Legal Memorandum: Validity of Condominium Board Actions

Issue: In New Jersey, may a condominium board of directors proceed with a project after receiving notice that the action may violate its bylaws?

No case law directly addresses the issue of whether a board of director’s decision to proceed with a project after the filing of a lawsuit alleging that the project is in violation of the bylaws constitutes willful misconduct.  However, more general cases relating to challenges to the validity of condominium board actions provide insight into the issue.

Courts in the Third Circuit have held that boards of directors of condominium organizations stand in a fiduciary relationship to the owners of the units, similar to the obligation owed by corporate boards of directors to their stockholders.  Siller v. Hartz Mountain Assoc., 93 N.J. 370, 461 A.2d 568, cert. denied, 464 U.S. 961 (1983).  Based on this fiduciary relationship, courts have adopted various standards to review the actions undertaken by a condominium’s board of directors.  The different standards appear to have developed due to the courts’ struggle to analogize the decision-making process of condominium boards to a business or government model.

For example, courts in Florida and Missouri have adopted an administrative agency model, scrutinizing decisions based on a standard of “reasonableness.”  Under this type of judicial review, a court looks first at whether the board has acted within the scope of its authority (as defined by the bylaws and by statute), and next whether it has abused its discretion by adopting rules bearing no relationship to the condominium’s purpose to determine whether a board’s action is reasonable.  Lyman v. Boonin,