An association’s officers and directors, along with their family members and anyone who has a financial relationship with the director and/or officer, are completely prohibited from entering into an agreement with the condominium association.
Prior to July 1, 2017, §718.3026(3), Florida Statutes, was the only statute applicable regarding conflicts of interest. It permitted the association to enter into a contract or transaction with one or more of its directors or an entity in which one or more of its directors are directors or officers or are financially interested. In doing so, the Statute only required compliance with the conflicts of interest requirements of Chapter 617.0832, the not-for-profit corporation statute, and only required the approval of 2/3 of the directors to approve the conflict.
After July 1, 2017, however §718.112(2)(p), Florida Statutes, went into effect and it set forth the prohibition as to service provider contracts.
“(p) Service providers; conflicts of interest.—An association, which is not a timeshare condominium association, may not employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer. This paragraph does not apply to a service provider in which a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer, owns less than 1 percent of the equity shares.”
The only exception to §718.112(2)(p), exists when the ownership giving rise to the conflict constitutes less than 1% of the equity shares.
So what is a service provider? Unfortunately, the term is not defined, which leaves the association to determine if certain contracts are “service” contracts or not. A decision that should not be made without the assistance of counsel and, when made, should be tempered with an eye toward erring on the side of caution until a legal precedent that defines the term “service” comes into existence.
Originally written by Elizabeth “Beth” A. Lanham-Patrie and posted on FL Condo HOA Law Blog