Q. Is it illegal for members on the HOA board to also hold a position on the board of directors of the property management company that the HOA hires and oversees?
A. “Condominium and cooperative board members are required to 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’ (New York Business Corporation Law Section 717),” says attorney Leni Morrison Cummins of the New York City law office of Cozen O’Connor. “This duty of good faith requires that board members place the interests of the condominium or cooperative ahead of his or her own personal interests. Elevating one’s own interests above that of the condominium or cooperative is called self-dealing. Whether a board member holding a position on the board of the property management company is itself a breach of this duty depends on the underlying facts. Questions that should be asked: Did the board member disclose his or her position at the property management company to the board prior to hiring them? Did the board consider other management companies? Is the business arrangement with the management company competitive or fair market? Did the board member recuse him or herself from the vote in favor of hiring the management company? If the answer to those questions is ‘yes,’ then there is no illegality present. However, if the answer to one or more is ‘no,’ it is possible that the board member may have engaged in self-dealing, which opens him or herself up to liability.”