CAI-NJ June 2017

MANAGEMENT TRENDS

Liabilities in Age Restricted Communities By Elaine Warga-Murray, AMS, CMCA, PCAM CEO, Regency Management Group, Inc.

O 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.

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"When someone or an entity is liable, that means that they are legally responsible; subject to punitive sanctions..."

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.

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