CAI-NJ July 2021

MANAGEMENT TRENDS

LIABILITIES in AGE RESTRICTED COMMUNITIES By Elaine Warga-Murray, AMS, CMCA, PCAM, RMG, Regency Management Group, Inc., AAMC

T his article will focus specifically on liabilities facing the boards in age restricted communities. Even though this may apply to all communities, there tend to be more owners who want to “volunteer” in age restricted communities. This brings up one key issue that is deserving of everyone’s attention: “Liability.” Often, to get things done or to stay within budget, poten- tial liabilities are forgotten or not realized. The issue of lia- bility is commonly one of the most overlooked concerns in self- managed communities, but it is one which is of major concern in all communities, including active and older adult communities. The purpose of this article is to identify what a liability is, to list 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; and, even if prop- erly insured, can have a severe negative impact. Liability is simply being liable for any and all possible and potential consequences that could occur. The primary objective of all managers and boards, relating to liability, should be to limit liability- or responsibility- and/or to shift the liability if reasonably appropriate. Board members can forget that one of the reasons they hire professionals is to shift liability from the community. Retaining an expert who has the correct insurance, credentials and expertise for the task, job or action that needs to be completed is typically the best way to reduce or negate association/board lia- bility. Even if a board member is a CPA , he or she is not properly covered to perform association audits; rather, that board member should keep to discussion and review the

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“Liability is simply being liable for any and all possible and potential consequences that could occur.”

audit after it is completed by a third- party professional. The same protocol applies to engineers, who may serve on boards: they should not prepare specifications, supervise in lieu of a third-party engineer or sign off on a project and expect that the association’s director’s and officer’s insurance, or the association, 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 to replace 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 liabili- ties 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 CONT I NU E S ON PAGE 44

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