CAI CAP2 cheat sheet

Order of authority among governing documents: statutes and recorded law first, then the recorded declaration (CC&Rs), then bylaws, then board-made rules and regulations, then individual board resolutions; a lower document cannot conflict with a higher one.

Declaration amendments generally require approval by a supermajority of owners (commonly two-thirds or 67 percent) plus mortgagee consent where required; bylaw amendments usually carry a lower threshold set in the bylaws themselves.

Board fiduciary duties are the duty of care (act as an ordinarily prudent person would in similar circumstances) and the duty of loyalty (place the association's interest ahead of personal or business interests).

The business judgment rule presumes a board acted properly when the decision was made in good faith, within the board's authority, after reasonable inquiry, and without a conflict of interest.

Conflict of interest procedure: the interested director discloses the relationship, abstains from the vote, and leaves the discussion; the disclosure and recusal are entered in the minutes.

Covenant enforcement normally begins with written notice identifying the specific provision violated, the corrective action required, a cure period, and the consequence of continued noncompliance.

Enforcement must be uniform and non-discriminatory; inconsistent enforcement of the same covenant against different owners supports a selective enforcement defense.

Quorum and voting thresholds are fixed by statute and the governing documents, not by board motion, and cannot be lowered by a board vote.

Board authority is limited to powers granted by statute and the governing documents; action outside those powers is void or voidable even if the board votes unanimously.

Percent funded = actual reserve balance divided by the fully funded balance, multiplied by 100; a low percentage indicates collected reserves fall short of the inflation-adjusted cost of reserve components.

Straight-line reserve contribution for a component = (current replacement cost minus the balance already saved for that component) divided by remaining useful life in years.

Total owner assessments = budgeted operating expenses plus reserve contributions, minus expected non-assessment income such as interest, fees, and rentals.

Assessment allocation among units follows the percentage of ownership or common interest stated in the declaration; equal per-unit splits apply only where the documents say so.

Special assessments require the owner vote or board authority specified in the governing documents and statute; absent that authority, the board cannot levy one.

Standard financial reporting package: balance sheet, statement of revenues and expenses, budget-to-actual comparison with variances, and statement of cash position or cash flows.

Levels of CPA reporting: a compilation provides no assurance, a review provides limited assurance, and an audit provides the highest assurance with an opinion on the financial statements.

Reserve funds are held separately from operating funds; inter-fund transfers require documented board action and a scheduled repayment.

Pooled (cash flow) reserve accounting spreads contributions across all components in one fund, while component (straight-line) accounting tracks a separate balance and contribution for each component.

Maintenance categories: routine (scheduled recurring work), preventive (services that extend component life), corrective (repair of a reported defect), emergency (immediate threat to safety or property), and deferred (postponed work whose cost rises over time).

A reserve study has two parts: a physical analysis (component inventory, quantity, useful life, remaining life, replacement cost) and a financial analysis (fund status, percent funded, and a funding plan).

Risk treatment options are avoidance (eliminate the activity), reduction (controls and maintenance), transfer (insurance and contractual indemnity), and retention (deductibles and self-insured amounts).

The association's master property policy covers the building shell and common elements; unit owners insure interior betterments, personal property, and loss assessment through an HO-6 policy.

Directors and officers coverage responds to claims arising from governance decisions; it typically excludes fraud, personal profit, and bodily injury, which fall under general liability or workers' compensation.

A fidelity or crime bond covers theft or dishonesty by anyone handling association funds, including board members, managers, and employees; the limit is commonly tied to reserve balances plus annual assessments.

Before work begins the association obtains a certificate of insurance and confirms it is named as an additional insured where the contract requires it.

Whether workers' compensation applies depends on worker classification: employees are covered by the association's policy, while properly classified independent contractors carry their own coverage.

Inspections, incidents, and corrective actions are documented in writing, because contemporaneous records support both insurance claims and defense against liability claims.

Board meetings are generally open to owners; closed executive session is limited to topics such as personnel, pending litigation, contract negotiations, delinquencies, and legal advice.

Owner forum is a defined agenda item allowing owners to address the board; time limits and speaking rules apply uniformly to all speakers.

Mediation or other alternative dispute resolution is frequently a prerequisite to litigation under statute or the declaration, and arbitration clauses may be binding on both parties.

Written communication is the standard for board decisions and commitments; verbal assurances create inconsistent expectations and are difficult to enforce or defend.

A single designated spokesperson delivers the board's message to owners, media, and vendors so the association speaks with one voice.

A new-owner welcome packet typically contains the governing documents, rules, assessment schedule, architectural request procedure, contact list, and meeting schedule.

Owner requests are logged with date received and date answered; a stated response standard makes performance measurable and defensible.

Owner surveys and town-hall sessions are used before budget season to rank priorities and reduce opposition at the annual meeting.

Information about identifiable owners, disciplinary matters, and legal advice is not disclosed in open session or in general owner communications.

Employee versus independent contractor classification turns on control: who directs how the work is done, who supplies tools and sets hours, and whether the worker serves other clients.

Misclassification exposes the association to payroll tax liability, workers' compensation gaps, and benefit claims, so classification is documented at hire.

A common board policy requires at least three comparable written proposals for major contracts, compared on scope and qualifications as well as total cost.

Contract essentials: identity of the parties, scope of work, price and payment schedule, start and completion dates, termination rights, insurance requirements, indemnification, and dispute resolution.

The board approves contracts above a dollar threshold set by policy; the manager executes contracts only within delegated authority.

Vendor conflict of interest is handled by disclosure and recusal of any director or manager with a relationship to the bidder.

Progressive discipline follows documented steps, typically verbal warning, written warning, final warning, then termination, with a record of each step and the employee's response.

Performance management relies on a written job description, scheduled evaluations, and objective criteria rather than undocumented impressions.

Final payment to a contractor is released after punch-list completion and receipt of lien waivers, so unresolved defects and lien exposure are not left open.

Standard order of business: call to order, roll call and quorum confirmation, approval of prior minutes, officer and committee reports, unfinished business, new business, adjournment.

Minutes record date, location, attendees, quorum, motions made, vote results, and decisions taken; verbatim discussion, personal opinions, and remarks about individuals are excluded.

Motion procedure: a motion is made, seconded, discussed, voted on, and the result recorded with any abstentions noted.

No binding action may be taken without a quorum, which is usually a majority of the board unless the bylaws set a different number.

Voting may occur in person, by proxy, by absentee ballot, or electronically only where statute and the governing documents authorize the method.

Written consent in lieu of a meeting permits action without convening the board, but is valid only if statute and bylaws allow it and, in many states, only if unanimous.

The annual meeting typically includes director elections, presentation of the financial report, reserve status, and an owner question period.

Record retention is governed by a written schedule: governing documents, minutes, and deeds are kept permanently, while financial, tax, and contract records follow statutory retention periods.

Owner requests to inspect records are answered within the statutory timeframe, with copying costs chargeable and personnel, litigation, and privileged files withheld as permitted by law.