In the past few weeks I have been contacted by community associations regarding issues they have with their community association managers (“CAM”) making decisions on behalf of the association without the board of directors being involved. This seems to be an alarming new trend as certain CAM firms have started their own maintenance companies and terminate contracts with vendors to give their own companies the contract for services – all without the board’s knowledge or approval. In one instance a CAM actually refused to allow a board member to vote and provided a legal opinion the board member was ineligible, which is clearly the unlicensed practice of law. In another instance, which I have seen before, a CAM took it upon himself to take action against an owner despite the board voting to table the issue until they had a chance to talk to the association’s lawyer.
A CAM does not have the authority to make board decisions. The CAM works for the Board of Directors, not in place of it. CAM contracts have indemnification clauses, which means the association is liable for the CAMs actions and must pay for a legal defense should someone try to sue the CAM. Owners cannot sue the CAM in most circumstances because the owners are not in “privity of contract” to sue the CAM, as established in the case of Greenacre Properties. v. Rao, 933 So. 2d 19(Fla. Dist. Ct. App. 2d Dist.2006), meaning the owners are not a party to the CAM contract. This shield against liability means there are not many consequences for the CAM acting outside their scope of authority.
In my opinion, CAM firms being allowed to set up their own maintenance companies to provide services to the associations is not a good idea. There is an inherent conflict of interest. The CAM usually controls the association’s bank account. The CAM will then make sure their maintenance company is paid, even if the work is not satisfactory. I have come across instances where the work was not satisfactory, but the board was not aware of the issue because the CAM did not inform the board. Why would they complain about their own work?
When the associations hire a CAM it is now important to inquire if the CAM firm has its own maintenance company and review the contract thoroughly to see how much control the board will relinquish to the CAM in hiring vendors or other actions which create liability for the association. Many CAM contracts also provide the CAM with a “bonus” of 10% of the value of the contract for procuring a contract on behalf of the board. I think it’s more of kickback then a bonus, but this is a common practice in Florida.
Selecting a CAM is an important task for associations. It is up to the board of directors to perform their due diligence and make sure the contract is clear regarding decision-making activities. The actions of an overzealous CAM could be costly and lead to litigation against the association.