Community Association Terms

Meetings

Abstention: When a participant in a vote either does not go to vote (on Election Day) or, in parliamentary procedure, is present during the vote, but does not cast a ballot.

Agenda: An agenda is a list of meeting activities in the order in which they are to be taken up, beginning with the call to order and ending with adjournment.

Amend a motion: Amend a motion is used to modify another motion. The motion to amend takes three basic forms:   Inserting or adding words or paragraphs.   Striking out words or paragraphs.   Striking out words and inserting or adding others, or substituting an entire paragraph or complete resolution for another.

Ballot: A ballot is a device used to record choices made by voters. Each voter uses one ballot, which are not shared.

Committee report: These reports should highlight matters to be decided and recommendations by the committee. Supporting research should be included in the reports. Committees need to clearly state the actions they are asking the board to take And you should provide your committees with a suggested format for their reports and a sample.

Executive session: When a board must hold a discussion or make decisions of a sensitive nature. The topics that commonly require an executive session and are allowable by law usually include personnel issues, contract negotiations and discussions, lawsuits and other legal matters, and governing document violations.

Financial report: This is a report on the community’s financial condition and activities, including a general ledger, variance, accounts payable, income statement and balance sheet.

Majority: Over 50% of the votes needed to win an election. The majority vote can come from those owners who attend the meeting, in person or by proxy, to decide all matters except special issues.

Management report: This is the manager’s report on the association’s current management and administrative activities.

Minutes: The minutes of a meeting document the decisions made during the meeting. This provides a permanent public record of positions and actions taken by the board.

Motion: A formal proposal stating that the association took a certain action.

Notice of meeting:

Parliamentary procedure: The body of rules, ethics, and customs governing meetings and other operations.

Plurality: Awards the election to the candidate with the most votes, regardless of whether or not they received the majority.

Proxy: Proxy is the agency, function, or power of a person authorized to act or vote in place of another member who could not be present.

Quorum: Quorum is the number of members required to be present to transact business legally. That number is established in the association’s by‐laws.

Robert’s Rules of Order: A book that provides common rules and procedures to use during a meeting in order to place the whole membership on the same footing and speaking the same language.

Second a motion: Generally, once the motion has been proposed, consideration by the assembly occurs only if another member of the body immediately seconds the motion.

Table a motion: Incomplete items on the agenda should be rescheduled, or tabled, for another meeting.

Timed agenda: A more specific agenda that limits the amount of time focused on specific areas, so as to move the meeting along at a more thorough and prompt pace.

LEGAL BASIS FOR COMMUNITY ASSOCIATIONS

Articles of incorporation: Bring the corporation into existence, define its basic purposes and powers, indicates if stock will be issued, and indicates whether there will be a board of directors.

Bylaws: Formally adopted governing regulations for the administration and management of a community association. CC & Rs (Covenants, Conditions & Restrictions): The governing documents that dictate how the homeowners association operates and what rules the owners—and their tenants and guests —must obey. These legal documents might also be called the bylaws, the master deed, the houses rules or another name. These documents and rules are legally enforceable by the homeowners association, unless a specific provision conflicts with federal, state or local laws.

Community association: A group of owners who wish to provide a communal basis for preserving, maintaining, and enhancing their homes and property.

Condominium: A living unit fully owned by an individual with an undivided interest in the common elements of the community.

Cooperative: Wherein an individual owns stock or membership in the cooperative, and holds a proprietary lease or occupancy agreement for his or her living unit.

Declaration: Declaration is used interchangeably with CC & Rs.

Governing documents: Documents which provide for the legal structure and operation of the community.

Indemnification: To indemnify and hold harmless means to exempt an individual or entity from responsibility for claims made against the organization and to reimburse the individual or entity for damages or expenses incurred as a result of such claims.

Master association: An organization of homeowners in a large condominium or planned unit development (PUD) which includes representatives from other, smaller homeowner organizations.

Mixed use development: A development which is designed to mix two or more "uses" of land together (i.e. a shopping center which offers office space for dentists).

GOVERNANCE AND LEGAL ISSUES

Planned community: the most common type of community association, where an owner owns his or her lot and/or living unit and the community owns any common areas, such as tennis courts and roads for the use and benefit of the lot owners.

Public offering statement: A disclosure statement prepared by a developer that contains all material facts about a property offered for sale and that must be provided to a prospective purchaser in accordance with applicable state or federal law.

Resolution: A resolution is a motion that follows a set format and is formally adopted by the board of directors.

Statute: A formal written enactment of a legislative authority that governs a country, state, city or county.

COMMUNITY MANAGEMENT

Ad hoc committee: Used when an objective needs consideration and no standing committee within the organization can absorb that issue into its scope. Usually these committees are used on a short‐term basis, such as temporary oversight of an issue or review of the standing rules of that community.

Board liaison system: Directors are assigned to certain committees to guide the committee on Board policy and procedures and to report back to the Board. Directors serving as a liaison must distinguish their role from the role of the committee chairperson.

Business judgment rule: If a board has exercised reasonable business judgment in making a decision, the court will generally not consider the board negligent in its fiduciary duty, nor will the court substitute its judgment for that of the board. However, the board must demonstrate how it has taken care in reaching a decision. It is up to the court to decide if the board has exercised reasonable business judgment.

Fiduciary duty: Requires directors to act in the best interests and for the benefit of the corporation, thus the community as a whole. This fiduciary duty has two components: one, the members are required to avoid conflicts of interest and acting out of self‐interest; and two the members are also required to act as reasonable people in managing the association’s affairs.

Management ethics: The term “ethics” refers to the specific choices to be made by an individual in his or her relationships with others. Professional ethics are the rules or standards that govern the conduct of members of a profession. The assumption is that the special expertise held by members of the profession holds them to a high standard of trust by others.

Management plan: A management plan is a statement of goals and objectives approved by the board. It includes the yearly cycle of tasks that management should perform on the community association’s behalf.

Standing committee: Committees which have a continued existence and are not related to the accomplishment of a specific, once‐only task. Budget and nomination committees are examples of standing committees.

RULE DEVELOPMENT AND ENFORCEMENT

Alternative dispute resolution: Mediation, arbitration and other ways of resolving conflicts with the help of a specially trained neutral third party without the need for a formal trial or hearing.

Appeal: A request for a review of a case by a higher authority—if permitted by the governing documents or statute.

Default hearing: A hearing held when the alleged violator fails to appear.

Due process procedure: a formal process designed to protect the rights of all parties involved.

Hearing notice: This is a written notice to an alleged violator that a hearing will be held to consider his or her alleged violation.

Hierarchy of authority: Rules and architectural guidelines may not contradict or be in conflict with the legal sources that take precedence over them. Although rules and architectural guidelines are lower in the hierarchy of authority for community associations, they may clarify and expand a community’s governing documents—but may not conflict with the other governing documents.

Rule: A specific statement of required behavior whose violation carries a penalty (sometimes called a sanction).

BUDGETS, RESERVES, INVESTMENTS, AND ASSESSMENTS

Assessment: An assessment is the owner’s financial obligation to the community association during a given period of time—usually one year.

Chart of accounts: An organized list of titles, descriptions and assigned numbers of all accounts in an organization’s general ledger. The assigned number helps you locate the account. The title describes the purpose of the account.

Discretionary budget line items: These are items based on owner, board and committee desires. They are items people would like to have—given their values, lifestyle, and preferred level of service (e.g. social and recreational expenses, and picnic areas).

Expenses: Expenses are the cost of goods and services used to operate and maintain the community’s property.

Full funding: The goal of this funding strategy is to attain and maintain the reserves at or near 100 percent as called for on the component inventory.

Historical trend budgeting: This method begins with the assumption that existing line items are needed. The amount of funds allotted to each during the current year is adjusted for expected changes in the coming year.

Major improvement expenses: Major improvement expenses consist of items that are not necessarily required, but are added to improve the overall welfare, safety or life of the residents—or to enhance the value of the community association as reflected in the resale value of units.

Operating budget: The section of a budget devoted to operating activities includes operating expenses and major improvement expenses—but not the replacement fund.

Operating expenses: Operating expenses are those items that occur on a regular basis—day to day, week to week, month to month, and year to year.

Reconciliation of expenses and revenue: After you draft both your operating and replacement fund budgets for the coming year, you must reconcile your estimated expenses with your community’s anticipated revenue. To reconcile means to bring together after a difference.

Replacement fund: The replacement fund consists of funds put aside—in reserve—for the replacement of major components of a community’s common property.

Reserve cash flow statement: Shows the amount to be funded and the amount to be expended from the replacement fund over a given period of time.

Reserve study: A reserve study is a budget planning tool that considers the current status of the replacement fund and determines a stable and equitable funding plan to offset the anticipated future major common area expenditures.

Revenue: Revenue consists of the collective items or amounts of income which, in the case of a community association, are appropriated for public expenses.

Threshold funding: This method is based on the baseline‐funding concept. The minimum reserve cash balance in threshold funding is set at a predetermined dollar amount.

Zero-based budgeting: With this method, all line items are set to zero and the amount of funds allotted to each must be justified.

BUDGETS, RESERVES, INVESTMENTS, AND ASSESSMENTS

Acceleration: The collection of all assessments due through the end of the fiscal year. For example, if an owner’s payments on the annual assessment are due monthly and become delinquent at the end of March, all monthly payments through December of that year are due immediately.

Assessment: An Assessment is the owner’s financial obligation to the community association during a given period of time—usually one year. It covers the owner’s share of the common expense, also known as “common expense liabilities” in some states.

Bad debt write‐off: A bad debt write‐off consists of recording an uncollectible debt as an expense that the association must absorb. This usually requires a resolution of the board.

Chapter 7 bankruptcy: Chapter 7 is called straight bankruptcy or liquidation. It involves the prompt conversion of all the individual’s or corporation’s non‐exempt property to cash, and payment of creditors to the extent possible.

Chapter 11 bankruptcy: Chapter 11 is called a reorganization because it is designed to allow for an orderly payment to creditors that enable a corporation to continue.

Chapter 13 bankruptcy: Chapter 13 is used to reorganize personal or non‐corporate debt. A plan is submitted to a judge for paying off all or nearly all of the debt over a specified period of time.

Fair Debt Collection Practices Act: Requires that the person who owes a debt receive written notice.

Foreclosure: Foreclosure is a legal proceeding filed in court whereby a party with a claim against an owner can claim ownership of the unit involved in order to recover the money it is owed. The unit is usually auctioned by the court and sold to the highest bidder.

Lien: A lien is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. Placing a lien on an owner’s property protects the community association’s interests.

Personal money judgment: A decision by a judge to allow the community association to claim the owner’s personal property to settle a delinquent account.

FINANCIAL STATEMENTS, AUDITS, INCOME TAXES & INVESTMENTS

Accrual basis of accounting: This method records income when it is earned (or assessed to owners) and expenses when they are incurred or acquired.

Assets: Assets include anything owned that has value. Unlike commercial businesses, however, the actual land and buildings of the community association are not generally shown as an asset.

Audit: An examination of the accounting records and procedures of an organization by a CPA for the purpose of verifying the accuracy and completeness of financial records.

Balance sheet: A balance sheet is a summary of a community’s financial position at a specific point in time.

Cash basis of accounting: This method records income when it is collected and expenses when they are paid.

Certificate of deposit: When a CD is reinvested together with its accumulated interest, the ultimate yield will be higher than the stated rate of interest.

Commercial reporting method: Combines operating and reserve activities in the same column, as opposed to fund reporting, which consists of preparing separate columns for operating, reserve and any special funds.

Compilation: A presentation of financial statements by a CPA without the assurance that the information conforms to GAAP.

CPA: Certified Public Accountant is an accountant who has passed certain examinations and met statutory and licensing requirements of a US state.

Engagement letter: When your community hires a CPA, he or she will send an engagement letter. An engagement letter describes the nature of the work to be done, type of report to be prepared, fee for services and time frame for the assignment.

FDIC: Federal Deposit Insurance Corporation, a government agency that guarantees investors’ deposits in member institutions. Fund reporting method: Consists of preparing separate columns for operating, reserve, and any special funds.

GAAP: Generally Accepted Accounting Principles. Their purpose is to provide uniformity among reports from different organizations.

Investments: Investments involve the purchase of anything with money value for the purpose of generating additional money over time (e.g. savings accounts, certificates of deposit, U.S. Treasury securities and stocks).

Investment yield: Yield is simply the return received on the investment.

Liabilities: Liabilities consist of what is owed to others or collected in advance (e.g. owner assessments received prior to the billed month).

Members’ equity: Members’ equity is called the fund balance under the fund method of reporting. It equals the difference between the community association’s assets and liabilities.

Modified cash basis of accounting: This method records income and expenses on a cash basis with selected items recorded on an accrual basis. Modified cash varies in format depending on the number of items accrued.

Net income: Net income is the amount left after deducting expenses from income.

Net loss: A net loss occurs when expenses are greater than income.

Notes to financial statements: The notes accompany the CPA‐prepared financial statements. These footnotes provide additional information to help the reader understand the community association’s financial situation.

Representation letter: A letter from the CPA that states that the information the community association provides is true to the best of its knowledge.

Statement of cash flows: This is a summary of the flow of funds into and out of the community association. Summaries are prepared for normal operations, investment activities, and any borrowing activities.

Statement of income and expense: This report records the community association’s financial transactions during a given period of time—generally for a given month plus the fiscal year to date. It is a way to keep track of the community’s financial activity.

Treasury bills: Treasury bills are short‐term instruments that mature in 13, 26, or 52 week periods. They are issued in minimum denominations of $10,000. Anything larger must be in $5,000 increments. As soon as one is purchased, the buyer receives the promised earnings. Then, when the bill matures, the buyer receives the face value (value indicated in the wording of the T‐bill).

Treasury bonds: Treasury notes mature in one to 10 years. Treasury bonds mature in more than 10 years. Both notes and bonds are issued in denominations from $1,000 to $100,000. They are also interest‐bearing with interest paid every six months. When the note or bond matures, the buyer receives the full face value.

RISK MANAGEMENT & INSURANCE

Actual cash value (ACV): The depreciated value of an item.

Advertising injury: Advertising injury provisions in CGL (comprehensive general liability) include language providing coverage to the community association with respect to damages resulting in “misappropriation of advertising ideas or style of doing business” or “infringement of copyright, slogan or title.”

Agreed amount endorsement: Provides for an agreed upon limit of property insurance.

Coinsurance: Coinsurance is a standard element in most property policies that obligates the insured to maintain a certain limit of property insurance based on a stated percentage.

Common declarations: This section of the policy is like the title page of a book. It typically includes such information as the name and address of the insured and the period of coverage.

Common policy conditions: These are the basic provisions that apply to all insurance coverages in the package. For example, when to file proof of a loss or what happens when a premium is not paid.

Contingent liability: Covers the value of any undamaged portion of a building which may have to be replaced because of building laws.

Contractual transfers: This involves entering into a contract that will, among other things, transfer the community association’s legal responsibility for any loss.

Cross liability: Cross liability allows an owner to bring a claim against his or her community association. This coverage is in the owner’s interest. It is standard for owners to be insured in liability insurance for condominiums and cooperatives, while planned communities must see to it that this concept is present in their liability coverage.

Directors and officers liability insurance: This insurance is designed to pay for damages arising from wrongful acts that do not lead to property damage, bodily injury, advertising injury, or personal injury.

Electronic data processing (EDP): This insurance may be needed for computer equipment, networks, websites, security systems, protection from hackers, and similar information technology exposures.

Endorsements: Endorsements expand, contract or clarify coverage.

Exposure avoidance: This involves avoiding the circumstances that would expose the community association to certain type of loss.

Extra demolition: Covers the value of demolishing any undamaged portion of a building.

Fidelity insurance: This insurance protects against employee dishonesty which may lead to the theft of money, securities, or property. HO-1,-2, -3, -4, -5, -6 policies: HO‐1, HO‐2, HO‐3, and HO‐5 refer to policies for owner‐occupied units. HO‐4 is a tenant’s policy. HO‐6 is a policy for a condominium or cooperative unit owner.

Liability exposure to loss: Liability losses arise when a person or entity threatens or actually brings a legal claim against the community association, its members or others whom it must indemnify by contract (such as a management company).

Personal injury (PI): Injury arising from libel, slander, false arrest, invasion of privacy, wrongful entry, or malicious prosecution.

Personal property: Inventory, furniture, fine arts, equipment, supplies, machinery, electronic data processing (EDP), and valuable papers and records.

Policy forms: Policy forms define the type of insurance coverage provided, for example, property, liability and boiler and machinery. The forms also define how comprehensive each type of coverage is—what is included and what is excluded.

Property exposure to loss: Property losses can be to tangible community association property (buildings and contents) or to intangible association property (information, proprietary Web site, etc.).

Real property: Real property includes buildings, land, and the newest type of property exposure.

Risk financing: The process of obtaining resources to pay for any financial consequences of accidental loss.

Segregation of exposure: Segregation of exposures involves the duplication or separation of property exposures to loss.

Third-party insurance: Liability coverage purchased by an insured (the first party) from an insurer (the second party) for protection against claims of another (third party).

Waiver of subrogation: The insurer waives its right to require the association to transfer recovery rights to the insurer regarding unit owners.

PROPERTY MAINTENANCE

Emergency services maintenance: This is the ability to respond to unpredictable problems (for example, sewer backups, slope failures, roof leaks and frozen pipes). The key to a successful response to an emergency is to anticipate the different possibilities—and to develop a plan for responding to each one.

Facilities management: The process of operating, maintaining, repairing, and replacing common property—that is, the common elements or areas.

Inspection report: An inspection report—commonly called a “punch list”—is a compilation of all the maintenance needs identified during an inspection.

Maintenance contact sheet: A useful management control to record various maintenance services and information needed in case of an emergency.

Maintenance record: While the maintenance calendar tells you when maintenance ought to be done, the record tells you when it actually was done.

Management control: Any means used to track, record, remind or command attention; usually these means are forms or documents.

Preventive maintenance: This is periodic maintenance to avoid disruptive breakdowns and to prolong the useful life of the physical asset in question.

Requested or corrective maintenance: This is maintenance requested by an owner, a tenant, or the board—or identified during routine inspection of the property.

Responsibility chart: A management control you can use to keep track of who is responsible for the maintenance of various property elements or areas.

Scheduled replacement: This consists of replacing physical assets as they wear out or break. Scheduled replacement is considered a part of maintenance because it addresses the useful life of a physical asset.

Work order/response form: A work order is a form for assigning work to be done in any one of the five maintenance programs described earlier.

CONTRACTING

Assignability provision: This provision states that neither party may assign its obligations under the contract to any other person without the express written consent of the other party.

Bid request: Also known as request for proposal (RFP). An announcement that an organization is interested in receiving proposals for a particular project.

Bid specifications: Detailed instructions about the products or services requested through the bid request. All contract terms should be included in the bid request.

Contract: A contract is an agreement between two or more parties—enforceable by law—by which each party promises to do, or not to do, something.

Default: Failure of either party to fulfill the terms of the contract.

Entire obligation provision: This provision states that the written, signed contract constitutes the entire agreement between the parties.

Governing law provision: This provision states that the law of a particular state will be applied if there are any disputes about the contract after it is signed. This is particularly useful when the community association and the contractor are based in different states.

Modification provision: This provision states that the contract may not be modified in any way unless such modification is written and signed by both parties.

Payment bond: This bond comes in a package with the performance bond. The surety guarantees that the contractor’s suppliers and any subcontractors will be paid if the contractor does not pay them.

Performance bond: This is a guarantee by a surety (a third party) to protect the community association if the contractor fails to perform or finish the work. Because there is a cost to the community association involved, a performance bond typically is used with certain large projects.

Progress payments: Partial payments based on some demonstrable progress in completing the work involved.

Prospective bidder’s questionnaire: Also known as qualification sheet. This is a document that asks for certain types of information to determine if the bidder is technically and financially qualified to handle a job of this scope.

Qualification sheet: Also known as prospective bidder’s questionnaire. This is a document that asks for certain types of information to determine if the bidder is technically and financially qualified to handle a job of this scope.

Request for proposal (RFP): Also known as bid request. An announcement that an organization is interested in receiving proposals for a particular project.

Severability provision: This provision states that if a court finds that any clause of the contract is illegal or unenforceable, that clause shall be severed (separated) from the rest of the contract, so that the whole contract need not be invalidated.

Waiver of lien: A document which gives up the right to make a claim against the community association for payments not received.

Waiver provision: This provision states that a waiver (permission) by one party of any breach of contract (failure to fulfill a provision) by the other party shall not act as a general waiver of future breaches.

Warranty: A warranty should state what is covered, for how long, and what the contractor will do if the work or product proves defective.

HUMAN RESOURCE MANAGEMENT

Employee handbook: Also known as a personnel manual. The employee handbook summarizes company behavior requirements, outlines benefits offered and also gives tools that can be used to enforce disciplinary action if needed. Employers design handbooks to answer employees' questions before employees ask them and to advise them on company policies that an employee might have never considered.

Employment at will: This is a statement to the effect that the community association retains the right to dismiss an employee without cause at any time.

FICA: Federal Insurance Contributions Act. This act requires employers and employees to make matching contributions to Social Security. The employer must withhold the employee’s share of the tax from his or her wages or salary.

FLSA: Fair Labor Standards Act. This act addresses minimum wage requirements, maximum hours of work and overtime pay.

Job description: A job description is a specific description of the required duties of a position, skills and knowledge necessary to perform required duties, and reporting relationships of the position.

OSHA: Occupational Safety and Health Administration: The agency responsible for promulgating rules, setting health and safety standards, and overseeing enforcement, whether by direct federal effort or by relying on state enforcement programs.

Performance evaluation: The process of reviewing a person’s work performance to determine the extent to which his/her established goals and standards have been met.

Performance goals: Those regular and special tasks management expects an employee to perform during a certain time period.

Performance planning: Performance planning is the process of establishing performance goals and standards for an employee.

Performance standards: A description of the results management expects an employee to accomplish during a certain time period. They are reflected in the criteria used for performance evaluation.

Personnel manual: Also known as employee handbook. The personnel manual summarizes company behavior requirements, outlines benefits offered and also gives tools that can be used to enforce disciplinary action if needed. Employers design handbooks to answer employees' questions before employees ask them and to advise them on company policies that an employee might have never considered.

Progressive discipline system: A procedure whereby performance problems are brought to the employee’s attention and the employee and employer take appropriate actions to correct them.