 Aloha and welcome to another edition of Condo Insider. Our show is on Think Tech Hawaii every week Thursday at 3 o'clock to 3.30 and we discuss hot topics in our industry for our boards of directors and our homeowners so you understand more about association living. Today we're very privileged to have with us a guy I consider one of the gurus of association living in Hawaii, Attorney Richard Acomodo. Welcome to the show Richard and tell us about yourself. Well thank you Richard. I'm an attorney. We represent primarily homeowners associations, condo associations, co-ops. I've been doing this for over 30 years now and something I enjoy doing and I think we do a pretty good job of it. And how about your firm? Tell me about your firm. I mean lawyers you have. We have 10 attorneys. My law partner is John Morris, he was the first condominium specialist in the state of Hawaii so we have a lot of experience, a lot of attorneys involved in this. And weren't you on some special committee at CAI like the national legal committee or something that you represented for the entire United States? Weren't you on a special committee for CAI for a while? Yeah, I've been on several national committees for CAI. I've been on the board of trustees for CAI. And I've been vice president, I was chair of the government and public affairs council for CAI nationally. So a lot of different things, a lot of different hats with CAI. So since boards never make any mistakes and they're always right, you probably don't even have this show. We should just go get a glass of wine. But... Well that sounds pretty good actually. I know you and I are both aficionados of wine. I tell everybody I listen to whining all day so I do red whining all night. It's kind of my motto. That's a good motto. Anyway, obviously boards are volunteers. That's a tough job in a lot of ways because they come from all walks of life and I'm sure you've seen from your experience situations where, you know, boards kind of struggle. You gave a seminar a couple of years ago I attended that was entitled The Seven Biggest Mistakes That Board of Directors Make. I am announcing a show called The Seven Deadly Sins but you didn't like the word Deadly Sins. And why didn't you like my Deadly Sins? Well I just said it seemed kind of presumptuous of me to say that I'm going to condemn board members to internal damnation for mistakes that they might make during the course of their tenure on the board so I kind of just like a more low-key approach to that. I think Biggest Mistakes is probably sufficient. Yeah, I think that's the point. So you said The Seven and we have a short show of 28 minutes. Let's just go through The Seven and briefly discuss because these are recommendations to the board. Things to avoid, things to watch for to run a better association, run a better board meeting. What's mistake number one? Mistake number one is to make sure that they have the authority to act. When boards do a formal resolution, the first paragraph they're supposed to put in or the first thing they're supposed to put in the first paragraph of that resolution is the authority to act. The reason for that is to make sure that they've consciously gone through the process of deciding that yes they in fact do have the authority to act. So in essence you know they don't have unilateral rights to do whatever they feel like. They have to have some authority. Where does that authority come from? It's going to come from you know state statutes, it's going to come from the governing documents, the deck, the bylaws, articles of incorporation. Some document like that it could come under case law but those are the main areas where they're going to find their authority to act. And so presumptuously they have the authority to act and what they should need to do in a board meeting is pass a resolution approved by the majority of the board of directors to conclude and to publicize the fact that this is what they want to do. In fact that's kind of a problem that some directors have. They kind of think that because they've been elected to the board of directors they have this authority to do things and in point of fact you know directors have almost no authority as individuals. They have to be acting as a board, at a board meeting and a majority of those present have to make that decision. And there's some exceptions to that rule but they're kind of limited. You know officers will have certain powers because they're president or secretary or treasurer. But for the most part directors have no power except at a board meeting. So board members shouldn't be leaving the meeting and going out and doing their own things and giving direction and telling people what to do. Right unless they've been authorized by a vote of the board at a board meeting to do that. This is a little bit off our topic but I try to cement this in every one of our shows that I have that opportunity. At these board meetings do owners have the right to participate, discuss a resolution before it's approved? Well definitely they're allowed except for executive session type of things where they're discussing you know legal advice or potential legal litigation or personal matters. Owners are entitled to be there and they're entitled to participate in the discussion unless a majority of the board votes to close discussion to owners. Now I bring that up because one of the number top two complaints I've been told by RICO is that owners are told they can't speak at board meetings but they're told they only can speak in the forum which we both would probably agree that's not correct. They should be given an opportunity although the board could limit the amount of debate time and they could have forgotten necessarily because the agenda discontinued a participation but that shouldn't be the rule. The key is transparency and let people be heard and be speak because it's their money and their maintenance fees and their property. Fair enough? Fair enough. Okay so they have to have the authority to act. What is mistake number two? Well mistake number two is failing to follow the advice of their experts and you know because they're lay people the law doesn't expect them to know everything but if they don't know something they're expected to ask and find out and in fact in the non-profit corporation act there's a specific statute that's referenced in the condominium statute that that deals with the standard of care of directors and one of the provisions there deals with when or specifically deals with the situation of directors being able to rely on the advice of experts that they reasonably believe are qualified to talk about or provide advice about the subject matter and that's kind of I guess a subset of a mistake number two which is sometimes they don't go through the process of making sure that the expert that they're listening to is in fact an expert on the topic that they're opining on. So is it fair to say that if you're a board member and you have an expert who tells you I'll make this up that the four-story walk-up in Waikiki that the stairs are going to fall down and kill someone and you as a board elect to say I don't think you're right I think those stairs will last another hundred years that the stairs did fall down and kill someone there could be some personal liability issues if they didn't follow what I call business judgment or their experts advice. Yes there could be some I mean there's a lot of facts that go into liability but yes there could be a problem there assuming that the person who gave the advice was in fact an expert. Yeah well I'm thinking even further is another example that someone says your pipes are failing and you have an environmental disaster and you decide not to fix the pipes and now there's a 20 million dollar environmental disaster if those owners were upset the probability is they might sue because the cost is burned on end that I don't feel personally the boards have a free ride because we're a board member the statute that if they just ignore professional advice or common sense that they can get out this totally scot-free and not that all these facts don't affect this but the reality of it is there is some risk if you don't do the right thing. Yes definitely so that's why we tell them. Number one make sure you have the third act number two since you have to act and you're a layperson listen to experts make sure your experts are qualified when you listen to the experts what's number three. Number three is kind of what we talked about earlier allow owners to provide their views and say you want them you know they have a stake in the whole process and to just ignore what they say is not a good idea now you don't necessarily have to do what they want you to do but you definitely should let them have their say you should listen to what they have to say if what they have to say is relevant and important you should act on it. So in that particular case when you I'm really into transparency with the owners of being respectful and we all know that sometimes you have some that forgive me for saying it may have come to the meeting with a little bit too much adult beverage and who really just have their own personal agenda they want to get into an argument with the board and so there's an appropriate way you need to control the meeting get your business done so you want to be able to let them be heard have a chance to speak but it's not uncommon for the board to say well thank you for your your initial conversation or your initial recommendations we have to move on now and take the vote or move on to the next agenda item you can't let them hold the board hostage because they've got this particular thing but all my experience has been that when you tell the owner indirectly he's not important anymore you don't care what he has to say you're the elected board and almost always backsfires on you it creates more time more money more energy that you just listen to them and let them get it off their chest right and they might be right they might have a good point that you need to consider and so it's a good idea to listen to them okay so we've got a third act follow the expert make sure you're transparent that the owners have a chance to speak to view what's number four well some directors unfortunately undermine decisions of the board and I'm a big proponent of democracy and part of the reason why I like community associations it's very it's democratic at the lowest or one of the lowest levels and but the concept of democracy is first you know people have a right in order to make those decisions people have a right to comment on it but secondly it's a majority decision and once a majority you know of the board makes a decision that's the decision I mean you shouldn't take it personally you shouldn't try to use it to manipulate you know your personal goals it's just a decision and the fact that people don't agree with you a majority of people don't agree with you doesn't mean that they're necessarily wrong it just may be that they have a different approach or a different view of it and kind of have to accept that you know I think the democratic side of this because we see that in federal state every former government there is different agendas different points of view that the problem I see with boards is exactly what you're saying they'll have a vote it'll be five to two in favor of doing something and one or two of the board members then goes out to the rest of the community and starts saying how stupid the other five people were and they were right and everybody were wrong and and frankly I see it somewhat exaggerated at times I see it somewhat not factual at times because they're all worked up about that and frankly it's a total destruction of the community that common ground you need of leadership you can say certainly the truth which is I disagree with the board but we all we're all this is what we're gonna do and get behind the project to make it work is is is instrumental in making sure the association runs as a happy association because as soon as you get that infighting the politics of it all the goodwill of living there kind of seems to dissipate becomes the reason of days and the haves and they have not sort of the blues versus the whites or whatever it may be you know I mean there's a definite difference of letting people know that you might not have agreed with it and actually actively undermining the decision and I think that's like you said very destructive and it ends up costing the association a lot more money by doing that I think sure I can see that because what's gonna happen is that first of all you get people taking more of your time people file mediations that based on things that just aren't factual and accurate and but more importantly it makes undermines all the other decisions that may be made it's not just that one decision it undermines the whole connectivity of that board to the association that certainly right everybody has a right to disagree and not say I don't agree with this but I support it still you know and kind of an old military thing and he could disagree with your commander but at the end you better salute move forward and indirectly a little different it's still the same principle applies you know okay so what we're gonna do Richard we're gonna take a quick break for a minute let's just recover our senses and look for the bottle of wine and we'll be right back with Richard Aloha we invite you to join us on our keys to success show which is live on the thick tech live streaming network series weekly on Thursdays at 11 a.m. my name is Danilia D A N E L I a and I'm another half of the duo John Newman our goal for keys to success is to provide a platform for professional and personal development tools and profound insights on how to achieve success in life career and all business we have incredible guests from all walks of life including politicians successful business owners leaders entrepreneurs and authors as this is a live show there are live mess ups as well which are fun to watch Aloha and we'll see you on Thursday for a very healthy summer watch Viva Hawaii we are here live on Mondays at 3 p.m. and we bring guests like our best health coach Elena Maganto eat well and follow her tips Viva la comida saludable welcome back to condo insider we're sitting here today talking with Richard Ecomodo about the seven biggest mistakes in his opinion boards make I call them deadly sins but he prefers the seven biggest mistakes because we don't want to annoy anybody with such such persecution I guess for the seven deadly sins but Richard being a long-standing industry professional over 30 years and me also being an issue about that long we see regularly boards get too emotional about the things and look at basic rules and how to run their meeting successfully I do want to take a minute to remind everybody you're welcome to join our conversation by calling our hotline at 415-871-2474 if you have a question we'd be happy to answer it so back to Richard we are talking about the seven biggest mistakes we've gone through mistake number one which is basically does the board have the authority to act just because you're the board doesn't mean you can do anything you want law and your governing documents will narrow what authority you have as an association as a board of directors number two you want to follow your experts advice you know biggest mistakes can be if experts are telling you there's a problem and you choose to ignore it for financial or other reasons you could be exposed in the association to bigger costs in the future or even in some rare cases liability to the board members then you had most employee dear to my heart is allowing owners to speak their views of board meetings the statutes very clear they have a right to participate in the deliberations boards can't set meeting rules to say you can only talk the first five minutes of the meeting you want your constituents the people who elected you to be heard and have a right to be speak their opinion even though you may not agree with it you may choose to do something else by one of the most important foundations and fabrics to our industry is let our owners be heard and then the fourth we were on was undermining the decisions of the board were one or two board members may at the end of the meeting where seven voted one way and those two were against it they go out into their into the industry into the association and argue and undermine the board kind of reflecting they don't know what they're doing and they're wrong I didn't consider whatever this undermines the entire fabric of goodwill within a community democracy is a wonderful thing we have to respect the fact that the Democratic majority will make a decision when running an association and that kind of brings us up to circle full circle for the first half of our show and so there's seven big mistakes we're deadly send the level protocol so I'm gonna ask Richard now at number five what is number five number five is failing to make a decision you know sometimes boards get so caught up in in the the decision and all the sides that they're hearing and they just kind of punt and there's two problems with that one is they've been elected to make a decision and secondly by not making a decision they really are making a decision they're basically making a decision of no and so which is okay if they actually believe that's the decision they should make but they should go through that process and actually make a decision on things that are before them you know it's one thing to take some time to make sure you have all the information all the opinions of your members it's another thing to just you know just abandon your responsibilities by not making a decision and depending what the issue is I can understand and more fluffy stuff that they want to again discuss it the color of the building we're going to paint next week it doesn't have much impact but sometimes these decisions affect future costs it could be a bigger and more expensive repair if they delay it I see boards a lot of times focus their decisions only on the money not on whether the need exists to fix something and by delaying it you know that pushes them into even maybe more expensive down the road by not addressing things as it comes up you know that one might be number eight you know so I mean it's it's it's boards have to at some point in time take all the issues get all the facts listen to the appropriate people maybe an expert at some point in time they have to make a decision and the decision can be no but to just let it continue from meeting to meeting to meeting doesn't really make you a better association and I know your number seven will deal with why sometimes they do that but we will we will go through that so let's talk about the next one number six it's not understanding what contracts are and it's you know they're for the most part they're laypeople they don't necessarily need to understand all the nuances or the legal principles of contracts but they need to understand some basic things about contracts and the first one that we see a lot is you'll see a vendor provide a proposal to the board and then they say okay we like that proposal they go ahead and they sign the proposal accepting it and then later on they come to us and say can we get out of this and a lot of times board members lay people don't understand that by signing that proposal they probably bound themselves to a contract because the only or the major requirement or actually the only requirements of a contract is you have two parties you agree to either do something or refrain from doing something and if you promise to do that that's a contract and you know the same thing to me and I used to say this to boards and I'll give you wrong but I used to say to boards if you want to accept that proposal because you know there's going to be some other costs accept the proposal subject to the contract being executed and subject to the attorney associations attorneys approval so therefore you've given good faith to the vendor yeah I want to pay you twenty thousand dollars for this work subject to us having a written contract which is going to deal with all the warranty and hold harmless and indemnity issues and things like that and subject to that contract being approved by the association at the attorney so in some ways you've approved a proposal but you've put conditions on that approval to give you a chance to have the attorney look at these things and to ferret out some of the less consequential to the board anyway issues but to me warranties and and hold harmless these types of things and sometimes there's liquidated damages provisions where you know if you've canceled the proposal that you may have to pay them a hundred percent of the value of the contract in a poorly written proposal you know well I mean typically I mean not all vendors do this but I'll you know some vendors do it they put in all the terms that are beneficial to them in in the proposal in the fine print on the back of the proposal sheet and if you sign off on it without doing something like you suggested they can be bound by those provisions yeah because I find a lot of times vendors don't want to spend the money to write a contract and do things unless they have some of these good face statement that the boards want to proceed that the money is not the issue they're willing to pay but of course you know even when you agree to pay there's hidden conditions and things they have to be carefully addressed to I mean we see that most common and not misunderstanding the boards they'll sign a contract to do spalling repair and there's an estimate that the cost of $100,000 but if you really read that contract it's really time of material you know no spalling contractor can really give you a fixed bid contract unless you really narrowed that scope or where they're going to work they're a very specific item and or if you pay a lot a lot of money so that they know that there's enough money in there to cover yeah so I think certainly because one of the questions we had at the last week's show that Jane Sugimur was on the show and she gave a general answer but I may ask you the same question because we had a call in or a person asked about it and the question was does every bid the whose contract association board awards does every one of them have to have a contract well everyone has ultimately becomes a contract it may be a verbal contract if they don't sign it but they have an understanding we don't normally recommend verbal contracts because that's how you get into arguments over what was agreed upon if they just sign the proposal that's going to be a contract all a contract is is both sides promise to either do something or not do something so you can promise to pay $100 or a settlement is a contract it could be I promise I'm not going to sue you for this claim so those are that's all that you need to have a contract is promises to do something or not do something this particular case I believe was the owners questioning the board's judgment that when they approved a proposal for about $500 to fix the dry rot on a wood fence that leads to the pool and they just use the proposal and they didn't go to a formal contract with their lawyer that particular owner was questioning whether that was necessary and of course based on those limited facts it's really hard to hard to answer what all the issues are but to me I would say that it's fairly common industry that uncertain minor work that they accept proposals when there's not really much at stake and yeah I think as with a lot of things you're looking at what the risk is and one of the factors is if it's a really you know low contract amount the risk is going to be lower now that's not always the case because you could have you know a really low contract amount but it involves say window washing on a high rise so the risk is really high because of the nature of the work but what you're really looking at is what the risk is and depending on the risk you may decide that you don't need a big contract a long contract to deal with it one of the things I see related but not identical thing is that I've always told boards use license to contractors because and avoid what I'm going to call independent contractor relationships where all of a sudden you have that minor repair for seven or eight hundred dollars or a thousand dollars and you just pick some neighbor or owner or resident there and you put them under this quote he's an independent contractor even though he's doing the work every month for $500 a month you know and and I've warned them you know as soon as that person let's say falls off the ladder and he breaks his back he can never work again although I don't know I seriously doubted the attorney's gonna say we signed independent contractor agreement and so you don't have to pay anything yeah it's you know whether someone is an independent contractor or not is not determined by what you call them or what they agree to there's a whole bunch of factors that the courts look at to determine whether someone is an independent contractor you want to be very careful with that because okay we're down to our last minute of the show and we have the seventh the big seventh biggest mistake and that one is when you have a meeting and you hear people come in and talk to you don't assume that they're necessarily speaking for the majority of the owners don't tell them that you know that we don't think you're a majority of the owners because what they have to say you should evaluate on what they have to say not how many people that are involved with it but there's a chance that you know the other 80% of the owners out there who aren't in the room disagree with those people and so you need to make your independent judgment based on what you think is in the best interest of the association and a lot of people are very quiet they may not express it the board at the end needs to evaluate all the facts make a decision and and just be good stewards for their for their association that's what they were elected to do so so I want to thank you for being here today I always find it interesting and educational talking with you we look forward to all of you coming or watching condo insider next week we're going to talk about construction litigation but again thank you for watching condo insider and thanks Richard Ecomodo for being here aloha