By Stephane Dupont, Dupont Law Firm
The words “fiduciary duty” are ones that many of us in the community association industry come across frequently. It is especially common to hear these words thrown around loosely when one or more members of a community association board of directors are “misbehaving”. In legal terms, it can be simply defined as owing a duty of good faith and loyalty to the association with an obligation to act in its best interests. But what does this mean in practice and layperson terms?
Pretend for a moment that you are one of three owners of a small culinary business that prepares meals for residents of a small group of assisted living facilities. Let’s assume that you are also a single parent of ten (10) young children, so it is critical that the business succeeds to make ends meet. Would you show up every day and get it your best? What would you do to ensure that your business flourished and stood out from others? Would you ensure the financial stability of your business by providing a high quality of service to your customers? How would you deal with customers, especially difficult ones? In the event of a dispute between business owners, would you make sure to respect the majority decision of the owners to ensure that the business can move on to ‘bigger and better’ things and convey an image of stability and productivity to your customers? As a board member, embodying that same passion for success and order is critical towards ensuring that fiduciary obligations are met. So how can members of the board minimize their liability against claims that they violated their fiduciary responsibilities? Here are suggestions that may help board members stay on track and out of legal trouble:
- Be Present and Informed. Attend meetings and come prepared to discuss and resolve agenda items. If you received a ‘board packet’ prior to the meeting, make certain to read through it prior to the start of the meeting.
- Act professionally and transparently. Respect your fellow owners in the community even if you disagree with them. NEVER hide or fail to disclose information to owners unless the law requires that certain information remain confidential.
- Avoid ‘personal agendas’ that control your decision making. If you or someone that you are close to have something individually to gain from a board decision, make sure to disclose that conflict of interest to fellow board members and owners and, to the extent possible, abstain from voting.
- Follow the law and covenants. Doing what ‘feels right’ is not enough. Become knowledgeable about Colorado law and your governing documents and make decisions accordingly. If you are not certain or need clarification, hire the proper professionals to assist.
- Ensure that the Association has sufficient income to meet its expenses. Prepare budgets with a realistic assessment of anticipated expenses and reserve contributions. If assessments are unpaid, at a minimum, follow the terms of the association’s Collection Policy and ensure that delinquent notices are sent on a timely basis.
Stephane Dupont is the owner and an attorney with The Dupont Law Firm that provides comprehensive legal services to common interest communities throughout Colorado.
