Condo board membership and fiduciary duty

| Sep 30, 2020 | real estate litigation |

When unit owners of a condominium or shareholders of a co-op elect members to a board of managers or directors, they entrust those members with a great deal of power. From handling association finances to developing and enforcing property regulations, board members have an ethical and legal duty to put the interests of the association first, a legal concept known as “fiduciary duty”.

This unique level of responsibility is similar to the fiduciary duty that applies to corporate boards of directors under New York’s Business Corporation Law, which states that board members must act in good faith and with due diligence while carrying out their duties.

Common forms of fiduciary breach

Every decision that a board member makes on the association’s behalf must put the organization’s interests first and treat all unit owners equally and fairly. Members who use their power to promote their own self-interest run the risk of breaching their fiduciary duty, leading to potentially severe legal penalties.

Some of the most common forms of fiduciary misconduct include:

  • Pursuing personal vendettas: a board member may have a grudge against a unit owner that leads them to make decisions based solely on personal feelings rather than association rules.
  • Engaging in Discriminatory Conduct – Make sure you know the classes protected from discrimination in your location. New York City, for example, has several classes that are not covered by state or federal protection
  • Violating the duty of confidentiality by disclosing confidential or privileged information received in the capacity as a board member.
  • Seeking personal profit: known as self-dealing, members may breach fiduciary duty by deriving personal profit from their position. Self-dealing may be as minor as accepting a gift or as major as promoting a vendor with personal financial ties. Another example may be where a board member rejects a prospective purchaser in order to be able to purchase the unit themselves.

An individual may not realize that their actions, perhaps innocently taken, constitute a breach of their fiduciary duty. New members should therefore educate themselves thoroughly on their responsibilities as breaching a fiduciary trust may leave the co-op or condo and the director exposed to personal liability for money damages and potentially punitive damages.