Q: What constitutes a conflict of interest for a board member in their role of representing and making decisions on behalf of the condominium association? (S.W., via e-mail)
A: Section 718.3027 of the Florida Condominium Act states that a director, officer, or relative of either to enter into a contract for goods or services with the association or having an interest in a business that either does business with the association or wants to do business with the association, is a conflict of interest. A “relative” is statutorily defined as a relative within the third degree of consanguinity by blood or marriage.
In general, a conflict of interest arises when an officer’s or director’s fiduciary duty to the unit owners is tainted, or potentially tainted, by the financial or other personal interest of the officer or director. There are nearly limitless situations where a conflict of interest could be present, and common sense is usually the best test.
For example, it seems obvious that a director should not vote on an architectural modification request involving their unit. Likewise, an officer or director having any role on behalf of the association in a legal matter in which they are adverse to the association would present a conflict of interest.
Some conflicts can be overcome through disclosure and waiver, some cannot. The test in the corporate statutes is whether disregarding the conflict is “fair and reasonable” for the association and is primarily limited to related-party contracts.
As to financial transactions, such as related-party contracts, if a director, officer, or relative proposes to engage in an activity that is a conflict of interest, the association must list it on the meeting agenda and attach related contracts and documents. The association must follow the statutory requirements for nonprofit corporation directors and enter the disclosures into the meeting minutes.
The contract or transaction requires a two-thirds affirmative vote from the other/non-conflicted directors present. The existence of the contract or transaction must be disclosed at the next regular or special members’ meeting, where it can be brought up for a vote and potentially canceled by a majority vote of members present. If cancelled, the association is only liable for the reasonable value of goods and services provided until that point.
If the board votes against the contract or transaction, the director, officer, or relative must notify the board in writing that they will not pursue it or withdraw from office. If the board finds that an officer or director has entered into a conflict of interest without disclosing it, they will be removed from office.
A director, officer, or relative with an interest in a potential transactional activity may attend the meeting, make a presentation, and then leave during the discussion and vote. They must recuse themselves from the vote. A contract entered into without proper disclosure is voidable and will terminate when a written notice, with at least 20 percent of the association’s voting interests, is filed with the board.
Q: Our homeowners’ association seeks clarification regarding the authority of its board of directors to invite guests to board meetings. Could you assist us in clarifying this issue? (D.T., via e-mail)
A: Section 720.303(2) of the Florida Homeowners’ Association Act states that meetings of the board must be open to all members, except for meetings between the board and its attorney regarding proposed or pending litigation or meetings of the board held for the purpose of discussing personnel matters.
In my view, this does not preclude a board from inviting non-members who have a role in the operation of the community to board meetings. Community association managers, attorneys, and contractors doing work in the community are often invited to attend board meetings, and I see no reason why this would not be legally proper.
Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com. Past editions may be viewed at floridacondohoalawblog.com.