October 23, 2009

This week's tip answers a question posted on the HOAleader.com discussion forum. Can a single board member bind a condo or homeowners association to a contract without the rest of the board's approval?

"It boils down to the law of actual versus apparent authority," explains Bob Tankel, principal at Robert L. Tankel PA in Dunedin, Fla., a law firm that advises associations.

"Under Florida law, the president of a corporation--and in Florida all condo associations and most homeowners associations have to be incorporated--the common law of corporations is that the president has apparent authority to sign a contract." Most states follow that common law rule, but check with an attorney in your state to know your specific law.

Bob explains what that means in lay terms. "When Bill Gates was running Microsoft, if he'd have called me up and said, 'Bob, I want you to do some work for Microsoft,' I could have reasonably assumed he had the authority to bind his company," he says. "Third parties don't have to look any further when a president of a corporation contacts them. They have the right to rely on the apparent authority of that president and can hold the association's feet to the fire."

That doesn't mean the president is off the hook. "If the president didn't have the authority to bind the corporation, the president runs the risk of a breach of fiduciary duty action."

What if the board member isn't the HOA's president? "Third parties who rely on anyone else do so at their danger," says Bob. "There's specific language in Florida law that says owners have no right to act on behalf of the association simply by virtue of being owners. As a matter of corporate law, it's my position that a simple director who's not the association's president has no apparent authority, and no third party has a right to rely on any representation from other directors."

To learn more, and to get 6 steps your HOA board can take to control its negotiating process and reduce liability, see our new article. Go there now »

Best regards,
Matt Humphrey
President