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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 115450
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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What rights of redress has a Florida Condo owner possess

Customer Question

What rights of redress has a Florida Condo owner possess when a Florida Condo Ass'n Board enters into a major contract without complying with the Florida law that a contract that size cannot be awarded without seeking and receiving 3 competitive bids?
Scenario: A Florida Cond Board signs a concrete restoration contract for $8million without competitive bidding. A few owners seek and receive bids for $6 million from good contractors for exactly the same work:
Question:
Is there a cause of action against the Board, the directors personally or anyone else, absent any criminal intent or evidence?
If there is, would the Condo Insurance be responsible for the damages?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

Unfortunately, if the board did not comply with the law then the recourse of the owners would be that they have to sue the board as a derivative action for breach of fiduciary duty and possibly for acting "ultra vires" (meaning outside of the scope of their authority) and thus seek to have the board members made personally liable to the association for the damage their improper actions caused. Hopefully the association board has officers and directors insurance which would cover this type of action, because if they do not and they cannot afford to pay the damages they could file personal bankruptcy and the association owners could still end up stuck paying on this improper contract they entered into.

Customer: replied 1 year ago.

I don't get it. Are you saying that a good faith, albeit improper action like signing a contract with one company without any competitive bids can make directors personally liable for "a breach of fiduciary duty" or for acting ultra vires?

If you are right, then the concept of immunity for Condo Board members/directors goes out the window and every director becomes personally liable for a potentially well intended, albeit somehow illegal opinion. A liability that is not likely to be covered by insurance. .

Do you have chapter and verse in the statutes and/or case law supporting this view. I have been involved with condo law since 1969 and I have never heard of such an interpretation. In fact quite the contrary has been consistently asserted. That is why I framed the question as I did regarding the Insurance company's potential liability as opposed to the directors themselves.

Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your reply.

Yes, if they did not follow the bylaws, they could potentially end up personally liable for not following those bylaws. The board of directors is liable to know and to follow the laws and bylaws in their actions and failure to do so could make them liable. If the acted in good faith (which you did not say one way or another) then there is a lesser likelihood of personal liability and more a likelihood the insurance will cover their error/omission, but if they did this in bad faith then it could indeed amount to personal liability on them that the insurer will not cover. The board members have a fiduciary duty to the association, so if they were in bad faith the personal liability is likely to attach without insurance coverage. However, if they were not in bad faith, there is liability the insurer is likely to cover it.

This is why they do sell Directors & Officer's Liability insurance, to cover them when things like this happen.

Customer: replied 1 year ago.

If directors are liable for failing to follow by-laws and only protected by Insurance, how does this differ from the normal status of director's of any non-condo Board ?

As I understand the law, directors of condo Boards have immunity form all buy deliberate criminal acts. If this is not true, what exactly does the immunity mean?

The way I read your answer, it doesn't seem to mean anything.

Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your reply.

Board directors are liable not just for deliberate criminal acts, but for breaching any fiduciary duty to the association. This can include self dealing or other actions that would violate the fiduciary obligation they have to the association/organization. So if the conduct of the board members are negligent in such a way that causes harm to the organization, then they could still face potential liability for those actions and that is D&O insurance and/or errors and omissions insurance would cover.

Immunity is for general actions in the ordinary scope of business, but it is not going to apply to actions where they fail to follow the rules, bylaws or statutes.