Responsibility and accountability go hand-in-hand when it comes to acting as a board member for either a condominium or co-op. Board directors face a wide range of decision challenges that may lead to disgruntled unit owners bringing a lawsuit against either an individual director or the board itself.
With around 6,000 cooperative buildings in New York City alone, these types of disputes are far from uncommon. However, the Business Judgement Rule offers broad legal protections for board members so long as they follow their good faith and fiduciary duties.
What is the Business Judgment Rule?
Under Section 717 of New York’s Business Corporation law, directors must perform their duties with a level of honesty, good judgment and care that an ordinarily reasonable person would exercise under the same circumstances.
The Business Judgment Rule is an important court precedent that holds that a board or board members acting in the interest of shareholders and in good faith may not be subject to liability or court interference in the course of administering their community.
When might the Business Judgment Rule not apply?
While the Business Judgement Rule grants directors broad discretion in making decisions, the rule only provides protection when directors follow the law. Willful legal wrongdoing, including self-dealing, dishonesty or discrimination based on sex, age, race or religion, may preclude any such protection.
How can board members prevent potential lawsuits?
To prevent potential disputes or liability claims, directors should make sure that they study and fully understand all corporate documents, including proprietary leases, offering plans, bylaws, house rules and certificates of occupancy. Additionally, it is crucial that directors enforce the terms of these documents uniformly, without individual preference or exception.