Managing Conflicts of Interests For Board Members
Dated: June 27, 2019
Mr. Andrew Cuevas, Esq., is the President of Cuevas, Garcia & Torres, P.A., and Vantage Property Title Company. Cuevas, Garcia & Torres, P.A., provides legal services in the areas of Community Association Law, Corporate Law, Real Estate law, and Business Immigration, including title insurance services through Vantage Property Title Company. These services are provided by both our Miami and Orlando offices. If you have any questions regarding this article or any other questions, you may contact Mr. Cuevas at (305) 461-9500 or via e-mail at [email protected]. If you are interested in reading previous newsletters, please visit www.cuevaslaw.com, select the icon for Newsletters, and then choose the area of law you are interested in.
It is always of great concern to members of condominium associations when Board members abuse their authority and enter into service contracts for the association which benefit relatives of the Board member, or the actual Board member himself. This recurring problem led the Flordia Legislature to pass a series of laws to prevent these conflicts from occurring. Florida Statute Section 718.3027 is titled Conflicts of Interest, and details how a potential conflict is determined and the procedures required to avoid such conflict. Section 718.3027(1) defines two situations which create a rebuttable presumption of a conflict of interest.
- A director or an officer, or a relative of a director or an officer, enters into a direct contract for goods and services with the Association;
- A director or an officer, or a relative of a director or an officer, holds an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association or proposes to enter into a contract or other transaction with the association.
This statute in general prohibits a condominium from entering into a contract with a vendor when such a contract is considered a conflict pursuant to 718.3027, however the statute also establishes a procedure of disclosure and abstaining from a vote which may result in a conflict to be affirmed by the association.
Conflicts of interest must be considered at a properly noticed Board meeting. If a director or an officer, or a relative of a director or an officer, proposes to engage in an activity that is a conflict of interest the proposed activity must be listed on, and all contracts and transactional documents related to the proposed activity must be attached to, the meeting agenda. The association shall comply with the requirements of Florida Statute Section .617.0832, (Corporations Not For Profit Act’s section on Director Conflicts of Interest) and the disclosures required by this section shall be entered into the written minutes of the meeting. Approval of the contract requires 2/3 approval of the directors present, however the Director who is conflicted must abstain. At the next regular or special meeting of the members, the conflict shall be disclosed to the members and upon proper motion by any member, the contract or transaction shall be brought up for a vote and may be canceled by a majority vote of the members present. If the contract is canceled, the association is only liable for the reasonable value of the goods and services provided up to the time of cancellation and is not liable for any termination fee, liquidated damages, or other form of penalty for such cancellation.
If the board votes against the proposed activity, the director or officer, or the relative of the director or officer, must notify the board in writing of his or her intention not to pursue the proposed activity or to withdraw from office. If the board finds that an officer or a director has violated this subsection, the officer or director shall be deemed removed from office. The vacancy shall be filled according to general law.
With regard to the procedure on the vote of the contract, a director or an officer, or a relative of a director or an officer, who is a party to, or has an interest in, an activity that is a possible conflict of interest, may attend the meeting at which the activity is considered by the board and is authorized to make a presentation to the board regarding the activity. After the presentation, the director or officer, or the relative of the director or officer, must leave the meeting during the discussion of, and the vote on, the activity. A director or an officer who is a party to, or has an interest in, the activity must recuse himself or herself from the vote.
This article is solely a partial explanation of all the issues related to the topic of this newsletter, and is not to be considered legal advice. Associations should seek legal advice for all issues related to this article. This Newsletter is for informational purposes only and should not be relied upon as a legal opinion.