Wednesday, November 11, 2009

What does it mean to owe someone a fiduciary duty?

We hear the words fiduciary and fiduciary duty tossed around a lot in the community association setting. How many of us give real thought to what those words mean?

The textbook definition of a fiduciary is one who is in a position of authority who obligates himself or herself to act on behalf of another (as in managing money or property) and assumes a duty to act in good faith and with care, candor and loyalty in fulfilling that obligation.

When you agree to serve on your community's board of directors, you assume a fiduciary duty to the association members. If you fail to fulfill that duty, you leave yourself vulnerable to a breach of fiduciary duty lawsuit. Hopefully, the preceding sentence will not make you want to tender your immediate resignation; hopefully, it will make you want to learn more about your responsibilities as a board member.

Here are a few examples of what is expected from the board:

1. Maintain, repair, replace and properly insure the common elements/areas;

2. Properly vet vendors who service the community;

3. Disclose any conflicts of interests or, even better, avoid conflicts of interest;

4. Be good stewards of the members' money;

5. Insist on transparency in association operations;

6. Hold frequent and open meetings and conduct fair elections;

7. Read the association's governing documents;

8. Know when to ask an expert's advice rather than relying on the resident board "expert";

9. Treat your association's official records with respect and make them available to the owners for inspection; and

10. Basic communication skills are good; great communication skills will serve you even better while you serve your community. Tomorrow we'll talk about the owners' responsibilities.

2 comments:

  1. Does the association have the authority to spend money on non-common areas that are the responsibility of the homeowner as a gift to the community?

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  2. Without more information and reviewing the property being improved, it is hard to give a complete answer. A condominium board can only spend common funds on proper common expenses. Common expenses are defined by the statute and the association's governing documents. HOA boards have more leeway in this regard but, again, you would need to review the governing documents, the reason for the expenditure and the property being touched. Gifts to individual owners are clearly not proper.

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