The board of a homeowners association, cooperative, or a condominium association owes a fiduciary duty to its members to act in the best interest of the community as a whole. However, sometimes members have concerns over whether board members ignore this duty and act only with their own self-interests in mind. This is why state and local laws support and serve to enforce the governing documents that have been created for a community. The governing documents are created for each community and state the policies in place for that community. They allow for each member of the community to know the expected duties, procedures, and limitations of the board.
As each community has its own set of governing documents, there are certain obligations that the board must uphold on behalf of its members. Some of these obligations pertain to annual meetings, elections, special assessments, referendums, and contracts. It is important for each board member, as well as each resident, to be cognizant of the limitations under which the board is placed in order to guarantee maximum accountability.
Arguably, the most important limitation is the fiduciary duty the board to make decisions that benefit the collective more than any individual board member, owner, or shareholder. This fiduciary duty ensures that the board is working for the best of the community and eliminates the possibilities of boards serving their own self-interest. It is important to remember why a board is in effect; the main responsibility is to be responsible for the administration of the community in good faith.
Most states and/or municipalities have regulations that further require the board to provide certain information to their community members. The New Jersey Non-Profit Corporations Act, applicable to most condominium and homeowner associations, and the New Jersey Business Corporations Act, which is applicable to cooperatives, operate to ensure that members, subject to certain conditions, have the right to inspect the books, records, minutes and membership records of the corporation; and, upon written request, to receive copies of both the balance sheet and the profit and loss statement at the end of the prior fiscal year for that fiscal year.
While there is a fiduciary duty to protect the best interest of the community, this duty does not extend to each individual of the community. There is a common misconception made by unit owners/members that the board owes them a fiduciary duty. The duty owed is to the community as a whole and the board can be held to comply with certain requirements imposed by the governing documents.
Another important requirement of the board is to hold regular board meetings with its unit owners. Without affording the unit owners with regular meetings, it becomes difficult to run a transparent, ethical, and functional association. The frequency, time, and place of meetings are determined on an individual basis by each association and are found in the communities governing documents. The unit owners have a right to ensure that the board is complying with the by-laws and are following the procedures that have been put in place.
Participation in meetings is an integral part of an association’s transparency. When a board does not comply with the notice requirements for meetings or fails to hold meetings consistently, it may (but is not always) be an indication of negligence. An important thing to remember is there are options for unit owners when a board is inconsistently holding annual meetings. An owner can request that the board call the meeting. Sometimes a simple reminder to the board is all that is needed. Most governing documents allow for unit owners to call for a special meeting, as long as the required number of votes is obtained. A last resort for unit owners would be to file a lawsuit compelling the board to conduct the meeting. However, often times this avenue is addressed in the governing documents and requires mediation or arbitration to resolve the issue.
In New Jersey, an association’s open meetings (meetings available for unit owner participation) are governed by N.J.A.C. §5:20-1.1. This statute states:
If the by-laws of the association of a condominium or other planned real estate development provide that any of the powers and duties of the association be exercised through a governing board elected by the membership of the association, or through officers of the association responsible to an under the direction of such governing board, all meetings of that government board, except conference or working sessions at which no binding votes are to be taken shall be open to attendance of all unit owners.
Although, this statute does have some restrictions available to the board that will allow them to have a closed meeting in which unit owners are not allowed to be present. These restrictions include any matter that would constitute an unwarranted invasion of individual privacy, any discussion on pending or anticipated litigation, or any matter involving employment, promotion, discipline or dismissal of a specific officer or employee of the association. It is important to note that at each meeting required to be open to all unit owners, minutes of the proceedings shall be taken and copies of those minutes shall be made available to all unit owners before the next open meeting.
Meetings are only useful if the unit owners are made aware when and where they are being held. Notice requirements in New Jersey are governed by N.J.A.C. § 5:20-1.2. It requires that the board give adequate notice to unit owners of the time and place of all meetings required to be open to all unit owners. Adequate is defined as, “written notice, at least 48 hours in advance, giving the time, date, location and, to the extent known, the agenda of any regular, special or scheduled meeting, other than a conference or working session at which no binding votes are to be taken.” It further requires that the notice shall be: (1) posted prominently in at least one place on the condominium property that is accessible at all times to all unit owners; (2) mailed, telephoned, telegrammed or hand delivered to at least two newspapers that have been designated by the governing board; and (3) filed with the person responsible for administering the business office of the association. Along with the notice requirement for upcoming meetings, the board has a requirement to post and maintain posted throughout the year a schedule of the regular meetings of the governing body to be held during the succeeding year.
Within this notice requirement is also an exemption that the board has in case of emergencies. When an emergency meeting is needed and the required 48 hours’ notice would likely result in substantial harm to the interests of the association, notice is adequate if it is provided as soon as possible following the calling of the meeting by posting, delivery, and filing notice. In this case, the meeting must be limited to the emergent matter.
Meetings of members, such as an annual meeting, are not the same as open board meetings and these notice provisions do not apply. The notice requirements for the annual meeting and other meetings of the members can usually be found in the associations by-laws. Members of the association are not entitled to attend executive session, or working session, meetings of the board and, therefore, no notice is required to be given to them for such meetings.
It is important to be aware of the state and city regulations for the requirements of having meetings and the notice that is afforded. It is also important to note what your community’s governing documents stipulate are the requirements of the board are as well. For the community to run ethically, transparently, and functionally, open communication between the board and its unit members goes a long way and can help to alleviate the need for any dispute resolutions.
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
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