CAI-NJ June 2017

J U N E , 2 0 1 7

MANAGEMENT

TRENDS

Liabilities in Age Restricted Communities

By Elaine Warga-Murray, AMS, CMCA, PCAM

CEO, Regency Management Group, Inc.

ne key issue that is deserving of everyone’s atten-

tion, is “Liability.” Often, to get things done or to

stay within budget, potential liabilities are forgotten

or not realized. The issue of liability is often one of the most

overlooked concerns in self- managed communities, but it is

one which is of major concern in all active and older adult

communities. The CAI-NJ Senior Summit is scheduled for next

month and many issues will be reviewed including the liability

concerns that deserve important consideration.

The purpose of this article is to identify what a liability

is, to list the types of liabilities that can result (specifically in

adult communities), and to discuss how to limit liability for

both the board and the community association.

When someone or an entity is liable, that means that

they are legally responsible; subject to punitive sanctions;

subject to consequences; susceptible to unpleasant results

and potentially not covered by insurance. In other words:

Bad things can happen, for which the board and/or the

association may not be properly insured.

Liability is simply being liable for any and all possible

and potential consequences that could occur. The primary

objective of all managers and boards should be to limit

liability- or responsibility- and/or to shift the liability to

someone else. Board members can forget that the reason

they hire professionals is to shift liability from themselves.

Retaining an expert who has the correct insurance, creden-

tials and expertise for the task, job or action that needs to

be completed is the only way to reduce or negate associ-

ation/board liability. Even if a board member has a CPA,

he or she is not properly covered to perform association

audits, rather, that board member can discuss and review

the audit after it is completed by a third- party professional.

The same protocol applies to engineers, who may serve on

boards: they may not prepare specifications, supervise in

lieu of a third-party engineer or sign off on a project and

expect that the association’s Directors and Officers insur-

ance will cover them if there is a problem down the line.

A good example of how a board can inadvertently assume

liability is the following: The board retains an engineer to

write specifications for replacing a roof on a clubhouse. The

specifications are then sent out to potential roofing contractors

to submit bids. Once a contractor is selected, the board may

feel secure that the contractor has bid on the specifications

and allows the contractor to complete the job. However,

here are some potential liabilities that can be incurred: a.)

the board does not retain the engineer to inspect the work in

progress b.) the board pays the contractor with no hold backs

should there be issues within the first few years

The potential consequences of those decisions include:

1. The contractor says he followed the specifications- but

there is no proof, because the work was not signed off

on by the engineer who wrote the specs

2. The roof fails in 7-10 years and (by then the contrac-

tor could be out of business) when the engineer does

inspection to see the problem, discovers that specifica-

tions were not followed.

"When someone or an entity is liable, that

means that they are legally responsible;

subject to punitive sanctions..."