The Right to Know - What Info Should Be Shared with Condo Owners?
By: Nena Groskind
Show me the money! And the contracts. And the bank ledgers. And the minutes. And the bid specifications. And all the decisions boards have made on architectural changes – for the past 25 years.
Condominium owners often request – or demand -- information about association governance and finances, and few would dispute their “right to know” how their community is being run. But the owners’ “right to know” does not encompass every record and every document boards and management companies produce, nor every communication they exchange.
What information are boards required to preserve and share with owners and what can they, or should they, withhold?
State laws vary in their response to those questions. The Vermont and Maine statutes, based on the Uniform Common Interest Ownership Act, are the most detailed, requiring associations to maintain, among other documents:
1) Records of receipts and expenditures;
2) Minutes of board meetings and unit owners;
3) Owners’ names and addresses;
4) Copies of original condominium documents and bylaws;
5) Financial statements and tax returns;
6) Most recent annual report;
7) Copies of current contracts;
8) Records of actions to approve or deny owners’ requests for architectural changes; and
9) Ballots, proxies and other records related to unit owners’ votes.
The Massachusetts statute generally tracks that list, excluding requirements in some areas (for voting records and decisions on architectural changes) but adding detail in others, for example, specifying that the financial records maintained must include, in addition to receipts and expenditures, “invoices and vouchers authorizing payments and receivables” plus “audits, reviews, and accounting statements” related to association finances, and records related to the reserve fund “or any other” association funds. The Massachusetts statute also requires associations to retain copies of current insurance policies, which are not specified in the Vermont and Maine laws.
All three statutes require associations to make the records they are obliged to retain “reasonably available” to owners for inspection and copying at the owners’ expense.
“Sweeping” but Vague
Rhode Island imposes a sweeping requirement on associations to allow owners or their agents to review “all financial and other records.” But the statute does not specify what records associations are required to maintain, other than those required to comply with a seller disclosure law. The New Hampshire statute is similarly lacking in detail about the records associations must maintain and disclose to owners.
Within the framework created by these statutes (and any additional requirements specified in their governing documents), associations must determine:
• What documents and records they will retain (if any), in addition to those specifically required;
• How long to retain those records (the Massachusetts, Vermont and Maine statutes mandate hold periods for some records, but not all of them); and
• How to manage owners’ requests to review them.
The latter issue (owner access to records), not surprisingly, can become contentious, especially in states like Rhode Island and New Hampshire, where the statutes provide little guidance about what owners should be able to see.
Carl Lisman, a partner in the Vermont law firm Lisman Leckerling, PC, thinks many disputes over access to association records arise because board members often react defensively, interpreting requests for information as an implicit accusation that the board has done something wrong. In fact, Lisman has found, owners seeking access to records usually “aren’t out to get anyone. They just want to know if all the I’s have been dotted and the T’s have been crossed. They’re asking legitimate questions to which they have a right to expect answers. Too often, boards personalize these requests in ways they shouldn’t.”
Disputes over owners’ access to records have become less common in Maine since that state’s condominium law was revised to add detail about how associations must manage their records, Robert Keegan, CMCA, AMS, PCAM, vice president at R&E Associates, Inc. in Kennebunk, ME, has found.
“It’s much easier now for boards to demonstrate that they aren’t being secretive or selective” when they deny information requests,” he notes. “They can say they are following the statute.”
What Owners Can’t See
Both the Maine and Vermont statutes specify records associations are not required to provide to owners as well as those they must make available to them. The laws don’t require associations to withhold these records; they simply allow associations to withhold them if they choose to do so. Boards are not required to disclose, among other documents, those dealing with:
• Personnel, salary and medical records of individuals.
• Contracts, leases and other commercial transactions “currently being negotiated.” (Owners can demand to see contracts currently in force.)
• Records of board executive sessions.
• Records related to individual units other than that of the owner requesting the information.
• Records dealing with current or potential litigation and any documents covered by attorney-client privilege.
The Massachusetts statute doesn’t specify records that associations can withhold, but association attorneys and managers generally follow the outlines of the Maine and Vermont statutes in their definition of records to which owners should not have access.
In Rhode Island, where the statute is virtually silent on the issue, Frank Lombardi, a partner in Goodman, Shapiro & Lombardi, LLC, and this year’s president of CAI-NE, advises associations to use common sense in dealing with owners’ requests for information, excluding personal information about other owners and weeding out requests that seem designed only too “harass” the board or the manager.
Owners should be able to see an aggregate report on delinquent payments, he says, but they have no right – and no need – to know the identities of delinquent owners. Requests to see the association’s budget, current contracts and the master insurance policy are reasonable, he says. But demands to see every invoice related to a major construction project, or all documents related to a decision the board made almost a decade ago (a recent request that Lombardi reviewed) are neither reasonable nor necessary, in his view.
Owners have a right to obtain information indicating how the community is being run, he agrees, and boards have an obligation to provide that information. But boards also have an obligation to protect the privacy rights of owners and employees and to avoid disclosing anything that might be contrary to the legal or financial interest of the community.
“Owners think they should be entitled to see everything,” Lombardi observes. “But they can’t just demand willy-nilly to see any document they want. You have to consider whether the owner has a legitimate interest in seeing the information,” he believes.
“A Legitimate Interest”
In the balance associations must strike between disclosing information and withholding it, Lisman favors “more disclosure rather than less. If it relates to common interests or the affairs of the association, that should be enough,” he says. “If an owner has a legitimate reason for wanting the information and the association doesn’t have a compelling reason not to disclose it,” then he thinks the information should be disclosed.
But determining whether owners have a “legitimate interest” in the records they are requesting isn’t always easy, even when the statutes are specific about the information owners must be allowed to see. For example, the Maine and Vermont statutes both say the information can’t be used for commercial purposes or for “any other purpose not reasonably related to the management of the association or the duties, rights or responsibilities of unit owners, officers or executive board members.”
What about the names and addresses of unit owners? Is that information “reasonably related” to the management of the association?
“If an owner is going to sell the list to a vendor who plans to use it to sell Viagra, that clearly would not be a legitimate purpose,” Lisman says. But an owner running for the association board who wants to distribute campaign information to association members would, in his view, have a legitimate interest in obtaining their names and contact information.
“That’s a tough one,” Gary Daddario, a partner in the Massachusetts law firm Perkiins & Anctil, says of the request for owners’ names. He suggests that boards “deal with the question proactively” by adopting a policy – either to disclose or not to disclose the information for specified purposes — making sure owners are aware of the policy, and giving them an opportunity to opt in or opt out of whatever policy the board adopts.
What about E-mail?
While the more detailed statutes (Massachusetts, Maine and Vermont) specify the records associations are required to maintain, they were drafted before e-mail became a standard form of communication and so don’t provide any guidance about how to manage electronic records. Are e-mail messages official records that must be retained (and if so, for how long) or can they be erased at will? And do owners have a right to see them?
Those are still pretty much open questions, in the sense that the courts have not addressed them in ways that establish binding precedents. But there is one point on which industry attorneys agree: E-mail messages are subject to discovery in a legal proceeding, and that prospect should guide how boards and managers treat them.
“If you have a policy for retaining computer records,” Bruce McGlauflin, a partner in the Portland, Maine law firm Petrucelli, Martin & Haddow, LLP, advises, “follow that policy.” But he also suggests, “Don’t do a lot of e-mailing,” and be careful about what is said in those messages. “You don’t want to be conducting board business via e-mail,” he cautions.
Marian Servidio, CMCA, AMS, president of Park Place Management in Vermont, says she retains e-mail messages only if they relate to “potential litigation” or if they involve owners “for whom you can never do anything right. I file every correspondence I have with those owners,” she says, and she retains those files indefinitely.
Daddario advises his clients to “err on the side of caution” when dealing with e-mail communications. But he also points out that these messages have the potential to help associations as well as harm them, for example, by providing evidence that the board used due diligence in selecting a contractor, or demonstrating that a decision was based on safety considerations and was not discriminatory. “If the discussions are proper and the e-mails are drafted soundly and professionally,” he notes, “they could help you.”
Boon and Bane
While technology has complicated record management in some ways, it has also made it much easier for associations to organize and store the records they are required to retain.
David Levy, CMCA, PCAM, proprietor of Massachusetts-based Sterling Management Services, now stores virtually all association records electronically, enabling him to make information readily available to board members and owners on-line.
“No more file cabinets and accounts payable lockboxes,” he says, “and no more boxes filled with papers to sort. Our clients – the board members – can see any records any time.” Owners, too, can now find on-line much of the information they previously had to request from the board or the management company.
Levy says electronic file-keeping is “a huge improvement in transparency,” that has significantly reduced the friction over owners’ access to information. “There will always be one or two gadflies who will insist on knowing what you’ve spent on every nail,” he notes. But since converting to electronic files, he says, “I don’t remember anyone who hasn’t been satisfied with the overwhelming access.”
How Much and How Long
Computerized recordkeeping enables associations to store a virtually unlimited amount of information indefinitely; but it also encourages some boards and management companies to store more information than they need for longer than they have to retain it.
Massachusetts associations have to retain “all records” specified in the statute for 7 years; the Maine and Vermont statutes specify 3 years for financial statements and tax returns and 1 year for proxies, ballots and other records related to elections. The Maine statute also mandates a hold period of 6 years for receipts and expenditures.
Many managers say they exceed the statutory minimums for at least some records – especially minutes and other documents that create an historical record for the community. It can be useful, they say, to look back over 10 years or more to see how association policies have evolved or to track how boards have enforced rules and covenants over time.
Servidio thinks Massachusetts’ seven-year requirement is reasonable for most records, but she says she retains minutes of board meetings “forever,” even though the Vermont statute doesn’t specify a required holding period for them. Those minutes are stored in boxes, however, and Servidio says, “God help me if I have to go back and find a set from 20 years ago.”
Keegan makes no distinctions between financial, historical and other records – he holds on to all of them indefinitely. “You should keep more records than you need for longer than you think you will need them,” he believes. “You can never have too much information.”
Daddario agrees. “Keep everything for as long as you can,” he advises, because it is hard to anticipate what records an association might need. The inability to produce a record “could provide fodder” for a litigious owner, he notes. It is also possible, he says, that old records could provide evidence that will help the board defend against a claim.
Policies and Procedures
Aside from a few general requirements in some statutes (requests to review records must be in writing, records must be “reasonably available” during regular business hours, and associations must respond to requests within a specified time), associations are generally free to determine how they will maintain their records and make them available to owners. Industry professionals offer this advice:
• Keep good records,” McGlauflin advises. The need to respond to owners’ requests for them obviously is not the only reason this is a good idea.
• Develop written policies and procedures for managing records and responding to owners’ requests to examine them. The association’s policy should specify how owners should submit requests (the Maine and Vermont statutes say requests must be in writing), how quickly the board or management company will respond, where and when the records will be available for examination, the cost for copying them, and any other procedural details.
• Adopt the relevant provisions of the state statute as an amendment to the association’s bylaws. McGlauflin recommends this as a means of ensuring that owners understand their rights and board members understand their obligations.
• Require owners requesting information to specify the records they want to review.
• Keep a log of all requests to inspect and copy records and require owners to sign the log. This proves that the association made the records available and that the owner examined them.
• Make as much information as possible accessible to owners and board members on-line.
• When uncertain about whether to make specific financial or legal documents available to owners, Levy advises, “ask the association’s accountant or attorney” before providing them.
• “Be consistent and professional” in dealing with records requests, McGlauflin advises. “The person who constantly annoys you should get the same response as the owner who rarely asks for anything.”
• “Follow the law precisely” in managing association records and responding to access requests. That advice comes from Daddario, who notes that the Massachusetts law requires that records be maintained in the Commonwealth – a detail that some associations might overlook. The decision to store records in an out-of-state facility might be “completely benign,” he says. But if an owner is contesting access to association records, “technical violations” of the statute might strengthen the owner’s claim.
• Make the association’s record-review policies user friendly. You want to convey a positive message: That the board thinks owners are entitled to information, not a sense that the board is trying to keep it under wraps. It’s all about transparency, Daddario observes. “That’s what owners want,” and increasingly, he says, “that’s what the courts are demanding