The Hedge | Brutal Honesty Over Hype Since 2008
Most California HOAs hire professional property management companies to handle day-to-day operations. This delegation of management functions is legal and practical for associations of almost any size. But the delegation has limits — certain board responsibilities cannot be delegated to a management company, and boards that allow management companies to exercise discretion beyond their authority expose the association to liability and create governance problems that members bear the cost of.
What Boards Can Delegate
Boards can legitimately delegate to management companies: day-to-day administrative functions (collecting assessments, processing work orders, responding to member inquiries); enforcement of routine CC&R violations per established board policy; vendor coordination and contract administration (within board-approved budgets); preparation of financial reports and meeting materials; and communication with members. These operational functions are appropriate to delegate and practically necessary for most volunteer boards to manage their responsibilities effectively.
What Cannot Be Delegated
Certain board functions are non-delegable under Davis-Stirling and the association’s governing documents: the decision to levy a special assessment; the decision to initiate foreclosure on a member’s property; enforcement decisions in individual member disputes (the board must make the decision, not the management company); approval of contracts above board-established thresholds; decisions about litigation; and the annual budget adoption. A management company that makes these decisions without board approval has exceeded its authority — and the board members who allowed it have potentially breached their fiduciary duty.
Evaluating Your Management Contract
If your association uses a management company, review the management agreement for: the specific scope of authority delegated to the manager; the compensation structure (flat fee vs. percentage, and whether there are incentive provisions that create conflicts of interest); the termination provisions (can the association switch managers without extraordinary penalty?); and the indemnification provisions (does the association indemnify the manager for actions within the scope of authority, and who pays for actions outside that scope?). Management contracts that give managers broad discretion with limited accountability create governance risks that boards rarely notice until a problem occurs.
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