Neighbor thinks HOA president has a conflict

newsQ. The president of our HOA is also a property manager and rental agent in his “day job,” as well as a mortgage broker. He manages many rental properties in our community. A group of owners in our subdivision have asked for a cap on the allowed percentage of rental homes in our community, which is now nearly 40 percent. In response to this request, the president of our HOA formed a committee of possibly two other people, and is now saying that the committee does not agree with a rental cap. In my opinion, all decisions by the board are influenced by the president’s other businesses, including stretching rules for his tenants. I and others believe that his other businesses constitute a conflict of interest, and that he should resign as a board member. I presented a written complaint to the board recently, and I am scheduled to appear before the board this week. Do you agree that he has a conflict of interest and should step down? He also voted himself onto the board by canvassing door to door and collecting the majority of proxies prior to our annual meeting. In our estimation, his control of our neighborhood is decreasing property values due to the high number of rentals.

If your HOA is a nonprofit corporation (as most are), your HOA and your board of directors are governed by the N.C. Non-Profit Corporations Act. This act holds directors to the following standards: “A director shall discharge his duties as a director, including his duties as a member of a committee: (1) In good faith; (2) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) In a manner the director reasonably believes to be in the best interests of the corporation.” The section of the act that addresses director conflicts of interest pertains primarily to “transactions” with the corporation in which a director has a direct or indirect interest.

The situations which you describe do not seem to reflect “transactions” by the HOA with any business this director has an interest in, although the term “transaction” is not defined in the statutes.

Stated a different way, the HOA does not appear to be engaging in any direct business dealings with this director, but it is certainly possible that this director’s business interests are affecting his decisions on behalf of the HOA. If this is the case, you may have a good argument that this director, and the board as a whole, are not abiding by the standards imposed on directors by the N.C. Non-Profit Corporations Act.

Was his decision regarding the number of rental homes in the community in the best interests of all members of the HOA? That is something that you and the other owners will have to decide.

In my opinion, HOA directors should avoid even the appearance of impropriety. Whether or not an actual conflict of interest exists, good business judgment dictates that a director should not vote on a matter if it would appear to an outsider that there is a possible conflict.

If you feel strongly enough that the board has violated its duties to the members of the HOA by failing to adhere to the legal standards for directors, you can sue them. That would be very expensive for both the owners bringing the lawsuit and for the HOA to defend.

An alternative would be for you or another like-minded owner to run for a position on the board, and like the director you describe, solicit proxies door-to-door in advance of the meeting to garner enough votes to get yourself elected.

Charlotte attorney Michael Hunter focuses on community and condominium association law for the firm of Horack Talley.
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