Board Self-Dealing &
Conflicts of Interest
Board members approve contracts with their own employers, purchase building assets at below-market prices, and retaliate against owners who object. The only remedy is a lawsuit you cannot afford.
THE PROBLEM
The people who govern your home answer to no one.
New York Business Corporation Law §717 imposes a fiduciary duty on board members to act in the interest of the corporation and its shareholders. In theory, this means board members must avoid conflicts of interest, disclose financial interests in transactions, and recuse themselves from votes where they have a personal stake.
In practice, there is no enforcement mechanism. No administrative body receives conflict-of-interest complaints. No regulator audits board transactions for self-dealing. No agency can remove a board member for fiduciary breach. The only remedy available to an aggrieved unit owner is a derivative lawsuit in Supreme Court — a proceeding that costs $50,000 to $200,000 in legal fees, takes one to three years, and requires the owner to prove the board acted in bad faith rather than merely negligently.
The result is predictable. Board members approve contracts with companies they own, work for, or have financial relationships with. Board members purchase storage units, parking spaces, and staff apartments from the building at below-market prices using insider knowledge. Board members hire their own attorneys, accountants, and contractors without competitive bidding or disclosure. Board members use their position to waive fees, expedite approvals, and obtain preferential treatment that other unit owners do not receive.
These are not hypothetical scenarios. They are documented patterns across hundreds of NYC condo and co-op buildings. The business judgment rule — which shields board decisions from judicial review unless the challenger proves bad faith — makes these conflicts nearly impossible to challenge in court. The board knows this. The managing agent knows this. The board's attorney, who was referred by the managing agent, knows this.
WHY IT MATTERS TO YOU
Your money. Their decisions. No oversight.
Every dollar of your common charges is spent by a board that has no conflict-of-interest policy, no disclosure requirement, and no accountability mechanism short of a six-figure lawsuit. If a board member's brother-in-law gets the $300,000 plumbing contract, you will never know unless you hire a forensic accountant and a litigator.
Self-dealing does not just cost you money directly. It erodes the governance of your building. When board members prioritize their own interests, maintenance gets deferred, reserves get raided, and the building's long-term financial health deteriorates. The cost shows up years later in declining property values, rising assessments, and buildings that are increasingly difficult to sell.
Before you buy, ask the board for its conflict-of-interest policy. If it does not have one, that is a signal. Ask who selected the building's vendors, whether any board member has a financial relationship with any vendor, and whether board member transactions with the building (storage purchases, fee waivers, alteration approvals) are documented and disclosed. Explore the building's governance history on our buildings page.
WHAT OTHER STATES DO
Other states have administrative enforcement. New York has lawsuits.
Florida statute §718.3027 requires board members to certify they have read and understand their fiduciary duties. Violations can be reported to DBPR, which has authority to investigate and impose sanctions. Board members who willfully breach fiduciary duties face personal liability and removal.
Virginia's Common Interest Community Board accepts complaints regarding board governance, including conflict-of-interest violations, and has authority to investigate and mandate corrective action.
California Civil Code §5350 requires annual conflict-of-interest disclosures from all board members and prohibits board members from voting on any matter in which they have a financial interest.
In New York, if a board member has a conflict of interest, there is no agency to call, no form to fill out, no investigator to contact, and no administrative remedy to pursue. The only option is a lawsuit — and the board's defense is paid from your common charges.
PROPOSED FIX
Mandatory disclosure. Administrative enforcement. Real consequences.
- Annual conflict-of-interest disclosure: Every board member must file an annual written disclosure of all financial interests in building vendors, contractors, and transactions
- Mandatory recusal: Board members must recuse from any vote in which they have a direct or indirect financial interest
- Administrative complaint pathway: Unit owners should be able to file conflict-of-interest complaints with a state agency that has investigation and enforcement authority
- Board member removal: The administrative body should have authority to remove board members who commit willful fiduciary breaches
- Transaction disclosure: Any building transaction involving a board member (purchase, lease, fee waiver) must be disclosed to all unit owners within 30 days
FAQ
Frequently Asked Questions
Are condo board members required to disclose conflicts of interest?
Not by statute. BCL §713 addresses interested director transactions but does not require proactive disclosure to unit owners. Some buildings' bylaws include conflict-of-interest provisions, but these are voluntary, inconsistently drafted, and rarely enforced.
What is the business judgment rule and how does it protect boards?
The business judgment rule is a legal doctrine that courts will not second-guess board decisions made in good faith, with reasonable inquiry, and in the interest of the corporation. In practice, this means a unit owner challenging a board decision must prove the board acted in bad faith — an extremely high bar that requires expensive litigation and discovery. The rule effectively immunizes most board decisions from judicial review.
Can I remove a board member who is self-dealing?
You can attempt to remove a board member at a special meeting of unit owners — but calling a special meeting typically requires signatures from 25-33% of ownership interests, and the board controls the election process. Alternatively, you can file a derivative lawsuit, but that requires legal representation and costs $50,000+ just to get past the motion-to-dismiss stage.