Q&A: Rules That Favor a Board Member

Q. Can a board member vote on a change in rules that will directly benefit him/her? For example, the board member is an investor with more than 10 units and needs more parking spaces for tenants. Therefore, he/she moves to vote to change the rule allowing more spaces and placing him/her in an advantageous position to other residents.

— Concerned About Possible

 Impropriety

A. “Board members are governed by legal and ethical standards,” says Kenneth Jacobs, an attorney with Spolzino, Smith, Buss & Jacobs, which has offices in Westchester, New York City, and Long Island. “Legally, they may not breach their fiduciary duty to the association; such breaches may include taking actions that favor their own interests above those of the association, or which unfairly discriminate among members or otherwise act in bad faith. Ethically, board members should take extra steps to avoid the appearance of impropriety, even if they could argue that their actions are legally defensible.

“There is no bright line separating an ethical action from one which has the appearance of impropriety, or a potentially inappropriate action from a breach of fiduciary duty. One could assert that every vote by a director potentially affects the interests of that director, e.g., increasing in maintenance charges or restricting smoking in the common areas. An arbiter would rely on a ‘smell’ test to determine where the director’s action falls, based on what a reasonable person would decide (Note that a director’s actions might be protected under the Business Judgment Rule in that he is acting in good faith, but might still breach ethical or legal standards).

“The example you cite likely constitutes either an ethical or a legal breach. Since the investor director appears to have an extraordinary need compared to other owners, he would be prudent to recuse himself from a vote. In certain circumstances, a vote could constitute a breach of fiduciary duty — for example, if the increase in the number of parking spaces would come at the expense of all of the other shareholders (e.g., everyone else already has a parking space, or the building would utilize an area used by most of the other shareholders to make room for spaces that primarily he could use). In short, the director ought to recuse himself from a vote; if he insists, the board may elect not to count his vote, or (if his vote is crucial) the minority directors may have legal recourse to overturn it.”

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