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Your Board’s Legal Obligations Fiduciary Duty, Disclosure, Meetings, and More

The board of a condominium, cooperative or homeowner’s association has a fiduciary duty to make decisions in the best interest of the community as a whole. But individual board members may have different ideas as to what those decisions might be, and some may even have joined the board more for self-serving reasons than as a way to serve their community. Fortunately, every community has governing documents – supported by state and local laws - that specifically address what’s expected and required of its board. 

While laws obviously vary between cities and states, and of course each multifamily community is different, there are general obligations which a board must uphold on behalf of its constituents, usually pertaining to things like annual meetings, elections, special assessments, referendums and contracts. It behooves both board and residents to be aware of the various limitations under which the board is placed, in order to guarantee maximum accountability.

Fiduciary Duty

Fiduciary duty is the distilled essence of board obligation, which a board can use as a kind of litmus test when facing any decision. ‘Does this decision benefit the collective more than any individual board member, owner, or shareholder?’ is a great question to ask routinely – and should the answer be anything other than a definitive ‘yes,’ some more thought needs to be put into the course of action in question.

“I think that at the most basic level, the duties that the board owes the unit owners and members comes down to that fiduciary duty,” says Jennifer Horan, a senior attorney with the law firm of Becker & Poliakoff in Naples, Florida. “The officers and the directors have to keep the interests of the association above their own. They’re a representative body responsible for administering the association in good faith. They have a duty to abide by any requirements set forth in their governing documents.”

State and city regulations can put a finer point on what a board is required to provide to their community’s residents. In New York, for example, co-ops are mainly governed by the Business Corporation Law (BCL). “My firm represents over 30 cooperative corporations throughout the boroughs of New York City, and in my experience, the majority of them them are formed under the BCL,” notes Stephen Chiaino, a partner with Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wolf & Carone, LLP. “Therefore, the BCL should be referred to as a starting point when considering these issues. BCL § 717 (a) states, in relevant part, that ‘[A] director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.’ Consequently, each decision made by a director must be made in accordance with that standard.” 

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Comments

  • The Illinois ombudsperson act states that complaints by any resident are entitled to a written response, stamped final determination within 180 days. Our management company sent this to the association attorney and got a written response That clarified this rule. They still won’t accept that as the interpretation and had an attorney from the same firm attend a meeting, who added it depends on the complaint. No where does the Illinois ombudsperson act state that as part of the ruling. I desperately need to know if I am wrong or if the board and management are not handling complaints as they should. There is no transparency on how, if at all our complaints on other residents rule breaking actions are handled.