When an owner agrees to serve on a condominium board, one must recognize that they take on additional legal responsibilities and obligations. On the other hand, when electing board members, you expect them to be on their best behavior and think of the needs of the property and the people who live there when making their decisions.
Board members are responsible for governing and making decisions on behalf of that community. This obligation is often referred to as the Board’s “Fiduciary Duty.” Decisions made on behalf of their fellow residents must be made in good faith, with the community’s best interests firmly in mind. Violating this duty can lead to legal consequences for boards and individual board members who stray.
When making a decision, the board members should always make a decision deemed in the best interest of all of its members and all of its residents. Section 18.4 of the Illinois Condominium Property Act sets out the powers and the duties of a condominium board of managers, and it provides that: “In the performance of their duties, the officers and members of the board . . . shall exercise the care required of a fiduciary of the unit owners.” Failure to do so results in liability for the Board and its individual members.
There are many examples of how a board member or members can breach their fiduciary duty here are a few:
- Disclosing information to non-board members when such information is intended for the Board only, such as violations or litigation matters.
- Not seeking or following the advice of experts such as engineers, accountants, or attorneys.
- Not following the governing documents as written.
- Not using association’s funds as provided or allowed under the association governing documents.
- Promoting personal business relationships over what is in the best interest of the whole association.
- Acting unilaterally, or when the Board is making decisions not based on what the association needs but instead on what a select few members/owners need, is another big violation.
Like other corporations, when a member of the Board or the Board breaches its duty, the association members may have the ability to pursue a cause of action against the Board member(s) for breach of the fiduciary duty.
There are various ways the Board or residents can take action for breach of fiduciary duty. If a board member fails to meet their obligation, the other board members should bring this to the board member’s attention in question and seek that the action is corrected. If necessary, the remaining board members may need to remove the board member from any official position.
Before taking legal action, the Board or the resident must determine if there is a breach in fiduciary duty. The duties are set forth under state and local laws, including the Illinois Condominium Property Act, the Common Interest Community Association Act, and federal and state fair housing laws.
Board members can often avoid making decisions that may be deemed a breach of fiduciary duty by relying on their legal counsel and other professionals such as their accountants and property managers. In general, board members must inform themselves of material facts necessary to exercise their business judgment properly.
Even if boards or board members are misguided, not all of their decisions are subject to being overturned because many of their decisions are protected by the Business Judgment Rule. The purpose of the business judgment rule is to protect directors from liability for honest mistakes in judgment. When the Board properly exercises its business judgment, the court will not find the Board’s interpretation a breach of fiduciary duty.
So while it may be an honor to be elected as a board member, one has to remember to be honorable while serving in such a capacity and not take advantage of the power they hold. The best advice for a current or future Board member is to ask for advice from the experts.