If you have been elected to serve on the Board of Directors it is important you understand your obligations.
The Board of Directors have a fiduciary obligation to comply with a standard of conduct. The Board of Directors, in accordance with the Colorado Revised Non-Profit Act, shall discharge the officer’s duties (a) In good faith; (b) With the care an ordinary prudent person in a like position would exercise under similar circumstances; and (c) In a manner the director or officer reasonably believes to be in the best interests of the Association.
The Board of Directors through their fiduciary obligations shall operate by using the following:
Good Faith – Board members should use a business judgment rule which states that if a Board member is acting in what they believe to be the best interest of the Association or good faith (defined as an honest and sincere intention to fulfill one’s obligation) the Board members will not be liable for a decision made, even if the decision was determined to be a bad decision. Board members should not make decisions or take actions based on hidden agendas that that benefit the Board member, family members, friends, etc. It should be further noted that the Non Profit Act, Section 401 provides that directors and officers are not acting in good faith if such individual relies on an opinion when he/she knows the person who issued the opinion is likely incorrect and may be considered a breach of the director/officer’s duty of good faith.
Duty of Care – A duty of care which required the Board to act in accordance with the law and the Association’s Governing Documents and to use care and skill that a prudent person would use in a similar situation. A prudent person means that the person is informed about the particular situation before they act. The Colorado Non-Profit Act also encourages directors and officers to consult with experts by protecting the directors from liability for making wrong decisions if such decisions were made with reliance upon an expert opinion. A Board member to discharge their Duty of Care must monitor the Association’s activities, which would include such things as:
- Regular attendance of meetings;
- Use of independent judgment on all Association decisions;
- Be informed, in order to function effectively a director needs to be informed.
Duty of Undivided Loyalty – Directors have the duty to the Association and its members to act only for the Association’s benefit, for the Association’s best interests and without regard for any personal interest. The duty of undivided loyalty is the most stringent duty imposed by the law. A director by assuming office, acknowledges with regard to any Association activity, the best interests of the Association must prevail over the director’s individual interests or particular interests of the members who elected him or her. The director shall not use his or her Association position for personal advantage.
Duty to Act within the Scope of Authority – The directors are required to perform their duties in accordance with the authority granted to them by their Governing Documents, the Colorado Revised Non-Profit Act and the Colorado Common Interest Ownership Act.
In order to be a good Board, the Board should:
- Participate in educational events and industry trade shows that are hosted by the local chapter of the CAI, local vendors and by the management company so the Board is better educated on issues relating to community associations.
- All new Board members should attend a training session so they understand their role as a Board member.
- Be active by attending Board meetings, responding to emails and other communication.
- Come to the meetings prepared – prepare for meetings by reviewing all information provided to them by the Association’s community manager in advance of a meeting.
- The Association is a corporation and should be run in a professional manner. Board meetings are to review information and take action. The Board should ensure they are treating the owners, community manager and other professionals with respect by not wasting time during the Board meeting.
- Set clear goals and a vision for the Association and communicate it to the members.
- Board meetings are not a social hour, personal conversations should be saved until the meeting is over.
A professional management company, such as TMMC Property Management, provides knowledge of the operations of the associations, the governing documents, continuity in operations, accurate accounting, expertise in condominium, townhome, and homeowner association management, and better negotiating power with vendors, contractors and insurance companies.