HOA Case Law Journal
with Julie McGhee Howard
Houtenbos v. Fordune Association, Inc. (New York)
200 A.D.3d 662, 160 N.Y.S.3d 57 (2021)
We’re breaking up… It’s not me, it’s you.
A member of Fordune Association expressed her concern to the Board that a home was being constructed within the HOA neighborhood that did not conform to the architectural requirements laid out in the Association’s governing documents. The Board chose not to enforce the restrictions on the developing home without any discretionary authority to do so given to it within the governing documents.
The Facts:
- The homeowner sued Fordune Association for breach of contract because of their failure to enforce community restrictions.
- The homeowner sought to terminate her membership as a result of the breach.
- Fordune Association claimed it did not have to enforce the architectural restrictions because it had the right to make general business decisions.
- Enforcing restrictions is part of Fordune Association’s corporate purpose.
The Issue of the Suit:
The association claimed the homeowner could not terminate her membership because the association was acting in accordance with the business judgment rule, which allows businesses to make business decisions without court interference.
Court Decision
The Court found the business judgment rule did not apply here because the Board was not complying with the association’s corporate purpose. Additionally, the homeowner could pursue a claim to terminate her membership as a result of Fordune Association breaching their contract.
The Cautionary Tale
Associations may not claim business judgment rule protection for its actions when its conduct is contrary to the Association’s corporate purpose.While governing documents may allow directors to make discretionary decisions regarding enforcement of some rules, it is imperative the Board enforces mandatory restrictions where the governing documents do not give the Board discretion.
HOA Law Advice to Help Guide Your Board of Directors
At NowackHoward, we focus on condominium associations and HOA law throughout Georgia. To learn more about our community association practice and how we can help guide your community, contact one of our attorneys today at (770) 863-8900 or by email at info@nowackhoward.com.
