“The only obligation which I have a right to assume
is to do at any time what I think is right.”
- Lbid -
You asked for it! You stood for election to the Board of Directors (BOD) of your Timeshare
or Vacation Ownership Resort Property Owners Association (POA) or Home Owners Association (HOA), and the owners
other than the Developer (Owners) voted for you. What now? Do you have any unique requirements or special concerns
because of the trust they demonstrated in you? The correct answer is yes…
and no!
The full BOD of any POA or HOA has duties, responsibilities and obligations that are clearly spelled out in
the Covenants, Conditions and Restrictions (C.C.&R’s) associated with the Timeshare Plan. Such duties, responsibilities
and obligations could be something like the following:
By-Laws of XX Resort Association, Inc.: Article IV, Directors Section A, Powers: Subject to limitations of
the Articles, the By-Laws, the applicable provisions of Title 10 of the XXX Revised Statutes, as amended, and the
provisions of the Declaration, all corporate powers shall be exercised by or under the authority of and the business
affairs of the Association shall be controlled by, the Board of Directors. Without prejudice to such general powers,
but subject to the same limitations, it is hereby expressly declared that the Directors shall have the following
powers, to wit:
The following was included in With Regard to BOD (Part 1): [1] (Part 1) HOA Boards
typically go through three phases as the Timeshare Plan and its Association evolves. The first of these phases
will occur when the Declarant/Developer or Development entity appoints the initial Directors. This appointment
will occur with the filing of the Articles of Incorporation with the appropriate governmental agency. [2]
(Part 1) At some point in the evolution Directors will begin to be elected by the members of the Association other than the Developer to replace those appointed by the Developer. [7] (Part 1)
At a pre-designated point the Developer will have to relinquish control of the Association and the Owners will
have to assume the responsibilities.
The period between the elections of the first Board member from the owner/members until the Developer relinquishes
the veto power is the most important period for any Timeshare or Vacation Ownership Plan related HOA/POA. In the
Declaration, the Development entity stated its intent to [3] (Part 1) provide a mutual
equitable servitudes-upon the Property and Improvements and upon each of the Fractional interest.
Mutually equitable means that the neither the Developer nor the Owners intended to have an upper hand. While out
manned and out voted, that initial owner elected member of the BOD, must be diligent to insure that the ‘mutually
equitable’ intent is indeed fulfilled in both how the Resort and its Association is operated and how the financial
affairs are maintained.
[A] There are several areas that should be of specific concern to you, that first owner elected member
of the BOD, and the others as they (one by one) [2] (Part 1) gain membership on the BOD. The first of those
is to insure that the BOD stays true to the purpose of the Association as stated in the C.C.&R’s.
Articles of Incorporation - Third: Purposes. The general purpose for which this Association is formed is
to act as the Association for the operation and maintenance of the XXX Resort for the benefit of the owners thereof
and for all other lawful purposes for which nonprofit (not-for-profit) corporations may be organized. The character
of affairs that the Association initially intends to conduct is management of the XXX Resort. All activities of
the Association shall be consistent with the recorded Declaration.
The key words to look for are the purposes of the Association are ‘for the benefit of the
owners’. It does not matter whither the Association is controlled by the Developer, by a BOD which in
its majority was appointed by the Developer, or by a BOD fully elected by the Owners, the purpose of the Association
is to operate the resort ‘for the benefit of the owners’.
[B] The C.C.&R’s of the Resort will in some way indicated that the Association is responsible for
paying the costs of operating, maintaining and managing the Resort. The Association has no responsibility to do
anything for the Developer, the sales and marketing effort or its administration.
Declaration of Dedication Article V The Association. Section 5.07 Maintenance and Operations.
The Association shall have the sole authority, power, duty, and responsibility for the operation and management
of XXX Resort, for the maintenance of all Residence Units, Common Areas and Furnishings, for the enforcement of
the provisions of this Declaration and the Rules and for the collection of assessments provided herein. Maintenance
as used in this paragraph, shall include; (a) reconstruction, restoration, remodeling, refurnishing, repair, maintenance
and upkeep of the Residence Units and Common Areas including landscaping; (b) repair and replacement of furnishings,
and (c) payment of all operating expenses including but not limited to insurance, real estate and personal property
taxes, utilities, cost of equipment, supplies and personnel, and management fees.
The key words in this section are that the Association is responsible for paying the costs of operating, maintaining
and managing the Resort. The Association has no responsibility to do anything for
the Developer, the sales and marketing effort or its administration. The owner elected BOD members can insure that
everything is as it should be by keeping a close watch on the corporate records of the Association.
By-Laws of XX Resort Association, Inc.: Article VIII, section G, Inspection Of Corporate Records: The
register that contains the names, addresser, and telephone numbers of all members of the Association or duplicate
membership registrar, the books of account, and the minutes of the meetings of the members, the Directors and all
committees shall be open to the inspection upon a written demand of any member at any reasonable time and for a
purpose reasonably related to his interest as a member.
And by insuring that an Annual Report is developed:
By-Laws of XX Resort Association, Inc.: Article VIII, section D, Annual Report and Account: The Board of
Directors of the Association shall cause an annual report and account (including balance sheet, income statement,
and such other information as the Declaration requires to be annually sent to the members of the Association) to
be sent to the members not later than one hundred twenty (120) day after the close of the fiscal or calendar year.
While the C.C.&R’s may not specifically require that this Annual Report be performed by an independent Certified
Public Accountant (CPA), the owners’ representatives on the BOD should make every effort
possible to insure that this is the policy of the BOD.
[C] The C.C.&R’s of the Resort will have some requirements regarding maintaining insurance on the
entire facilities.
Declaration of Dedication Article VII Insurance. Section 7.01 Coverage. The Association shall have
the duty to purchase, carry and at all times maintain in force, insurance covering the entire property and all
improvements thereon and Furnishings for the interest of the Association, mortgages and Fractional interest owners,
as their interest may appear, in such amounts and with such endorsements and coverage as shall be considered good
and sound insurance coverage for properties similar in condition, location, and use to XXX Resort.
(D) A fidelity bond or bonds for all officers and employees of the Association and the management firm having
control over the receipt and disbursement of funds in such penal sums as shall be determined by the Association
in accordance with its By-Laws.
E) Errors and omissions insurance coverage for the Associations and the management firm and Directors and
Officers Liability, if available.
The issue of insurance coverage may be straightforward, however, the issue of placement of that coverage is
not necessarily so obvious. It is the duty of the owner elected representative on the BOD to insure that no conflicts of interest were involved in the selection of the insurance brokerage firm
by the Developer or the Management Firm. This writer is aware of more than one instance where the premium costs
for insurance was reduced by over 50% once the owners gained control of the Association from the Development entity.
In one specific instance the collective insurance premiums were reduced from $68,000 annually to $22,650. The owners’
representatives on the BOD should make every effort possible to insure that the policy of the BOD is to bid our
insurance coverage's to several Brokerages and that placement is without conflict of interest.
[D] The responsibility for the payment of Taxes will vary from State to State. This effort will assume
that that responsibility is vested in the HOA/POA. If this is the case the C.C.&R’s will contain specific
references to taxes.
Declaration of Dedication Article II Definitions. (BB). Tax assessment means, for each
year, the amount assessed against a Fractional interest as the allocable share for such Fractional interest for
all personal property, real estate and any other taxes and assessments which the Association determines will be
in the ensuing year assessed against the property, improvements thereon or the Association by the City of XXX,
the County of XXX, the State of XXX, the United States of America or any improvement district pursuant to their
respective powers to enact, assess, levy and collect taxes.
Articles of Incorporation - Fourth: Powers. (f) To pay taxes and assessments, if any, levied by any
governments authority on the property which forms XXX Resort and which is owned by the Association or its members.
Again the payment of such taxes may also seem to be straight forward, however, not necessarily all efforts to
insure against overpayment of taxes may have been expended. This writer is aware of more than one instance where,
during the reign of the Developer and the Developer controlled management firm, property taxes were
never appealed. In this instance the final year under Developer control the property taxes were $168,000
and during the first year the owners gained control and the taxes were appealed and they were reduced to $85,772.
The owners’ representatives on the BOD should make every effort possible to insure that the policy of the BOD
is to appeal Property taxes every year.
[E] The C.C.&R’s of the property will clearly indicate that the Association is responsible for the
management and operations [A] - [B] (Part 2) of the Resort. The method to be used to fulfill
this responsibility may not be clearly spelled out. In this instance we will assume that those documents indicate
the Association would retain the services of a Professional Management Firm.
Declaration of Dedication Article V The Association, Section 5.08 Management Firm. The Association
shall enter into a written agreement with a management firm by which it delegates all the authority, powers and
duties set forth in the preceding section. The provisions of the agreement may not conflict with the following:
(A) Term: - (B) Termination: - (C) Authority:- (D) Compensation: - (E) Records and Reports: .....
By-Laws of XX Resort Association, Inc.: Article VII, Management & Operations A. Agreements. The Board
of Directors shall provide for the management and operations of the XXX Resort by entering into a management agreement
as provided in the Declaration.
Declaration of Dedication Article II Definitions. (S). Management Agreement is an agreement
between the Association and a management firm for the Administration, management, housekeeping, improvement, repair,
restoration, remodeling, refurnishing, other maintenance and operation of the XXX Resort.
During the period of control by the Developer management and operations of the resort may have been delegated
to a third party by a management agreement. In most instances this delegation is to either one of two entities.
First a management firm that is a subsidiary or an affiliate of the Developer or
second, an independent management firm selected by the Development entity. This is not necessarily a bad thing
just an issue that needs the attention of the owner elected BOD members. The owner representatives should be fully
versed on the provisions of the management agreement with particular attention to the automatic renewals (if any)
and the total payments to the management firms in addition to the management fee. Such additional payments could
be for operation of a rental program, assessment billing and collection, software licensing fees, etc., etc.
Over the years I have become familiar with transition situations where the Board of Directors felt trapped with
the existing management agreement and hesitate to make changes. Most often this occurred because the owner elected
representatives made no effort to become involved with the industry and thus were unaware of the alternatives available
to them. Owner elected Board members should make every effort to become aquainted with:
The American Resort Development Association (ARDA) http://www.arda.org/
The Community Association Institute (CIA) http://www.caionline.org/ and
The Timeshare User’s group http://www.tug2.net/
They should obtain subscriptions to timeshare industry trade journals such as II’s Vacation Industry Review,
RCI’s Ventures, Resort Trades Management & Operation, and Vacation Ownership World, consumer
publications such as TimeSharing Today and Vacation Ownership Magazine and Internet sources such
as this one, The Timeshare Beat. Owner elected Board members should attend every ARDA Regional Management
Seminars possible, ARDA’s Spring Conference and Exposition at lease every other year and begin to network with
owner elected Board members at other timeshare resorts.
FINAL THOUGHT
This segment of With Regard to a BOD began pointing out issues that should be of concern to those Board
Members who have been elected as representatives of the Owners. Truth is that every issue with regard to the HOA/POA
should be of concern to each and every member of the BOD. State law or statutes spell out the requirements for
directors and each BOD member is surely familiar with (a) the Duty of Care, (b) the Duty of Loyalty and (c) the
Business Judgment Rule.
The owners' elected representative simply needs to be cognizant of the fact that those appointed by the Developer
may feel that if it’s in the best interest of the Developer it has to be in the best interest of everyone. After
all, the Developer was the creator and without him the Resort would not even exist. In reality that’s right until…
control transitions from the Developer to the Owners
SEE: a BOD Part 1; a BOD Part 2; a BOD Part 3; a
BOD Part 4
