Conflicts of interest on condo and co-op boards

On Behalf of | Apr 16, 2015 | Residential Real Estate

Most members of condominium and co-op boards in New York are volunteers. They are doing the job because they want to be involved and work for the betterment of the residential development in which they live. The tangible benefits of condo and co-op board membership are few or nonexistent, and perils exist. One of these perils is the potential for conflicts of interest. The mere perception of a conflict of interest can undermine the credibility of the entire board. In some cases, a conflict can land a board member in serious legal trouble.

A conflict of interest arises whenever a board member puts his or her own interests above those of the residential real estate community they serve. Under New York law board members owe a fiduciary duty to shareholders. A fiduciary duty is a duty of undivided loyalty and the highest levels of good faith. Breaching a fiduciary duty can lead to liability in a civil lawsuit.

Many conflicts of interest arise in connection with vendors providing goods or services to the association. If a board member owns a painting company and the board awards a contract to paint the building to that company, the board member in question has a conflict of interest. Other conflicts can arise when a board member is in the real estate business and, in connection with their business, engages in transactions with the co-op or condo association.

Sometimes it is genuinely in the best interests of the association to enter into a contract with a board member. These situations should be carefully scrutinized. The potential conflict should be disclosed to the board; a lack of disclosure can result in legal liability. The interested director should also recuse themselves from all deliberations regarding the contract.

Source: The Cooperator, “Avoiding Conflicts of Interest: Servant of Two Masters,” Greg Olear, May, 2008