Board Authority & Fiduciary Duties

The hierarchy that decides every question

Every fiduciary duty question in this course gets answered by working down a chain, and a conflict between levels is resolved in favor of the higher one. Federal law comes first: the Fair Housing Act binds every board no matter what state you're in or what your bylaws say. Next comes state law, in two separate bodies of law that both apply to your association: your state's nonprofit corporation code (this is where duty of care and duty of loyalty come from) and your state's condominium or common-interest-community act (this is where board powers, meeting rules, and conflict-of-interest disclosure requirements come from). Below that sits case law, which can create doctrines a statute never mentions. The clearest example is the rule that lets courts defer to a board's reasonable, good-faith decisions.

"Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development's common areas, courts should defer to the board's authority and presumed expertise."

Source: Lamden v. La Jolla Shores Clubdominium Homeowners Assn., 21 Cal.4th 249 (1999), California Supreme Court

Below the case law sits your association's own governing documents, meaning the declaration, articles, and bylaws. They fill in everything the statutes leave open, including the exact vote threshold for a special assessment or a bylaw amendment, which your state's statute may not set at all. Check your declaration and bylaws directly. Board-adopted policies and, if your association has formally adopted one, a parliamentary authority like Robert's Rules of Order, sit below that: they govern conduct and procedure, never substance.

Two duties, one source

Most HOAs are nonprofit corporations, and a board member's fiduciary duty comes from the state's nonprofit corporation code, the same law that governs any nonprofit board, not from a rule written specifically for homeowners associations. That one sentence of law usually contains two separate obligations.

"In good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances."

Source: Cal. Corp. Code §7231(a), California Legislature

The first half, acting in the corporation's best interests, is the duty of loyalty: put the association ahead of your own interests, and disclose anything that could look otherwise. The second half, an ordinarily prudent person's reasonable inquiry, is the duty of care: get informed before you vote, don't just show up and rubber-stamp. The exact wording differs by state; other states write a similar two-part standard into their own nonprofit corporation codes, but read your own state's version rather than assume this one applies to you. Both duties, together with the duty to act within your authority, are covered lesson by lesson in Module 1.

Three assumptions that get boards in trouble

Three assumptions cause more board liability exposure than anything else in this course. First, "good faith is enough": it isn't. Courts defer to board decisions only when they were also reasonably investigated and made inside the board's authority; a well-meaning decision made without looking into it, or made outside what the board was empowered to do, gets no protection. Second, "volunteers can't be sued": they can. Federal and state volunteer-immunity statutes carve out gross negligence and willful misconduct, and neither protects the association itself, only the individual director. Third, "disclosing a conflict is enough to still vote": sometimes, not always. Some states bar a director from voting on certain self-interested matters no matter what they disclose. Check your state's statute and your association's own conflict-of-interest policy before assuming disclosure alone clears you to vote.