Condo, co-op, and HOA governance is a test of the most basic form of representative democracy: the shared-interest community. A group of people with a common cause—in this case the health and welfare of their residential community—elects a small group of directors from within their ranks to oversee and manage that community. While the vast majority of directors serve with the best of intentions, there are times when someone misunderstands their duties and prerogatives, or even worse, has their own agenda.  

The question poses itself: What limits are there on the power of boards and board members to make and enforce rules and decisions, and what can a community do if the board or a board member oversteps?

The Basis for Governance

Like most things in shared interest communities, the powers vested in the board are outlined and delineated in the condo or co-op’s governing documents. It’s all there for the world to see—or at least there for the shareholders and unit owners to see. 

“A community’s board is elected to act on behalf of the residents to oversee things within the scope of authority in the community’s bylaws,” says Jonharold Cicero, a partner with DLPartners, a law firm located in New York City. “The bylaws give them specific parameters within which they can act. Certain matters may require a supermajority—usually 67 percent of the association—to enact a policy, in which case a resident vote will be required. Otherwise, the board has authority to act pursuant to the business judgement rule, which means to use reasonable judgement and act in good faith in pursuit of a positive outcome.”

Christopher Tarnok, also a partner with DLPartners, notes that under the business judgement rule, “Courts show deference to board decisions. The courts don’t want to get deeply involved in building governance. To the extent they satisfy the business judgement rule, decisions by a board will not be disturbed. Judges will consider whether a decision was made in the community’s best interest, or whether there was self-dealing or prejudice involved. As long as the board can demonstrate that the decision was made in the best interest of the community, the courts will leave it alone. That’s not a high threshold to establish.”

Ignorance, or Arrogance?

What’s at the root of a board or some of its members overstepping? According to the pros, sometimes a board or board members simply don’t fully understand their role and its constitutional limits. Other times it’s a belief that they ‘know better.’ In either event, conflict often ensues.

“It can be one or both,” says Harold Berlowe, director of sales and project manager for Denali Property Management in Chester, New Jersey, “Some board members simply don’t know the laws pertaining to running corporations or associations.  However, there are occasionally board members who are ‘control freaks,’ and believe they know what’s best for the community while all others are ignorant.  

“Other owners may not know all the facts about or issues surrounding a board’s decisions made about a specific issue,” Berlowe continues, “but the assumption on the part of the board and individual board members should always be that the owners are intelligent, educated, and successful people in their own right, and who would therefore benefit from transparency and regular communication from their board, management company, and other hired professionals.”

Mark Einhorn, a partner with law firm Marcus, Errico, Emmer & Brooks in Braintree, Massachusetts, says, “To be fair, it’s not usually arrogance. It’s a desire on the part of the board and board members to try to please everyone, and to please them all the time. They’re trying to manage the process, and by doing so many times, boards may overmanage it. They take responsibility for things they shouldn’t. That’s the number one trap.”

This can be a real problem in small buildings and associations, because in such a small community, the board may account for ⅝ of the building’s residents. However, Einhorn notes that in his experience, “It usually tends to work out in the end, because of the nature of small groups. These people have to live together. If they don’t, the condo fails. In larger associations a ‘culture of war’ can develop.  There’s always an attack on the board.”  

Limited or Limitless?

So what can a board actually do with regard to exercising its power? How much power does it actually have, both inside and outside of individual units? As mentioned earlier, that depends on your governing documents. And what can owners or shareholders do to curb board power or roll back board decisions? That also depends.

“The real authority to assert control is expressed in the bylaws,” says Tarnok. “The rules are known. The board must enforce the association’s or corporation’s rules.  There’s a legal obligation on their part to uphold that. Actions taken must be applied and enforced equally among all owners and shareholders. Any deviation from that sets the board members up for liability for prejudicial treatment. For example, if two unit owners are doing work within their apartments, the board can’t be stricter with one than the other, or enforce penalties on one and not on the other. All alteration agreements must be a standard form so as not to appear unequal.”

“Boards do have a certain amount of control over how others live,” says Berlowe. “They can regulate what owners or shareholders do in common areas, how they must maintain their homes, how they interact with others, including the board itself, management, vendors, other owners, etc. They determine how much money owners or shareholders have to come up with to fund the association, and when. Sometimes they can determine what owners can or cannot do inside their homes—like running a business, for example. There are also master deeds or CCRs that can restrict how units can be sold, leased, used, etc. This is always a tricky part of living in a community, but the ultimate goal should always be the betterment of everyone’s lives and investments.”

Einhorn explains that the extent of a board’s ability to take certain actions depends on the type of ownership the community is based on. Fundamentally, co-op boards have more leeway than condo boards or HOAs, and HOAs have more than condo boards. “Boards can make more rules in a co-op,” he says. “They have more direct authority than in a condo or HOA, where you can’t just make a rule against smoking in individual units, say. That would require an amendment to your governing documents, and that would be difficult, because the board would need a super majority of unit owners to enact the change. 

“In HOAs,” Einhorn continues, “it depends on how the governing documents are set up. A good example of this is HOA rules around the appearance of house exteriors or landscaping. In an HOA, you may own the lot, but that doesn’t mean you have the ability to change those features. It always goes back to what it says in the documents.”

Tarnok and Cicero both point out that one of the major differences in board control between co-op and condominium structures is a co-op board’s authority over subletting of apartments. 

If a condo owner rents their unit to a tenant, that wouldn’t be referred to as a sublet; it’s a bona fide lease, and the unit owner is the tenant’s landlord. Co-op boards have a lot of power over shareholders’ ability to sublet their apartments, Cicero explains, “In a co-op, you own shares in the corporation that owns the building, and you have a proprietary lease, rather than a deed. You can’t sell or sublease your unit without the co-op’s consent. Condo boards don’t have that power because unit owners own real estate as opposed to shares. A condo is fee simple property, and the owner can do what they want with the unit within the scope of the condo’s bylaws and documents. A condo board can’t prevent you from selling or leasing your unit. If the board doesn’t like to whom you are selling or leasing, well, too bad, their right of first refusal notwithstanding.”

Transparency & Good Judgement

The basis for board decisions rests with the business judgement rule, the four basic principles of which, explains Berlowe, “are that a decision is made in good faith, is within the board’s power, that there aren’t any conflicts of interest, and that the board decision demonstrates due care. As long as board members follow these four basic principles, courts have given wide latitude to them to conduct business on behalf of the association as they see fit.”

Berlowe also conveys a real life situation that highlights the dangers faced by boards.

“We manage one association in northern New Jersey that had a well-meaning board, but when we took over management, we realized the prior property management company had left them in a mess. We carefully explained to the board what we found, and recommended they move forward to dig themselves out of the financial, administrative, and building-condition mess they’d been left with. The board members feared being accused of not watching over the prior management company carefully enough, or being confronted by residents about wasting association funds. We reassured the board, and suggested they allow us to run open board meetings and informational meetings to build trust with the membership and shed light on the situation without throwing anyone under the bus. They’re now in a much better place than they ever were, and while some owners are not happy, they understand how and why important decisions were made, and what the association’s priorities are going forward.”

While a community grants many of its rights to a board to govern, the same way we as citizens of a democracy grant our rights to our representatives to govern the nation, board members must act with a fiduciary diligence and full transparency so that association members clearly understand that the board works for them and does that according to the association’s rules.

A.J. Sidransky is a staff writer/reporter for CooperatorNews and a published novelist. He may be reached at alan@yrinc.com.