Balancing the Need for Privacy vs. Transparency

Homeowners’ associations are established for the benefit of all of the owners and residents within the community. A board of directors that is charged with managing the affairs of the association has a fiduciary duty to act in the best interests of the association as a whole. Part of that duty entails being open and honest with the members about what the board is doing and how it is spending the association’s money and otherwise governing the association. But there are times when certain information should not be shared with the membership for the protection of individuals within the community. It is not always easy for boards and managers to navigate that line between being transparent and protecting the privacy of the members, especially when dealing with older association documents that were drafted before some of the current privacy laws were in place. There is a tendency with many boards to either share too much or not enough.

There are a number of statutory provisions governing associations that are aimed at ensuring a certain level of transparency by the board to the members. For associations governed under the Minnesota Common Interest Ownership Act (“MCIOA”)[1], these include requirements that members receive proper notice of member and board meetings[2] and that board meetings be open to the members except under certain specific circumstances where meetings may be closed, such as to discuss any pending or potential litigation, arbitration or potentially adversarial proceedings where the board determines that closing the meeting is necessary to discuss strategy or to protect the position of the association or the privacy of a unit owner.[3] Associations are also required to provide all members with certain information and documents on a regular basis, including an annual report containing certain information[4] and a copy of the association’s reviewed or audited financial statements.[5] Additionally, members are entitled to review and obtain copies of documents used to prepare the annual report or financial statements, as well as records of membership, unit owners meetings, board of directors and committee meetings, contracts, leases and other agreements to which the association is a party and other material correspondence and memoranda relating to its operations.[6] Associations not governed under MCIOA are not required to hold open board meetings unless their documents provide otherwise but are subject to the provisions of the nonprofit corporations act, which contain similar requirements as MCIOA regarding the inspection by members of the association’s books and records.[7] Most governing documents also include various provisions relating to meetings and records aimed at providing some level of transparency to the members.

Even if your association is not governed by MCIOA or required to hold open meetings, it is recommended that you operate with as much transparency as possible. The reason for this is obvious. Boards that operate in secret (or that are seen to be doing so) create distrust among the community, which results in more dissension and disputes with the members. These disputes can be time-consuming and energy-draining. Additionally, time spent having to justify and defend one’s actions takes away from time that could be spent more productively on other things.

That being said, there are times when the board cannot or should not divulge information to the members. As indicated above, matters that are adversarial in nature should not be discussed in an open board meeting or shared with other members. It goes without saying that if the association is involved in any actual or potential litigation with an owner or other third party, the board should not be disclosing information about the matter that might either jeopardize its position or disclose strategy or things of that nature. Any communications with legal counsel also must be kept confidential and not shared with members or outside parties, as doing so may result in a waiver of the attorney-client privilege that would otherwise attach to those communications. If you are involved in any such litigation, you should work with your attorney both to put together a statement about the pending litigation that can be included in the annual report and/or any resale disclosure certificates that the association may be required to provide as well as to determine what, if any, information about the pending matter can or should be shared with the members and how that should be done.

Issues involving collection of unpaid assessments, rule enforcement matters or any other disputes between owners or between an owner and the association or board are also deemed adversarial in nature and should not be discussed in an open board meeting or otherwise in front of other people. If a resident is complaining about rule violations by another resident and then demands to know what the board or management is doing about it, the board must respect the privacy of the alleged violator and resist the urge to share information with the complaining party. An appropriate response to the complainant would be to assure them that the board takes their complaint seriously and is doing everything within its power to evenly enforce the documents or rules whenever a violation can be verified, but not to divulge any specifics about the particular situation or how it is being handled.

Similarly, although many older association bylaws contain provisions requiring the association to disclose in its annual report the amount of delinquent assessments owed by each unit, MCIOA only requires the report to include a total amount of all past-due assessments without identifying which units are delinquent or by how much. In this case, it is generally best to comply with the statutory requirements rather than the bylaws[8], as disclosing personal information about an owner’s debt may be deemed harassment and/or give rise to invasion of privacy claims. Damages for these claims would likely outweigh any possible damages suffered or claimed to be suffered by an association member as the result of the association refusing to personally identify the delinquent owners and/or the amount that each such owner owes to the association. This situation can also arise when the association is taking particular action to collect delinquent assessments from an owner. Neighbors may see or speak with a process server or read a foreclosure notice in the newspaper and want to know more about what the association is doing to collect those assessments. Even if certain matters become public record due to documents being filed with the court or in the property records, or legal notices being published in newspapers, that does not mean that the board is at liberty to discuss it with other members or that it should be disclosed in the regular meeting minutes that a certain unit is in foreclosure or that the owner has filed bankruptcy.

Another area where privacy concerns outweigh the need for transparency is in regard to requests for reasonable accommodations or modifications. If an owner or occupant requests an accommodation for a disability and provides information or documentation about their disability and the need for the accommodation, the board has an obligation to keep that information private and not to divulge it to other residents. This can sometimes be tricky when another resident pointedly asks why their neighbor has a dog in a no pet property or a similar question regarding an accommodation that the board has granted. The board or manager must find a way to respond that does not reveal any private information about the individual receiving the accommodation. It helps if the board can be proactive about what general information is put out to the community rather than having to be reactive to a particular situation.

Balancing the need for transparency with the need to protect the privacy of individuals is not always easy. However, if the board explains that it is acting in the best interest of all members by protecting their private information while properly disclosing information pertaining to the association as a whole, members will hopefully understand and be more accepting of the difficult position that the board is in. When in doubt about what information can and cannot be shared with members, work with your association’s attorney to develop proper procedures and/or to help respond to a particular situation.

[1] Minnesota Statutes Chapter 515B. [2] See Minn.Stat. 515B.3-103 and 3-108. [3] See Minn.Stat. 515B.3-103(g). [4] See Minn.Stat. 515B. 3-106. [5] See Minn.Stat. 515B.3-121. [6] See Minn.Stat. 515B.3-118. [7] See Minn.Stat. 317A.461. [8] This would be a good reason to amend and update the bylaws.