Preventing Conflicts of Interest in Condo Associations

The condo association is a unique type of entity. It has its own set of rules and regulations. An important thing to know about condo associations is how to handle conflicts of interest. This article explains what Conflicts of Interest (COI) are, why they can be problematic for owners, and how to prevent them from happening. While never desirable but sometimes unavoidable, board conflicts can include disagreements over its NJ Condo Association Insurance policies.

What Are Conflict Of Interests? 

A conflict of interest can occur when an individual’s interests interfere with their ability to do the best thing for another person. COI can come about when one party makes decisions for another important to them, and the other party has a different point of view. COI situations are most likely to occur among the owners with competing claims against one another. Conflicts can cause damage to both parties and are to be avoided whenever possible. 

HOA Members Are Most Likely to Have These Common Conflicts of Interest  

Conflict-of-interest issues often happen in lawsuits and other legal proceedings against HOAs. In such cases, it may become necessary to determine whether an individual had a conflict of interest at some point during the dispute. For this reason, it’s valuable to know what types of situations could give rise to potential conflicts of interest.

The following list describes common scenarios where members might have a conflict of interest:

1) Property Conflicts. A board member owns property within the boundaries of the development. 

2) Nepotism. The association can’t give board members preferential treatment if they vote for family members to join the board, do paid work, or otherwise benefit from the association.

3) Loans. Board members have a fiduciary obligation to the association and must conduct themselves appropriately when using the association’s finances. A board member who asks for a loan from association funds or distributes a loan to a member from association funds has breached fiduciary duties and can face legal penalties. A condo association is not responsible for any loans made by its Board of Directors. The association reserves the right to refuse any request for financial assistance that it deems inappropriate. 

4) Self-dealing. The most important thing you need to know about your condo association is handling conflicts of interest. If the business contract involves only the member, then there is no problem. However, if members perform work on behalf of the association, they cannot perform these tasks without violating their duty to the association. Business contracts involving friends of members. Full disclosure of business or personal relationships with developers, contractors, or other service providers is necessary. 

5) Gifts. Giving gifts to board members violates the law. It is illegal for anyone to make a gift to a public official unless the recipient agrees to accept it.

6) Compensated Work for the Condo Association. Generally, board members are unpaid volunteers. In these situations, it is advisable to get a legal opinion about proceeding with such a proposal. If a member decides to accept the board’s offer, ensure everyone has all documentation regarding all agreements before signing any documents. This action will help protect both parties from future claims by either party against the other.

Tips for Preventing Conflicts of Interest in Your Community Association

If you feel there may be a conflict of interest in any matter before the board, you need to bring up these concerns at the earliest possible time. Doing this will allow the board members to address them as soon as possible. It also allows you to avoid disclosing information about matters that no one should reveal until after the board votes on the matter.

Be Aware of Fiduciary Duties

It is helpful to understand that higher standards apply to officers or directors of an organization more than other people who work for the organization. Violations of any law or regulation governing board member conduct may cause criminal penalties.

The following sections explain how board members can meet their responsibilities.

Maintaining Impartiality in Budget Decisions

Don’t let personal interests influence what you say and do when making the association’s budget. A typical example is some board members don’t like the high assessment of the community. They chose to cut the funding to negligent levels to lower monthly fees because of this view. This case is an apparent conflict of interest for the board members because they favored their interests over the community. During the budget-making process, you should be aware of your biases so that you don’t end up with conflicts of interest.

Abide by the Law

New Jersey state laws governing condo associations are found in New Jersey Condominium Act Title 46, Chapter 46:8B. When in doubt, refer to the statute or seek qualified legal advice. Ignorance of the law is not a defense. It is a board member’s responsibility to take appropriate actions when performing the association’s legal business.

Understand Your Association’s Policies Regarding Conflict of Interests

Your association may have policies regarding conflicts of interest. You should review these documents carefully before any decision-making process begins.

Avoid Exploiting Privileged Information for Personal Gain

Board members often receive privileged and confidential information related to members of the community. It is a conflict of interest for personal financial gain to occur concerning that information. There’s always a chance the temptation will exist. You mustn’t give in to it. Remember that you owe a duty of good faith. It is always a good idea to act on behalf of your community stakeholders. You can never exploit privileged information for personal gain.

Transparency and Full disclosure

Board members must reveal all their interests if there is a conflict of interest as soon as they know about it; this will allow disinterested board members to decide on proposals that include the conflict without input from the involved board member. 

Recusals, Exceptions, and Ethics 

After identifying a conflict, an involved board member should recuse him or herself from any voting in the issue and refrain from participation or presence in the room when remaining board members discuss the issue. 

Rules must apply equally to members and not just those on the board. If a member living outside the covenant is allowed to carry on without repercussion, there can be legal liability for the organization. 

The association can take action against board members who violate ethics policies because they must sign a policy that prohibits self-dealing.

Insurance Safeguards Condo Association Property, Officers, and Liability Exposures

All condo associations have different needs for NJ Condo Association Insurance. At Dickstein Associates Agency, our professionals will use their extensive experience to review your Bylaws and Master Deed and determine what package is best for your association. We can help you with a wide range of insurance products, including liability, property damage, workers compensation, general liability, professional liability, directors & officers, umbrella, and more.

About Dickstein Associates Agency

Dickstein Associates Agency has distinguished itself as a leading provider of personal and business insurance in the tri-state area since 1965. We pride ourselves on being advocates for our clients and providing them with quality and affordable coverages. As a Trusted Choice™ independent insurance agency, we partner with various national and regional carriers, allowing for flexible coverage for each client’s unique circumstances. For more information on how you can leverage all your insurance to work best for you, and how we can secure the best insurance in the marketplace suited to your specific needs and business objectives, contact us today at (800) 862-6662 or www.dicksteininsurance.com.