Duties of the Managing Agents and Liability for Failure to Carry Out Those Duties

A managing agent's duties to the association can arise out of the common law relationship of an agent to a principal, or by virtue of the contractual relationship between the managing agent and the association, or both. In the same manner that the board has a fiduciary duty to the association and its members, the managing agent, as the agent, has a fiduciary duty to the association as the principal in all matters connected with the agency relationship.

Many cases in Colorado discussing an agent's common law duty to a principal arose in the context of a real estate agent representing a seller of property. The courts repeatedly discuss the agent's (the manager) obligation to act with the utmost good faith and loyalty in all dealings with the principal (the association), and to use reasonable care in carrying out the terms of the agency agreement (in most cases, the management agreement), and to account to the principal for all money and property received by the agent. One court said the agent's duty "is not only to act solely for the benefit of the principal in matters entrusted to [the broker] . . ., but also to take no unfair advantage of his position in the use of information or things acquired by [the broker] because of his position as agent or because of opportunities which his position affords."

It is very common in cases where the agent has been found to have breached his fiduciary duty to the principal to require the agent to forfeit to the principal all compensation which otherwise would be due to the agent, as well as other profits or compensation wrongfully obtained. The courts have said "an agent is entitled to no compensation for conduct which is a breach of his duty of loyalty." This is true even though the conduct of the principal does not harm the principal, and even though the agent believes that the conduct is for the benefit of the principal and that he is justified in so acting.

In addition, the management contract between the association and the manager may create specific contractual obligations of the managing agent to the association. This may include any of a number of obligations, including mandatory inspections, financial and accounting obligations, insurance obligations, etc. Obviously the above is a very general discussion about duties, and potential liabilities, of directors and managing agents. If you have specific questions or circumstances, you should consult with the association's legal counsel.