Conflict of Interest

He should abstain on any vote that has to do with rentals.

P.S. HOW is it that he even could run for the board? The nomination committee did not do its job.

Just because a conflict of interest exists does not necessarily mean that someone is acting in an improper manner.

Do you have examples of how the BOD in question votes in a way that protects his rental income IN A MANNER THAT IS DETRIMENTAL TO THE COMMUNITY AT LARGE?

Do you have a "Board member conflict of interest policy?" What do your founding documents say about potential conflicts of interest in regards to BOD members?

just curious, if i were an owner, and voting to protect my investment in real estate and property values, or I was a homeowner, and renting my home, and voted to protect my interest in rentals of homes, is that conflict of interest?

That was my thought in the beginning.

I think, BrianB, that technically speaking, it is. I'm under the impression, and this is just my opinion, that members of the BOD are there to protect the asset (the association and the association's good name). If you were on the BOD specifically to protect YOUR investment (and to he** with everyone else's), then it is a conflict of interest.

However, as I stated above, a conflict of interest can exist apart from any impropriety. I guess it depends on what you do with your conflict of interest.

I think it would depend on the age of the documents, and probably other things (expertise of the developer when writing from boilerplate/template).

I'm in Colorado, and regardless of founding documents, most associations (here) need to comply with C(Colorado)CIOA, which does require associations to have a policy/procedure in place for dealing with conflicts of interest by board members.

State who don't follow the Uniform Common Interest Ownership Act (UCIOA) ((or those states that don't have their own HOA laws)) may have something in Non-Profit Corp statutes.

My 25 year old documents do not have any information/language for dealing with conflict of interest. But, we are writing a policy/procedure now.

Other members rarely voice conflicts...we're really small. I'm the only one who voices conflicts, because I'm the one who deals with the contractors/vendors/owners on the most regular basis. I voice potential conflicts, even if they're teeny tiny (better to be safe than sorry). Other members on our BOD take what I say, and then make a decision about whether I should vote/recuse/leave the room.

An example of a conflict I disclose...sometimes I contract with our maintenance man for personal maintenance of my unit. I always tell the BOD when I do this, and I always offer to provide "proof" that I paid out of my pocket with no "discounting" for being the person who gets them the HOA contract. Better to avoid even the APPEARANCE of impropriety...

Frank,

If he owns one unit he has one vote and no more.

Yes, at Homeowner meetings he would have one vote for each unit that he owns, which probably means that he pretty much has total control over the outcome of any elections, including who sits on the Board. That depends on how many total units there are in the community though.

But once on the Board, at Board meetings he only has one vote, regardless of how many units he owns.

As to conflict of interest, not really. He has a vested interest in the well-being of the community, just the same as any other property owner in the community. In fact, it could even be argued that he has an even greater interest in the community well-being. He paid good money for those properties, and it would be better for him and his bottom line if the value of the properties stays high. If the neighborhood turns into a slum because of the renters, then he stands to lose more money than any individual property owner.

Everyone,

This is the entire section on Director Conflict of Interest from the Florida Statutes 617, Article of Inc for Not For Profit Corps, which HOAs in Fl. are ALL filed under. Pick your paragraph and interpret whether or not the multi owner is in conflict.

"617.0832 Director conflicts of interest.--

(1) No contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors are directors or officers or are financially interested shall be either void or voidable because of such relationship or interest, because such director or directors are present at the meeting of the board of directors or a committee thereof which authorizes, approves, or ratifies such contract or transaction, or because his or her or their votes are counted for such purpose, if:

(a) The fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves, or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors;

(b) The fact of such relationship or interest is disclosed or known to the members entitled to vote on such contract or transaction, if any, and they authorize, approve, or ratify it by vote or written consent; or

(c) The contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the board, a committee, or the members.

(2) For purposes of paragraph (1)(a) only, a conflict-of-interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors, or on the committee, who have no relationship or interest in the transaction described in subsection (1), but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no relationship or interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director having a relationship or interest in the transaction does not affect the validity of any action taken under paragraph (1)(a) if the transaction is otherwise authorized, approved, or ratified as provided in subsection (1), but such presence or vote of such a director may be counted for purposes of determining whether the transaction is approved under other sections of this chapter.

(3) For purposes of paragraph (1)(b), a conflict-of-interest transaction is authorized, approved, or ratified if it receives the vote of a majority in interest of the members entitled to vote under this subsection. A director who has a relationship or interest in the transaction described in subsection (1) may not vote to determine whether to authorize, approve, or ratify a conflict-of-interest transaction under paragraph (1)(b). However, the vote of that director is counted in determining whether the transaction is approved under other sections of this chapter. A majority in interest of the members entitled to vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section. As used in this subsection, the term "majority in interest" refers to a majority of the voting shares or other voting units allotted to the members.

.

I agree with Mary that voting IMHO is not considered a "transaction", therefore the Statutes do not address a "major rental agency" owner being on a Board. However, IMHO again, that owner should abstain from any voting that is involved with any rental policy .

Michael,

There is no reason that a Board member in good standing should be excluded from being present. They may be part of the quorum? Never know.

From what I have seen from various government meetings (city hall, agency committees, etc), as long as the conflict is made known at the start of the discussion, the person with the conflict does not need to leave or be silent during the discussion. They don't vote, but they are still free to participate in the discussion.

But these were typically open meetings where the public would have been able to participate anyway. The person in conflict essentially becomes another interested member of the public with the same ability to comment on issues as anyone else.

I think a "conflict of interest" or "bias" can be found almost anywhere you look. Just because people know each other does not a bias make. I think your BOD was out of line (unless you have a policy in place to address potential conflicts of interest??).

Just asking...but does Texas have anything like this (from the Colorado Common Interest Ownership Act)... The policy requirement for conflicts of interest (1.b.ii)

38-33.3-209.5 Responsible governance policies.
(1) To promote responsible governance, associations shall:
(a) Maintain accurate and complete accounting records; and
(b) Adopt policies, procedures, and rules and regulations concerning:
(i) Collection of unpaid assessments;
(ii) Handling of conflicts of interest involving board members;
(iii) Conduct of meetings, which may refer to applicable provisions of the Nonprofit
Code or other recognized rules and principles;
(iv) Enforcement of covenants and rules, including notice and hearing procedures
and the schedule of fines;
(v) Inspection and copying of association records by unit owners;
(vi) Investment of reserve funds;
(vii) Procedures for the adoption and amendment of policies, procedures, and rules;
and
(viii) Procedures for addressing disputes arising between the association and unit
owners.
(IX) When the association has a reserve study prepared for the portions of the
community maintained, repaired, replaced, and improved by the association;
whether there is a funding plan for any work recommended by the reserve study
and, if so, the projected sources of funding for the work; and whether the reserve
study is based on a physical analysis and financial analysis. For the purposes of
this subparagraph (ix), an internally conducted reserve study shall be sufficient.

Without all the facts, I don't know if we would ever agree. MichaelK said that the BOD member was considering a potential future business venture. I'm not sure if it can be any more vague than that.

But, Michele, point taken. (I may not always agree, but DANG, you write some good arguments that get me thinking!) I err on the side of benefit of the doubt (Probably because my association allows it). MichaelK's situation blows my "benefit of the doubt" argument right out of the water! Through all of MichaelK's extensive posts, I am thinking more and more that his BOD operates in a way I'll never understand!

Completely understood. I use "benefit of the doubt" because I can in my association. We're not litigious, we're not filing lawsuits, we're just trying to live and get along.

I completely see your point about the drawbacks of using benefit of the doubt, ESPECIALLY in your association. I guess our association and owners just ASSUME that we're all working for the benefit of the property as a whole (because we ARE!).

Boy, sometimes I get on this message board and I'm overwhelmed with the problems my association has. Then, othertimes, I come here and I just count my blessings! This situation with MichaelK's association REALLY makes me count my blessings.

Frank, could you post the text of that CoI statement, if it's not too long?

Can anyone tell me more about common CoI policies (as distinct from basic principles) or point me to web sites with examples?

All I have seen so far are statutes that say a BoD should have one. I have not looked to see if the TX Corp acts have such a requirement, but it looks like a good idea.

I don't see how he or others can distinguish between his interests from the two positions. He has interests based on both.

I don't even want to address the dicotomy of the condo association within the village association. It sounds complicated.

The interests of landlords vs. residents are clearly distinct. Both have an interest in property values, but the rental owners have a strong interest in rental values, while the resident owners do not. Landlords who do not also live in the condos or the village may have little interest in various quality of life issues that are important to resident owners. To point out a clear issue on which their interests conflict, the presence of rentals may not promote property values, but they make money for the rental owners.

I like the principle of avoiding conflict with a "direct financial interest", but that is clearly insufficient. Every homeowner has a "direct financial interest" in many things. Directors are owners tasked to look out for the common interests before their own personal interests. The guiding principle for determining CoI must be "personal financial or property interest, distinct from the legitimate interests of the Association."

How does this sound?

The rental agent and rental owners all have an interest in promoting rental incomes. Resident owners are interested in promoting property values and quality of life, perhaps even more than the landlords. These disparate interests are all consistent with the interests of the Condo Owners Association and the Village Association, right? The rental agent was elected by a large number of owners to represent their aggregate and legitimate interests. If there was an issue regarding a particular property owned by a Director, that would be a conflicting personal interest.

These are broad strokes, as the question was broadly posed. We don't know a lot of details, which are not part of this discussion.

Frank, could you please post the text of that CoI statement, if it's not too long?

Please, can anyone tell me more about CoI policies (as distinct from basic principles) or point me to web sites with examples?

All I have seen so far are statutes that say a BoD should have one. I have not looked to see if the TX Corp acts have such a requirement, but it looks like a good idea.

If you don't see the conflict of interest clause in your By-Laws you might check the Articles of Incorporation* that's where I found ours located.

*Articles of Incorporation (sometimes also referred to as the Certificate of Incorporation or the Corporate Charter) are the primary rules governing the management of a corporation in the United States and Canada, and are filed with a state or other regulatory agency. They are (at least in Ohio) usually attached as an exhibit to the Declarations.

Sorry. More hearsay.