A FIELD GUIDE FOR BOARD MEMBERS
Using Residents as Vendors
Michael Rome, Esq.
This article is not a substitute for consulting with legal counsel in your State regarding the specific fact situation.
This marks the first installment of a series for Board members about commonly faced questions and issues. Many of these challenges
require a combination of legal, political and practical solutions. Hopefully these articles will be useful for Board members in determining
what is in the best interests of the Association.
I am often asked whether or not the Board should hire a resident to provide services for the Association. I usually reply that I’ve
never seen it turn out well. Perhaps there are some situations where it went well using a resident, but typically it’s not a good idea.
It is understandably tempting to hire a resident when you consider the savings over commercial vendors and the Board’s easy
access to a service provider who lives on property. Ironically, these same apparent advantages contain the seed of future problems.
Part of the discount on price comes from the resident’s lower overhead, like costs of travel, office expenses, etc… Unfortunately,
this lower overhead often includes lack of insurance and proper licensing. Of particular concern is the absence of liability coverage, which
can be disastrous in the event of injury to a third party. Since the Association’s insurance policy probably doesn’t cover independent
contractors, the Board is in greater danger of being sued for negligence in their selection of the vendor.
Another reason it can cost less to hire a resident is their lack of expertise. In short, you are hiring an amateur instead of a
professional. Landscaping is a popular example. Anyone who cuts their own lawn believes they can handle the landscaping for the
subdivision. Of course, the absence of expertise can result in much greater costs down the road when there is an error of judgment.
This brings up another important point. Will the resident vendor have the cash flow and assets to correct a mistake? Is the Association
going to be reimbursed for something like expensive plants that quickly died.
For one reason or another, the relationship between the resident vendor and the Association will usually break down. This type of
breakup often involves strong feelings, and to make it worse, there is less of a buffer because the angered vendor lives right there in the
subdivision. The situation can begin a long and painful neighborhood feud. Better to avoid such dilemmas in the first place by not hiring a
There is only one scenario that is worse than using a resident vendor…using a resident vendor who is also a Board member.
Not only does this business relationship have all the down sides mentioned above, but now there is the issue of a financial conflict. I will
go into more detail about Board conflicts in a later article. For now, suffice it to say that it is a horrible idea. Founded or unfounded, some
homeowners are already suspicious of Board members, and wonder “where all their money is going”. These suspicions can only be
greatly compounded by the fact that the Board member is making money from the Association.
What if a Board does not heed the above warnings and still insists in hiring a resident vendor? The Association’s insurance
carrier should be contacted to see if it is possible to add the resident to the policy. Also, a full written contract should be executed by the
Association and the resident…one that includes an ‘indemnification clause’ whereby the resident agrees to reimburse the Association for
any damages caused by the resident. The contract should be drafted and/or reviewed by the Association’s attorney.
On a final note, I would suggest that a resident making money off of the Association is rarely in the best interests of the