Recently we discussed the potential problems of hiring a condo or co-op board director as a vendor. It's important, however, for the board to maintain control of who can hire vendors as well as contractors and not to give your management company authority to hire someone without the board's approval. It's also essential for someone on the board to monitor the invoices as well as the actual work on a regular basis.
If your management company hires people who are overcharging for services or doing unnecessary work to pad their invoices, the board will ultimately be responsible for the costs incurred, as well as fixing any damages caused by substandard work.
That's why it's essential to maintain control over who is hired to perform work on the property. If you give that up, you may have a difficult, if not impossible, time recovering damages. It should be written into your management contract that board approval must be obtained for any hiring of vendors.
If you learn this lesson too late, there are steps you can take to try to recoup your losses. Which one is right for your board depends in part on your insurance policies. Whatever you choose, you should notify your owners of what's going on and why you chose the option you did to try to resolve the matter.
-- If the association umbrella policy covers this type of loss, you can file a claim with the insurer.
-- If negligent acts by the board are covered by your officers' liability policy, ask your unit owners to make a demand for restitution to the board.
-- If the management company breached the terms of the contract, you can demand restitution from the company. If there's language in the contract regarding disputes over hiring vendors or paying invoices, or if the company has breached the contract by taking on those actions without authority, your attorney can work to hold the company liable for the losses.
Your attorney can advise you of the best option to pursue and on potential issues involving your owner. He or she can also work to develop a new contract for use with future management companies. Careful wording in the contract and hands-on supervision of all work done and billed by vendors can help prevent these costly and embarrassing problems in the future.
Source: Los Angeles Times, "Q&A Titleholders can get restitution after suffering losses from bad management," Donie Vanitzian, Jan. 15, 2017