Upholding Your Fiduciary Duty Transparency is the Best Path for Boards

Being on the board of a co-op or condo is a big responsibility—one that shouldn’t be taken lightly. While some people may run for a board seat just to have the title, they need to be prepared to govern fairly and make decisions that are in the best interest of the community as a whole.  

On Whose Authority? 

Bruce A. Cholst, a partner with the law firm of Rosen Livingston & Cholst LLP in Manhattan, says the authority of the board is to perform its functions and legal obligations deriving principally from its bylaws, Certificate of Incorporation and from relevant statute and case law. Every board member should read the bylaws carefully, because you are charged with the legal responsibility for knowing their contents and seeking legal advice in areas where you don’t. 

This set of directives is commonly known as “fiduciary duty.” These are decisions made on behalf of their fellow residents, made in good faith, and with the best interests of the community firmly in mind. Violating this duty can lead to legal consequences for boards and individual board members who stray.

“In its simplest terms, breach of fiduciary duty is the abuse of power,” Cholst says. “Generally speaking, people only have the legal duty to another person they encounter in the course of their lives. But when it comes to fiduciary relationship, it’s a higher duty; a special obligation that only exists when someone takes a position, like being on a board.”

For example, let’s say there’s a board member who purposely hires someone with whom he or she has a preexisting relationship, even though that person isn't the best person for the job. That could be seen as an abuse of power on the part of the board member. Or let’s say there’s a leak in the building and a board doesn't do anything to fix the problem, either out of apathy, incompetence, or antipathy toward the affected resident. That’s a breach of its fiduciary duty.

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