Normally, the operations of a condominium are conducted by a management association created to run the common affairs of the condominium owners[i]. A condominium association is required to act consistently with the condominium act and its governing documents. Its actions must be free of fraud, self-dealing, or unconscionability[ii].
A condominium project may be administered or managed in one of several ways, such as by:
- the unit owners, a board of governors elected by the owners; or
- a management agent elected by the owners or the board when named in the declaration[iii].
The applicable condominium act, its bylaws, and the declaration authorize a condominium association’s acts [iv]. A condominium association is controlled by a governing body, acts through designated agents, and functions under the authority of bylaws[v].
The management, whether a board of governors or directors elected by the unit owners, or an elected or appointed agent, may:
- acquire property;
- enforce restrictions;
- maintain the common areas;
- engage in litigation;
- insure the property;
- promulgate and enforce house rules; and
- make reasonable assessments[vi]
The decisions made by a condominium association board should be reviewed by a court using the same business judgment rule that governs decisions made by other types of corporate directors[vii]. The business judgment rule limits the judicial review of decisions made by a condominium’s board of managers to whether:
- the board’s actions are authorized, and
- the actions were taken in good faith and in furtherance of the legitimate interests of the condominium[viii].
Thus, under the business judgment rule, in the absence ofevidence of bad faith, fraud, self-dealing, or other misconduct on the part of a condominium board, judicial review of the reasonableness of the board’s action is foreclosed[ix].
Most condominiums are insured by a master policy, covering the entire project, along with policies covering the individual units[x]. The master policy protects the overall needs of the project and guards against gaps in the individual insurance contracts caused by lapsed policies or limited coverage. Some states specifically authorize a condominium declaration to require its board of managers to insure the project[xi]. In other states the statute requiring insurance for condominiums provides that alternative arrangements may be provided for in the declaration or bylaws for insurance. Where there is such a provision in the declaration or bylaws, the board of managers does not have a clear legal duty to follow the statutory procedure[xii]. Some states require the master policy to contain a waiver of subrogation against any unit owner to protect the unit owners[xiii].
The authority of a condominium association necessarily includes the power to issue reasonable regulations governing an owner’s use of the unit[xiv]. Such rules will not be invalidated without showing that they are wholly arbitrary in their application, in violation of public policy, or that they abrogate some fundamental constitutional right[xv].
The Uniform Common Interest Ownership Act provides that any person or class of persons adversely affected by a failure to comply has a claim for appropriate relief, if a declarant or any other person subject to the act fails to comply with any of its provisions or any provision of the declaration or bylaws.
[i] White v. Cox, 17 Cal. App. 3d 824, 95 Cal. Rptr. 259, 45 A.L.R.3d 1161 (2d Dist. 1971)
[ii] Billig v. Buckingham Towers Condominium Ass’n I, Inc., 287 N.J. Super. 551, 671 A.2d 623 (App. Div. 1996)
[iii] White v. Cox, 17 Cal. App. 3d 824, 95 Cal. Rptr. 259, 45 A.L.R.3d 1161 (2d Dist. 1971)
[iv] Holbert v. Great Gorge Village South Condominium Council, Inc., 281 N.J. Super. 222, 656 A.2d 1315 (Ch. Div. 1994); Eagan v. Mueller, 809 S.W.2d 411 (Mo. Ct. App. W.D. 1991).
[v] White v. Cox, 17 Cal. App. 3d 824, 95 Cal. Rptr. 259, 45 A.L.R.3d 1161 (2d Dist. 1971)
[vi] Billig v. Buckingham Towers Condominium Ass’n I, Inc., 287 N.J. Super. 551, 671 A.2d 623 (App. Div. 1996).
[vii] Walker v. Briarwood Condo Ass’n, 274 N.J. Super. 422, 644 A.2d 634 (App. Div. 1994)
[viii] Quinones v. Board of Managers of Regalwalk Condominium I, 242 A.D.2d 52, 673 N.Y.S.2d 450
[ix] Vacca v. Board of Managers of Primrose Lane Condominium, 251 A.D.2d 674, 676 N.Y.S.2d 188 (2d Dep’t 1998)
[x] Schiller v. Community Technology, Inc., 78 A.D.2d 762, 433 N.Y.S.2d 640 (4th Dep’t 1980)
[xi] Schiller v. Community Technology, Inc., 78 A.D.2d 762, 433 N.Y.S.2d 640 (4th Dep’t 1980)
[xii] State ex rel. Curd v. Backhaus, 56 Ohio App. 2d 79, 10 Ohio Op. 3d 101, 381 N.E.2d 646 (8th Dist. Cuyahoga County 1977)
[xiii] Schiller v. Community Technology, Inc., 78 A.D.2d 762, 433 N.Y.S.2d 640 (4th Dep’t 1980)
[xiv] Ritchey v. Villa Nueva Condominium Assn., 81 Cal. App. 3d 688, 146 Cal. Rptr. 695, 100 A.L.R.3d 231 (1st Dist. 1978)
[xv] Apple II Condominium Ass’n v. Worth Bank and Trust Co., 277 Ill. App. 3d 345, 213 Ill. Dec. 463, 659 N.E.2d 93 (1st Dist. 1995)