Association board members have a fiduciary obligation to carefully consider and properly analyze any contract that their association enters into. Of course, the extent of precautions taken and analysis made before entering into a contract that is required by that fiduciary duty varies based upon the nature of the contract, the more that is at stake the higher the obligation.
For example, a board should seek the advice of counsel before entering into a MDU (Multiple Dwelling Unit) contract applicable to the entire community for television or data services for a term of years because such contracts often contain provisions that expose the association to unnecessary future liability and in some cases entering into such contracts may constitute ultra vires acts for which the board members may be personally liable to both the vendor and the association. Conversely, a monthly cable television contract to provide service to one room in an association’s clubhouse that is terminable at-will would generally be within the purview of a board member’s individual analysis and obviously not require expending funds for attorney review.
Contracts provided by vendors are written to protect their interest. Board members have a fiduciary obligation to consult with legal counsel before entering their association into a major contract. Similarly, community managers have a fiduciary and regulatory obligation to direct board members to seek the advice of legal counsel prior to entering into major contracts.
