“Fiduciary duty” is a critical element of successful day-to-day business operations and interactions in the real estate industry. Such duties apply to any industry for that matter. While many real estate agents, members of boards of directors and officers of organizations and corporations are familiar with the term “fiduciary duty”, very few understand its full import. Such duties apply to anyone acting as an agent. It imposes obligations upon organizations, professions, corporations and their executives, shareholders, members, clients, customers and the public in general. This article will outline the key elements of “fiduciary duties” and highlight their importance to the real estate industry.
What Is Fiduciary Duty?
A “fiduciary duty” is a standard of care similar to the standard defined in Business Corporation Law Section 717 which states that “[d]irectors and officers shall discharge the duties of their respective positions in good faith and with that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.” This standard of “diligence, care and skill” is also referred to as the “Prudent Person Rule.” The first question any director or officer should ask before he or she acts in his or her officer or director capacity is: “What would a prudent person in the same or similar position do?” While the question posed seems easy enough to answer, many who undertake this responsibility are unable to answer it adequately and ultimately fail to act in the manner required by law. The fiduciary duties of officers and directors are amongst the most critical elements of effective and successful functioning of any organization
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