The General Counsel Model

Community Associations are like mini-Corporations

Condominiums, cooperatives, and homeowners associations are often referred to as “community associations.” This is with good reason; the associations usually govern a neighborhood of friends and people who regularly interact with one another in a social setting. For that reason, their governing boards of directors can often fall into the trap of operating in an informal manner – after all, they are just dealing with friends and neighbors, so they can kind of “wing it.” And they are only volunteers, so their decisions really do not have a huge impact. Plus, they hired a professional management company to really run things.

Wrong. These entities, regardless of how small they are, how friendly their neighborhood is, or how few responsibilities they actually have, are legally established entities with rights, responsibilities, and laws governing their conduct. They are often incorporated or otherwise created by statute, and the rules that govern them are a complex net of cases, legislation, and contractual obligations. And the association board is held to the same standard as any other corporate board. Truthfully, the title of this section does not go far enough; it should say that community associations ARE corporations. Period.

Corporate Legal Departments

Building off of that concept, then, a community association would be wise to observe and mimic what successful corporations do. First, of course, is the decision regarding management, who will assist in locating, receiving bids from, hiring, and supervising vendors. But keep in mind here too – an engaged corporate board does not just sit back and let management tell it what to do – they set goals and identify problems, and then ask management to assist in creating a strategy for how to reach those goals or remedy those problems.

Any successful corporation has general legal counsel that it relies upon for guidance on issues dealing with the law, either in-house or a law firm that they rely upon for guidance, advice, policies, defense, litigation, and more. The largest and most successful business leaders often have a cadre of attorney at their disposal, for business matters, for personal issues, for tax considerations, and more. Corporations break these departments into all sorts of subsets – just look at the various roles that attorneys at Google are asked to undertake, and the missions they carry out. The community association board should be no different – well, at least in some respects. Below are some ways in which the community association attorney functions seamlessly with a community board client – acting, as I like to say, as a true “general counsel.”

Legal Department Budget

Whether it be Target or a local Irish pub, every corporation should start with a line item in the budget for legal expenses. In fact, (and this will probably be a future blog topic here – or at least it’s a common rant of mine), our society seems to have developed a generally warped sense and understanding of the value of legal services. It is simple enough to identify some reasons: many legal services are done pro bono, some law firms offer contingency fees (you don’t pay unless we win!) for certain types of cases, and many legal services are associated with unpleasant experiences (divorce, criminal, bankruptcy, etc.). So having to spend money on those is doubly distasteful.

But here’s what savvy business owners – and community boards – know very well: money spent on an attorney can frequently save you significant money down the line. So rather than avoid that expenditure altogether – penny wise and pound foolish, some might say – they set out a portion of their budget that they expect to spend on that legal work that will ultimately help make them more efficient/profitable.

So talk with your attorney at the outset of the year. Set out the goals you would like to accomplish; prioritize and rank them. Get a cost estimate for each, and talk with the attorney about grouping or bundling them together to save time. Set out what you expect or intend to spend, and set that as a target to monitor. (And keep in mind – corporate legal departments will come in over or under budget – often times due to circumstances outside their control or not predicted.) Monitor your legal spending over the course of several years, and identify factors that cause it to increase or decrease. Craft your legal budget into not just a guess or a wish (or the lowest number you can think of), but a true projection of what you intend to do.

What a Lawyer Does

Sue people. Keep people from getting sued. Wear a Suit. Take down high ranking naval officers. These are all obviously part of the day-to-day excitement of being an attorney.

Beyond that though, a good board knows what matters should and should not go past their attorney. At FLS we have the Pyramid of Services to help clients understand the options available to them and what matters an attorney can assist them with. Or take a look back at the Google link from above. Here are some things that one of the smartest and successful companies in the world has its lawyers do:

Collaborate with internal clients and outside counsel to assess issues and risks facing Google and our products, conduct research, negotiate contracts and support other legal needs.

Shape product and issue agendas with policymakers inside and outside government. Advise internal product teams on the public policy implications of their products, working with a cross-functional global organization.

Risk-assessment. Policy-setting. Contract negotiation. Advise on the implications of decisions.

Now, does every community association have all these needs? Not really! But the point is instructive: a corporation can use its attorney for more than just fighting over money or covenant violations.

Think about issues that are facing your association, or projects you want to tackle to improve the quality of life in your neighborhood. Have your attorney review and advise on new contracts. Determine in advance what impact will result from your policies on evolving topics like airbnb or solar energy or charging stations. Find out what insurance coverage you have and how best to use it. See if you need a waiver in place before hosting an event at your community clubhouse. Check to see if your proposed enforcement policy violates owners’ rights, or any way to make it more efficient and effective. Can you sue the commercial development down the street for decreasing property values, or protest a nearby zoning change that might impact your residents?

The role of an attorney, or a corporate legal department, can be broad-sweeping and heavily integrated into the board’s planning, execution, and improvement of its agenda. Your association attorney should be no different in that regard.

An Integrated Legal Department

One key difference between the legal departments we are describing and using as models here and those of the community association is this: those legal departments are fully integrated into their company’s structure and operations. They have regular meetings with the board where they provide reports on projects in progress, receive instruction on upcoming matters, and stay abreast of the outside factors impacting the corporation. They are a part of the corporation, with a vested interest in its success and even growth.

Community association boards often fail to realize that their legal counsel can be just like that. Sometimes it is from simply failing to consider the possibility, and other times it stems from a (well-intentioned but poorly executed) cost-saving mentality. But simply put, legal counsel is best utilized and most able to provide surplus value to a corporation when it has knowledge, context, and understanding of the environment surrounding that corporation. Especially in the 21st century, the simple fact that the attorney is not located on-site has very little impact on the ability to interact with the Board. Email, conference calls, and video interactions can all be useful in keeping the attorney integrated with the Board’s efforts to enhance the community.

Using Legal Advice

You may have noticed (or have previously been aware) that the legal department for a corporation falls under the supervision of the Board of Directors. This is also true for the community association – the attorney for the association is just an advisor to the Board. Often lay people who join their association board will say “just let the lawyer handle it;” in reality, this is a flawed strategy. An attorney can give legal advice, can recommend a certain course of action, can draft or revise a policy for approval, and can do many more supportive and helpful tasks. But the attorney is only a counselor to the board; their advice is only a recommendation. And typically, what you want from your attorney is a guide to the decisionmaking process, often with pros-and-cons listed and weighed, a likely outcome, and possibly a recommendation.

But once all that is presented to the Board, the Board should vote on whether or not to proceed in the fashion recommended. There is often portrayed the stereotype of the corporate worker who is forced to comply with a policy handed down from or mandated by “legal.” In reality, the legal department may have proposed and crafted the policy or procedure, but only the board or executive had the power to impose that policy as a rule. The board reviewed a suggestion or recommendation from legal counsel, probably went through several rounds of revisions and discussions, and then rolled out what it thought was the best iteration of that policy based on the information available.

Association boards and attorneys must interact this same way. An association board may set out a goal it wishes to accomplish, or the attorney may point out a potential risk of liability to be avoided. The attorney may then draft up a proposal or recommendation, and then the Board will review it and either (a) request revisions, (b) vote to adopt it, or (c) circulate it to the membership, as appropriate. The Board neither hands over the legal work to the attorney exclusively, nor does it avoid sending things to the attorney to save money. Rather, the attorney works to support the board’s initiatives on behalf of the community in an advisory and guidance role. The Board can accept, follow, disregard, ignore, consider, or otherwise react to that advice as it sees fit.

Going it Alone

Above we talked about not being penny wise and pound foolish – about taking the opportunity to get a legal opinion on matters up front before diving into them. Of course your response is: “typical greedy lawyer just wants us to pay more legal fees. His job isn’t that hard, and we have lawyers who live in our neighborhood who can help us with these issues. Why not save a buck and do this ourselves?”

The easy answer, to which I alluded, is that doing this will cost you more in the long run. Saving a few dollars on a parking policy by writing it yourself will seem pretty insignificant when you get sued because it violates state law.

But forget the doom-and-gloom for a second. Even if you never get that negative consequence on the back end, talking to your lawyer up front might still be the most cost-effective strategy. First, an attorney may be able to suggest ways to enforce that policy or to resolve your dispute with the nearby commercial development that you never thought of. Second, an attorney might be able to help you streamline or automate your process – it’s happening throughout the legal profession – to get it done more easily on your own. Ask your attorney if they have forms or templates that you can use to get you started, or any important case law or statute that you should reference.

A common example is covenant enforcement. We will take the example of a nuisance. Association Genius gets notified of an alleged nuisance. They call their attorney, who says: “Here is the Maryland Condo Act dispute resolution procedure. Here is a form for the violation notice, what to do at the hearing, and some common pitfalls/omissions.” Board Genius uses this roadmap not only to enforce against this violation legally, but also uses it as a template for resolving future violations. Meanwhile, Board Dullard decides that they know enough to handle the issue. They send a violation notice that is slightly deficient, so the accused owner challenges it in court and wins. The complaining owner then sues Board Dullard for failing to enforce the covenants, and all the while new violations are cropping up that they still do not know how to properly resolve.

You would not do your own brain surgery. You would not fly your own plane if you were not a pilot, or build your own house if you were not a contractor. And even the Supreme Court has held that “a lawyer who represents himself has a fool for a client.” So get a little guidance, and then go forth and create and enforce your policies (or remove your pre-frontal cortex).

Scaling to Fit the Corporation

We have used corporations as a guide and demonstration for some of these concepts as we have gone through, but that may not be an entirely accurate comparison for, say, a 50-home HOA that has only a small front entrance sign to maintain. Truthfully, no two corporations are going to have exactly the same needs, which is why this guide is so important. A wise board can take what we are discussing here an scale it to fit their needs: the budget, the number of consultations needed, the scope of policies to be determined, the frequency of changes and review.

All of these can be scaled to fit your association. If you pay annual assessments, perhaps schedule an annual checkup with your general counsel. Send the attorney a list in advance of the things your board hopes to accomplish or address this year: tracking rentals, hiring a new landscaper, bidding out a roofing contract, etc. Get a one-time omnibus meeting where you get guidance and tips for how to move forward this year, and set a checkup time to confirm things are moving forward (or to get a push in the right direction if need be). You may discover as you go along that your legal needs (and the benefits of using legal counsel) expand quickly.

If your association has a larger budget and more issues to address, put them each onto a timeline, and have regularly scheduled updates – email, phone, video, or in-person – to keep them moving and get the status and any changes. When you are confronted with a legal question, ask counsel: What are our possible options here, and what is the likely outcome of each? Do you have a recommendation? If you are having regularly scheduled meetings, or if you are requesting a one-time annual meeting for all issues, talk to your attorney about ways to bundle or price them efficiently; attorneys are increasingly tailoring the pricing of their services to the needs of their clients. Your law firm may be willing to offer you a flat fee, a capped price, a subscription model, or another alternative to simply paying by the tenth-of-an-hour.

The concepts laid out above (and used by successful corporations) can be scaled to fit the needs of the largest and smallest corporation, and each one in between. Use them wisely to increase the value received from your legal department.

The Attorney-Client Relationship

Association boards occasionally fall into the trap of considering the attorney like any other vendor – waste removal, landscaping, insurance agent. The simple fact is that a true attorney-client relationship involves a significant give-and-take, of providing information and guidance to the attorney, and then considering the advice provided and deciding how to use it (or not use it). Having general legal counsel available for advice and consultation is infinitely more useful than simply reading a written summary dumped into your monthly meeting agenda. So take the time to set expectations, create a budget, involve counsel in policy, use and consider the advice received, find out what you can do on your own, and do it all at the scale that makes sense for you. Instead of being afraid to send anything to the lawyer’s office, emulate successful corporations and send it down the hall (metaphorically) to your legal department, with whom you have crafted a policy, expectations, and a relationship. The corporation you lead – your community – will be better for it.