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Condo | HOA Lawyers

Conflicts of Interest and The Boards Power to Interpret the Governing Documents

What you need to know:

Where the governing documents or the statute place the authority to interpret the governing documents with the board, the board’s interpretation will be binding unless unreasonable. However, if a director has a conflict of interest, the director can’t be part of the decision making process or the vote and must recuse herself/himself.

Risman v. Seaside Villas Condominium Association, Inc. (Fisher.., —So.3d —- (2023)) 2023 WL 1999640

Issues:

  1. Did the board have the power to approve a plan for demolition and significant alteration of a building within the association without an amendment of the declaration of condominium?
  2. Was the lease of common element for 99 years for the construction of a building valid where one of the directors failed to disclose or recuse himself from the vote despite having received a commission when the lessee bought the building?

Facts: H bought condominium building 9 of the Association. H, with board approval (a 3-0 vote) in 2018, demolished building 9 intending to build a single-family home on the site. The Association then leased approximately 960 square feet of common elements and/or limited common elements to H for 99 years (subject to renewal) for almost $400,000. The board had approved the lease on a 2-0 vote. The Association’s attorney, who was board-certified in condominium law, had advised that the project did not require amendment of the Declaration or ratification of the unit owners. H’s real estate agent was one of the board members who participated in both votes (to allow the demolition and to lease the land) and received a commission when H bought building 9. This director failed to disclose to the board his financial relationship. He also failed to recuse himself from either vote.

The Trial Court: In 2019 two unit owners filed suit against H and the Association claiming that the demolition and construction plan required unit owner approval (not just board approval) and that the lease was invalid because one of the directors had a conflict of interest and therefore had he properly recused himself there would have been no quorum. The trial court granted H’s motion for summary judgment on all counts holding that the terms of the Declaration contradicted the plaintiffs’ positions for the reasons argued by H. 

The plaintiffs timely appealed.

Court of Appeals: The decision of the Court of Appeals divided the two issues. On the issue of the demolition and construction, the Court held we “are compelled to affirm the trial court’s [decision]” because of the express language of the Declaration which states in section 25.3:

Interpretation: The Board of Directors of the Association shall be responsible for interpreting the provisions hereof and of any of the Exhibits attached hereto. Such interpretation shall be binding upon all parties unless wholly unreasonable. An opinion of legal counsel that any interpretation adopted by the Association is not unreasonable shall conclusively establish the validity of such interpretation.

The Court concluded that “by virtue of the plain and unambiguous language of section 25.3, coupled with evidence that the Association’s attorney did not opine that the Association’s interpretation was unreasonable, the validity of Association’s interpretation of the Declaration was “conclusively establish[ed].”

However, on the second issue the Court of Appeals found that the statute is clear that a director can attend a meeting and make a presentation if the director has a possible conflict of interest, but after the presentation, the director “must leave the meeting during the discussion of, and the vote on, the activity. A director … who is a party to, or has an interest in, the activity must recuse himself or herself from the vote.” § 718.3027(4), Fla. Stat. (2018).

The Court carefully noted that because the trial court had not set forth its rationale for dismissing the claim, it could not provide a “meaningful review” of the opinion and that it would not adjudicate this issue for the trial court. Hence, the Court of Appeals reversed the trial court finding that the claims of the plaintiffs were sufficient to require the director to have recused himself and therefore remanded the case to the trial court.

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