Directors and officers of a condominium have a fiduciary duty to its Members. Therefore, they must be very careful when entering into a contract with the association for which they are an officer or director. In March’s Community Update, I addressed Conflicts of Interests – Condominium Service Providers. In this article however I address conflict issues which arise even when these individuals are not contracting as “service providers.”
Prior to the changes in Chapter 718 effective July 1, 2017, Section 718.3026(3), Florida Statutes, an association was permitted to enter into a contract or transaction with one or more of its directors or an entity in which one or more of its directors are directors or officers or are financially interested. This Section only required compliance with the requirements of Section 617.0832, the not-for-profit corporation statute provision that addresses conflicts of interest, and required the approval of 2/3 of the directors to approve the conflict.
In 2017, however new criteria regarding conflicts were set forth in Section 718.3027, Florida Statutes. Based upon the new statute if a director or officer wants to provide goods or services to the Association, but is not a “service provider” or proposes to engage in any activity with the Association, which could be construed as a conflict of interest, the Association needs to comply not just with Section 617.0832 but also Sections 718.3026(3) and 718.3027, Florida Statutes[1]. Before discussing those steps, it is important to know during the 2018 Legislative Session, Section 718.3026(3) was deleted with its terms incorporated into Section 718.3027.
As a result, the following steps need to be followed by the Association:
- The contract for the goods or services or the proposed activity must be listed on the meeting agenda for a Board Meeting. In addition, all contracts and transactional documents related to the proposed activity/contract must be attached to the agenda for a Board Meeting where the vote to take this action will be considered. If the Board votes against the proposed activity/contract, the director or officer must notify the Board in writing of his/her intention not to pursue the proposed activity/contract or must withdraw from the Board of Directors. The notice and the contract should also be posted on the Association’s website in accordance with Section 718.111(12)(g), Florida Statutes. However, Section 718.111(12)(g), Florida Statutes, does not go in effect until January 1, 2019.
- The director or officer can attend such Board Meeting and is authorized to make a presentation, but after the presentation he must leave the meeting during the discussion and cannot vote on the activity/contract.
- 2/3 of the members of the Board present must approve the activity/contract at a meeting where there is a quorum of the Board; and
- At the next Members Meeting, the activity/contract must be disclosed to the membership. The membership is permitted to cancel the activity/contract by a majority vote of the members present at the meeting.
[1] Effective July 1, 2018, Section 718.3026(3) has been deleted and its terms have been incorporated into Section 718.3027.