a community member would be somewhat annoyed they couldn’t watch a movie or tv show, but no significant issue would arise.


However, deciding whether to repair or modernize an elevator that provides critical community access is another matter. When elevators fail, the fix is rarely an overnight process and rushing to find necessary parts can be costly. Now the community members aren’t just a little annoyed, they are angry and will certainly be looking for answers.


When faced with the option of deferring maintenance, the imperative question should be ‘what if it fails?’


When faced with the option of deferring maintenance, the imperative question should be ‘what if it fails?’ A board certainly has more flexibility deferring a tv replacement, as compared to elevator repairs.


The Business Judgement Rule With the idea that deferring a project would


have a substantially negative impact on the association, the board should also consider the Business Judgment Rule in its processes.


The Rule is intended to protect corporate directors from liability when their decisions are challenged.


The Rule is intended to protect corporate directors from decision-making liability when their decisions are challenged. In order for a board’s challenged decision to be protected, a judge or jury would ask the following questions: 1. Was this decision made as an act of good faith (within the authority of the board)?


2. Was the decision made with the association’s best interests in mind?


3. Did the board execute a reasonable inquiry in the process (due diligence)?


The Business Judgment Rule In Action


Let’s see how the Rule applies to a commonly deferred project: roof replacement!


Consider a community that has a reserve study showing replacement of the roof is needed within a year. An owner experiences a leak and the board has a reputable vendor execute the repairs. At the next board meeting, the question of whether to replace the entire roof comes up.


Right away, Rule 1 is clearly satisfied, in that most boards have the authority to execute roofing repairs or replacements. Subsequently, a member of the board suggests asking the roofing contractor for their opinion on the remaining life of the roof. A wise suggestion. Rule 3 has now been satisfied since asking the opinion of a qualified vendor would certainly qualify as due diligence. If the roofing contractor’s position is that the roof is still in generally serviceable condition, except for the one unit that needed repairs, the board could decide to wait another year before undertaking large-scale replacement. A decision to defer roof replacement, while repairing the leak locally would certainly constitute a decision made in the best interest of the association, satisfying Rule 2.


The Rule offers a simple but powerful three-part test that can be used to guide critical decisions.


Now, consider the vendor suggests the entire roof system be replaced immediately! What are the implications of the Rule if the board decides to defer replacement?


Rule 1 and 3 are still satisfied, but if the board chooses to ignore the advice of the vendor, the decision would fail to comply with Rule 2, especially given the roof system is so vital to community safety and wellbeing.


The Rule offers a simple but powerful three-part test that can be used to guide critical decisions. A board may have good intentions, but when decisions are made ‘without reasonable inquiry’, or might be considered ‘self-serving’, the board is left exposed to major liability.


Fortify Good Intention As a board with a fiduciary duty, trying to decide


between execution or deferment can be difficult. Always be sure to ask the right questions of the right people, trust professional opinions, and act strictly in the best interests of the Association. These foundational steps will ensure practical decision-making, that promotes happy and healthy communities..


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