26 Jan Keep Conflicts of Interest Out of the Condominium Association Board Room

Condominium board members are required by law to act in the best interests of the association and the unit owners. Unfortunately, this duty of loyalty can be compromised by conflicts of interest. Even the appearance of conflicting interests can cause unit owners to lose faith and trust in the board. This cannot happen.

There are a number of statutory requirements that are designed to prevent harmful conflicts of interest. For example, Florida’s Condominium Act requires association contracts for maintenance or management services to disclose any financial or ownership interest a board member has with the contracting party.

There is an even broader obligation that applies to “any contract or other transaction between an association and one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors are directors or officers or are financially interested.”

If an association enters into any contract or transaction involving a potentially conflicting relationship or interest, then:

• The relationship or interest must be disclosed or known to the board of directors or committee which authorizes, approves, or ratifies the contract or transaction by a vote that does not count the votes of such interested directors;
• The relationship or interest must be disclosed or known to the members entitled to vote on such contract or transaction, if any, and they authorize, approve, or ratify it by vote or written consent; or
• The contract or transaction must be fair and reasonable as to the corporation at the time it is authorized by the board, a committee or the members.

These disclosures must be entered into the written minutes of the meeting. The contract or transaction must also be approved by an affirmative vote of two-thirds of present directors.

The purpose of these requirements is to make sure no one uses their position as a board member to profit or gain at the expense of the association. More often than not, if a board member hides his or her potentially conflicting interest in an association contract or transaction, it is because they are putting their own interests ahead of the association’s interests.

Please contact us if you would like to learn more about effective condominium management.

Clients of Setnor Byer’s Condominium Insurance Programs enjoy access to various risk management services, such as Setnor Byer’s Risk Management Group, Unit Owners’ Report Line, and our New Board Member Education Certification training, which has been approved by the Division of Florida Condominiums, Timeshares, and Mobile Homes.

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