Once in a while, we do learn of such scandals, which I would call “condo gate.
Question. I own a unit in a condominium association. It is managed by a property management company. The wife of the President of the Board of Directors has been employed by that management company. The President has monopolized the other Board members and keeps increasing our condominium fee every year since he became President. The management fees have also increased. Management is working for the President and not for the entire Board and our members. What the President says, management does. I would not even be surprised if there was some sort of “kick-back” between management and the President. What can I do as a unit owner?
Answer. Scandals and swindles make good newspaper headlines; they also make or break politicians. But you must be prepared to document your case before making any formal allegations, or you could be sued for libel.
Most Board members and property managers are honest, hard working and dedicated. Service on a Board of Directors of a community association is a thankless — “payless” — task. But it is an obligation that someone has to perform. And once in a while, we do learn of such scandals, which I would call “condo gate“.
My first answer to all these issues is that you should try to get elected to the Board of Directors. However, this is not always easy, especially if incumbent Board members have access to mailing lists and hold a large number of proxies.
You must treat an election to your Board as if you were running for a state or national elective office. Arrange a campaign committee, a fund-raising committee and start knocking on your neighbor’s doors to advise them you are running for the Board of Directors.
You should also obtain the current mailing list of unit owners from your management company, and send every owner an announcement, advising them of your candidacy and your platform — what you stand for. Generally, the mailing list contains private information and unless unit owners give their permission, management should not release that list. However, if you submit your information, management must circulate it to all owners on the list.
You also should obtain the most current accounting statements. Most state laws requires that an audit of the Association books and records be conducted at least once a year, if at least five percent of the unit owners make such a request. If no audit has been performed, get a petition signed by the required number of owners, and formally demand that the audit be done.
In some states, Boards of Directors have a “fiduciary duty” to the owners who elected them to serve on the Board. In other states, such as in Maryland (and now in the District of Columbia), the standard by which a Board of Director is held is the “business judgment rule.” Under this rule, the courts will not involve themselves in the internal affairs of the association. However, as was stated in a 1992 Court case handed down by the Court of Special Appeals of Maryland, “the business judgment rule…. precludes judicial review of a legitimate business decision of an organization, absent fraud or bad faith.” (emphasis added).
But under either standard, it is clear from the case law throughout the country that members of a Board of Directors cannot operate in bad faith.
What is bad faith? Clearly, when a Director personally receives financial gain from his or her service on a Board of Directors — especially if there is no disclosure of these gains to the membership — this cannot be considered “operating in good faith.” And, in my opinion, even if the Board member fully discloses the potential gain he or she may derive, the potential conflict of interest is still great. This standard would also apply to a situation where the wife of the President receives financial benefits by virtue of her husband’s position.
It must be noted, however, that even under the fiduciary duty concept, this does not preclude a Director (or the Board itself) from making an honest mistake. Service on a Community Association Board of Directors is a voluntary job. No one would serve on the Board if they can be held personally accountable for every decision made by that Board.
But there is a clear difference between serving in good faith and serving for personal, selfish reasons.
You asked what you can do if these practices are objectionable. In addition to trying to get elected, another solution is to mount a recall campaign and “throw the rascals” out. Read your condominium documents carefully, and you will find provisions spelling out the procedure to remove Board members. Circulate a newsletter to all owners, and call a special meeting solely for the purpose of voting on the removal petition. You must, in fairness, give the challenged member an opportunity to defend his or her position. It is also advisable to discuss your concerns first — directly and privately — with that Board member, if you are not uncomfortable in approaching him.
Finally, since you live in Montgomery County, you have one additional remedy that is not available to homeowners outside of that jurisdiction. Several years ago, the County Council created the Commission on Common Ownership Communities. The purpose of this Commission is to attempt to resolve disputes between homeowners and their associations. This is a form of “alternate dispute resolution” and you can get more information about this process by contacting the Commission (301 217 3636).
In the final analysis, you should send a loud and clear message to Board members: if you want to serve on the Board of Directors, do so because you are concerned with the operation of the Association and not for personal gain. You must avoid even the appearance of a conflict of interest.
