Appeared in Newsletter for Southern Arizona Chapter Community Associations Institute

The main difference between a self-managed and a professionally-managed Association is that the Board of Directors of the former has a lot more work to do. A Board member of a self-managed Association (like all other Board members) needs to be aware of his or her legal duties and needs to be willing to ask for outside help, when necessary. The 1999 revision of Arizona’s Non-Profit Corporation Act has codified the general standards of conduct for a director (A.R.S. §10-3830). Basically, a director must discharge his or her duties “...in good faith, with the care an ordinarily prudent person in a like position would exercise under like circumstances; and in a manner the director reasonably believes to be in the best interests of the Association.”

The statute states that a director is entitled to rely on information and opinions presented by legal counsel, public accountants or any other professionals that the director reasonably believes is necessary. A director may also rely on one or more officers or employees of the Association, who are believed by the director to be reliable and competent in the matters under consideration. However, a Board members, who is a professional or has some special knowledge, needs to be careful in rendering advice to the Board because he or she could be held to a higher standard. For example, if an attorney is a member of his or her Association board and acts as legal counsel to the Board, if a claim is brought by an Association member that the Board acted improperly, the attorney/Board member, could be held to the standard of a practicing attorney, rather than to the standard of a volunteer Board member and, therefore, could be found to be more liable for an improper action than the other Board members.

Thus, a self-managed Board should consult with outside professional whenever necessary. If the roofs of your townhome association need to be redone, it might be prudent to have a roofing consultant create specifications for the bidding process. If the Board is considering a purchase of adjacent property to expand common area parking, a legal opinion should be obtained to assure that the Board is aware of all of the procedure requirements for purchasing additional common area. If your Association will be compensated by the developer for construction defects in the common area, consult with an accountant before accepting a settlement to see if there are any tax ramifications. If your Board has hired part-time help for bookkeeping tasks, assure that legal requirements are observed. This may require a consultation with an accountant or lawyer.

And, be very careful if your Board is considering paying the Treasurer or Secretary or any other Board member for services rendered. Many Association governing documents prohibit a Board member from being paid for his or her services, in any capacity, to the Association. Morever, having a Board member as an Association employee is an inherent conflict of interest. The director/employee is sitting on both sides of the table.
It is a mistake for a self-managed Board to refuse outside help because of the cost involved. The potential risk far outweighs the potential savings.
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Carolyn Goldschmidt has been designated as a real estate specialist by the State Bar of Arizona. She is a sole practitioner in Tucson who focuses on community association law.