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Community associations come of age.

As the modern community association movement fast approaches thirtysomething, old questions are still haunting us, old values no longer necessarily apply, and the industry is not nearly as mature as its years would indicate. Five areas in particular highlight the challenge to the industry today and point the way toward new ideas and structures for the future success of community associations.

The crisis of leadership

There is a crisis in volunteer leadership of community associations. The social and economic prognosticators of the 1960s and '70s foresaw a leisure society with short workdays and workweeks--plenty of time left over to invest in running a community association. And if the principal breadwinner in the family did not have time, then spouses and retirees would fill the void.

Today, however, the workday is longer heads of single-parent households try to accommodate a career and raising a family, and dual-wage-earner couples compare Daytimers to see when they both have time for a quiet conversation. Busiest of all are the "retirees" who have gone back to college, started second careers, and immersed themselves in an active stage of life. For community associations, this means fewer volunteers for boards and committees.

Some solutions are already in place. Many associations are using task forces rather than committees. Where permitted by state law, owners have amended documents to allow renters or third parties (outside directors) to sit on the board. Some attorneys are drafting documents that specify boards with only three directors.

However, more substantial and long-lasting answers to the crisis in leadership may require new governance concepts. In particular, it may be inappropriate for community associations to continue to borrow the corporate form of governance and decision making.

In many respects, the corporate model conflicts with our ideals of neighborhood governance. For example, there is nothing democratic about the weighted voting schemes often used in community associations nor in requiring the ownership of property as an absolute qualification in order for a resident to have a voice in selecting those who make rules about everyday behavior.

One response, developed by consultant David B. Wolfe, a community association pioneer of the 1970s, is a "strong mayor" form in which the association president is elected community-wide, and that person then appoints the professional manager.

Another innovation comes from attorneys who draft documents for mixed-use projects and large associations. The drafters have been using concepts of district representation and class voting to provide balance in governance structures (although class voting reached back to corporate control maneuvers).

In very small associations, some attorneys have used the "managing general partner" model, choosing one person to do it all--in effect a president with no board.

State laws need to be more flexible to allow for innovation. The Australians use a government-appointed trustee or receiver in situations of failed leadership or mismanagement. The solution in the U.S. may not lie so much in government intervention as in state legislatures' loosening the requirements of existing law, particularly condominium statutes, so that there can be greater experimentation with new decision-making apparatuses and techniques.

The secondary mortage market, which was the legal document standard-setter of the 1970s and '80s, must not lock us into the old ways, but rather be more tolerant of document provisions that deviate from the guidelines previously established by the federal and quasi-federal agencies.

A part of the solution also must come from community association leaders and from educational groups. Surveys by the CAI Research Foundation indicate that associations budget less than 1 percent of their income for communications. That is not enough for effective leadership. Communication is not fluff; it is an essential ingredient of good management.

Perhaps it is time to explore the idea proposed by Clearwater, Florida, manager Jess McBride: to create a new course to teach board members how to govern, not just manage, their associations.

Financing and carrying out major repairs

The good news of CAI Research Foundation surveys is that over the last several years associations have continued to catch up on reserves and remain willing to increase their assessments to do so.

More and more associations have some sort of reserves, although there are doubts as to whether the level of reserves held by many is adequate. (Despite attempts to legislate on this matter, the adequacy of reserves is not an issue that can be easily defined legislatively.)

Nor is adequacy necessarily the most important point. Research by Dr. Vivian Walker, published in Common Ground in 1986, indicated that, when faced with making major repairs, associations reported that finding good contractors and supervising the process were bigger problems than financing the repair.

Those findings reinforce the need for a good network of contractors. Association repair business is an excellent counter-recession opportunity for contractors. Associations have no business need to cut back expenditures during recessions and may well find better prices and more willing contractors during slow economic times.

These findings also suggest a need to train managers in construction management. Construction management skills can be used not only in supervising reserve expenditures, but also in overseeing insurance repairs and warrantly reconstruction.

The similarity of insurance repairs and reserve expenditures should not be lost on the reader. In Japan, reserves are unnecessary because insurance companies write policies that pay for all replacements whether the replacement is due to a casualty (sucy as a fire) or due to normal wear and tear. The premium is quite high, but there is no worry about underfunded reserves. The money will be provided by the insurance company when the work is needed. Is there a U.S. insurer willing to look into such a service?

The rigidity of old ideas and old documents

Many associations have found themselves in a straitjacket of inadequate, antiquated documents and unrealistic amendment procedures. Some home-owner association declarations dating from the 1960s and earlier have no amendment clauses at all.

Modern condominium legislation provides some relief from extraordinary voting requirements, and the California Civil Code provides for judicial reform of expiring or difficult-to-amend documents for homeowners associations in that state. Other states should provide this kind of amendatory relief from problems of poor drafting.

But amendments are only one way of providing relief from overly restrictive documents. The documents themselves must be more flexible. The insurance crisis of 1985-86 surely must have taught us the folly of including overly specific insurance language in association documents, yet the secondary market continues to ask for specific provisions and policies.

Things change too quickly for associations. Requiring them to go through time-consuming amendment procedures should not be the only solution. Sometimes boards just need a little room to bend.

For example, isn't it possible to include a provision in documents allowing the board to interpret or reinterpret the document in light of present realities? It would be useful to give boards the power to issue situational waivers or special permits when there is a showing of good cause and little harm. Local governments routinely make these kinds of determinations, and we are better governed because of it.

Document drafters and associations also need to be mindful of the leasing conflict between public policy and the restrictive provisions in private contracts such as convenants.

We have seen these conflicts repeatedly over the last several years. First was the conflict of an association's architectural review power and the public policy of encouraging energy conservation or renewable energy sources. Associations lost. Then they lost to public policy regarding cable television wiring rights. More recent legislation voided association powers restricting families with children or the purchase or occupancy by handicapped people.

The increased usage of the community association form has eroded some of the underlying principles of covenants. Under attack is the concept that homebuyers voluntarily agree to the documents.

If consumers have little or no choice but to buy in a covenanted community, then they no more agreed to the documents than they agreed to the charter of the city where it is located. And if that is the case, then there must be much greater emphasis on member rights, public enforcement processes, appeal procedures, judicial scrutiny, and escape clauses.

The debate has just begun, but there will be no return to the old ways. Documents must bend to survive.

The challenge for management

The management business is beset by the ambiguity of direction by its clientele, inherent conflicts in skills needed for successful managers, the shrinking size of the typical association, and competitiveness among management companies.

The first challenge discussed in this article--the crisis of leadership for associations--affects management, as well. When management steps into the leadership breach and acts, the current problem is solved. But the longer term problems of insufficient volunteer leadership are compounded as lazy boards rely more and more on management to govern the community.

In their 1987 study for the California Department of Real Estate, University of California researchers Barton and Silverman found that professionally managed associations were the worst governed (good records, good maintenance, poor member satisfaction), whereas the self-managed associations fell down on administrative areas but had higher marks for member satisfaction. Clearly the manager cannot do it all, and above all should not do it silently. Perhaps the most effective manager is the one who has a guiding and supportive partnership with the board of the association.

But what kind of super-manager does it take to do that? In a study for the Institute of Real Estate Management Foundation, behavioral analyst Carl Buchheit points out that community association management requires people who operate in two conflicting personality styles. They must be order-givers and order-takers. Many in the business seem to be one or the other.

Some entrepreneurs who have entered the industry from other fields of endeavor continue their domineering ways as managers, often from contract to contract, for while they are excellent sales people they have little patience for bending to the fluctuating will of the board.

On the other hand, many of the mechanically minded who work their way up in the business from maintenance positions do a wonderful job in making lists, following up, and keeping things neat, but fail to communicate the value of their work and are soon rejected in favor of a cheaper firm.

One answer is to match the personality of the board with the personality of the manager. Boards employing onsite managers might consider professionally supervised personality testing before making their next selection, so that the marriage has a chance of lasting and is not doomed from the start.

Many management firms are struggling with defining what business they are in. Some have explored sidelines in maintenance and consulting, while others are offshoots of sales and rental operations. Overall, they are still grappling with how to be profitable. Pressure for growth can lead to acquiring time-consuming contracts with problem associations and bidding for new business at unprofitable fee levels. In the end, poor performance undermines the confidence of potential clients in all firms.

Lack of respect, low fees, and an inability to compensate and retain competent personnel were high on the list of complaints that management company executives in three cities (Tampa, Chicago, and Newport Beach, California) expressed to University of North Florida business professor Steven Williamson. His research was conducted in 1989 and sponsored jointly by the CAI Research Foundation and the IREM Foundation.

Williamson connected all three complaints to a vicious circle inflicted not by association boards but by the management companies themselves. He called on management companies to break the circle by making better business decisions.

Several companies are experimenting with different structures in order to meet the challenge of profitable management. Association Management, Inc. of Houston uses a team approach, dubbed "Mates" by President David Regenbaum, PCAM. Taking advantage of the company's size, Regenbaum assigns groups of associations to a team of accounting, maintenance, and board-relations specialists.

Art Hiban, CPM[R], CAM, of Hiban, Graffius Management Ltd., in Rockville, Maryland, has organized his business along the lines of a law firm, with each of the partners rewarded based on the performance of his or her accounts. Hiban further niches his firm by restricting the types and sizes of associations it will handle.

Other companies have succeeded by eliminating the typical account executive position in the firm and using customer service representatives instead. Success has also been reported by companies that have minimized client contract through managing by exception.

The latter technique may be an effective answer to another challenge of management--managing the small association. Barton and Silverman reported a median association size in California of only 41 units. Worse still, they found that the median size of more recently created associations was 32 units. Who will manage the small associations of the future, and how will they do it?

Many questions remain to be answered. And while there are a number of forums for addressing the questions and sharing solutions, management company executives seem to have difficulty in being open with one another. The combination of business braggadocio and competitive paranoia stymies most efforts to get at the truth.

How to handle conflict

Community associations are not very good at handling conflict. Association board members, as well as managers, are not trained in conflict resolution, and the legal documents to guide them usually point to win-lose or lose-lose outcomes.

Social forces are also at play. The rise of consumerism in the 1970s and the training of segments of the population in assertiveness should tell boards that their members will not be pushovers when it comes to enforcing rules against them or when the members bring complaints to the board.

The increasing number of senior citizens living in community associations adds another factor to the equation. In his research for the state of Florida, Williamson found that seniors were more likely than other age groups to stick to their guns and were more savvy in pursuing complaints or resisting enforcement efforts directed at them. One explanation is that they have had more experience in pressing grievances. This proved to be particularly true for seniors with labor union backgrounds.

On the other hand, experiments sponsored by the American Bar Association and the American Association of Retired Persons demonstrated that seniors can also be effective mediators in disputes.

Clearly one answer is more reliance on arbitration and mediation programs. Many attorneys are providing for arbitration and informal administrative dispute mechanisms in documents being drafted today. But in addition to structure, there must be training. In essence, conflict-resolution skills are people skills, and the need for these skills within associations ties back to the discussion of leadership training.

Board members need these skills, but so do managers and management staff members. As an advanced-level curriculum for managers, a course in conflict-resolution training would not be a bad idea.

Without these private methods of conflict resolution, disputes may play out in the state legislatures. Some bodies may copy the approaches of Australia and of Montgomery County, Maryland, and mandate a government-sponsored process.

Other legislatures may follow the pattern of Texas, California, Virginia, and Florida and react on a case-by-case basis, fashioning new law to resolve problems brought to them by homeowners who were unable to achieve a satisfactory solution with their boards. That kind of legislation usually is not good law, for it imposes new requirements on all associations in response to the need to fix a problem with a few.

The challenge to you

It should not go unnoticed that the IREM Foundation and the CAI Research Foundation have been at the forefront in gathering information about these future challenges that now are not so far away. And CAI and IREM have been following right behind in many instances with education, articles, seminars, publications, and services. Yet more needs to be done if we are to take charge of the future.

The community association, as it passes age 30, finds itself in a different world from the 1950s and early '60s. To survive, it must adapt. Diversity has replaced homogeneity, assertiveness has superceded conformity, and both government and corporations operate under openness mandates and public scrutiny.

Property rights have been so modified that the next Restatement of Servitudes (the ultimate legal reference work on covenants) is likely to confirm the demise of the ancient rule that covenants must "touch and concern" the land. One person/one vote is slowly replacing one lot/one vote in community-association law.

At the same time, the community-association concept is being stretched, sometimes beyond its capacity, to govern retirement communities and mixed-use developments. New thinking and a good deal of research remains to be done before we find the right techniques to govern and manage new development forms, especially in projects where there are conflicting interests. The presence of aging residents in retirement communities and trends of redevelopment or adaptive reuse of today's residential or commercial project must be anticipated and accounted for.

For tomorrow's community association development, owners must ask attorneys whether covenants and other documents represent the latest thinking and innovations. Attorneys must ask managers and occupants whether governance systems and controls have worked. And planners and researchers must continue to create forums that allow managers and residents to test new ideas, question established practices, and apply new values.

[Douglas M. Kleine, PCAM, recently capped a 24-year career of service to condominium and homeowner associations. His government service includes providing staff direction for a federal interagency task force dealing with condominium underwriting and legal documents. From 1979 to 1990, he was a key staff member of the Community Associations Institute, most recently serving as senior staff vice president. Currently he is executive vice president of the Soil and Water Conservation Society, an international membership organization promoting good land and water use.]
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Author:Kleine, Douglas M.
Publication:Journal of Property Management
Date:Sep 1, 1992
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