Understanding Director Conflicts of Interest in Florida Condominium Associations

By Edmy Cortijo Villock, Esq. / Published March 2024

In the realm of condominium associations in Florida, directors play a crucial role in decision-making processes. However, their actions must adhere to certain legal standards to ensure transparency and fairness. This article explores key legal cases and statutes that shape the landscape of director conflicts of interest in Florida condominium associations.

     Section 718.3027, Florida Statutes, defines what is considered a conflict of interest among directors and officers (D&O) who are not part of a timeshare condominium association. Keep in mind that this section also applies to the relatives of those directors and officers. For the purpose of this provision, a “relative” means anyone within the third degree of consanguinity by blood or marriage.

     It is important for every D&O to disclose to the board any activity that may be construed to be a conflict of interest. Some common examples of a conflicts of interest include the following:

     Entering a contract for goods or services with the association.

     Holding an interest in a business entity that conducts business with the association, with the purpose of entering into a transaction with the association. It does not matter if the services to be rendered are for cleaning services or for underwriting the insurance policy for the association; these services should never be performed by a director or officer’s company, irrespective of if the director or officer is the one performing the work or not.

     Not disclosing business or personal relationships with contractors, developers, vendors, or any other service providers.         

     Holding the role of property manager while serving as a board member, as this role is one that requires compensation and sometimes even reimbursement for performing association activities.                

     In the legal precedent of Old Port Cove Property Owners’ Association v. Ecclestone (500 So. 2d 331, 333, Fla. 4th DCA 1986), it is established that every board member has a duty to act in good faith, with the belief that their actions are in the best interest of the association. The expected standard of care is that of a reasonably prudent person in a similar position facing comparable circumstances.

     If a director or an officer, or relative of a director or an officer, proposes to engage in an activity that is considered a conflict of interest, these requirements must be followed:

     The proposed activity must be listed in the meeting agenda and any contract and transactional document must be attached as well.

     The contract or transaction must receive approval from two-thirds (2/3) of the directors present at the meeting, provided they have no relationship or interest in the said contract or transaction. The director or officer with an interest in the contract or transaction is allowed to present information to the board about the activity but should not be present during the voting.

     The existence of the contract or transaction must be disclosed to all members at the next meeting.

     If any member proposes a motion, the contract or transaction will be subject to a vote and may be nullified if a majority of the members present at the meeting concur.

     If the contract or transaction is terminated, the association is solely responsible for the services rendered until the cancellation or for the reasonable value of the goods.

     Failure to disclose the relationship between the director, officer, or relative deems the contract or transaction voidable. The contract or transaction is deemed terminated upon the filing with the board of directors of a notice requesting the contract to be terminated. The unit owner requesting the contract to be terminated must have at least 20 percent of the voting interests of the association. Also, when doing business with the association where there is a conflict of interest, the association is not liable for any termination fee, liquidated damages, or other form of penalty for such
cancellation.

     A common misconception of a conflict includes the prohibition of a director of a condominium association from purchasing additional condominium units. Also, there is no conflict of interest in a director owning more than one unit or in purchasing units that may be in the process of being foreclosed. Finally, there is no legal requirement that a director has to give the board of directors notice of his intent to purchase additional units or that a director has to give the association the right to purchase those units first. De Mio v. Gordon, 2010 Fla. Cir. LEXIS 5673, *3-4

     To foster a harmonious community within an association, it is crucial to implement measures that mitigate the potential for conflicts of interest. Key strategies involve enforcing full disclosure and mandating board members to promptly reveal any potential or perceived conflicts. This enables impartial board members to assess and decide on proposals related to the conflict without the involved member’s input.

     Additionally, recusal is essential; once a conflict is identified, the concerned board member should abstain from voting and refrain from participating in discussions. Uniform application of rules to all members, including board members, is imperative to prevent potential legal repercussions. Furthermore, ethical behavior is promoted by having board members sign an ethics policy providing the association with the authority to address violations, particularly those related to self-dealing. Finally, board members must acknowledge and be prepared to face consequences for allowing conflicts of interest, ranging from censure to recall proceedings, requests for resignation, disciplinary actions, and even legal proceedings.

     Understanding the legal framework surrounding director conflicts of interest in Florida condominium associations is essential for both board members and residents. Adherence to these regulations fosters transparency, protects the interests of the association, and ensures fair decision-making processes. Directors must navigate these legal nuances to uphold the integrity of their roles within the association. It is recommended that communication with counsel is undertaken in the event that there are any issues or potential issues. The safest course is transparency and full disclosure. 

Edmy Cortijo Villock, Esq.

Associate, Haber Law

      Edmy Cortijo Villock is a seasoned attorney with over 10 years of comprehensive experience in handling diverse civil litigation matters. Her practice spans various areas, including mediation, residential foreclosures, and all matters of community associations, including collections and foreclosures, landlord/tenant disputes, and evictions. For more information, email ecortijo@haber.law or visit www.haber.law.