Being elected to the board of directors of a co-op or condo comes with a great deal of power, and with that power also comes a great deal of responsibility. Whether they serve a co-op or condo community, board members, in their position of power, have a responsibility to govern and make decisions on behalf of that community—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 best interests of the community firmly in mind, and violating this duty can lead to legal consequences for boards and individual board members who stray.
Fiduciary Duty in a Nutshell
The fiduciary duty in the co-op and condo board context arises out of the special relationship that exists between directors of co-op and condo boards and the shareholders and unit owners who place their trust in these directors. A fiduciary relationship can be formed in other types of relationships such as attorney/client, broker/client, or even clergyman/congregation member.
The fiduciary duty is similar to the duties described in New York’s Business Corporation Law (BCL) section 717, which states that directors of a corporation must perform their duties "in good faith and with that degree of care which an ordinary prudent person in a like position would use under similar circumstances."
“A fiduciary duty arises when one person places his trust in another person and as a result of that act of faith, another person gains a position of power and influence such that he is in the position to hurt the person who places faith in him,” says attorney Bruce Cholst, a partner with the Manhattan-based law firm of Rosen Livingston & Cholst LLP. “At that point, he has a special legal obligation, which would not otherwise have existed but for the fiduciary duty, to refrain from doing anything that violates his fiduciary’s interest.”
As defined by the New York courts long ago in 1928, the conduct of a board member (a fiduciary) is held to a high moral standard: “something stricter than the morals of the marketplace. Not honesty alone but the punctilio of an honor the most sensitive is then the standard of behavior...”