By Curtis G. Kimble.
One issue we see is the question of who can act for and on behalf of the association. Who can bind the association to a contract? Who can spend the association’s money?
These questions may come up frequently or infrequently in an association, depending on how well the board and members understand who has the power to direct the business and affairs, and exercise the powers, of the association.
Homeowners associations are representative governments and are governed by a board elected by the association members (unless otherwise stated in the governing documents). The board is entitled to exercise all powers of the association except those specifically reserved to the members.
As the Utah Revised Nonprofit Corporation Act puts it, “all corporate powers shall be exercised by or under the authority of, and the business and affairs of the nonprofit corporation managed under the direction of, the board of directors,” except when governing documents or a statute expressly require approval of members.
Does that mean unanimous consent of the board is required to act? No, if a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board.
Does that mean a homeowner can’t take action on their own to enforce the governing documents? No. A homeowner won’t have all of the remedies that the association will have, such as fining, but generally, the covenants are not just between the homeowners and the association, but between the homeowners themselves. So, as the Utah Condominium Ownership Act states, failure to comply with the governing documents “shall be ground for an action to recover sums due for damages or injunctive relief or both, maintainable by the manager or management committee on behalf of the unit owners, or in a proper case, by an aggrieved unit owner.”
The President and Other Officers.
But what about the association president, doesn’t he or she have the authority to bind or act for the association?
Not necessarily. Officers, such as the president, must understand that they do not acquire any special power when they are elected or appointed to their position. Each officer, including the president, only has the very specific authority and power (if any) given to that office by the governing documents or by the board. In other words, each and every decision, no matter how big or small, must be made by a majority of the board unless decision making authority as to a specific issue has been given to an officer.
Consequently, if a board desires that officers or a manager have certain authority, it is important to specifically grant and define that authority. If the board wants to enable the president to contract for minor repairs without advance authorization, it should adopt a resolution to that effect. For instance, many associations allow their managers to contract for repairs or buy supplies so long as they spend less than $500 or $1,000 at a time, or allow the president to work with the landscaper and authorize necessary landscaping repairs or work (replace a shrub here, repair sprinklers there, etc.).
In acting for the association, what standard are directors and officers held to?
The Nonprofit Corporation Act, as well as common law principles, requires a director or officer to discharge the director or officer’s duties:
- in good faith;
- with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
- in a manner the director or officer reasonably believes to be in the best interests of the nonprofit corporation.
The third standard requires that a director or officer put the interests of the association before their own interests, which is sometimes a difficult requirement because of simple human nature. Consequently, every director and officer must be diligent in remembering that their own needs, motivations and desires (or lack of motivation or desire), cannot play a part in their decisions as directors or officers.