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Legal Considerations for Kentucky Condominium Associations

This is not legal advice. These comments are collected from practices in condominium associations but may not be applicable to your situation and should not be relied upon for any legal action.
To obtain legal advice, please contact our condominium attorney.

First Steps - Get the Legal Background
The first thing a board of directors ought to do is familiarize itself with the documents creating the association and consider whether the organizational documents are adequate to continue operations. Board member should examine carefully the enforcement provisions. If you do cannot locate copies of the association's documents, you may need to contact an attorney for assistance. Our attorney affiliates have offered to assist associations in getting organized. Look for banner ads on this page.

Association Board Member Basics

Association board members are elected by the membership, typically at the association's organizational or annual membership meeting. Some boards have elected directors and officers take their seats immediately; other boards have new members take their seats at the next meeting. Following the election of any new board members, the meeting may turn to electing the officers of the board. Boards generally have four officer positions: president, vice president, secretary and treasurer. Some governing documents allow for the combining of the secretary and treasurer positions. The officers are tasked with specific duties and responsibilities related to the operation of the association and the board, as detailed in the association's Bylaws. All directors need to maintain an active interest in the operation of the association, as it's the entire board of directors, not just the officers, who have the responsibility for ensuring that the association operates in compliance with the governing documents and the law.
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President
If the association has a managing agent, the board president should act as the main point of contact with management regarding the operation of the association and be the person who provides the association manager with instructions. A single point of contact prevents the confusion that can sometimes result from mixed messages from individual board members being relayed to the manager regarding the same subject. This makes the most sense as the individual holding the office of president guides the board throughout the decision making process, establishes the board's meeting agendas and ensures that the conduct of business follows the agenda as well as basic principles of Robert's Rules of Order.

Vice President
The vice president assumes the duties and responsibilities of the president in his or her absence.
 
Secretary
The secretary is responsible for keeping the corporate record book or association records and the minutes of meetings and for validating association documents for various purposes as well as for handling correspondence when necessary; 
Treasurer
The treasurer is responsible for ensuring that the financial records of the association are properly kept. The treasurer must also review the monthly financial statements for accuracy, but the association's accountant is responsible for validation of the accounting through a mandatory annual audit, review or compilation. Thus an accountant for this purpose ought to be a CPA. The actual completion of the bookeeping duties may be delegated to the management company, but the board and its officers are not relieved of their responsibility by such delegation. The oversight of the finances is the non-transferable obligation of the treasurer and ultimately the board. The treasurer, other board members, and management's authority to approve expenditures should be granted and approved by a vote of the board and recorded in the association's minutes. 
Managers
 
It is appropriate that the association hire, or designate, a manager. The association manager is a liaison to the board, owners, residents, and to all of the vendors and professionals who do business with the association. The manager attends meetings, provides information, receives instructions and carries out tasks as assigned by the board. The manager assists with the many various aspects of operating an association including budgeting, collections, vendor contracts, property inspections, and compliance issues.
 
Board Member Basics
 
New Board Members
There are some important details of which all board members should be aware. Each new board member should be given a workbook containing the association governing documents, a copy of the most current meeting minutes, financials, and other pertinent information that new directors need to know. New directors have the responsibility to educate themselves about the association. They should make it a priority to become familiar with the items in the board book.
 
 
Prudent Businessman Rule
An association is a partnership in certain ways, but usually operates as an association or another entity for limiting liability, e.g., a business entity, llc or corp, or not-for-profit corporation. Corporation and LLC entities may have additional rules (e.g. KRS Ch.271 & 273.) The directors and officers are expected to act as prudent businessmen.
 
In the Commonwealth of Kentucky, it appears that the annual meeting must be open to the members (See, e.g., KRS 381.9177), but monthly board meetings have no such requirement. Arguably, a special meeting would likewise be open to owners, but that may depend on the agenda. Owners have a right of access to the financial records (See, e.g., KRS 381.9197(1)), but not necessarily a right to attend board meetings.
 
While Kentucky statutes do not mandate open monthly meetings, the Master Deed or Deed of Covenants or the bylaws can do so. For regimes created after January 1, 2011, or for regimes that have not already provided special meeting call rules (KRS 381.9103), unit owners having twenty percent (20%) of the votes in the association can call a special meeting of the association and propose an amendment to add such a provision (KRS 381.9177).
 
Directors and officers often meet at the same time. For meetings, the president or manager provides meeting packets to each director and officer several days prior to the meeting. Members should review the contents and come to the meeting prepared to conduct the business of the association and to vote on items placed before the board on the meeting agenda. After the meeting, the secretary should add relevant items from the meeting packet to the board's corporate record book.
 
The board must make decisions as a group at duly called and noticed board meetings. No one board member makes any decision alone -- the board votes and the majority rules. It is possible to use consents for specific actions, but board members are still bound to the responsibility of deliberation. Typically, the board president does not vote and serves as the tiebreaker should a split decision result. A president (as well as the other officers and directors) should avoid making decisions without a vote of the board. If circumstances force a president or a director acting in his absence to make emergency decisions without board approval, the president should have the board ratify (confirm) the decision at the next board meeting and that action should be documented in the minutes.
 
The board's legal authority to act on the owners' behalf is found in the association's governing documents (Master Deed or Deed of Covenants, Bylaws and Articles of Incorporation) and in state statutes that provide for the general authority and responsibilities of all corporate boards of directors.
 
Delegation of Authority
 
The board's role is to govern the association and set the policies, standards, procedures, programs and budgets for the association. The board is ultimately responsible for the operation of the association. Boards may delegate implementation of their decisions to their association manager, committees or to independent contractors. Although the board can direct or empower the manager to take certain actions on behalf of the community association, the board is still responsible to the owners.
 
The Board of Directors' responsibilities include:

• Care, maintenance and enhancement of the physical property, common areas, and facilities
• Management of community finances
• Risk management, including obtaining insurance and developing reserve funds
• Establishment, enforcement and interpretation of rules and regulations
• Preservation and promotion of community harmony

Board members have the responsibility of balancing the needs and obligations of the community as a whole with those of individual owners. They have the duty to be careful with the association's assets that are placed in the board's trust. Board members have a 'fiduciary duty' that requires directors to act within their authority, to exercise due care, and to act in good faith and with ordinary care that they believe to be in the best interest of the association. Board members are required to avoid conflicts of interest and acting out of self-interest. They are also required to act as reasonable people in managing the association's affairs and must exercise reasonable 'business judgment' in making decisions.

The business judgment rule imposes on boards the responsibility for understanding association operations and researching the business decisions they make before acting. Essentially the business judgment rules says that if the board acts in what they believe to be in the best interests of the association--in an ordinarily prudent manner, after reasonable inquiry--then they're not liable even if the decision turns out to have been a poor one. The business judgment rule also requires board members to exercise duty of care and the duty of undivided loyalty.

 
Some General Duties
Duty of care requires boards to act in accordance with the law and the association's governing documents, and to use the care and skill that a prudent person would use in similar circumstances. Boards can rely on information, opinions, reports, and statements prepared by their committees, the management company, legal counsel, CPA, and other advisers, provided that they use the input to act in good faith and with no knowledge that their actions are inappropriate.
 
Undivided loyalty is the most stringent duty that the law imposes on board members. As a fiduciary, a board member cannot in any sense be in conflict. He or she must act for the sole good of the association at all times. That means avoiding conflicts of interest and not allowing self-interest to interfere with their duty to the association.
 
Board decisions that comply with the governing documents and the law will usually be upheld as long as the board acted reasonably and in good faith. However, directors who act outside the scope of their authority are generally not protected by the association's director and officer insurance and may be held personally liable.
 
Second Step - Adopt a Budget and Current Rules
The second step for the new board is to ensure that a proper budget is in place and if not, then to rememdy that situation immediately. To see a sample budget, click here. This budget is for demonstration purposes only and may not be accurate. The Board must also inform itself of the state of the rules. Some tightening may be in order.

 
As to what the association can assess, Courts generally only granted "late fees" and "attorney fees" if they are authorized in the Master Deed or Covenants, Conditions and Restrictions. These are the only association documents that provide public notice to a purchaser. Late fees in the Bylaws, Rules and Regulations, or adopted in Minutes may not be approved by a court. We work with attorneys who can assist your association to amend the Master Deed (or CCRs) to insert a late fee provision.
 
Third Step - Have a Cleanup Meeting
The third step in organizing or re-organizing an association is to create proper procedures and rules and circulate them among the owners. Give notice to all owners that the board is doing its part and will be enforcing the rules. Hold a "cleanup" meeting in which the new or more strict procedures are explained. Be mildly compassionate when the grousing starts, but hold firm to the strictness on current matters. Catching up arrearages is the place for a little flexibility, but never let an owner keep falling further behind.

Fourth Step - Enforce
Finally, the final step in the getting started category is to begin cleaning up and collecting past due accounts and enforcing the rules openly and equally. Once the prerequisites are in place, the board can turn to normal operations and smoothing out procedures.

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