Condo Line: Board wants to ‘invest’ our money

Q: Our board asked our lawyer to write up a draft of a proposed change to our depository requirements in our bylaws. In essence it deletes the word “Bank” and replaces it with the words “Financial Institution” — giving the latitude to our board to place our money in investments such as bonds, which is already being done.

But the board knows it is in violation of our existing bylaws and wants to validate their actions. Three times they have placed on their agenda an item stating they planned to vote on whether to put the question of amending the bylaw out to the members for approval. The board has never voted on whether to approve the bylaw nor did they put the text of the bylaw amendment in their agenda. Twice they sent this question to the members for approval but on the first occasion it did not pass and the second time they neglected to include the bylaw amendment text and it was declared an improper notice.

Now it has been sent for a third time and is awaiting approval. A letter from our law firm stated “If the Board approves this amendment, it should be proposed at a meeting of the board. Thereafter, a resolution adopting the proposed amendment must bear the approval of not less than a majority of the board and a majority of the members.”

My question is this: if this entire process started with our board not placing the text of the proposed amendment on the agenda of their meeting would that not constitute improper notice?

MK, Miami

A: I cannot provide legal advice, but apparently your attorney has not advised the board of their responsibilities and fiduciary duties involving the association’s finances.

The board’s fiduciary duties are to protect the assets of the association. Nowhere does it say that the funds of the association should be used as an investment or speculation. In other words, they do not have the duty to seek the highest return on the funds but to preserve the funds.

What you are describing is that your board is using the association’s funds in an attempt to increase their returns.

Let me give you a quick short lesson on bond. Buying bonds is essentially lending money in the hopes that you will then have a return of the principal and earn a percentage on that principal.

But what would happen if the bond market dropped? A strong possibility would be that the principal would be reduced. That means the board has lost some of the association’s money. There is no way that the board can guarantee the return of the principal. Over many years the state has urged boards not to speculate with the members’ funds.

Q: Our condominium board has done an audit of our utility services. We have found errors in their billings. We have communicated our findings to the utility companies without success in correcting and crediting back their billing errors. We forwarded the information to the [Miami-Dade] County Commission with the hopes that it will force the companies to ensure proper credits.

I write you this as a recommendation rather than a question. I wanted to inform all boards to check and verify that they are being billed.

EA, Miami

A: Sometimes your utility companies apply incorrect rates and sometimes their meters do not read correctly. It is a wise thing to have all billings, not just utility companies, checked.

I have found utility rating error was the primary reason for faulty utility billings. I also have found meters that were incorrectly reading the usage. Most utility companies will work with you to confirm that their meters are properly operating and some will provide a representative to discuss lower rate cost.

However, you need to keep in mind that there are two sides to this situation. In one case the electric company found a meter that had been incorrectly reading the electrical use in the common areas. Unfortunately, it was reading a lower usage of electricity for the common area. Their investigation showed that we were under billed for 10 years.

After confirming with the state that they could back-bill for the faulty meter readings, we negotiated to pay for only the last two years. At the same time, the electric company made suggestions to make our condominium more energy efficient. In doing so, we reduced our electrical consumption several thousand dollars, which made up for the errors in the meter reading shortages.

The short answer is that by verifying the information and making energy reviews and inspections, you can reduce your utility bills.

Q: Our property manager is eager to replace our 17-year-old concrete tile roof at a cost of $180,000. We have spent $5,000 in each of the last three years repairing leaks.

We calculated the Roof Reserve on the roof lasting 25 years (8 more years). Do you have any experience on cost/benefit on such a major expenditure?

JH, Stuart

A: It is the board’s decision not the manager to replace the roof. However, the manager has a duty to recommend to the board when necessary repairs are required.

What you need to do is have a qualified roof inspector determine whether a new roof is required. The roof replacement should not be determined by your reserves.

If the reserves do not have enough money then past budgeting was incorrectly calculated. Seventeen years for a tile roof seems a little too soon for replacement. However, it could have been incorrectly installed or maybe damaged in past storms that have caused the roof to deteriorate sooner.

Your board is responsible to make the decision. They need to seek qualified inspectors and what they recommend. Most managers do not have the necessary qualifications to render a final inspection, but they can suggest to the board the action required for common areas and the essential repairs or replacements. If required, the board can use a portion of the reserve for roof and then pass a special assessment for the remaining balance.

Q: Our condominium association has a rule requiring that all window coverings show white to the outside. This rule was put in place to eliminate the use of flags and such for curtains.

The new board president says we do not have the legal right to regulate the color of anything inside the unit. Do we need to remove this rule?

DW, DeLand

A: This is a document question. The board should review the documents to see whether they have any restriction on window coverings. If the rule you are talking about was a board rule, the board has a right to change this rule enforcement at any time. Board rules and policies can be changed at any meeting or by any future board.

Here is a short lesson on how to promulgate rules. There should be a specific need to create a new rule. To make a new rule just because someone thinks that there is a need to pass a rule is not justification. Unnecessary rules create too many complications and result in undue backlash.

The first step is to determine whether we have the power to create the rule. Second step: Define the problem. Step three: Ascertain if a new rule is necessary. Step four: Determine what results are desired. Step five: Determine if a new rule will conflict with an existing rule or other provisions of the association documents and statutes. Step six: Determine that the rule will be reasonable and not arbitrary or capricious. Step seven: Determine whether the rule will be enforceable and what powers will be required to enforce it. Final step: To get the members involved in creating the rule, you must get the members of the community involved in all phases of the rule-making process.

From the information provided, it appears that the board did not have the power to make and enforce this rule. It does not appear to be a problem for the condominium but was a concern of certain board members. If this is true, this was not a valid reason for such a rule.