By Eric Glazer, Esq.
Let’s say your condominium building needs a paint job. It just so happens that the President of the association is the owner of a general contracting firm. He tells the Board to stop racking their brains trying to find a company. He promises to have his company do the job right. He will certainly give the association the best price. His company will provide a warranty. He will personally supervise the job. All required permits, if any, will be pulled. And in the end…..it will look like Michaelangelo himself painted the property.
Two questions…….The first is whether or not the Board of Directors can enter into a contract with a company that a fellow director has an interest in. The second question is…even if the law allows for such a contract, is it a good idea?
For both condominium and homeowner associations the law states:
(As to any contract or other transaction between an association 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:
(a) The association shall comply with the requirements of s. 617.0832. (full disclosure)
(b) The disclosures required by s. 617.0832 shall be entered into the written minutes of the meeting.
(c) Approval of the contract or other transaction shall require an affirmative vote of two-thirds of the directors present. (The director who is interested cannot vote)
(d) At the next regular or special meeting of the members, the existence of the contract or other transaction shall be disclosed to the members. Upon motion of any member, the contract or transaction shall be brought up for a vote and may be canceled by a majority vote of the members present. Should the members cancel the contract, the association shall only be liable for the reasonable value of goods and services provided up to the time of cancellation and shall not be liable for any termination fee, liquidated damages, or other form of penalty for such cancellation.
So, Florida law does allow the association to enter into a contract with a director’s company. But is that a good idea? There are situations where such an arrangement can work out fine. The job gets done, the service is performed, the association saves money, and everyone is happy. When it goes bad however, it’s an uncomfortable situation for everyone. Remember, the road to hell is paved with good intentions.
Doing business with a Board member or their company. Good idea or bad?