Conflicts of Interests: What Community Association Directors Should Know

Are you a director on your community association executive board?  If so, you may be wondering about conflicts of interest.  When do you as a board member have a conflict of interest?

First, what is a conflict of interest?  The North Carolina Non-profit Act defines a conflict of interest transaction as “a transaction with the corporation in which a director of the corporation has a direct or indirect interest.”  A direct or indirect interest means that you have some personal interest in the transaction beyond your interest as a member of the Association.  Basically, the question is will you (or your family) benefit from a transaction beyond the benefit that every other member of the Association will enjoy?  If the answer that the question is yes, then you have a direct or indirect interest in the transaction.

For example, if you or your spouse are employed by a landscaping company that the Association will possibly hire, then your participation in the decision to hire a particular landscaper (when your company is a candidate) would be a conflict of interest.  Similarly, if you (or your family) owns a pool maintenance company, then helping hire the pool maintenance company that you own would be a conflict of interest. 

On the other hand if many condominium buildings (including the one you live in) need to be repainted and you are advocating for hiring a painter to repaint all the condominium buildings, then that is not a conflict of interest.  Your interest in having the condominium buildings repainted is the same as every other owner’s interest.  However, if your condominium is flooded due to a water leak in the ceiling and the condominium association is negotiating with its insurer regarding the scope of the repairs, then it’s going to be a conflict of interest for you to participate in the negotiation on behalf of the Association with the insurer (as you will directly and uniquely benefit from that negotiation).

So, if you have a conflict of interest with a specific business item, then what should you do?  First, you should review the governing documents and policies of your Association, as your Association may have specific policies on conflicts of interest.  Assuming that your Association has no specific policies, then you should fully disclose the conflict of interest to the rest of the executive board.  Then you should probably refrain from taking part in the decision relating to the item where you have a conflict of interest.   If only directors that have a conflict of interest in the transaction approve a particular business item, then that can create a problem for the Association later on.  Of course, the right thing to do may vary depending on the specific circumstances of a particularly situation.   If you have questions or concerns regarding a potential conflict of interest, then I would encourage you to contact any of the community association attorneys at Law Firm Carolinas.