An HOA board conflict of interest can be detrimental to an association. It can damage trust and destroy the board’s credibility. Board members must learn how to identify conflicts of interest and the best ways to proceed.
What is an HOA Board Conflict of Interest?
In an HOA or condo community, a conflict of interest happens when a board member’s personal, financial, family, or business interest could influence their decisions for the association. Even if their decision isn’t impacted by these aspects, the appearance of it can be unethical.
Board members have a fiduciary duty to act within the best interests of the association. If another interest pulls them in a different direction, that would result in a conflict. It can even be considered a breach of fiduciary duty.
An HOA board members conflict of interest has several serious consequences. At a minimum, it can damage residents’ trust in the board and trigger complaints. Residents might question the board’s credibility and claim that they are self-dealing or playing favorites.
If the board fails to handle the conflict properly, decisions can be reversed, and legal challenges can arise. While certain protections are in place, they only go so far. Board members may even find themselves personally liable.
Common Examples of HOA Board of Directors Conflict of Interest
Conflicts of interest can take a number of forms. Board members must learn how to spot them, even if there is only a potential, to prevent problems. Here are some of the most common examples of an HOA board conflict of interest.
1. Awarding a Contract to Own Company
One of the clearest examples of a conflict of interest is when a board member awards a contract to their own company. This is a conflict because the board member profits directly from the association’s decision.
Potential vendors must go through the proper screening and selection process. Associations should never hire a company just because a board member owns it, even if it means benefiting from discounts.
2. Hiring a Relative or Friend
One conflict of interest HOA board members face is hiring a relative or friend for association services. For example, if the board hires a cousin’s landscaping company or a friend’s plumbing company. Even if the price is fair, it can still create the appearance of favoritism, and the aftermath isn’t worth it.
3. Votes That Affect Own Property
Board members vote on association decisions, including policy changes, dues, and enforcement actions. If one of these decisions mainly benefits one director’s unit or property, then it can be viewed as a conflict of interest. Residents may wonder if the vote was truly for the community.
This can also happen if a resident submits an architectural request. A board member may want to approve or deny the request based on a personal relationship. Another example is when the director may seek looser standards for their own property.
4. Using Inside Information for Personal Gain
Board members deal with confidential information all the time. If they use information gleaned from contracts, violations, or upcoming projects for personal gain, it is a serious conflict of interest.
5. Accepting Gifts or Favors From Vendors
A vendor might offer free work, meals, tickets, or other perks to a board member or the entire board. This can influence, or appear to influence, the board’s decisions.
Board members should never accept gifts or favors from third parties. They are supposed to act as fiduciaries for the association, which means they must never seek anything for personal benefit.
6. Pushing for Special Treatment in Enforcement
Personal relationships can affect the board’s judgment. For example, if a friend has a pending violation, pushing to have the case thrown out would be a conflict of interest. Residents may try to leverage their personal ties to a board member, but boards should never give in.
7. Directing HOA Business to a Company Where They Have a Financial Interest
Anytime a board member directs association business to a firm where they hold a vested interest, it can be considered an HOA board conflict of interest. The interest can come in the form of ownership, commission, referral fees, or another financial benefit. Even if they don’t benefit directly, residents may still question the decision.
8. Using HOA Resources for Personal Purposes
Board members should never use the association’s resources for personal purposes. This can include association funds, staff time, vendor relationships, or property. For example, a board member might borrow money from the association to settle a personal debt.
What to Include in a Conflict of Interest Policy for Board Members
Conflicts of interest can cause irreversible damage to an association, but they aren’t without resolution. Establishing a standard policy to address conflicts can keep boards trustworthy and in the clear. Boards should also put this policy in writing in the governing documents.
Here’s what every HOA conflict of interest policy should include.
1. Disclosure Requirement
Board members must always disclose any conflict of interest, even if there is only a potential for one or an indirect interest. Disclosure promotes transparency, ensuring the director has nothing to hide.
Some state laws even address this outright. Section 13.1-871 of the Virginia Nonstock Corporation Act, for instance, says that disclosure is one of the key safeguards for conflicts of interest. In Virginia, most HOAs and condominiums are organized as nonstock corporations.
2. Recusal From Vote
An HOA board conflict-of-interest policy should also require recusal. This means the interested director shouldn’t get a vote on the decision. Only disinterested directors can vote to approve or reject a decision, project, or vendor.
Recusal ensures that no one influences the final outcome. Disinterested directors must also remain objective when casting their votes, never letting the interested director affect their judgment.
3. Resignation
In more extreme cases, unethical HOA board members may have to resign. Boards usually push for this option if the interested director consistently has conflicts of interest or intentionally fails to disclose them. Legal action can even follow.
Implementing Best Practices
An HOA board conflict of interest isn’t always easy to address. By practicing the strategies above, associations can address conflicts of interest and maintain their integrity. When in doubt, it’s best to consult a legal professional or an HOA management company.
Keymont Community Management offers expert HOA management services to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to start your journey!
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