We made it to Halloween and we are on a roll trying to make SF 1750 less spooky for HOA boards. So we continue our series of blogs exploring SF 1750. Today we cover the topic of conflicts of interest, something that boards will need to navigate around when the new HOA law goes into effect on Jan. 1.
What specifically is a board-level conflict of interest? Imagine your HOA needs a new roof. The estimated cost is $150,000, and several contractors are interested in the project. One of those contractors happens to be owned by the brother of an HOA board member. His proposal is competitive, his company has a good reputation, and the board believes he could do an excellent job.
Can the association hire him? And can his brother participate in selecting the contractor?
Beginning January 1, 2027, these new provisions will become part of Minnesota’s Common Interest Ownership Act (MCIOA).
What Is a Conflict of Interest?
A conflict of interest occurs when a board member’s personal or financial interests could interfere with their responsibility to act in the best interests of the association.
Under SF 1750, a board member cannot participate in deliberations or vote on a proposed contract when the director or a family member has a material financial interest or is likely to receive a material financial benefit.
This is important: Simply abstaining from the final vote isn’t enough. The board director must also stay out of the deliberations concerning that contract.
The law does not automatically prohibit an association from hiring a company connected to a board member. However, additional disclosure and decision-making requirements must be followed.
What About Property Managers?
The legislation also addresses financial inducements involving property managers. When authorized to enter into maintenance, construction or repair contracts on behalf of an association, property managers cannot solicit or accept money or other compensation as an inducement to award those contracts.
Board members face similar restrictions when voting on such contracts. This is intended to protect homeowners from contracting decisions influenced by personal financial benefits rather than the association’s interests.
Disclosure Is Essential
SF 1750 also includes requirements for competitive bidding on qualifying projects exceeding $50,000.
When bids come from businesses affiliated with board members, their family members, property managers or certain related individuals, those relationships must be disclosed before consideration or voting. The disclosures must be documented in the board meeting minutes.
Transparency helps homeowners understand that contracts are being awarded based on legitimate business considerations.
Steps HOA Boards Should Take
Before January 2027, boards should consider these practices:
- Adopt a conflict-of-interest policy. Require directors to disclose relevant personal, family and financial relationships.
- Ask vendors about affiliations. Identify relationships with directors and property management personnel before contracts are considered.
- Document disclosures. Record relevant relationships and required recusals in meeting minutes.
- Use objective selection criteria. Evaluate qualifications, pricing, warranties, experience and project timelines.
- Review management agreements. Understand how vendors are selected and whether financial relationships exist.
Good Governance Builds Homeowner Confidence
Volunteer HOA board members routinely make decisions involving thousands, sometimes millions, of dollars in homeowner assessments. Those decisions should be made fairly, transparently and in the association’s best interests.
SF 1750 reinforces a basic principle of responsible HOA leadership: Personal financial interests should never influence decisions involving homeowners’ money.
For Minnesota boards, now is the time to review contracting procedures and prepare for January 1, 2027.
Learn more: Visit the HOA Leadership Network SF 1750 Education Center for additional educational resources.
