This blog is the second in a series of posts discussing an individual’s potential liability for the collective decisions made by their board. Be sure to read our previous posts online here.
Since condominium associations are generally organized as non-profit corporations under N.J.S.A. 15A:1-1 et seq., the New Jersey Nonprofit Corporation Act is quite instructive on a Board member’s standard of care:
Trustees and members of any committee designated by the board shall discharge their duties in good faith and with that degree of diligence, care and skill which ordinary, prudent persons would exercise under similar circumstances in like positions.
Moreover, the overriding scheme of the Condominium Act requires an association to act as a fiduciary and make decisions for the protection of the whole condominium and each of the constituent owners, not to act discriminatorily, arbitrarily, or in bad faith. See Billig v. Buckingham Towers Condo. Ass’n I, Inc., 287 N.J. Super. 551, 563 (App. Div. 1996). Therefore, since a condominium association stands in a fiduciary relationship to the unit owners, that relationship requires that it act consistently with the Condominium Act and its own governing documents and that its actions be free of fraud, self-dealing, or unconscionability. Ibid. Essentially, all that is required is that the Board act reasonably and in good faith using the degree of skill and care an ordinary person would exercise under similar circumstances. Ibid. If a contested act of the association meets each of these tests the courts will not interfere or substitute the court’s judgment for the judgment of the Board. Ibid.; see also Courts at Beachgate v. Bird, 226 N.J. Super. 631 (Ch. Div. 1988) (upholding a board’s enforcement of restrictions on changes in windows where the restrictions were imposed for aesthetic and safety reasons). This protection from judicial scrutiny is commonly known as the “business judgment rule”.