Members of an association's board are corporate directors and have the same legal duties to the Association as any other director owes to a corporation. This means that board members owe a corporate fiduciary duty to the association and its membership. The fiduciary duty is twofold: 1) the duty of loyalty, which prohibits faithlessness and self-dealing; and, 2) the duty of care, which requires the exercise of care that an ordinarily prudent person would follow under similar circumstances.

As long as board members take care to meet these two duties, the duty of loyalty and the duty of care, they will have met their legal responsibilities to the unit owners. There are four elements of the doctrine that the law presumes to be satisfied unless some challenger is able to demonstrate otherwise. All four of the following elements must be met by the condominium board members:

The first element is that the board members must make business decisions in managing the affairs of the association. Inaction and neglect with respect to a matter is not acceptable unless an affirmative decision was exercised to refrain from acting. In other words, the board members must be active decision makers with respect to the business of the association.

The second element is disinterestedness and good faith. The directors' must not be acting out of any personal interest, self-dealing, or other improper purpose. This means that the directors must not have ulterior motives. They must not use the power of their office to further their own interests at the expense of others. They must not seek special privileges or treatment. Rather, the board must treat everyone fairly and in a uniform manner.

The third element that board members must make informed decisions. The directors' actions must demonstrate an informed exercise of business judgment or they will not be protected. This means that the board members cannot permit their managing agent to make all of the decisions without any oversight. The board cannot rubberstamp decisions or simply ignore what is going on. At the same time, the board cannot ignore the sound advice of its professional management. The board is obligated to seek out facts about a situation before it makes a decision, and where appropriate, the board must obtain professional advice, whether from management, an attorney, an accountant, an engineer or other person knowledgeable about the area being discussed.

The fourth element is rational business purpose. Even if the other three elements are satisfied, this element precludes the directors from acting with a reckless indifference to the affairs of the corporation. The board members must act rationally, within the scope of their authority, to further the interests and purposes of the corporation, and in accordance with the requirements of the association’s governing documents.

There are few matters more important than making sure that the board of managers properly exercises business judgment and the individual board members meet their fiduciary duties to the association. The first step is to have a knowledgeable attorney meet with your board, in executive session, to fully explain and provide more information about the duties and liabilities of directors and officers of a condominium board. We welcome your call. Barnett Law Firm, Ltd. has the experience and skill needed to help you address these and other legal issues facing the association board.