CAMs in Control

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.

Community Association Managers (CAMs)

Laws Regulating CAMs

Fla. Stat. 468.431 requires a CAM to be licensed when "the association served contains more than 10 units or have an annual budget or budgets in excess of $100,000." The management firm is required to have a license as well. CAMs are limited in what duties they can perform by statute as well as an advisory opinion issued by the Florida Supreme Court. 

The advisory opinion has designated activities which would constitute the unlicensed practice of law, such as drafting amendments to documents, drafting proxies, preparing liens, advising anyone how the law applies to a set of facts or circumstances, interpreting statutes, administrative code, the governing documents of an association or contracts, drafting contracts or drafting legal notices. CAMs are licensed and regulated by the Department of Business and Professional Regulation ("DBPR"). Effective July 1, 2013 laws were enacted to create more regulation of CAMs and penalties for violating the regulations. A CAM can be subject to penalties for any violation of Chapters 718, 719 and 720 of the Florida Statutes.

But the Real Problem Is.....

There seems to be a rise in the number of complaints I hear from associations who state their CAM who make decisions without consulting the Board of Directors ("BOD") or take actions against homeowners without BOD approval. I frequently come across liens and foreclosures for trivial amounts against homes which the BOD will claim they did not authorize. I often expect the BOD is not being honest and is throwing the CAM under the bus, but there have been some instances I have investigated where the lien or foreclosure is not in any meeting minutes and the CAM made the decision on their own. I have heard from several associations the CAM handles all the finances, including which bills to pay and when. I have even come across associations claiming the CAM will not let them have access to the association funds. Even more troubling is when the CAM is making board decisions without input from the BOD. The courts have judicially dissolved associations which delegate the board duties to a CAM. It rarely happens, but has happened. Or worse yet, the court can appoint a receiver, which makes assessments skyrocket. Board members need to know their fiduciary duty is to operate and manage the association, including making financial decisions and signing checks. If no one is watching the checkbook except for the person who gets paid regularly with checks, you are not doing your duty! Don't get me wrong -- there are some wonderful CAMs out there, but the BOD should know what their CAM is doing because the association is responsible for the CAMs actions.

Single Biggest Mistake Is.....

Whenever there is a turnover of board members due to an election or other events, the CAMs are naturally concerned because the new BOD can terminate their contract. All too often I come across CAMs who will continue to work with the former BOD to try and oust the new BOD. I have seen CAMs sabotage records and meetings and provide former board members with privileged documents. I have seen CAMs try to circumvent the election process. Associations need to know if their CAM is engaging in this behavior the association needs to replace the CAM because the potential risk of litigation against the association is high in these situations.

Conclusion

Board members need to communicate with their CAMs at the slightest hint of these problems. Sometimes the BOD is sending mixed signals and the CAM needs clear instructions. Anytime there is a change in board members, the board should meet with the CAM to discuss expectations. If something does happen, the board should provide the CAM with a letter outlining the situation and an opportunity to cure the situation. The BOD-CAM relationship is supposed to be a partnership and not a battle of egos.