HOA board members must disclose conflict of interest
Q: What an absolute breath of fresh air at the mere mention of fiduciary duty by a newly elected board member in your Oct. 6 Las Vegas Review-Journal column. At times, I have wondered if that idea, much less that legal requirement, of fiduciary duty had been tossed into the dustbin of history. I wish that new board member the very best at “staying the course” on that noble idea, much less legal requirement to do so.
Our Las Vegas homeowners association board is almost totally comprised of non-residing homeowners. (They are) acting as landlords, real estate agents or offering property management services for out-of-state homeowners.
Surely, there is some compensation being earned by those board members in violation of the fiduciary duty “to not profit personally from board duties,” be it compensation of fees of one sort or another.
This has the very real appearance of violation of fiduciary duty, so please comment on how you might reconcile their earning actions with the legal requirement of fiduciary duty to not profit personally from board membership.
If indeed this violation is true (as long suspected), why won’t our management company or law firm be inclined to investigate this? Then, call for a new election? And help resolve so obvious a problem?
Too often, it seems our law firm, in particular, absolutely refuses to deal directly with our homeowners, and our management company takes a less-than-even-handed posture toward our small bunch of actual on-site homeowner-residents, who are being subjected to obvious violations of fiduciary duty.
In effect, our supposed HOA community has become a de-facto apartment complex. Please advise and counsel us on how to end this charade and violation. Would the omsbudsman or Nevada Real Estate Division be inclined to jump into this potential hornets’ nest of intertwining matters? Or, is this dilemma so wide a problem in Nevada that the Legislature and assorted licensing agencies the more likely bureaucratic organizations to fix/resolve.
A: Per Nevada Revised Statutes 116.31034 (1), the unit owners are to elect at least three members to the board who are unit owners. Unless your governing documents provide otherwise, the officers are not required to be unit owners. Under subsection 9a, each candidate must make a good faith effort to disclose any financial, business, professional or personal relationship or interest that would result or appeal to a reasonable person to result in potential conflict of interest in serving on the board.
Under subsection 10 (a-2), a person may not be a candidate if the person stands to gain any personal profit or compensation of any kind from a matter before the board. Notice the wording, the personal profit or compensation would be as a result of some issue before the board. Being a landlord or a real estate agent is not by itself a conflict of interest. The following laws help to explain what would be a conflict of interest.
Under NRS 116.31185 (1) (1a-b), a member of the board shall not solicit or accept any form of compensation, gratuity or other remuneration that would improperly influence or would appear to a reasonable person to improperly influence the decisions made by those persons or would result or would appear to a reasonable person to result in a conflict of interest to those persons. As an example, a vendor who is bidding on a contract solicits your vote as a director in exchange for providing a week, fully paid trip by the contractor, to Hawaii.
In the above example, under NRS 116.31189, receiving any form of compenation in exchange for your vote is considered bribery under this law. The director would be guilty of a category D felony.
Under NRS 116.31187, a board member shall not enter into a contract with the association to provide financing, goods or services or accepts any commission, personal profit or compensation of any kind for providing financing, goods or services to the association.
Under NRS 116.31031 (9), a member of the board shall not participate in any hearing or cast any vote relating to a fine if the member has not paid all assessments that are due to the association. If the board member did participate, any action taken at the hearing would be voided and the board member’s vote also would be voided.
Every board member has a fiduciary obligation under the law (NRS 116.3103) and shall act on an informed basis, in good faith and in the honest belief that their actions are in the best interest of the association. Board members are required to exercise the ordinary and reasonable care, subject to the business-judgment rule.
Barbara Holland, CPM, CMCA, is an author, educator and expert witness on real estate issues pertaining to management and brokerage. Questions may be sent to holland744o@gmail.com.