Q: I live in a 38 unit condominium building. I recently learned that an investor contacted our board of directors. The investor was interested in purchasing our building to deconvert it into apartments.
The investor offered the board a very attractive price. Each condo owner would have received about 30 percent more than what the condos currently sell for. The board turned down the investor.
Here is the problem. The board of directors never informed the owners about the offer. No meeting, no vote, no letter, nothing. I realize that the owners elect board members to carry out the business of the condominium, but not informing owners of an attractive offer seems wrong and possibly a breach of fiduciary duty. I also realize that our state condominium law requires 75 percent of owners to approve a sale. It is very possible we would not have reached that 75 percent threshold, but in our case, it seems that the board of directors rigged the system to guarantee that a sale would not occur.
Did the board act properly or was there a breach of fiduciary duty? Do we have a cause of action against the board members? Should the board members be removed from the board? What advice can you give us? At minimum, we want the board to have a vote every time an investor offers to purchase our building. Michael.
A: Michael, that’s an interesting question and I have debated with myself as to the answer.
Clearly, the board should have immediately informed all owners of the proposal, and called a special meeting – not to vote on the proposal, but to have a full and open discussion as to the pros and cons. I have to assume that even as of today, you do not know any of the conditions regarding the buyout. For example, will owners have to move out, and if so, when? Will they be able to stay, and if so at what rental terms? What happens to the minority voters if 80 percent of the owners vote to sell? Can they stay in the property? And when will this all happen?
But I am not sure the board had the legal obligation to call for a vote. As you state, the board is elected to manage and run the association. If the board – using its best business judgment – decided this was not a good deal for the membership, I am really not sure they had to take it to a vote.
Especially, if a special meeting were called to discuss and explain the proposal, unit owners who supported the concept had the right to call a special meeting for the sole purpose of voting on the proposal.
Did the board breach their fiduciary duties by not at least disclosing the proposal to the membership? Yes, I believe they did. Is there a remedy? Yes, if enough members are upset, your legal documents spell out a procedure how you can vote to “throw the rascals” out of office; it is called “removal of directors.”
Keep in mind that directors are generally elected by the membership and only the membership can vote to recall them. Officers are elected by the board, and the board has the authority to remove them from office.