Conflicts of Interest and Service Providers: Why Condominium Board Members Must Not Cross the Line
Florida condominium board members are responsible for a mind-boggling number of activities that must be performed according to the rules set forth in the Condominium Act, Florida Statute 718. It’s all too easy to make an error, and there are always a few owners who seem poised to find a reason to criticize the board members, who are after all working in good faith and on a volunteer basis. A meeting notice posted an hour later than required is not likely to cause more than a few grumbles from particularly petty owners, but suspected or actual conflict of interest can result in legal action against one or all of the board members. That’s not something you signed up for, so it’s important to make sure you know what constitutes conflict of interest so you can steer clear of any problems.
The statute was amended in 2017, regarding service providers. It states that there is a presumed conflict of interest if a condominium association employs a service provider that is operated or owned by a board member or relative of a board member. An example: If board member Jim’s pool service company is servicing the association’s pool, or if his brother or any other relative—by blood or marriage—owns the company, it is presumed that a conflict of interest exists. The exception is if the board member or relative owns less than a 1% share in the service provider’s company.
The statute also says that associations may not contract with service providers who have a “close financial relationship” with a board member. This clause covers businesses other than sole proprietorships and means that if a board member holds an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association or proposes to enter into a contract or other transaction with the association, a conflict of interest exists.
Here is something else to be aware of. Suppose Jim wants to offer to service the association’s pool at cost, much lower than any other service provider in the area. He wants to propose this at the next board meeting. Before that can happen, the proposed activity must be listed on the meeting agenda, and all contracts and transactional documents related to the proposed activity must be attached to the meeting agenda.
Jim may not be present at the meeting when his proposal is discussed and voted on, and it must pass by a two-thirds majority of the remaining members. If the board votes against the proposed activity, Jim must notify the board in writing that his company will not be servicing the pool, or he may withdraw from office. If Jim doesn’t provide that written notice or withdraw, the board can vote to remove him from office. You can imagine how Jim feels at this point—he was just trying to save the association some money. And it’s not over! All of this must be documented in the minutes, and if the board agrees to Jim’s proposal without disclosing the agreement and the potential conflict of interest to the unit owners, the contract can be cancelled by a vote of 20 percent of the owners.
Another situation that might arise is that a committee—let’s say the grounds committee—has been tasked with finding a new maintenance company. Their recommendation happens to be a company owned by board member Sally’s brother. Sally must immediately notify the board that she has a conflict of interest. The same provisions outlined above apply to noticing, discussion, voting and cancellation.
Any unit owner can bring suit against a board member who they perceive as having a conflict of interest. It is wise to exercise an abundance of caution, fully disclose any relationship that might be seen as a conflict of interest—and not make any proposals that would clearly fall into the “presumed conflict of interest” category.
Note: These rules do not apply to timeshares.
The question then turns to the definition of the term “service provider”. However, there is no clear definition provided, leaving the association responsible for determining whether or not specific contracts come under the umbrella of “service contracts”. This decision should never be reached without taking counsel’s advice and support from your Community Association Manager (CAM), and once the decision is finalized, it should be made to err on caution’s side until some legal precedent becomes available to define “service” as a term in this context to avoid falling foul of the latest statute.