Fiduciary Duty What Boards & Owners Should Know

 Being elected to the board of directors of a condominium association or  cooperative comes with a great deal of power, and with that power also comes a  great deal of responsibility. Whether they serve a condominium association or  cooperative community, board members have a responsibility to govern and make  decisions on behalf of that community—a burden often referred to as the board's “fiduciary duty.” Decisions made on behalf of their fellow residents must be made in good faith,  with the best interests of the community firmly in mind, and violating this  duty can lead to legal consequences for boards and individual board members who  stray.  

 Fiduciary Duty in a Nutshell

 The fiduciary duty in the condominium association or cooperative board context  arises out of the special relationship that exists between directors and the  shareholders and property owners who place their trust in these directors. A  fiduciary relationship can be formed in other types of relationships such as  attorney/broker-client, or even clergyman-congregation member.  

 “Most community associations in New Jersey are corporations. Each officer and member of an association board therefore owes a fiduciary duty—a duty of trust—to the association and its individual unit owner members,” says Eric F. Frizzell, a partner with the Glen Rock-based law firm Buckalew  Frizzell & Crevina LLP. He continues, “This duty is comparable to the obligation that a corporation's board of  directors owes its stockholders and includes a duty to preserve and protect the  common elements and areas for the benefit of all of the association’s members.  

 “This fiduciary relationship also requires that a community association board act  consistently with New Jersey law and the association’s own governing documents,” Frizzell continues. “A board must act in the best interests of the whole association and its unit  owners, not out of personal interest, fraud, self-dealing, or in an  unconscionable, arbitrary, discriminatory, or bad faith manner.”  

 “A fiduciary duty arises when one person places his trust in another person and  as a result of that act of faith, another person gains a position of power and  influence such that he is in the position to hurt the person who places faith  in him,” says attorney Bruce Cholst, a partner with the law firm of Rosen Livingston & Cholst LLP, based in Manhattan. “At that point, he has a special legal obligation, which would not otherwise have  existed but for the fiduciary duty, to refrain from doing anything that  violates his fiduciary’s interest.”  

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3 Comments

  • I own one share of common stock at a condo in NJ. As a shareholder/director I have witnessed major violation of by-laws by the President of Board of Directors and The Executive Board of Directors that prevent me from fufilling my fudiciary duties, no accountability in the use/ abuse of assets. As a senior non-assisting living co-op the shareholders are being intimidated and made to feel that if they speak they will be retaliated agains. Several directors have just been fired or forced to resign. There are 24 directors of which only four have been allowed to continue to remain on the board but have been warned not to voice their opinion. The shareholders here are in need of legal help!
  • Well it seems that the disclaimer is prety broad. When criminall malfeasance or gross and obvious negligense occurrs what then?
  • We live in a waterfront Conor of 51 homes ,had a window blow out twice due to high winds he wants to replace the windows with sliders to mitigate the danger of another window failing and injuring someone in addition to sliders he wants balcony to fit into the harmonious look of the complex Board put the request out to the homeowner and the plan was rejected ,as people. We're in fear of loosing there view of the oven which the feel they paid for. Architect feels views will be impacted minimally.. The project was going to be funded by homeowner. Other concern raised was about setting precedent for changes by other residents ,we have been threatened with legal action by the homeowners and the owner wishing to mitigate his hazard.. Any thoughts ?