Understanding Board Business Judgment Rule: A Guide for Boards

 

Serving as a board member of a condominium association is a significant responsibility beyond day-to-day operations. Board members have fiduciary duties, including care and loyalty, requiring them to act within the unit owners’ best interests and within the law’s bounds. A recent discussion with attorney Jeff Rembaum, with Kaye Bender Rembaum, P.L., and insights from his article, Do Board Members Owe a Duty of Care and Loyalty to Their Association?, shed light on these crucial responsibilities and the legal implications of failing to uphold them. 

Fiduciary Duties: 

Fiduciary duties are the highest standard of care imposed by law. Generally, a fiduciary duty refers to a legal obligation to act in the best interests of another person or entity. In the context of condominium associations, board members must also act with due care, loyalty, and good faith when making decisions on behalf of their community. This obligation means they must put the association’s interests above personal gains and ensure decisions are made reasonably and prudently. 

Florida law specifically outlines the duties and standards of care for board members: 

• Florida Statute 617.0830: Establishes that board members must act in good faith and with the care an ordinarily prudent person would exercise under similar circumstances. 

• Florida Statute 718.111: Further details the responsibilities of board members in managing condominium associations, reinforcing that officers and directors have a fiduciary relationship to the unit owners. In addition, section 718.111(11), Florida Statutes, requires the directors to use their best efforts when purchasing adequate property insurance. 

Protection Through Expertise: 

One key takeaway from the discussion with Attorney Rembaum was the importance of relying on expert opinions to help shield board members from liability under the business judgment rule. This legal principle protects board members from personal liability when they make informed decisions based on expert advice, such as: 

• Legal Counsel: Attorneys help ensure compliance with state laws and association governing documents. 

• Certified Public Accountants (CPAs): Financial decisions should be made based on professional accounting advice to ensure fiscal responsibility. 

• Committee Reports: Boards should consider recommendations from specialized committees to make well-informed choices. 

By seeking professional guidance, board members demonstrate due diligence, minimizing the risk of lawsuits from negligence or misconduct claims.  Failure to comply with certain statutory requirements can lead to an automatic breach of fiduciary duty, meaning board members could be held personally liable. Two major statutory obligations were highlighted: 

1. Structural Integrity Reserve Studies – Required to ensure that reserve funds for certain components are appropriately allocated for future repairs and maintenance. 

1. Milestone Inspections – Condominium buildings must undergo critical safety assessments to prevent structural failures.  

Neglecting these responsibilities not only endangers the safety and financial stability of the community but also exposes board members to legal consequences. 

To mitigate the risk of liability, board members must: 

• Educate Themselves: Stay updated on condominium laws and changes in association bylaws. 

• Document Decisions: Maintain clear records of board discussions, expert consultations, and decisions. 

• Rely on the opinions of experts retained by the association. 

Board members play a pivotal role in the success and stability of a condominium association. By acting in good faith, relying on expert opinions, and complying with statutory obligations, they can protect their community and themselves from legal challenges. Understanding and adhering to fiduciary duties is not just a best practice, it is a legal imperative.  For more insights on condominium law and board member responsibilities, visit www.KBRLegal.com.  

To learn more about how Castle Group can serve your community, request a proposal at https://castlegroup.com/request-a-proposal/. 

Tags: