HOA Board legal duties (Part 1)

Legal Duties of HOA Board Members (which apply to the MCA) described below are from here: https://floridapropertymanagement.com/duties-of-hoa-board-members/ .
(If any reader would like to assist with a reference to specific legal statutes, that would be greatly appreciated).

As always, if there are any inaccuracies, please let us know and we’ll fix them.

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According to Chapter 720 of the Florida Statues, residential communities that operate as an association must be incorporated. An HOA community’s governing documents must also be recorded in their local county office.

HOA board members are then placed in a position of trust. Thus, board members have a fiduciary duty to the HOA. This means that they must legally act in the best interests of the community. Here are the three fiduciary duties of the HOA board:

1. Duty of Care

The HOA board is legally obliged to make informed decisions. Board members must do the research — making reasonable inquiries and utilizing all the information that is available to them — before making a decision or voting on a certain matter. This is important when community funds are being invested or spent.

2. Duty of Loyalty

HOA board members must act in good faith and for the benefit of the entire HOA community. Their decisions must not be based on personal interests. They also cannot use their position as board members for private gains.

3. Duty to Act Within the Scope of Authority

HOA board members should act within the scope of their authority. They cannot use their position, or exercise their power, on matters that are outside their duties and responsibilities.

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In this post we’re going to focus on the MCA Board’s Duty of Care described above as it relates to how it handles its management of MCA Homeowner assets that were purchased from TMCC.

Is the MCA Board making INFORMED decisions?

Clearly NOT. Under the terms of the lease, the MCA Board receives only TMCC’s annual operating and capital budget. The MCA Board receives no financial statements on actual results from TMCC.

MCA Board’s response to this is along the lines of: “But TMCC is a separate organization and they don’t want to give them to us. Two of our Board members are permitted to view TMCC financial reports and we appreciate that.”. But those two MCA Directors don’t retain any information or share it with the other seven Directors or MCA’s Finance Committee.

It is irresponsible for the MCA Board to accept this position. It is simply not possible for the MCA Board to make an informed decision about whether to continue making the RAP fee/subsidy to TMCC, how much is necessary in a given year, for how long those payments will be required, or any other aspect of its business relationship with TMCC, without reviewing and analyzing those financial statements. The MCA Board should require and obtain the full annual audited financial statements of TMCC

1. TMCC is a 501(c)(7) Tax exempt organization who MUST make their Income Statement and Balance sheet available to the PUBLIC by submitting their Form 990. Despite this requirement, the MCA Board has not obtained this information (more on this below). MCA Directors are not even making use of this publicly available information.
2. It is VERY common for commercial landlords (“lessors”) with a large single “tenant” to require that the tenant (“lessee”) provide annual audited financial statements by a reasonable date as part of the lease terms. This minimizes the risk of a tenant running into financial difficulties without the lessor’s prior knowledge, which could prevent the tenant from not being able to keep up with their lease terms and obligations.
3. Financial Statements are the MINIMUM the MCA Board should require. They need to understand how the business is doing, including membership numbers by category, public play rounds, green fee per round, etc.
4. MCA HOLDS ALL THE CARDS IN THE LEASE NEGOTIATIONS, but “fold” at every turn. All the assets belong to MCA Homeowners. If MCA as Landlord requires TMCC as tenant to provide annual audited financial statements and detailed monthly financial reports as conditions of the lease, TMCC has 2 options:
   A. Agree and provide them to MCA, or
   B. Don’t agree and cease to exist because they have no facilities to play golf or tennis or dine.
   Obviously TMCC are going to choose A. If TMCC chose to call it quits, MCA would have a challenging time ahead to quickly transition to a semi-private model (as other local private clubs have done), but we’d have 100% of existing staff and ICON to guide MCA.

In the recent MCA Annual Meeting, in response to a question, the MCA Treasurer indicated that they were aware that they could receive and take a copy of TMCC’s Form 990 per IRS regulations. When asked why they didn’t obtain them they responded “The IRS doesn’t say I HAVE to take them”.  THE MCA BOARD IS AWARE THIS INFORMATION IS PUBLICLY AVAILABLE AND IS MAKING THE DELIBERATE DECISION NOT TO OBTAIN AND UTILIZE THE INFORMATION.

Are MCA Board members DOING RESEARCH on their options?

There is no indication that the MCA Board has ever made any attempt to reasonably evaluate any options other than leasing all the MCA Homeowner assets to TMCC, a private club, for free. What could they do?

The City of Bradenton owns River Run Golf Club. Last year they hired the National Golf Foundation for an analysis of their operation for $24,000. Here is a link to their 92 page report.

Hiring the National Golf Foundation (or similar qualified independent golf consulting company) to assess the options of MCA Homeowners’ utilization of its assets would be very very easy for the MCA Board to do. Yes, it would cost some money but as MCA Homeowners are currently subsidizing TMCC by $1 million PER YEAR with no end in sight, $24,000 would be a drop in the bucket.

It is possible that the analysis could be made difficult without the co-operation of TMCC providing data. This could be solved by MCA Board requiring access to this information through the updated lease terms.

What could MCA Board Members do to meet their fiduciary responsibilities to MCA homeowners?

1. Ensure MCA Board secures the best financial and other terms for MCA Homeowners’ interests as owners of the assets. Addressing MCA Homeowner interests is the MCA Board’s sole accountability (NOT TMCC member interests).
2. MCA Board must take every effort to avoid conflicts of interest in all of its dealings with TMCC, especially in any lease negotiations with it. It must be free from conflicts of interest in both fact and appearance.
3. MCA Board must be very transparent with its members on the lease negotiating team, the negotiations themselves, the result of the negotiations and all ongoing transactions between MCA and TMCC.
4. Hire a reputable independent consultant to review and evaluate alternatives for delivering recreational activities and dining services so that those assets are utilized at a lower cost to MCA Homeowners and with greater access to them. Troon/ICON is likely not a candidate as they work for TMCC (not MCA which the MCA Board indicated)
5. Require TMCC to provide all MCA Board Directors the full annual audited Financial Statements, monthly financial reports, and monthly Key Performance Indicator reports that the TMCC Board receives, in the new lease terms.
6. Keep the lease to a 1-year term until the MCA Board fully understands its options. We’ve documented that the current relationship is significantly skewed in favor of TMCC and the MCA Board has to do a much better job acting in the best interests of MCA Homeowners. To enter into another 3-year lease, would effectively preclude any changes to how MCA Homeowners’ assets are presently being used and managed for another 3 years when there is a clear and obvious problem in the “benefits” of the relationship. In the next year, the MCA Board will have time to get a consultant’s report, understand options, and determine the best path forward for MCA Homeowners. A 1-year lease would ensure that the MCA Board has the opportunity to take action after receiving the consultant’s report.
7. Ensure that the lease provides for access to TMCC information which would enable MCA’s independent consultants to make a reasonable assessment of the operations.

Conclusion:

MCA Board Directors are not meeting their duty to do reasonable research and make informed decisions. It is critically important to the future of The Meadows that the MCA Board start meeting their duties NOW.