HOA Board Members & Fiduciary Duties:

Transcription

1 HOA Board Members & Fiduciary Duties: What You Must Know to Fulfill Your Duty to Your Association and Protect Yourself from Personal Liability A Webinar for Condo and HOA Boards Panelists: Debra A. Warren, PCAM, Associa Matthew Zifrony, Esq., Tripp Scott

2 HOA Board Members and Fiduciary Duties

3 Scenario 1: What would you do? You are the President of the Board. To thank you for the recent renewal of the insurance policy, your insurance agent, Bruce Black, has invited to play golf at the new PGA course in town. The course is for members only and one you have wanted to play since it opened.

4 What would you do? Poll: Accept and put my clubs in the car Accept the invitation, but insist on paying my own green fees Decline the invitation

5 Scenario 2: What would you do? Your condominium community has just passed a special assessment to perform repairs on the exterior of the buildings. The buildings are currently leaking and many units have damaged interior walls and fixtures. Three of the board members live in building C and you just discovered that it has been scheduled first for the repair, although most of the damage is in building A. You are a board member who does not live in building C.

6 What would you do? Poll: Vote against the plan to begin in Bldg C Ask the contractor to share his expert recommendation to the board Talk to the board members in Bldg C about changing the plan Send a letter to the members disagreeing with the plan

7 Defining Fiduciary The term fiduciary refers to a relationship in which one person has a responsibility of care for the assets or rights of another person. In a condominium or HOA, the board of directors, as a body, has a fiduciary responsibility for the decisions they make with regard to the association s assets and the rights of the owners The fiduciary responsibilities of the members of an association's board include: Acting in the interest of the association rather than the member's personal interest Avoiding conflicts of interest Providing oversight to assure that the association follows the law

8 Fiduciary Duties of the Board Duty of Care Doing your best to perform your responsibilities. Attending meetings Reading materials in advance of board meetings Voting Asking questions to assure you understand the issues before voting Participating on committees Supporting the actions of the board

9 Fiduciary Duties of the Board Duty of Loyalty Performing you duties in a matter that protect the corporation. Set aside personal agendas Put the needs of the corporation first Maintain confidentiality Disclose conflicts of interest

10 Representative Capacity Acting in a Representative Capacity Performing your duties for and on behalf of an association as an authorized officer, agent or other representative Set aside personal agendas Put the needs of the corporation first

11 Business Judgment Rule Act within their authority Exercise due care Act in good faith Act with ordinary care that they believe to be in the best interests of the association

12 Confidentiality Requirements Legal Attorney Client Privilege Owner Account History and Payment Status Owner Enforcement Owner Privacy Staff/Employees Documents that result from employment processes, health insurance, etc.

13 Conflict of Interest Definitions: A situation that has the potential to undermine the impartiality of the individual because of a conflict between their personal interest and professional responsibility.

14 Conflict of Interest Characteristics: 1. The board member receives a benefit directly or indirectly related to their position with the community association? 2. The board member will receive a personal benefit from the community association, or a third party?

15 Best Practices In 2009, the Community Associations Institute has published a Model Code of Ethics for Community Association Board Members. Some of the provisions that reinforce fiduciary duty are:

16 Best Practices Strive at all time to serve the best interest of the association as a whole regardless of their personal interests Act within the boundaries of their authority Perform their duties without bias for or against any individual or group

17 Full Disclosure All conflicts of interest are not necessarily prohibited or harmful to an association. Full disclosure of all actual and potential conflicts should be made to the board so that the board can vote on whether to proceed despite the conflict. A determination by the disinterested board members with the interested board member(s) recused from participating in debates and voting on the matter is suggested.

18 D&O Insurance Summary of D&O Coverage: D&O Insurance is liability insurance payable to the directors and officers of an association or to the association itself. Advances defense costs and reimburses for losses as a result of a legal action brought for alleged wrongful acts in the insured s capacity as a director or an officer.

19 D&O Insurance How to protect yourself Intentional illegal acts or illegal profits are typically not covered under D&O insurance policies. Coverage only extends to "wrongful acts" as defined under the D&O policy which usually includes specific types of acts, omissions and misstatements while acting for the association. Due to exclusions and as a matter of public policy, coverage is not provided for criminal fraud.

20 Application Following are examples of circumstances that have happened or could happen - to board members across the country. If faced with each of these situation, how would YOU respond?

21 Scenario 1: What would you do? You are the President of the Board. To thank you for the recent renewal of the insurance policy, your insurance agent, Bruce Black, has invited to play golf at the new PGA course in town. The course is for members only and one you have wanted to play since it opened.

22 What would you do? Poll: Accept and put my clubs in the car Accept the invitation, but insist on paying my own green fees Decline the invitation

23 Scenario 2: What would you do? Your condominium community has just passed a special assessment to perform repairs on the exterior of the buildings. The buildings are currently leaking and many units have damaged interior walls and fixtures. Three of the board members live in building C and you just discovered that it has been scheduled first for the repair, although most of the damage is in building A. You are a board member who does not live in building C.

24 What would you do? Poll: Vote against the plan to begin in Bldg C Ask the contractor to share his expert recommendation to the board Talk to the board members in Bldg C about changing the plan Send a letter to the members disagreeing with the plan

25 Scenario 3: What would you do? A fellow board member is the chair of the landscaping committee. The current project of the committee is to select the annual flower rotations at the entry. On your daily walk you notice that this board members front yard contains new plantings that are identical to the ones planted in the entry?

26 What would you do? Poll: Hope that others don t notice Call the Manager Call the Board President Have a private conversation with the board member and educate them on conflicts of interest

27 Scenario 4: What would you do? You are a member of the Board. Prior to your election, you and your wife have been working on designing a new backyard that will turn you house into your dream home. There are some controversial components that may not comply completely with the current Architectural Guidelines. The current board is split two votes in favor of your design and two votes against. You know how important this project is to your wife.

28 What would you do? Poll: Vote in favor of the plan Abstain from the voting on the issue Ask the landscaper to modify the current plan Do the work without submitting the application

29 In Review The Legal Definition of a fiduciary Specific requirements and responsibilities Tips to understand potential conflicts The Business Judgment rule Full Disclosure Requirements D&O Insurance Test your understanding

30 Q & A

31 Contact Matthew Zifrony Tripp Scott Ft. Lauderdale, FL Tel: (954) Debra A. Warren, PCAM Associa San Rafael, CA Tel: (415)

32 HOA Board Members & Fiduciary Duties: What You Must Know to Fulfill Your Duty to Your Association and Protect Yourself from Personal Liability A Webinar for Condo and HOA Boards Panelists: Matthew Zifrony, Esq., Tripp Scott Debra A. Warren, PCAM, Associa