The board of a condominium, cooperative or homeowners’ 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 that 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 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. For example, according to Michael S. Karpoff, a partner with the Princeton, New Jersey office of law firm Hill Wallack LLP, the New Jersey Non-Profit Corporations Act – which is applicable to most condominium and homeowner associations – and the New Jersey Business Corporations Act – which is applicable to cooperatives – state that members/shareholders, subject to certain conditions, have the right to inspect the books, records, minutes, and membership records of the corporation; and, upon written request, to receive copies of both the balance sheet and the profit and loss statement at the end of the prior fiscal year for that fiscal year.