Owners Association Budget, Common Areas, and a Manager's Conflict
A 120-unit mixed-use building has an owners association with an annual service charge budget of BHD 480,000. Collection is at 68%, leaving a BHD 150,000 shortfall. The common areas manager, who is also a part-owner of two units, has awarded a BHD 90,000 cleaning contract to a company owned by his cousin without tender, and has signed a three-year lift maintenance agreement exceeding the budget line by 25%. The association's reserve fund of BHD 200,000 has been used to cover operating shortfalls. Several owners have stopped paying, citing visible decline in cleanliness and a broken lift. The manager proposes a special levy of BHD 2,000 per unit to restore the reserve.
1. Evaluate the manager's decisions against owners association and common areas governance requirements.
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Several governance failures stand out.
Procurement and conflict: awarding a BHD 90,000 contract to a relative's company without competitive tender, and without declaring the interest or recusing himself, is a clear conflict of interest. Material contracts should go to tender with documented evaluation and board approval; interested parties must declare and step out.
Authority limits: signing a three-year agreement 25% over budget without board authorisation exceeds any reasonable delegated authority and commits owners to future liabilities not approved by them.
Reserve fund misuse: the reserve exists for major repairs and replacements, not to plug operating deficits. Using BHD 200,000 of it for operating shortfalls undermines the long-term maintenance of the building and may breach the association's financial rules.
Service failure: the visible decline and broken lift are direct consequences of underfunding and poor procurement, which in turn feed non-payment, creating a downward spiral.
The special levy proposal treats the symptom. A BHD 2,000 levy across 120 units raises BHD 240,000, but without fixing collection, procurement, and reserve discipline, the shortfall will recur.
2. What steps should the association's board take, and how should it address the 32% non-payment?
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Immediate governance steps: require the manager to declare his interest in the cleaning contract and refer the matter to the board; review whether the contract and the lift agreement can be varied, terminated, or ratified properly; and require all future contracts above a threshold to go to competitive tender with board approval.
Financial steps: separate operating and reserve accounts and adopt a written policy on when reserves may be used; commission an independent review of the last two years' expenditure; and prepare a transparent budget showing the true cost of restoring services.
On non-payment: distinguish those who cannot pay from those refusing. For refusals, enforce the association's rules and the applicable recovery route, with demand notices and, where permitted, statutory or contractual remedies. For hardship cases, agree documented payment plans. Crucially, restore visible service and publish clear accounts, because owners citing decline will not pay into an opaque fund. The levy should be reconsidered only after collection improves and the governance issues are corrected, and any levy must be properly resolved and communicated with its purpose and timing explained.