Serving as a director on a community association’s board of directors, (or even as a member of its architectural review committee), can be stressful for a number of reasons; not the least of which is the possibility of getting yourself or the Association sued.
Luckily, “the business judgment rule” serves not only to protect individual directors from personal liability for their decisions while on the board, but also serves to protect the community association as well. Furthermore, thanks to the business judgment rule, Florida courts will not second-guess the board of director’s decision when it determines that the directors appropriately exercised their business judgment or discretion. So how does this rule work?
In situations where the association has the contractual or statutory authority to perform an act, and its board of directors acts reasonably in having said act performed, the directors and the association will be protected from any liability resulting from said act. The term reasonably is emphasized here, since reasonable minds can differ. However, where the directors take care to inform themselves on the pertinent issue, and make their decision based on the information available to them, the courts will likely give their decision deference and protect them from liability.
A good example of this concept in action is the case of Miller v. Homeland Property Owners Association, Inc. In Miller, the board of directors decided to approve an owner’s garage addition based on documents provided to them by the owner’s hired engineer, as well as, the local building department. Initially, the board of directors suspected the addition was in violation of the association’s governing documents; however, upon reviewing the materials submitted to it, the board decided to give the improvement its blessing. Consequently, when a different owner sued the association claiming a different engineering firm could attest to the garage addition’s non-compliance with the governing documents, the court held that the association and its directors were protected by the business judgment rule. In Miller, the court reaffirmed the notion that where the association’s board of directors exercises its business judgment, the decision will not be second-guessed.
It can be said that at the heart of a community association’s purpose is the right of homeowners to self-determine the type of community in which they wish to live in. This is achieved through the election and appointment of a board of directors, as well as, corresponding committees. The decisions reached by these delegative bodies represent the will of the community and should not be subject to the scrutiny of outside parties. Of course, these decisions must be reasonable and serve the best interest of the community as a whole. Therefore, the brilliance of the business judgment rule lies not only its ability to protect communities and their directors from liability, but also in its capacity to strike a balance between the community’s right to self-determination, and the necessity of employing reasonableness in its self-governance.