Condominium Association Conflict Of Interest And Required Disclosure

In 2017, Florida enacted legislation that specifically required disclosure when a condominium association conflict of interest arises between a director or officer and a vendor.  Specifically, Fla. Stat. 718.3027(1) states that the two situations below create a rebuttable presumption of a conflict of interest.

  1. A director or an officer, or a relative of a director or an officer, enters into a direct contract for goods and services with the Association;
  1. A director or an officer, or a relative of a director or an officer, holds an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association or proposes to enter into a contract or other transaction with the association.

Community association boards in Florida need to know about these 2 situations that may require disclosure of a condominium association conflict of interest.

Condominium Association Conflict Of Interest

The Florida Condominium Act (the “Act”) prohibits the Association from entering into a contract with a vendor when such a contract constitutes a conflict of interest, unless the director, officer or Board follows the procedures set forth for proper disclosure.  Specifically, the Act states as follows:

An association, which is not a timeshare condominium association, may not employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer.  This paragraph does not apply to a service provider in which a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer, owns less than 1 percent of the equity shares.

Beginning January 1, 2019, any contract or document that involves a conflict of interest must be posted on the Association’s website with other official records that are required to be posted online.  Fla. Stat. § 718.111(12)(g)2.j.  Furthermore, to rebut the presumption of a conflict a board meeting must be called to disclose the conflict and at the board meeting the conflict must be disclosed to the entire board.  The Board can vote to approve the contract despite the conflict, however acceptance of the contract must be passed by a two thirds vote excluding the interested director/officer.  Fla. Stat. 718.3027(2). If the Board votes to approve the conflict then must be disclosed to the members at the next regular or special meeting. Id.  At this regular or special meeting a member may make a motion to bring up the contract for a vote and the contract shall be cancelled if a majority of the members at the meeting vote to cancel the contract.  If a vote to cancel the contract is passed then the Association should not be liable for damages or a termination fee resulting from the cancellation. Id.

Conclusion

The disclosure portion of this statute was enacted in 2017.  As such, it has not had the opportunity to be fully scrutinized through the process of judicial review.  Certain portions of the statute, may not withstand judicial scrutiny.  Although the disclosure requirements found in Fla. Stat. 718.3027 were a new addition at the time, the non-profit Chapter, which also governs Condominium Associations, previously had disclosure requirements that were triggered upon the existence of a conflict. Fla. Stat. 617.0832.  In fact, the disclosure requirements in Fla. Stat. 718.3027 are similar to the disclosure requirements identified in Fla. Stat. 617.0832.  In short, Fla. Stat. 718.3027 more clearly defines a conflict of interest but also provides a road map for the disclosure requirements that must be followed if the board wishes to enter into a contract that would otherwise be prohibited due to a conflict of interest.


Authors:
D. Brad Hughes, Esq.
Hans C. Wahl, Esq.

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