Reader Questions - Bids from Manager’s Dad, Can an Owner Own Too Many Units?

Good Day Kelly,

Our manager has been submitting bids for work to be done in our community from her father-in law’s company.

These bids have historically come in much lower than the other unsealed bids.
Her husband works for his father (her father-in law) and is the lead for the crew when they are here. They are licensed.

My question: Is this a conflict of interest and not a good business practice?

Thank you,

JW, Rancho Palos Verdes

Dear J.W.,

It is possible that the manager is getting the HOA a great deal and her father-in-law is giving the HOA a discount. However, it is also possible that the manager is steering the work to her family, or even giving him information on the other bidders to help him get all the work. The problem is that nobody knows which is true, and even the most honest and conscientious manager can look unscrupulous when their family gets involved in their client association’s work.

The manager’s conflict of interest is obvious, and the possibility of wrongdoing hard to disprove. The board should refuse to do business with a company that is related to the manager. The same is true with hiring a director’s company to do work for the association – no matter how good the deal is, there will always be the suspicion that the director’s company has an unfair advantage.

I will not soon forget the director in an HOA who did some free earthmoving work for his HOA. He charged nothing, and did not even ask to be reimbursed for the diesel fuel. Some homeowners accused him of a conflict of interest – on his free work! [Yes, he stopped providing it after that]. I often recommend that HOA bylaws include a ban on the board doing business with any member of the HOA unless it is approved by a vote of all members.

Best to your HOA,
Kelly

Can an Owner Own Too Many Units?

Dear Mr. Richardson,

I am on the board of a 32 unit condominium association. One of our owners continues to purchase units and now owns 4. He has never lived on site. Since very few owners have showed any interest in being on the board he has also joined the board. Now that he owns 1/8th of the property it seems that the management tries to appease his every whim. Is there a maximum percentage of units that can be owned by one person?

Thank you for your time,

HH, Riverside

Dear H.H.,

There is no law limiting how many lots or units an owner can own in an association. Some association CC&Rs limit the number of properties a member can own. Until September 2012, to be eligible for FHA/FNMA loans, a condominium project could not have any one owner owning more than 10% of the units – but that is no longer a requirement, so long as at least 50% of the project is owner-occupied.

A director who owns more than 2 properties in the association is denied the Civil Code 5800 immunity protecting the other directors, under subpart (e) of that statute. This exception to immunity is probably based on the assumption that members owning more than 2 are not really volunteers, but have a business interest. Without immunity, that director may not want to serve.

Thanks,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.