BY JOHN KIRITSIS, ESQ., CPA, MBA, MS, JD, LL.M

The Business Judgment Rule is a legal principle that applies to the decisions made by boards of directors, including condo boards, in the context of running a corporation or association. It provides protection to board members from personal liability for their decisions, as long as those decisions are made in good faith and are within the scope of their authority. The Business Judgment Rule recognizes that board members are often making complex decisions based on their expertise and the information available to them.

 

In the context of NYC condo boards, the Business Judgment Rule applies to decisions made by the board in carrying out its responsibilities for managing and operating the condominium association. Here’s how it typically works:

 

  1. Good Faith and Care:

Board members are expected to make decisions in good faith, with the best interests of the condo association and its members in mind. They should exercise reasonable care, diligence, and skill when making decisions.

 

  1. Acting Within Authority:

The decisions made by condo boards must be within the scope of their authority as outlined in the governing documents of the condominium association. This includes decisions related to financial matters, maintenance, repairs, enforcement of rules, and more.

 

  1. No Self-Dealing or Conflicts of Interest:

The Business Judgment Rule does not protect board members who have conflicts of interest or engage in self-dealing, where personal gain is prioritized over the interests of the condo association and its members.

 

  1. Informed Decision-Making:

Board members are expected to gather sufficient information before making decisions. This may involve consulting professionals, reviewing relevant documents, and considering potential impacts.

 

  1. Judicial Deference:

Courts generally show deference to the decisions made by condo boards under the Business Judgment Rule. Courts do not usually second-guess decisions made by the board as long as the decisions were reasonable and made in good faith.

 

  1. Legal Challenges:

To successfully challenge a decision made by a condo board under the Business Judgment Rule, a unit owner would typically need to show that the decision was made in bad faith, was arbitrary and capricious, or involved gross negligence or misconduct.

 

It’s important to note that while the Business Judgment Rule offers protection to board members, it doesn’t shield them from all legal challenges. If a decision is clearly motivated by personal gain, is reckless, or violates laws or the condo’s governing documents, it may still be subject to legal action.

 

For specific legal advice or information about how the Business Judgment Rule applies to a particular situation, it’s advisable to consult with legal professionals who specialize in NYC condominium law. Laws and regulations can vary, and legal advice should be tailored to the individual circumstances at hand.

 

 

Citations, References and Potentially Useful Resources for Further Information:

U.S. Constitution

New York State Constitution

Federal Securities Regulation

New York State Martin Act

New York Condominium Act

New York State Security Regulations

New York Business Corporation Law

New York Limited Liability Company Law

New York Uniform Partnership Act

Federal Internal Revenue Code

New York State Tax Laws, Rules & Regulations

New York City Tax Laws, Rules & Regulations

Winston Churchill Owners, Inc. v. Regents Real Estate Associates

Board of Managers of the Park Regis Condominium v. Park Regis Owners Corp.

Park Sutton Condominium v. 447 E. 57th St. LLC

28 E. 10th Street Corp. v. Veras

Riverside Syndicate, Inc. v. Munroe

Essex House Condominium v. Marks

The Parc Vendome Condominium v. Atkinson

54-56 Meserole Street Owners Corp. v. Rossi

The Beekman Regent Condominium v. Bottiglieri

Chelsea 19th LLC v. West 19th Street Realty LLC

ACRIS

New York Department of Finance

New York City Department of Buildings

New York City Bar Association

New York State  Bar Association

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