Conflicts of interest can damage an association's finances and its reputation, and they can damage trust between the board and owners even when no one intended harm. Florida law sets specific rules for how directors and officers must handle them. Every board member should know what a conflict looks like and what steps the law requires.
This article is general information and is not legal advice. The association's attorney should be consulted.
What a Conflict of Interest Is
A conflict of interest exists when a personal or outside interest could affect a director's judgment on an association matter. Common examples include:
- A director, or a relative of a director, owns or works for a company that wants a contract with the association
- A director holds an interest in a business that already does work for the association
- A director's family member is hired by the association
- A director votes on a matter that would benefit his or her own property differently from others
Fiduciary Duties
Under section 720.303(1) for homeowners associations and section 718.111(1) for condominiums, officers and directors have a fiduciary relationship to the owners they serve. They are also subject to section 617.0830, which requires them to act in good faith, with the care an ordinarily prudent person would use in a like position, and in a manner they reasonably believe to be in the best interests of the association.
These duties apply to every decision, not only to contracts. A director who votes to cut the budget below what the property needs, simply to lower his or her own assessments, may not be acting in the association's best interest. Information learned through board service, such as owners' personal details, should never be used for personal gain.
What Florida Law Requires in Condominiums
Section 718.3027 sets the rules for condominium associations:
- Directors and officers, and their relatives, must disclose to the board any activity that may reasonably be construed to be a conflict of interest.
- A conflict is presumed if, without prior notice, a director, officer, or relative enters into a contract with the association or holds an interest in a business that does business with it.
- A proposed conflict transaction must be listed on the meeting agenda, with the related contracts attached, and the disclosures must be entered in the minutes.
- Approval requires an affirmative vote of two-thirds of all other directors present.
- The interested director may make a presentation, but must then leave the meeting during the discussion and vote and must recuse from the vote.
- The contract must be disclosed at the next meeting of the members, and it may be canceled by a majority vote of the members present.
- A contract that was not properly disclosed is voidable and terminates when a written notice signed by at least 20 percent of the voting interests is filed with the board.
What Florida Law Requires in Homeowners Associations
Section 720.3033 sets similar rules for homeowners associations:
- Directors and officers must disclose any activity that may reasonably be construed to be a conflict of interest at least 14 days before voting on the issue or entering into the contract.
- A conflict is presumed if a director, officer, or relative contracts with the association, or holds an interest in a business that does, without prior disclosure.
- A contract with a director, or with a business in which a director is an officer or has a financial interest, must be approved by two-thirds of the directors present, with the disclosures entered in the minutes.
- The contract must be disclosed at the next members' meeting, where it may be canceled by a majority vote of the members present.
Kickbacks Are a Crime
In both types of associations, an officer, director, or manager may not solicit, offer to accept, or accept a kickback. Doing so knowingly is a third-degree felony. Warning signs of misconduct are covered in
HOA fraud: know the signs.
Good Practices for Every Board
- A written conflict of interest policy should be adopted, and each director should complete a disclosure form every year.
- Competitive bids should be obtained for significant contracts.
- Any possible conflict should be raised early, in writing, before the matter reaches a vote.
- When in doubt, a director should disclose and step aside.
- Minutes should record every disclosure and every recusal.
More on the board's responsibilities can be found in
the role of the board of directors.
Help Keeping the Process Clean
Competitive bidding, agenda preparation, and record keeping are handled for the communities managed by Condominium Associates, helping boards follow the disclosure rules. To talk about professional management for your association,
contact us or
request a proposal.
