Being elected to the board of directors of a community or condo association comes with a great deal of power, and with that power also comes a great deal of responsibility. Whether they serve a high-rise condo building or a sprawling HOA, board members have a responsibility to govern and make decisions on behalf of that community—a burden often referred to as the board's fiduciary duty. Decisions made on behalf of their fellow residents must be made in good faith, with the best interests of the community firmly in mind, and violating this duty can lead to legal consequences for boards and individual board members who stray.
Fiduciary Duty in a Nutshell
Fiduciary duty in the context of a community association or HOA board arises out of the special relationship that exists between directors and the unit owners who place their trust in these directors. A fiduciary duty can be formed in other types of relationships as well, such as attorney/broker/client, or even clergyman/congregation member.
“Most community associations...are corporations. Each officer and member of an association board therefore owes a fiduciary duty—a duty of trust—to the association and its individual unit owner members,” says Eric F. Frizzell, a partner with the Glen Rock, New Jersey-based law firm Buckalew Frizzell & Crevina LLP. He continues, “This duty is comparable to the obligation that a corporation's board of directors owes its stockholders, and includes a duty to preserve and protect the common elements and areas for the benefit of all of the association’s members.
“This fiduciary relationship also requires that a community association board act consistently with [state] law and the association’s own governing documents,” Frizzell continues. “A board must act in the best interests of the whole association and its unit owners, not out of personal interest, fraud, self-dealing, or in an unconscionable, arbitrary, discriminatory, or bad faith manner.”
“A fiduciary duty arises when one person places his trust in another person and as a result of that act of faith, another person gains a position of power and influence such that he is in the position to hurt the person who places faith in him,” says attorney Bruce Cholst, a partner with the law firm of Rosen Livingston & Cholst LLP, based in New York City. “At that point, he has a special legal obligation, which would not otherwise have existed but for the fiduciary duty, to refrain from doing anything that violates his fiduciary’s interest.”