Conflicts of Interest on Community Association Boards   8 comments

The board of directors of an association must be aware of the potential for a conflict of interest at all times. This can be an especially difficult issue for directors to navigate, no matter whether the board members are appointed by the “Declarant” or elected by association members.

But what exactly does this stern warning mean?

Every person that serves on the board of directors owes a fiduciary duty to the association. This duty can be broken down into several categories, but for the purpose of this article, it boils down to this concept: Directors must act in the association’s best interests, not their own.

While the statement seems simple, it can be very hard to draw lines to determine if a director is actually acting in the association’s best interest, not the director’s own interest.

Conflicts (or the perception of a conflict) occurs when:

— a director’s personal matters or financial interests “conflict” with their duties;

— where the director’s actions adversely affect the trust the other members put in the association; and

— where the situation might affect the director’s ability to act in the association’s interest.

There can be a conflict when a director engages in “self-dealing.” Self-dealing is making decisions that benefit the director or their immediate family. Consider the common situation where a director recommends someone they know well for a service the association needs. If the director has a close relationship with that person, particularly a financial relationship, the independence of the director may be questioned.

Another type of conflict that occurs is when a director accepts gifts, services, or other benefits (that are substantial) which could influence the director. Accepting a free pen or plastic chotchke from a potential vendor is not exactly influential unless the pen is a luxury pen with a hefty price tag.

Finally, conflicts can arise when a director uses information he or she obtains through their work for the association for the director’s own personal gain. For example, a real estate agent serving on the board of directors of an association may come into possession of information regarding the members in the association and may be tempted to use that information to further their business of marketing homes within the community.

For more guidance and insight on what your association can and should do to avoid problems with conflicts of interest, please contact Amy H. Bray in our Commercial Real Estate Department for assistance.

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8 responses to “Conflicts of Interest on Community Association Boards

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  1. I enjoyed your article but I believe our board has gone way past conflict of interest. Our board along with the mgm. company but I do know at least two of them are involved in replacing items that do not need to be replaced and charging the owners to replace items also and I believe the replacements are being done to pad the bill and give extra money to some of the board members and the mgm. person. We had our 40 year guaranteed GAF Timberline roof replaced when it was 21 years old and the HOA forced us to get new skylights that were cheap when compared to the top of the line skylights that they removed. I actually didn’t realize until they put these new skylights in that all skylights didn’t have UV protection so that the people inside would be protected along with the protection of the furniture from fading. Our first skylights had every feature available in a skylight being thicker glass so no condensation or noise, no breakage in the 21 years we had them, they never leaked, and they had uv protection, and a coating on the outside so they are washed when it rains. The thicker glass also made it more quite as we live right near a busy road. I can’t even see out of the new skylights as they are coated with a milky substance. They leaked the first month and ruined some of my furniture but the mgm. co. had the lawyer for the HOA write to me telling me I would be committing fraud if I put in a claim.

    There is a pattern that our HOA and the mgm. person are replacing items that truly do not need to be replaced and they have lied about many things. I never knew anyone could tell me to replace my skylights and get a policeman with gun parked outside of the 4 condos involved to make sure we didn’t start trouble. I would have gotten a lawyer if I knew the quality of the skylights they put in was so very bad. I know of three items that were replaced that I was involved in so what about the rest of the 86 units involved.

    We had to pay an extra $1,000 this year…why for the new roof that wasn’t needed. Isn’t there anyone out there that wants to put a stop to extortion. What has to be done for someone to take a stand. O

    I can’t imagine why the HOA would go against the regular condo owners with fines that are way above the normal like $500 a day, fine deceased people, replace items that cost us a lot unless there was something very rewarding in it for them. Why would a Pres. of an association treat the home owners like we were prisioners in our own homes. The new roof they replaced way too soon actually has leaked so much already and ruined so many things but the management person wants to blame the leak on a window instead of the roof so she will not be responsible.

    If extortion is taking place, do we as condo owners have to get a lawyer. Does the government think it is our responsibility to take care of corrupt people when they could check the books and probably find out that we never got the fine money and that the amounts we were charged were padded over the amounts the contractors charged. Who in this world thinks it is okay to fine a deceased condo owner after she died and take $3,750 from her estate as the closing was handled by a lawyer. The management person went to a closing on her day off Saturday and got that amount of money from the lawyer for the estate of the poor school teacher who passed away. I wouldn’t doubt if the books don’t show an intake of that amount. They think nothing of fining people $500 a day. The state of New Jersey tells me that nothing can be done as I live in a condo. I believe extortion is taking place so does that mean the rules for condos were made so that corrupt people can have a field day doing whatever they want. I am so disappointed in what is taking place. Best regards, Ed

    • I think that you have some serious concerns and that you should contact a local lawyer, particularly one that has experience with condominium law.

    • What a mess. I thought Florida was the only state having problems. I work for a Management company and have a board president threatening us and excersing powers like he is some sort of king. He doesn;t even live in Florida but has the ear of the Department of Business and Professional Regulation. And it’s too bad because all the people that live in the 40 unit complex are great to deal with, just one bonehead president trying to make a few extra bucks. I always believed in the condo concept, some managers and board members need to get a grip.

  2. Conflicts of interest are actually LEGAL in Oregon – as long as the Board Member discloses it and it is ratified by the HOA Board – which in my case is controlled by the Declarant(s) with the conflict!

    I moved into an HOA almost 3 years ago – after I thought I had checked things out thoroughly. Boy, was I wrong.

    I’ve developed an informational website to help others check out benefits, issues and potential problems before they buy. I hope everyone that sees this comment will visit it: http://www.CeresGleannLife.info .

    Thanks and good luck with your HOA experience,

    Robert

  3. Is it a conflict of interest if:
    1.) The owner of the management company that our neighborhood uses also lives in the neighborhood and gets paid say $25k for her services? And…

    2.) One of the board members for the HOA is the husband of the owner of the management company?

    Thanks

    • It is possible. Keep in mind that potential conflicts can be dealt with in a number of ways and the board may have taken those steps. I would advise investigating that situation more deeply and getting some legal advice.

  4. Pingback: Conflicts of Interest on Community Association Boards « Marshall's Oklahoma Law Blog

  5. Pingback: Board Members Must Always Be Aware of Conflicts of Interest; Otherwise Personal Liability | Board Member Liability

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