Question:
We are in a dispute with our developer on the matter of fiduciary duty. We live in a mixed use / master planned community. The DE law on board governance is quite clear on the board’s responsibility of duty and loyalty to the homeowners. Our Charter and Bylaws are equally clear that in the event the governing dox conflict with DE law, DE law prevails.
The developer still controls the board (total of 5 seats of which 3 are developer appt execs of the company) and the homeowners are now trying to establish the developer appt board members are conflicted and either (I) need to step off the board (and developer appt new non-employee directors) or (ii) start to act and take actions in support of the homeowners.
Our challenge is the community governing documents notes there are two classifications of “owners” to the HOA: (I) homeowners; and (ii) the Founder. This strikes me as a conflict to DE law as the Founder cannot be a “stakeholder” in the context of the natural divide in interests btwn the homeowners and developer. How is it the developer can claim that they are meeting their fiduciary duty by making decisions that favor the developer simply because the governing documents notes that the Founder is one of the two classes of “owner”. It is also important to note that the Founder does NOT pay any assessments to the HOA…that burden falls squarely on the homeowners.
Is there any guidance on who is right?
– David
Answer:
Hi David,
As per the Delaware Code Section 81-303(c):
“Subject to subsection (d) of this section, the declaration may provide for a period of declarant control of the association, during which a declarant, or persons designated by the declarant, may appoint and remove the officers and members of the executive board. Regardless of the period provided in the declaration, and except as provided in ยง 81-223(g) of this title, a period of declarant control terminates no later than the earlier of: (i) except as to a nonresidential common interest community, 60 days after conveyance of 75 percent of the units that may be created to unit owners other than a declarant; (ii) as to units for residential purposes, 2 years after all declarants have ceased to offer units for residential purposes for sale in the ordinary course of business; (iii) as to units for residential purposes, 2 years after any right to add new units for residential purposes was last exercised; (iv) as to a common interest community other than a condominium or cooperative, at such time as may be required by other applicable laws; or (v) as to nonresidential units in a common interest community that is subject to this chapter, 7 years after all declarants have ceased to offer nonresidential units for sale in the ordinary course of business; (vi) as to nonresidential units in a common interest community that is subject to this chapter, 7 years after any right to add new nonresidential units was last exercised; or (vii) the day the declarant, after giving written notice to unit owners, records an instrument voluntarily surrendering all rights to control activities of the association; or (viii) as to a condominium or cooperative created before September 30, 2009, as provided in the declaration. A declarant may voluntarily surrender the right to appoint and remove officers and members of the executive board before termination of that period, but in that event the declarant may require, for the duration of the period of declarant control, that specified actions of the association or executive board, as described in a recorded instrument executed by the declarant, be approved by the declarant before they become effective.”
It is best to consult a lawyer for further legal advice.
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