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Fiduciary Relationship and the Enterprise Judgment Rule


Group affiliation officers and administrators have a fiduciary relationship to the house owners of properties or items of their neighborhood. Sometimes, this relationship is known as officers and administrators having the duty to behave in the most effective pursuits of the affiliation and to chorus from acquiring or accepting private advantages on the expense of the affiliation. In observe, this relationship is difficult, could be misunderstood, and is usually raised by neighborhood members who search to complain and/or make accusations arising from board selections with which they disagree.

As a beginning place, Florida legislation has lengthy offered that fraud, prison exercise, self-dealing, and unjust enrichment are examples of breaches of the fiduciary relationship. In distinction, abnormal negligence is mostly understood to not represent a breach of the fiduciary relationship, and most affiliation governing paperwork present that officers and administrators might be indemnified by their affiliation from private liabilities arising from abnormal negligence.

Furthermore, within the overwhelming majority of neighborhood associations, practically all upkeep and administration selections associated to widespread areas, widespread components, affiliation property, and affiliation operations are made by the board of administrators. These selections are nearly at all times protected by the “enterprise judgment rule”—a doctrine acknowledged by Florida courts that retains judges from second guessing these selections. The “rule” offers that when board members train discretion (i.e., make enterprise decisions for the affiliation) inside their authority and accomplish that in good religion, a court docket should defer to the board members’ presumed experience.

Thus, an proprietor is with out grounds to pursue a declare for breach of the fiduciary relationship if the proof of the alleged breach is restricted to upkeep and/or administration selections made by board members who acted inside their authority, in good religion, and with out fraud, prison exercise, self-dealing, or unjust enrichment. Importantly, even when hindsight reveals {that a} board’s enterprise choice seems to be a nasty one, that final result is inadequate alone to beat the protections of the “rule”.

Additionally, courts have acknowledged that limiting the publicity of officers and administrators to non-public legal responsibility is essential and mandatory to take care of a gradual stream of keen volunteers to serve on neighborhood affiliation boards. This indicators that courts are conscious that making it too simple for house owners to state a declare for breach of the fiduciary relationship would have a chilling impact on associations having the ability to appeal to volunteers.

However, criticisms by antagonistic house owners that incorporate allegations that the fiduciary relationship has been breached are critical issues that will have critical penalties. As such, they warrant vetting by the Affiliation’s authorized counsel on the time they’re obtained.

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