Q: I just received an “annual meeting package” from my association. It included a copy of the 2014 budget. A line item in the budget really caught my eye. The operating budget includes a line item listed as “director reimbursements.” The amount budgeted is more than $10,000! I thought directors were supposed to be volunteers. Can this possibly be legal?
– J.C., via email
A: Maybe. Generally, the members of the board of directors of a residential community association serve without compensation.
The Condominium Act does not prohibit compensation to be paid to directors and officers but does require that the authorization for such compensation be contained in the association bylaws.
In a homeowners’ association, the law provides that a director, officer or committee member may not receive a salary or other compensation from the association for performance of their association duties, or otherwise financially benefit from service to the association, unless the compensation is authorized in the governing documents or the compensation is authorized in advance by a vote of a majority of the voting interests of the association.
Further, the statute does not prohibit an association representative from receiving insurance proceeds or receipt of a financial benefit accruing to all or to a significant number of the membership due to lawful action taken by the board.
A distinction can be made between “compensation” and reimbursements made by a community association to a director, officer or committee member for out-of-pocket expenses incurred on behalf of the association. The Condominium Act does not specifically address the subject, but the HOA law specifically authorizes such reimbursements.
Therefore, I believe a community association can properly reimburse a director, officer or committee member for “reasonable” out-of-pocket expenses incurred by them in the performance of proper association duties. That prompts the question of what is considered “reasonable.”
As with so many legal questions, the determination of “reasonableness” as it applies to reimbursing director representatives for expenses they incur in the performance of their duties depends on the particular facts and the kinds of expenses for which the reimbursement is requested.
One question I’m often asked is whether an association can properly reimburse a director for travel expenses to attend a board meeting held during periods when the director is not in residence. This frequently comes into play in connection with meetings held in the off-season.
Generally, I counsel against this practice. The law allows directors to attend board meetings via conference call. Attendance by a director by conference call, in which all directors can hear each other and participate, is valid for quorum and all other purposes. Skype Internet conferencing, where directors can both see and hear each other, also works. Generally, this type of technology obviates the need for a director to incur travel expenses just for the purpose of being physically present at a board meeting.
Specific circumstances may dictate a different result, such as a director who has to travel to the project to handle matters that cannot be adequately done over the phone or via Internet. Such matters may include having to attend meetings related to litigation in which the association is a party, if the association attorney determines physical presence is necessary, or if the director has been ordered to attend a deposition or other legal proceeding. Another example is an emergency, such as a hurricane, which requires someone with authority to make rapid decisions “on the ground.”
Most association members expect board members to serve as volunteers. Even when travel and other expenses can be justified, this is not carte blanche to travel like a Kardashian on the association’s dime. Common sense is key.
A director who does travel to the community during times when he or she is not in residence still is likely to conduct personal business while here. Should an association be expected to fund the travel costs in full?
Reasonableness also comes into play when approving submitted expenses for reimbursement.
The cost of a coach plane ticket may be OK; a first-class ticket or a chartered flight usually would not. A hotel stay might pass muster if the hotel was a Holiday Inn. Paying for a director to stay in five-star accommodations would raise all kinds of red flags. A rental of a compact car might be justifiable. I don’t think a luxury rental would be OK. Nor would be a paid chauffer to and from the airport.
A director of a community association should be doing so to positively contribute to the community, not for personal benefits and perks. It helps if an association adopts formal policies and procedures for reimbursement of director expenses.
As I have said many times before: A community association is a business and needs to be run like one, one that is both fiscally conservative and financially sound. Enron should not be the business model for an association.
If a board member wants to attend a seminar or a workshop that costs money that the director wants to have reimbursed by the association, those expenditures should be approved in advance by the board.
Many educational opportunities for directors are available locally free of charge. Sorry, but an all-expense paid trip to Hawaii to attend a trade conference would not usually pass my “smell test.”
One association I assisted in developing policies for reimbursement approved a resolution that stated that utilization of “distance” meetings should be encouraged, except for the annual membership meeting. These so-called distance meetings include all the innovative concepts that have been and continue to be created, including conference calls and Skype.
I understand that this subject is somewhat subjective. Because directors have a fiduciary duty to their members, expenses that are the subject to reimbursement should be in furtherance of the association’s interests and should not result in a windfall to a director asking to be paid back.
Oh, by the way, in order to complete this column with the utter serenity and focus that it required and deserved, I have submitted reimbursement to the newspaper for some beauty treatments at the Ritz-Carlton, and — I am not going to lie — the lobster lunch was fabulous when I was there.
I am sure I will get rubber stamp approval for that. Not . . .
Tamela Eady is a Florida Bar board-certified real estate attorney with more than 25 years’ experience. She is an attorney with Tannenbaum Hanewich, with offices in Sarasota and Clearwater, concentrating her practice on community association and real estate legal matters. The subjects discussed in her columns are not intended as specific legal advice to anyone and are subject to principles that may change over time. Questions may be modified for clarity or for brevity. Email questions for possible inclusion in a future column to TEady@TH-Legal.com.
