What's the fiduciary responsibility of condo or co-op board members?

Thinking of joining the board of your New York City condo or co-op? Before you dive in head first, make sure you have a solid grasp of what a board does.

Elected by the unit owners in your condo or co-op, your building’s board of directors has three main responsibilities:

1. Repair, operate, replace, and maintain the building's common areas. These are the areas of the building that everyone can use, such as the lobby, hallways, lounge, and gym.
2. Comply and enforce governing documents and regulations. Board members enforce penalties on unit owners who don't comply with the building’s governing documents and regulations.
3. Manage budgets and other fiscal responsibilities. Board members are also responsible for budgeting and planning for general maintenance like boiler and HVAC repair. It also includes planning and budgeting for capital improvements like updating the building’s facade, replacing the roof, and repainting the lobby.

Being a board member comes with a lot of power as well as responsibilities (cue Peter Parker). So, what is the fiduciary responsibility of board members? It’s to serve your community by governing with your building’s best interest in mind.

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A board's fiduciary duties

As the decision-makers for the building, boards have the fiduciary duty to make responsible decisions on behalf of unit owners. This includes:

Duty of care

To fulfill their duty of care, board members need to make informed decisions, which means doing some research before voting or acting on a matter. 

Let's say there's a meeting about a unit owner who’s late on paying dues. Before voting or acting on the issue, analyze:

• The situation. Talk with the unit owner to understand why they're not paying on time. If the issue can easily be fixed, you may be able to avoid charging late fees (should your board so desire). But if the problem persists and the board begins considering foreclosure, consider warning them with a lien - a legal claim that can stop them from refinancing or selling their home. If that doesn’t work, use the lien to force foreclosure.‍
• Your building bylaws, which lists out the rules and regulations for how your building operates.

Duty to act within the scope of authority

Board members must always act within their scope. This means they have to perform their obligations but can't overstep their boundaries unless they have the authority to do so.

This authority comes from state laws, articles of incorporation, and bylaws. As such, review these documents before voting or acting on any issue.

Duty of loyalty

Board members have a duty of loyalty, which requires them to act fairly and legally for the benefit of the building as a whole. Examples include:

• ‍Conflicts of interest: When you’re gearing up to refurbish your building's lobby (or any project), don’t give a vendor contract to family members just because they're related to you.
• Confidentiality: Maybe a unit owner tells you they're selling their business to pay off their dues in confidence. Avoid telling this information to your family or friends, posting on public forums, or yelling it from the rooftops.

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Fiduciary responsibilities when making financial decisions

But wait, there’s more! It's particularly important board members handle financial decisions with care. Remember, unit owners are entrusting their hard-earned money with the board to keep their building running the way it should. Whether you're the treasurer or play another role on the board, be sure to act responsibly.

1. Make payments easy

Building rules and regulations will determine how often unit owners need to pay their dues. Make it easy for everyone when choosing a method of payment collection, whether it's through the internet or in person. Many boards hire a management company to help with this.

2. Keep accurate records

Board members must be good stewards of association funds, so be sure you keep proper records at all times. Consider hiring an accountant or a full-service management company.

3. Know what you can use dues for

Remember, this is a volunteer position and you’re responsible for making sure every decision you make benefits the community. Funds collected from residents should be allocated toward community insurance, maintenance, contingency funds, and reserves.

Keep in mind, you may allocate dues toward hiring a property management company to help you with running your building end to end, including financial support:

• Maintenance
• Bookkeeping
• Collecting dues
• Enforcing violations

4. Be transparent with your community

Unit owners are paying for their building to be maintained, so it’s important you are as transparent as possible. The more transparent you are, the more confident the unit owners will be about your leadership. Some ideas:

• Keep minutes from your meetings so there is a high-level overview of things discussed. 
• Send timely updates to your residents using their preferred method of communication (e.g., email, SMS, mailboxes, etc.) around such things as maintenance issues, increases in common charges, issue resolutions, community events, and more!
• Prevent fraud by regularly checking financial reports and bank statements. If you see something strange, bring it up to your property manager or fellow board members.
• Make financial statements available to all of the unit owners in your community. Remember to redact any confidential or sensitive information from your reports before sharing them. For example, if you see credit card numbers and full names on the reports, use black rectangles to cover up that sensitive information before sharing.

5. Prepare realistic budgets

Boards prepare next year’s budget. This requires you to not only estimate the cost of future repairs and maintenance but also analyze historical data and research market trends to determine how much to charge unit owners in dues.

6. Plan reserve funds

For maintenance expenses, draw from your operating fund. For contingencies and replacements, use your reserve funds. 

Your reserve funds should be able to cover emergency and future costs. If you don't have enough reserve funds, you may have to charge unit owners special assessments costs, which can hurt your reputation. If you don't have the time, money, or expertise to determine the right reserve fund level, consider finding a good property management company (like Daisy) to help you. For more reserve fund best practices, click here.

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Stay on top of your condo or co-op board responsibilities

Becoming a board member for your condo or co-op might look easy on paper – you go to meetings, listen to presentations, and vote on issues. As we’ve shown, it's much more complicated and a larger investment of time and energy than that. 

To sum things up, board members have the fiduciary duty to make fair and reasonable decisions for their building, which consists of:

• The duty of care to make informed decisions on behalf of unit owners
• The duty to act within their scope of authority
• The duty of loyalty, or the duty to act in good faith for the benefit of their building at all times

Even the best boards find it challenging to fulfill these duties alone, particularly when it comes to making financial decisions. They lean on industry experts to advise and guide them. 

That's where Daisy comes in. Daisy is a full service, custom-centric property management company that partners with boards to make their lives easier. We help with financial planning for budgets, reserve funds, etc. Plus, we leverage technology to streamline building living. Using our dashboard and app, both residents and board members have full visibility into their building, so they can gain back control knowing everything is being managed well.

And this is all just the tip of the iceberg. Learn more about how Daisy can help you.