Staying Away from Impropriety Avoiding Conflict of Interest

 One of the trickier problems to deal with when you live in a co-op or condo is  dealing with board members who sometimes let the power go to their heads. Even  though they are entrusted with a great deal of responsibility in the smooth  running of the building, it’s vital that board members don’t use their position to create a situation where they are setting themselves up  for a conflict of interest dispute.  

 “Conflicts can arise in all facets of association management,” says Bonnie Bertan, president of Association Advisors, a property management  company in Freehold. “Typically the conflict would arise at the board and management level. This is in  large part because the management company is typically responsible to bid  services and the board makes the hiring decisions directly. There are cases  where the conflict could extend to committees such as a procurement committee.”  

 Nothing undermines a community’s faith in their leadership faster than things like impropriety and self-dealing  amongst the board/management team, or even the implication that these things  might be going on.  

 “If a management company has painting contracts or landscaping contracts or  janitorial services in which they are a principal owner and hires one of these  companies without disclosing that they have ownership or a stake in them, that’s a conflict of interest,” says Jim Evans, CPM, and president of the Institute of Real Estate Management  (IREM). “From the board standpoint it’s the same thing. Often we get a brother, sister, uncle or whomever that are in  that business and they push to have them added to the list without disclosing  their relationship.”  

 In these cases, the board member stands to profit financially from mixing his or  her two interests and may be tempted to put the interests of the business ahead  of the interests of the building. When that happens, the board member runs the  risk of breaching his or her fiduciary obligation to the building.  

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2 Comments

  • In a multi-building co-op, residents send a letter to the Board demanding that an action of the Board be reversed. The letter does not threaten litigation. A director who joined the Board after the action was taken signs the letter. Does that create a conflict of interest? In a co-op with more than one building, don't all directors have a conflict when they consider whether money should be spent on some but not all buildings? Those whose building receives the improvement have a conflict in that they benefit from spending the money. Those whose building does not receive the improvement have a conflict because they benefit if the money is not spent. How should this be handled?
  • Our by proprietary lease refer to owners as shareholders. It specifies that board members are shareholders. Therefore can an occupant serve on the board of directors.