the electrical system, the fences, the dry ponds — members of the board have several additional duties. One of those duties is referred to as a “fiduciary duty.” A fiduciary duty is similar to the responsibility that a banker has to his client or the relationship between a trustee and the person or body for whom the trustee acts. A director has a fiduciary duty to the HOA on whose board he serves. Among those solemn fiduciary duties is the duty to preserve and protect the assets of the HOA.

Q: Who are the officers of the corporation? How are they selected and what are their duties?

A corporation is managed on a daily basis by its corporate officers. The officers of the corporation are elected by the board of directors. It is not uncommon for board directors to also serve as corporate officers, though it is not required that they be the same persons. What is required is that all officers be elected (or in some cases appointed) by the board at a regularly scheduled board of directors meeting and that the election or appointment of said officer be recorded in the minutes of that meeting.

Normally, a corporation has a president, a treasurer, a secretary, and one or more vice presidents. Their duties match their titles. The president is the chief executive officer. The secretary is responsible for maintaining all corporate records in a fashion that meets the legal standard for recordkeeping. The treasurer is responsible for all financial assets and all financial reporting.

In an HOA, as in many corporations, the role of the Secretary far exceeds the simple task of taking notes at a board meeting. Nearly every important contract or undertaking of the corporation must be recorded and/or countersigned by the secretary. Without a legally appointed or elected Corporate Secretary, the corporation cannot execute contracts or carry out any of its official duties.

Q: Explain the financial reporting requirements of a homeowners association.

The Florida statute that governs the operations of an HOA is complex, but it states the following in Section (7):

FINANCIAL REPORTING —Within 90 days after the end of the fiscal year, or annually on the date provided in the bylaws, the association shall prepare and complete, or contract with a third party for the preparation and completion of, a financial report for the preceding fiscal year. Within 21 days after the final financial report is completed by the association or received from the third party, but not later than 120 days after the end of the fiscal year or other date as provided in the bylaws, the association shall, within the time limits set forth in subsection (5), provide each member with a copy of the annual financial report or a written notice that a copy of the financial report is available upon request at no charge to the member.

Q. What is a committee and how does it work?

A committee is a temporary body established by the Board of Directors to research and study a problem and report back to the Board with its findings. Any resident in good-standing who is current in their HOA assessments may volunteer to serve on any committee. At no time, however, may a committee or any of its members spend Association funds or sign contracts on behalf of the Association or conduct official HOA business.

When the Board of Directors needs to focus its attention on solving a particular problem, it can authorize the formation of an advisory committee to study alternative ways of solving the problem and to prepare one or more possible solutions for the Board’s consideration. The committee’s report to the Board is always considered non-binding because only the Board of Directors is empowered to make financial and other decisions on behalf of the HOA.

Most such committees are short-term in nature. For instance, a Clubhouse Security Committee might be convened for the sole purpose of studying the question of clubhouse security and then making a recommendation to the Board for solving that particular problem. But, after the period of study, that committee would normally be dissolved. Even though all committee recommendations are non-binding on the Board of Directors, the committee’s recommendations will be taken carefully into account by the Board before it brings the matter to a final Board decision.

No committee may meet in private under any circumstances. Committee meetings must be announced in advance, just as Board of Director meetings are, with no less than 48-hour public notice. Also, a record of all committee proceedings must be kept and made available to the members. Minutes, for instance, must be taken and maintained and made available to the members.

This Board has in the past allowed committees to meet in private, without notice, and without minutes being taken or posted. This is in direct contravention of the rules governing HOA administration as stated in the Florida statute under section 720.303 (2) (a). As stated in Chapter 720 of the Statute, the provisions of this subsection apply to both meetings of the board as well as meetings of any committee.

(1) Members have the right to attend all meetings.

(2) The right to attend such meetings includes the right to speak at such meetings with reference to all designated items.

(3) Notices of all meetings must be posted in a conspicuous place in the community at least 48 hours in advance of a meeting.

(4) Minutes of all meetings of the members of an association and of the board of directors of an association must be maintained in written form or in another form that can be converted into written form within a reasonable time.

Q: What does Florida law say must occur when a development is turned over to a homeowner’s association?

At the time the members are entitled to elect at least a majority of the board of directors of the homeowners’ association, the developer shall, at the developer’s expense, within no more than 90 days deliver the following documents to the board:

(a) All deeds to common property owned by the association.

(b) The original of the association’s declarations of covenants and restrictions.

(d) A copy of the bylaws.

(e) The minute books, including all minutes.

(f) The books and records of the association.

(g) Policies, rules, and regulations, if any, which have been adopted.

(h) Resignations of directors who are required to resign because the developer is required to relinquish control of the association.

(i) The financial records of the association from the date of incorporation through the date of turnover.

(j) All association funds and control thereof.

(k) All tangible property of the association.

(l) A copy of all contracts which may be in force with the association as one of the parties.

(m) A list of the names and addresses and telephone numbers of all contractors, subcontractors, or others in the current employ of the association.

(n) Any and all insurance policies in effect.

(o) Any permits issued to the association by governmental entities.

(p) Any and all warranties in effect.

(q) A roster of current homeowners and their addresses and telephone numbers and section and lot numbers.

(r) Employment and service contracts in effect.

(s) All other contracts in effect to which the association is a party.

(t) The financial records, including financial statements of the association, and source documents from the incorporation of the association through the date of turnover. The records shall be audited by an independent certified public accountant for the period from the incorporation of the association or from the period covered by the last audit, if an audit has been performed for each fiscal year since incorporation. All financial statements shall be prepared in accordance with generally accepted accounting principles and shall be audited in accordance with generally accepted auditing standards, as prescribed by the Board of Accountancy, pursuant to chapter 473. The certified public accountant performing the audit shall examine to the extent necessary supporting documents and records, including the cash disbursements and related paid invoices to determine if expenditures were for association purposes and the billings, cash receipts, and related records of the association to determine that the developer was charged and paid the proper amounts of assessments. This paragraph applies to associations with a date of incorporation after December 31, 2007.