A fiduciary duty creates an obligation to act for another’s benefit. A board of director’s fiduciary duty is to the association and its members. So what are the core duties of an association director? Individual loyalty, good faith and fair dealing in conducting the association’s business, care, and obedience to follow and enforce the association’s documents.
Individual Loyalty – Don’t contract with friends. Don’t overpay for services. Don’t take advantage of a corporate opportunity, and don’t base decisions on “Is this good for me?” A loyal director always asks, “Is this the best for the association?” “Does this decision benefit the residents collectively?” If a decision will benefit you financially:
- Disclose the conflict.
- Excuse yourself from the room without further comment.
- Abstain from being part of the vote.
Good Faith & the Business Judgment Rule – Directors will not be liable for a decision made in good faith, where the director was disinterested, reasonably informed under the circumstances, and able to reasonably believe that the decision was in the best interests of the association. In making decisions, directors may rely on information provided by officers, committees, employees, legal counsel/attorneys, certified public accountants, and other persons as to matters the director believes in good faith are within the person’s expertise.
Duty of Care – Exercise “ordinary care” (acting in the best interest of the association). No willful misconduct. Don’t commit crimes! Care for the property. When a health and safety issues presents itself – solve it. Plan for the future. Get a reserve study and follow it (directors have been found liable for failing to maintain, repair and/or replace).
Obedience to the Documents – You can’t not know. Read them. If you don’t understand ask your attorney to explain. If he or she can’t explain or doesn’t know, then either amend the documents or consult an attorney that specializes in association law. The College of Community Association Law (“CCAL”) is a good place to start for a list of those attorneys. Here is a link to their cite: https://www.caionline.org/Advocacy/LegalArena/CCAL/Pages/Roster.aspx.
Here are some additional ways you can protect yourselves as a Board and make sure you are NOT breaching your fiduciary duties:
- For almost any problem ask yourself:
- Does our Property Manager KNOW the solution?
- If not, is there an expert on the Board?
- If not, and a solution is needed, hire an expert.
- Make sure your elections are objectively fair.
- Set up an insurance committee to purchase:
- Commercial General Liability;
- Workers Compensation;
- Directors & Officers (D&O);
- Fidelity/Crime Insurance; and
- Cyber Crimes Insurance (depending on what is done in your association via the internet).
- Develop a document retention policy. Keeping documents that are not required simply adds to costs and potential liability risks.