Sometimes hidden damage is known but ignored, or the maintenance is deferred, by Boards of Directors to keep owner expenses low. Such action is common when the cost of repair exceeds the reserves or the ability to impose a special assessment to obtain sufficient funds. Frequently, however, the damage is unknown, has been present for decades, and only after other work or a failure reveals its presence are the owners presented with a shocking repair cost. Failure to recognize the potential for loss of property or even lives of residents caused by hidden damage or defect can result in lawsuits against the HOA, the Board of Directors, or even individual directors and/or officers.

Responsibility

When people are injured or killed while on HOA property, whether they are owners, tenants, or others such as guests or workers, there is a good chance that the victim and/or victim's estate will attempt to bring legal action against the HOA for damages. The HOA is a legal business entity and just like any other business may be held responsible for its negligence leading to such injury or death.

The HOA has a duty to maintain its premises in a safe and working condition. Failure to do so is a breach of the HOA's duty of care and if an unreasonably dangerous condition existed at the time of the accident, and injury occurs because of such breach and/or there are damages resulting from the breach of duty the HOA may be held responsible. In the Champlain disaster, numerous lawsuits have already been filed against not only the HOA and its Board of Directors, but also against the inspection firm that conducted the 2018 review, the local building inspector, the City of Surfside, and even a neighboring condominium building.

Relation of Injured party to HOA

The extent of responsibility an HOA may be held for injury or death is sometimes dependent on the injured party's relation to the HOA. For example, a property owner or tenant living at the property may be entitled to the highest standard of care by the HOA. The law of a particular state may consider an owner or tenant to be an invitee, there at the benefit of the HOA as a customer. A social guest of a resident however may be considered under the law as only a licensee. While a licensee usually enjoys some protections against dangerous conditions, such standard of care is often less than that owed by the HOA to an owner or tenant.

The standard of care of the HOA for uninvited persons on the property, such as persons illegally trespassing, may be very limited and exist only where the HOA is extremely negligent or is found to have willfully caused harm.

HOA Breach of Fiduciary Duty

The HOA also has a duty to act in the best interests of their residents. Such obligation is called fiduciary liability. The fiduciary duties of HOA Board members are defined by individual state corporation law. This fiduciary duty applies to HOAs even though they are typically nonprofit corporations and HOA Board members serve as volunteers. In addition to the duty of care discussed above HOA Board members owe the duty of loyalty and the duty to act within the scope of their authority.

Duty of Care – Board members have an obligation to make informed decisions. Depending on the matter before the Board, members may be required to do extensive research or to consult with lawyers, engineers, architects, geologists, or other experts and consultants. Board members also must generally be familiar with the HOA By-laws, CC&Rs and applicable state statutes. Board members always must act in a prudent and reasonable manner, use sound business judgment and avoid uninformed or impulsive decisions.

Duty of Loyalty – Board members must act in good faith, fairly and for the benefit of the HOA as a whole. Board members must not make decisions based on personal interest or potential for gain. Board members should also avoid any actual or perceived conflict of interest.

Duty to Act – Although Board members must perform all obligated duties, they must be careful not to make decisions or act on matters where the authority to do so does not exist. The authority of the Board comes solely from its obligations under state laws, and any authority granted to it in the Association's governing documents.

The Champlain Towers South Condominium Association was the first to be named in a lawsuit over the collapse. Filed less than 24 hours after it occurred, the $5 million class-action suit claims the HOA failed to "properly protect the lives and property" of residents by not implementing needed repairs. It has since been revealed that in an independent budget review prepared for the association in 2020, the HOA was considered critically underfunded for necessary structural repairs and had just 6.9% of the funds recommended to make repairs and stay financially secure. This underfunding of reserves most commonly occurs when the needed repairs are so costly that even a special assessment cannot be imposed on the HOA members because it is deemed to be unaffordable.

Risk Management

What are the lessons to be learned from the Champlain Towers collapse and how can the HOA's Board of Directors minimize the risk building damage, loss of life and of lawsuits?

Inspections

Inspections by qualified engineers can investigate hidden portions of a building to identify hidden damage in several ways. "Non-destructive" testing (NDT) can be used to determine the location and extent of damage—particularly rot or corrosion. Infrared camaras can be used to determine the extent of moisture intrusion in certain types of buildings. Another method involves use of a borescope – a small camera inserted through a hole in the outer skin. For concrete and steel buildings which often require more sophisticated methods of detecting internal damage, ground penetrating radar can assess corrosion in rebar or beams covered in concrete.

"Destructive" testing, where portions of the building are removed or opened, can be used to obtain a direct view of framing, shear walls, and waterproofing. Other hidden decay, such as corrosion of metal components may also become apparent during routine repair of other elements. Concrete can be cored to reach decay or corrosion.

To maximize effectiveness, inspections must start early following building construction when water intrusion leading to deterioration can be identified and repaired economically. However, inspections can be lifesaving even several years later.

Structural Study

When there is concern about the structural integrity of the building, a structural study, conducted by a licensed engineer, can identify any immediate and potential future problems. In some areas of the country, periodic building recertification is required by state or local government. For maximum effectiveness, the recertification process should be started as soon as there is a concern, rather than waiting until the recertification deadline.

Maintenance

Maintenance or repair recommendations, even if relatively minor, should be addressed as soon as they are presented. As evident with the Champlain Towers, putting off repairs until they are "convenient" or even "affordable" can lead to serious trouble. Building maintenance should be scheduled and ongoing – not performed occasionally when a problem is brought to the Board's attention.

Insurance

The Board should make sure the adequate property and liability insurance limits, as required by the Association's governing documents, is maintained. In many cases, the documents only specify minimum insurance requirements. If those limits are unrealistic, additional coverage should be purchased in order to avoid the potential for lawsuits. If the Board feels that the D&O policy limits are insufficient protection from lawsuits, consideration should be given to buying higher limits, or paying for additional "Side A" coverage for the directors.

Claim Against the Architect or Builder

Where inspections or structural studies disclose a major problem with design or construction of the building, a claim should be made against the architect or the builder as soon as the problem is identified. Waiting to do this may impair the Board's ability to pursue the claim.

Communicate

Even if the Board is convinced to periodically inspect and perform necessary repairs, the effort may fail without support of the Association members, particularly where the cost of repairs is substantial and exceeds reserves. Accordingly, members have to be informed of inspection plans and their cost. But more important, members have to understand that with hidden damage, disaster may be lurking. Having meetings where the experts who do the inspections explain the process and their findings opens up lines of communication and instills confidence, particularly where the inspections are conducted to comply with statutes or good industry practice. If the cost of needed repairs requires a special assessment, it is essential to make the members understand that the assessment is necessary to avoid compromising the safety of the residents.

When a special assessment is not possible or affordable for the member, a bank loan may be the answer. The ability to get a loan, however, is of course dependent on the creditworthiness of the HOA. While the present owners may only have a short-term interest in the condition of the building, the Association has a long-term interest and must maintain the structure properly according to law and most governing documents. Because these two interests conflict, the Board of Directors may be tempted to keep expenses low and defer inspections and maintenance. However, a Board should not sacrifice the interests of owners who will come later to the interests of current members.

Conclusion

Like a scientist that studies creatures that swarm and multiply in a drop of water, the horrific Champlain Towers disaster has focused a microscope on the acts and omission of HOA board members both past and present. While it may be appropriate to hold such positions accountable for decades of deferred maintenance, kicking the can down the road for future boards to solve is not the solution. It is the homeowners that are collectively and ultimately responsible for the HOA board's performance.

As such a much more vocal and active association body is needed to ensure that the board is following at minimum the suggestion offered in this paper. In addition, legislative reforms regarding periodic safety inspections, reserve funding requirements and local ordinances may be needed to ensure that the board and association members are held to a higher degree of care regarding the collective interests of all owners.

Gary W. Griffin, ARM is President of Griffin Communications, Inc. and G2 Risk Consulting, publishers of risk and insurance reference materials and independent risk management consultants located in Southern California. Gary may be reached at 949.331.7522 or [email protected].

Alan P. Schreibman, ARM is a principal consultant with Integrated Risk Management, a Culver City-based risk management and insurance consulting firm. Alan may be reached at 310.559.7032 or [email protected].