Condominium associations play a vital role in the success of condo projects. Generally, condo associations are formed as not-for-profit corporations and their officers and directors are tasked with establishing a budget to address their operating expenses, set aside funds for future repairs and projects, and to enforce the rules and procedures of the complex. The directors and officers of the condo association are usually governed by their state’s condominium laws, such as the state of Florida’s Florida Condominium Act.
Condominium laws and regulations for developer and board duties vary immensely from state to state. In particular, the Florida Condominium Act was enacted in order to govern the formation, management, powers, and operations of condo associations in the state of Florida. The Act itself discusses the rights and obligations of potential condo developers and association directors, as well as various regulations and the powers that an association can have. Whether you are a unit owner or you are considering running for a condo association board seat it is important to understand all of the provisions in the Florida Condominium Act. One of the most important concepts that a board member should understand is that those who make up the board of directors of a condo association, by statute, have a fiduciary duty to all unit owners. Owing a fiduciary duty to someone can mean a great deal of responsibility, but of even greater concern, it can mean potential liability.
Florida courts have a tendency to find that condo association board members and directors are immune from liability, absent a crime, fraud, or unjust enrichment. In the case of Sonny Boy, LLC v Asnani, out of Florida’s Fifth District Court of Appeals, the Plaintiff filed a cause of action seeking to hold the board of directors of a condo association personally liable. The plaintiff alleged the association failed to “maintain and repair specifically alleged items of common elements and that failure caused [the plaintiff] to suffer damages from the loss of use and rental income of units.”[1] The court, in applying the business judgment rule, stated “[board members of condo associations] will not be questioned unless there is a showing of fraud, self-dealing, dishonesty or incompetency.” The court determined that simple negligence would not justify holding the board members individually liable.
In Sonny Boy, Florida’s Fifth District Court of Appeals affirmed the judgment in favor of the association board members, determining that the board members were only negligent.[2] The Fifth District Court cites Perlow v. Goldberg, in which condominium owners sought personal judgments against two directors of the condominium association for failing to properly administer the insurance proceeds from Hurricane Andrew. However, in Perlow, Florida’s Third District Court of Appeal could not find any evidence that the directors acted fraudulently or criminally. The Third District Court distinguishes the situation in Perlow from B & J Holding Corp v. Weiss, cited by the condominium owners. In B & J, Florida’s Third District Court of Appeals found evidence to prove that the directors breached a fiduciary duty by self-dealing and were held personally liable for failure to collect maintenance payments on unsold units as required by statute. [3]
However, in Perlow and B & J, Florida’s Third District court would not find the directors personally liable unless there was a showing of fraud. As a director or an officer of a condominium board, it is always good practice to remember that you owe the unit owners a fiduciary duty — acting in good faith, acting in the best interest of the unit owners, and exercising due care and diligence in carrying out your duties for the community. Furthermore, a board member should always consider consulting with a condo association attorney who is experienced in dealing with issues faced by Florida condominium and homeowner’s association boards.
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[1]Sonny Boy, LLC v. Asnani, 879 So. 2d 25, 27 (Fla. 5th DCA 2004)
[2]Perlow v. Goldberg, 700 So. 2d 148, 149 (Fla. 3d DCA 1997)
[3] B & J Holding Corp v. Weiss, 353 So. 2d 141 (Fla. 3d CDA 1977)