Condo Media - October 2010 - 27

by Ellen Shapiro, Esq.

In Everyone’s
I
have to warn you, this is not a clever or witty article. However, it does attempt to explain very basic, but extremely important, concepts for board members. Feel free to call me if you want to hear the latest joke of the day or a cute story about my brilliant and gorgeous grandchildren (all of whom take after their grandmother). However, every now and then I like to show my serious side and try to impart some important condominium-related information. So, here goes. As a community association lawyer, I frequently get calls from board members or property managers concerning various fact patterns that arise out of the exercise of board duties and responsibilities. The caller generally says: “I have a question about fiduciary duty” and then goes on to recite the facts. For example: A contract has been awarded to a board member who has a painting company, or a board member is telling a unit owner not to worry about nonpayment of common fees when the majority of the board has voted to send the matter to association counsel for statutory lien enforcement. However, what exactly is meant by fiduciary duty? To whom does the duty belong — one board member or the entire board? To whom is it owed — fellow board members,

Fiduciary Duty Defined and Explained

BEST INTEREST
individual unit owners or the association as a whole? Simply stated, a fiduciary duty is the duty to act in the best interest of another. As an example, I, as an attorney, have a fiduciary duty to act in the best interest of “another,” (i.e., my clients). Similarly, governing boards of community associations have a fiduciary duty to act in the best interest of “another,” (i.e., the association). However, like all simple statements, this duty is easier said than done. What does “act in the best interest” of the association mean?

Terms Defined
First and foremost, “the association” means the association as a whole and not any particular group of members, even if that group is 100 percent of the owners. Clearly, it is in the best interest of the association to have sufficient funds to conduct the association’s affairs, despite the fact that all the members of the association don’t want to pay any common area fees. Second, “fiduciary duty” as it applies to board members means the board, as a whole, is obligated to act within their authority as found within the statute and the governing documents of the association, to exercise “due care,” and to act in “good faith.” (It is important to note that the board acts as a whole,

even when its members are not in agreement. Unless the governing documents provide otherwise, boards act through the vote of a majority of the members.) But just as with “act in the best interest of the association” what do “due care” and “good faith” mean? “Due care” is generally interpreted as meaning those activities a person would reasonably be expected to do under particular circumstances. By way of example, pedestrians are expected to look both ways before crossing the street. Board members, prior to awarding a snow removal contract, are expected to compare the proposals to make sure the prices being quoted are for the same level of service. That review is the “exercise of due care.” “Good faith” on the other hand, has a more personal flavor. Good faith implies honesty and fair dealing. When a retailer quotes a price to a customer in May, the customer relies on that quote in making the decision to purchase an item. However, after the customer agrees to the purchase, if the retailer then says that price is only good in months ending in “H” the retailer was not acting honestly and was not engaged in fair dealing. If board members dislike a handicapped member of the association and thus vote to withhold the use of a handicapped parking

CONDO MEDIA • OCTOBER 2010

Condo Media - October 2010

Table of Contents for the Digital Edition of Condo Media - October 2010