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. 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 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). According to Stephen Chiaino, a real estate attorney with Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wolf & Carone, LLP. “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.”
It’s also worth noting, says Thomas O. Moriarty, a partner at the law firm of Moriarty Troyer & Malloy in Braintree, Massachusetts, that “While unit owners often believe that the board, or board members, owe them a fiduciary duty, this is not technically the case. As regards board conduct, the only fiduciary duty that exists is that owed by the individual board members to the organization of unit owners. That being said, the unit owners are entitled to – and can demand that – the board comply with certain requirements imposed by the governing documents.”