A timeshare resort’s board of directors has a fiduciary responsibility to protect the resort’s assets. This is especially crucial during a crisis. No matter how many contingencies have been planned for, the board must also be flexible to respond quickly to unexpected events. During a recent Timeshare Board Members Association webinar, panelists offered their insights with respect to fiduciary responsibilities during a health crisis. Panel members were:
- Robert “Bob” Bone, attorney, Law Office of Robert M. Bone; Timeshare Board Law Group, LLP; and board president at Olympic Village Inn at Squaw Valley in Olympic Valley, CA.
- Alex Costopoulos, chief legal officer, Innovative Hospitality Partners; and Corporate Counsel, Fantasy World Resort, Kissimmee, FL
- Robert “Bob” Kaplan, board vice president and general counsel, The Rushes, Bailey’s Harbor, WI
Dealing with lessons learned
It takes time to hire an attorney, and more time to hire a good attorney. For that reason, preparation is a must. “It’s very important to establish that relationship in advance,” Costopoulos said. “When an emergency hits, all you have to do is pick up that phone.”
Kaplan agrees on the value of having an attorney, especially since a public-health crisis does impact your resort. “One has to pay close attention. How many people can congregate? How many can be at the pool? An attorney is good at understanding administrative rules.”
As a resort president, Bone refers timeshare owners to his communications team or management, who will then address the issues on what public-health guidelines require.
Having a playbook—Now and for the future
Legal counsel is essential during a crisis because of the rules and regulations that government agencies set forth. When the board develops a general disaster plan, legal counsel can assist in answering legal questions, so the board is prepared. “In the end, the people who make the calls on the ground are the board members,” Bone said.
Costopoulos agreed that asking for legal advice is like having an insurance policy so that the board members are protected. “Have protocols and polices in place,” he said. “When something unexpected comes up, there are new challenges. Get advice from professionals before you act. You are paying for the attorney’s advice.”
Kaplan stresses the importance of board members looking at the big picture during a crisis. How will a crisis affect the budget? How will a crisis affect employees? How can you protect them [employees] in a safe manner?
“Look at long-term issues,” he said, “and not necessarily day-to-day issues which are managed by a general manager and the rest of the staff.”
Defining board member fiduciary responsibilities during the current crisis
Part of the board’s duty is to protect the asset—the resort itself. “In some places it might mean shutting down,” Costopoulos advises. “In other places you might have to increase rentals. To protect the asset, you need to talk to your attorney. You don’t always think of every possible thing that may come up.
Bone recommends not making any big decisions like giving inventory away or selling inventory without counsel from someone who has the foresight to look into the future. “Sometimes the best thing to do is find new solutions to what is available to the resort to stay alive,” he said. “From the standpoint of looking for solutions, beware of short-term fixes.”
Kaplan advocates taking appropriate action to protect the health and safety of employees. “In a small resort, you don’t have a tremendous number of employees,” he said. “It’s critical to protect their health. Communicate to owners the fiduciary responsibilities the board has to the entire resort to keep the resort going.”
Managing the hierarchy of governing documents
Bone encourages board members to review their resort’s Declaration of Covenants, Conditions, and Restrictions (CC&Rs). He said, “Every single year that goes by, there are changes in the laws, protocols, technology…moving as fast as it is. We are in the process of re-drafting all our governing documents. The internet didn’t even exist when our documents were drafted.
“Incorporate all policies boards have made decisions on. Rules reflect what all those policies are. There’s more than Assessment, Billing and Collection (ABC) Policy. Think of your governing documents as your Constitution. You’re the Supreme Court. If the documents are older than 10 years, seriously consider upgrading them.”
Costopoulos asked his board to include an agenda item every year to update the rules. “I ask management to come up with suggestions as the year goes on. Write it down. Rules are done by board folk,” he said. While the board can’t change what the governing documents say, it can fine-tune what’s in the governing documents.
The key point in applying rules is being consistent, Kaplan emphasizes. “You treat everybody the same,” he said. “Boards can get into trouble if you treat some people one way and another group another way. Consistency is important, or a board opens itself up to potential lawsuits for discrimination. ‘You gave this to Joe, but you didn’t give it to me.’”
Communication on legal matters
Kaplan stresses that communication on legal matters is absolutely crucial, having the board communicate to owners the changes made to policies or by-laws. To save costs, emails are used as much as possible. But in some cases, if it’s urgent enough, Kaplan said, he will send a letter to explain policies.
“It’s critical to have those policies communicated,” he said. “Communication is vital in this day and age. The key is to make it understandable.”
Bone agreed that effective communication is vital. “Recognize your limitations,” he said. “Make sure you’ve got more than one set of eyes on what goes out. Lean on your management companies. You’re paying for those services. Don’t try to do it yourself.”
During these strange times, boards are being updated via new technology. Costopoulos said that Zoom meetings during the months of quarantine worked out and are not a problem. “We’re doing the best with what we’ve got,” he said.