Q “What recourse do unit owners have when a board is negligent of their duties? For example, a violation of the bylaws occurs when the board does not inspect common areas for safety and aesthetics when it specifically states in the bylaws that it is one of their responsibilities. And what about when a board member himself is in violation of a rule and regulation of the association? When does negligence cross the border into illegality?”
—A Concerned Unit Owner
A “Boards owe a fiduciary duty to the shareholders of a co-op or unit owners of a condominium or homeowners association,” says attorney Marc H. Schneider of the Garden City, New York-based law firm Schneider and Mitola LLP. “This essentially means they are responsible for complying with the association’s governing documents (i.e. – bylaws and declaration in a condominium or homeowners association or bylaws and proprietary lease in a co-op). However, board actions are governed by a doctrine typically referred to as the “Business Judgment Rule.” The key case which enumerated this standard is Levandusky v. One Fifth Avenue Apartment Corp. 75 NY2d 530 (1990) where the Court of Appeals (New York’s highest court) held that review of board decisions is analogous to the business judgment rule applied by courts to determine challenges to decisions made by corporate directors. In that regard, the Court in Levandusky held:
“Developed in the context of commercial enterprises, the business judgment rule prohibits judicial inquiry into actions of corporate directors “taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.”… So long as the corporation’s directors have not breached their fiduciary obligation to the corporation, “the exercise of (their powers) for the common and general interests of the corporation may not be questioned, although the results show that what they did was unwise or inexpedient. [citations omitted]”