QUESTION: Our board does not have a law firm on a regular retainer. We are on a “pay as you go” basis. Our lawyer does not attend board meetings. This, in my opinion, results in less than desirable management of delinquencies and failures to seek legal advice as matters arise. Is the board in breach of its fiduciary duties?
ANSWER: First, let me say that I am grateful my clients do not require me to attend all their board meetings. I haven’t asked my wife’s opinion but I suspect she would want me to attend them all.
Small HOAs. Small HOAs do not have great demand for legal services so it is cheaper for them to pay as they go. There is nothing wrong with this arrangement and most follow this model.
Large HOAs. Large associations have ongoing legal issues. The increased demand is because they have more members. People, for some reason, have trouble getting along. When the late great Rodney King asked his association if they couldn’t all get along, they rioted.
It has been my experience that associations with a lot of legal work often choose a retainer arrangement where they pay a nonrefundable annual fee in exchange for reduced hourly billings and other perks.
Attending All Meetings. Some associations run into issues where they need legal counsel at every meeting for a period of time until those issues are resolved. Where boards get into trouble is when they face a particular problem and decide not to call legal counsel so as to avoid the expense. It is not uncommon that the money they save on a phone call is swallowed up in legal fees when the issue explodes into litigation. A simple phone call or email to legal counsel is like a flu shot–it might hurt a little but it can save a lot of discomfort later.
RECOMMENDATION. The quickest way for an association to reduce its legal budget is to relocate troublesome members to Barrow, Alaska. This tiny, isolated town is located in the Arctic Circle where, from November through January, the sun never rises.