What is Compliance - and Why It's Important

 Compliance in business settings means following the law, agreements with customers, agreements with vendors, and engaging in generally accepted good business practices. Sometimes it seems like forcing compliance is picky, expensive, and annoying. However, it usually reduces business risk and saves money over time.

One example of compliance is following correct procedures when doing work in condo apartments. It may seem easier and cheaper to get work done with unlicensed contractors and not get permits. However, as we have seen with the recent situation with the windows, this can lead to serious problems including higher costs and loss of money when a vendor does not deliver as promised. When making a contract with a licensed contractor, consumers can recover their financial losses from unfulfilled contracts from a state fund set up for that purpose. That is not availailable with unlicensed contractors. Also, when work requires a permit, a licensed contractor is required to pull it in a condo. So it is better to have a contract directly with a licensed contractor than an unlicensed one that will subcontract work to a licensed contractor. That's why our architectural change forms have a space for contractor license number. Your contracts for work in your condo should be set up to require Association approval before it is finalized. Most work in condos beyond repairs, appliance replacements, simple painting, and handyman work require a contractor to pull a permit.

Another hidden cost of non-compliance with renovation projects in condos involves insurance. If the insurance coverage of the contractor is not what the Association insurance company requires, this could result in Association insurance costs increasing. This means contractors without liability and workmans compensation insurance put all owners at risk of higher Association fees to cover higher insurance costs if the Association does not enforce contractor insurance requirements to comply with our insurance company requirements. 

Also, all insurance companies, our Association's and the companies underwriting your individual homeowners policies, assume that required permits are obtained for work done in buildings. If there are widespread violations in a building or association, insurers may drop policies or raise prices for those buildings regardless of which units have violations. The problem is that risks in one condo unit affect possible losses in other units. Even seemingly unrelated items can increase risk perception by insurance companies because they doubt that permits are properly pulled for anything. That increases their expected risk of damage from all problems including fire and water damage even when permit violations have nothing directly to do with that. Also, in many cases, there are safety issues involved in addition to just the financial costs.

Non-compliance in any area decreases an organization's reputation for honesty and integrity. This generally affects business relationships and the ability to conduct business more efficiently at lower costs. This includes terms of contracts, interest rates, insurance premiums, and regulatory issues. For example, a company doing our structural reserve study would probably be more likely to give us reasonable terms for rebuilding our reserves if we are compliant with current requirements and demonstrate a detailed knowledge of what our shortfalls are and have good policies in place to fix them. If we look competent and honest, we might get several years to build up our reserves to required levels. However, if we look incompetent or dishonest, we may be required to either borrow or assess owners for the full required amount immediately because we are not perceived as reliable to consistently build up reserves over time on our own.

These problems become even more serious when Association officers have a direct role in violations by publicly promoting non-compliant activity or obviously engaging in it. Business partners of the Association such as insurance companies may consider associations with officers doing that to be a higher insurance risk because it appears systemic violations are being encouraged. Higher risk means higher costs for everyone. 

Compliance issues are not exciting. In many cases, it seems like shortcuts to avoid compliance are the "clever" thing to do to save time and money. However, over the long run, compliance keeps costs down and improves safety for everyone. Not complying with the rules costs your neighbors in safety risk and possible higher insurance rates. Even your own savings may be less than the added costs resulting from non-compliance due to higher insurance rates, denied insurance claims, fraud, and unsafe conditions.

Association officers who help you "get around" the rules are probably not doing you a favor. Even if things work out for you in one situation, you were probably exposed to greater risks that you luckily avoided. It's also a certainty that your neighbors are exposed to higher risks for your short-cuts - and your neighbors get no benefit.