Is Your Community Association Board Making Sound Decisions on Your Behalf?

The directors of Florida community association are obligated to discharge their responsibilities to the community in good faith.  Board decisions are generally protected by the “business judgment rule” and the theory behind the business judgment rule is that Courts should not substitute their judgment for the judgment of the elected or appointed board members.  Simply stated, Courts must give deference to a community association’s decision if that decision is within the scope of the association’s authority and it is reasonable – that is, not arbitrary, capricious, or in bad faith.

The elected and appointed directors of the association have a fiduciary relationship to the unit owners over which they serve.  The duty is created by statute and interpreted by case law. It is a well-established principle in Florida that absent fraud, self-dealing and betrayal of trust, directors of condominium associations are not personally liable for the decisions they make in their capacity as directors of condominium associations. Perlow v. Goldberg, 700 So.2d 148 (Fla. 3d DCA 1997) and Sonny Boy, LLC v. Asnani, 879 So.2d 25 (Fla 5th DCA 2004).

A fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other.  Thus, the placement of one’s trust, confidence and responsibility in another person or persons is the hallmark of any fiduciary relationship. Since the fiduciary obligation is an elastic concept which contemplates any abuse of power, it is impossible to chronicle every act which could conceivably constitute a breach.

It is instructive, however, to review certain examples of board member conduct which have already considered the board conduct as juxtaposed to their fiduciary duty. These cases generally break down into three broad categories of misconduct:  (1) Use of the board position to derive profit or otherwise promote personal interest at the expense of the association of its constituent shareholders and unit owners.  An example would be failure to collect assessments or conduct routine maintenance that is required.  (2) The use of the board position as a forum for prosecuting personal vendettas either in their favor or against particular shareholders or unit owners.  (3) Favoritism among shareholders or unit owners in violation of the doctrine of selective enforcement.

In Olympian West Condominium Ass’n, Inc. v. Kramer, 427 So.2d 1039 (Fla. 3d DCA 1983),  the Third District held that the corporate developer-builder, serving as a director of the condominium association prior to assumption of control by the unit owners, was not personally liable for construction defects created by himself as the actual builder.  Similarly, in Bodin Apparel, Inc. v. Superior Steam Service, Inc., 328 So.2d 533 (Fla. 3d DCA 1976), the officers and board of directors were found not personally liable even though the corporation failed to provide required workers compensation insurance which would have covered an electrocuted employee. On the other hand, B & J Holding Corporation v. Weiss, 353 S.2d 141 (Fla. 3d DCA 1978) , holding the initial officers and directors of the developer corporation which built a condominium personally liable for failure to make the maintenance payments required by statute on unsold units.

Further, an officer, director, or manager may not solicit, offer to accept, or accept any thing or service of value for himself/herself or their own benefit from any person providing or proposing to provide goods or services to the association.  This is called self-dealing. Any such officer, director, or manager who knowingly so solicits, offers to accept, or accepts any thing or service of value is subject to a civil penalty pursuant to s. 718.501(1)(d). However, this law does not prohibit an officer, director, or manager from accepting services or items received in connection with trade fairs or education programs.

In furtherance of its fiduciary duty to the unit owners, a board of directors shall employ only a licensed community association manager where licensure is required by Section 468.431, Florida Statutes.  See also 61B-23.001, Florida Administrative Code.  The contracting with a licensed CAM may protect the board from personal liability for operational issues, but if the CAM is breaching the contract or mismanaging, then the board members should act quickly to replace the non-performing CAM.

Financial missteps are usually the easiest fiduciary claims to bring.  Section 718.111(14) prohibits associations from commingling funds.  All funds collected by an association shall be maintained separately in the association’s name. For investment purposes only, reserve funds may be commingled with operating funds of the association. Commingled operating and reserve funds shall be accounted for separately, and a commingled account shall not, at any time, be less than the amount identified as reserve funds. A manager or business entity required to be licensed or registered under s. 468.432, or an agent, employee, officer, or director of an association, shall not commingle any association funds with his or her funds or with the funds of any other condominium association or the funds of a community association as defined in s. 468.431.  A clear understanding of the boundaries surrounding board conduct is necessary to properly and effectively serve on any board.