Does HOA have too much $$?

Q: What is the maximum net equity an HOA should carry? We are in excess of $80,000 which I believe is far in excess than we should have. Is there a state statute that addresses this amount?

B.E., Stuart

A: The net equity is nothing more than an accounting entry. It really has no cash value but it is an entry that’s carried from year-to-year and may be adjusted from year-to-year. You would need to consult with the association’s accountant or CPA as it may have an IRS requirement.

I am not sure what type of accounting method is used for your annual reports. It may have some legal consequences if your association were involved in a lawsuit. Since it has no cash value it should not have any concern to involve the financial records of the association. I do not recommend that it be eliminated on the financial reports but I have known associations to zero out this account entry. Your CPA who prepares tax reports would have a better answer than I can provide for your association.

Q: After soliciting three landscape bids, our board of directors signed a four year contract with a landscaper. It was a renewal and extension contract with the current landscaper who had been working here for years. Shortly after the new contract was signed another landscaper provided a bid that underbid our original landscaper.

The president said he was required to present the new proposal to the board. The board voted to cancel the first contract and signed with the lower bid landscaper.

Was it legal to consider new bids? It is my belief that the president exceeded his authority in reopening the bidding process and should have told the new landscaper that he would notify him when the present contract is about to expire. Did the president break the law or just a promise?

E.M., Miami

A: Keep in mind that I cannot provide legal advice, but here is my opinion: I do not believe it is a violation of law but it is a violation of business principles and can result in civil action as the first contractor may have had the right in his contract to sue for damages in the event the contract is canceled without cause.

Since I do not have the details of the transaction or contracts, I cannot provide a final answer except to speculate that if the first contractor was in violation of the terms of the contract or whether due to other improper actions the board may have had a right to cancel the first contract.

I have often warned boards that the lowest bid may not be the best for the community. It may be that the lowest bidder may not carry proper insurance or may pay under the table to avoid paying payroll taxes, etc. The very short answer is that the board may be operating on thin ice subject to a lawsuit from a breach of contract.

Q: I am a past president of my HOA and I have two questions that I am hoping you will be able to answer: 1. How long should board and annual meeting minutes be kept? 2. Are proxies sent by e-mail valid?

K.J., Miami

A: Board meeting and annual meeting records and minutes should be retained for seven years. Annual meeting election results are only required to be maintained for one year. Do not confuse minutes and meeting records with election results.

As to email proxies, legal entities in the government are recognizing more and more electronic transmissions of documents. I would then assume that if the email is sent with an attachment of the proxy properly executed, the attachment could be used. Facsimile proxies have been counted in the past and I see no difference between a fax and an email attachment. The problem with such communications is that the original proxy form must be used. A properly prepared proxy must be drafted by an attorney and includes certain legal language. A redrafted email may not contain the necessary language and therefore the proxy should be copied and attached. The only problem I see is if there is a challenge that the proxy is not properly executed. Ballots, on the other hand, may not be electronically transmitted as they must be returned in special envelopes.

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