Our Board approved $19,000 worth of work to be done to the President’s row of units. Owners were not informed in writing of this work. The contractor is a friend of the President. Is this allowable?
Provided that the work was in the nature of necessary maintenance, repairs or replacement which, pursuant to the by-laws, the board has the duty to perform, and was approved by the board, there is nothing wrong with the board causing for this work to be performed, nor is there any legal requirement that the board notify the unit owners of the work to be performed. However, if the work was in the nature of an improvement or which, pursuant to the by-laws, the board did not have the duty to perform, or if the president received a preference over other unit owners whose units may be in need of similar maintenance, repair or replacement (where the president acted in a manner of self-interest in influencing the board to approve the work), then this may be in violation of the president’s fiduciary obligation owed to the homeowners association and may be improper.
The homeowners association is permitted to engage a contractor who is a friend of the president provided that the president complies with §715 of New York’s Not-for-Profit Corporation Law concerning related party transactions. This would require the president to disclose in good faith to the board his relationship with the contractor and any benefit which the president may obtain by reason of engaging the contractor. Thereafter, the board must determine the transaction to be fair, reasonable and in the homeowners association’s best interest and the president should not participate in deliberations or voting relating to the transaction.