Board Should Look at Possible Risks of Legal Action against Association
Byline: Jordan I. Shifrin
For years I have advised my clients to call me with the simple questions before a problem spirals out of control.
Attorneys make a lot more money solving client problems after the client has made a mess of what could have been a simple issue. This is what we call "preventive law."
Associations, businesses and even individuals should regularly examine their business activities to determine areas where they may have exposure for adversarial situations such as litigation or administrative proceedings.
No board of directors of an association can operate effectively without being exposed to some type of risk at some point in time. When viewed properly, these risks sometimes present opportunities, while others place the board and the members of the association in jeopardy.
Before an association can manage risk, it must first identify it.
Risk areas that an association may confront on a day-to-day basis include poorly drafted contracts, outdated rules and regulations, vague procedures, under-insurance, ignoring architectural control violations, uncollected assessments, among others.
The risks mount up as they are an inherent part of operating an association.
The key to avoiding liabilities is understanding which risks represent methodical steps to improving the quality of life versus those which are careless mistakes and oversights which are fraught with disaster.
A thorough risk analysis should be performed on a periodic basic, which is a four-step process.
First, identify areas where there are inherent or potential risk factors.
Second, establish a list of potential consequences both for risks taken versus risks ignored.
Third, prepare a plan of action for identified risks and finally, implement the plan. (Sometimes a board of directors will be doing these things unknowingly because it may appear to be just plain common sense.
However, if there is a more systematic approach, this will not slip through the cracks.)
- Identification. This requires a comprehensive evaluation of all association operations.
The identification of risks involves asking probing questions, talking to contractors and consultants, analyzing documents and testing the rationale for certain approaches.
For example, if a condominium declaration is outdated and has a cap on special assessments of five times the regular assessment and a roof repair program is going to exceed this, a board needs to review its financial picture, check the law and know what information needs to be passed on to owners before a group of dissidents starts to challenge a board's authority and threatens a lawsuit. …