Negotiating Guidelines

 on the Trumpets Lease Agreement

or
a potential lesson in assuming or abrogating responsibility

Sitting in on a recent meeting of the Finance Committee, I was comforted to learn that the Board had assumed control of the budgetary process. How did they demonstrate this control? They did so by providing the Finance Committee with very clear and specific guidelines, detailed assumptions, and defining the role of the Finance Committee in preparing the 2007 budget. While this was likely an annual exercise, with similar guidance provided in past years, it had the appearance that the Board was at a minimum in control of the process, as they should be. After all, our Board has a heightened fiduciary responsibility to the community for their collective actions in running the business of the Association.

Now, turning our attention to the Trumpets lease, the obvious question is whether the Board has exercised similar control over the Trumpets lease negotiations?

While we might prefer to assume so, it's not that clear the Board is really in charge of the negotiations, even though some members of the Board are on the negotiating team, like Dea McDonald, Favil West and Bob Berman. While the Board has a fiduciary duty to uphold legally binding contracts, such as the Trumpets lease, it's not that clear where the negotiating team is on that particular duty.

For example, aside from what the parties may allege, can members of the Board simply abrogate their duty selectively insofar as enforcing certain terms of the lease? Say, for example, the Board decides to not fully enforce the terms of the lease on unpaid rent, or potentially more significantly, with respect to revenue sharing proceeds. Do those acts constitute a breach of their fiduciary duty? These and similar questions may need to be explored. Ultimately, though, the entire Board will have to assume responsibility for the outcome of these negotiations.

Some have suggested the Board may be looking for a way to avoid these responsibilities (and any potential liability) by outsourcing their fiduciary duty to the community at large by holding a vote. It’s unclear how (or if) that might work. But, in the end, will the wisdom of the masses prove to be a suitable or even an acceptable substitute for the elected duty of the Board to lead and decide? While some may be comfortable with this approach, many will not be so easily convinced.

But, really, how is the Board actually managing the Trumpets lease negotiations? One would like to believe that the Board has, as with the budget, set forth very specific guidelines, provided detailed assumptions and constraints, and closely defined the authority of just what the negotiating committee can and cannot do. Anything substantially less than that, the appearance given is that some members on the Board may have effectively abdicated their fiduciary duty to others. But as the stakes in the matter continue to grow, now approaching a potential unpaid liability conservatively estimated at $200,000 by some estimates, with uncertainties yet to resolve that could boost that number far higher, individual Board members must be becoming increasingly concerned on where this effort is headed.

Whatever may be decided between the Association the lessees of Trumpets insofar as the future is concerned, our seven member Board should insist on certain basic, minimal negotiating guidelines with respect to the past. Perhaps they have done so.

What should those minimum guidelines look like? While that’s up to the Board to determine, here are some suggestions for the Board to consider.

1.   The terms of the existing contract must be fully enforced, without any exception.

2.   Any monies owned pursuant to the terms of the contract must be paid in full.

3.   Assume there is no risk associated with enforcing the contract, despite any possible claims to the contrary. To assume otherwise is to invite one-sided negotiations to the complete disadvantage to the Association.

4.   Modifications to the current agreement should not be addressed until all amounts owed under the lease have been paid in full.

5.    Prior claims, if any, should be evaluated and addressed by the Board. However, issues pertaining to any prior claim should have no bearing on (1) and (2).

6.   There can be no satisfactory conclusion to the negotiations until the forensics auditing firm is completely satisfied that they are in possession of all necessary data on which to make a determination of potential liability under the revenue sharing provisions.

7.   That the auditor’s complete report, findings and conclusions be made available on the Association’s web site prior to any community survey or Board decision on the results of the negotiations.

8.   The negotiators are to regularly update the Board of the status of negotiations with respect to meeting these guidelines.

9.   If the Board finds the negotiators are unable to proceed to a mutually agreeable settlement relying on these guidelines, the Board shall meet in Executive session for the purpose of determining how to proceed.

10.  Default must be viewed as a viable option if an acceptable resolution is not forthcoming.

Clearly, it's conceivable the Board may have already adopted clear and specific guidelines of the type noted above, or something more or less specific than these. Given three newly elected and appointed Board members, however, is it reasonable to presume that our new Board members are not only cognizant of the guidelines under which our negotiators are operating but also the status of those negotiations?