Some co-op boards are notoriously strict, and there are questions to ask the condo board. However, even in the case of a problematic board member, they owe you a fiduciary duty. Most boards take this seriously, mainly since there are legal ramifications for both the board at large and the individual members. But, you should know what this duty entails, and if your board is violating it.
What is a fiduciary duty?
The board must make decisions in good faith, with the shareholders’/unit owners’ best interest in mind. In fact, the board must place these interests above his/her own. The duties are similar to a corporation’s board of directors, which are outlined in the New York Business Corporation Law (BCL) section 717.
Since shareholders have given the board special influence and power over the property and the residents’ interest, there is also a unique obligation. This includes acting in good faith, undivided loyalty, and honoring the letter and spirit of the governing documents.
How to recognize a breach
There are obvious cases, such as theft, where the board has not acted in others’ best interest. There are other, more nuanced cases, though. A board member cannot engage in self-dealing, or when he/she gains an advantage that is not available to the other shareholders or unit owners. Anytime a board member gets a special deal or unique treatment, he/she has engaged in self-dealing and has breached his/her fiduciary duty. For instance, if the board member hires a contractor at an inflated price in exchange for doing work on his/her apartment at a below-market rate, he/she has breached his/her fiduciary duty. In fact, a board member should not receive anything of value in exchange for services rendered or products purchased.
A board can seem all-powerful, but a member cannot take his/her feelings out against you based on personal issues. This is an abuse of power.
The board also must treat all shareholders or unit owners the same, applying the rules equally. A board member cannot use his position to enforce the rules against some residents, and not apply it to others.
However, merely entering into a bad deal is not a breach of duty. Exercising poor business judgment does not qualify, providing the board acted in good faith. Courts will protect the board in these circumstances. The board can adequately discharge its duties by gathering financial and legal advice from accountants and lawyers. A board member can have a conflict of interest, providing he/she discloses it and there are no special deals. Optically, the board member should abstain from voting on the matter to avoid the appearance of impropriety, however.
If you find your board has breached their fiduciary duty, you can file a civil suit against the individual, or even the entire board. It is advisable that you consult with other shareholders or condo owners and seek legal advice. A lawyer will pore over the board minutes, and you can too. Director’ and Officers’ (D&O) liability insurance typically does not cover these types of claims, likely making the board member personally liable for damages.