Academy/Board Authority & Fiduciary Duties
What is fiduciary duty?
The legal duty every HOA board member owes the association, and where it actually comes from.
Fiduciary duty is the legal obligation a board member owes the association: to act loyally, carefully, and within the board's authority when making decisions on the association's behalf. It comes from your state's nonprofit corporation code, the same statute governing any nonprofit board, not from your CC&Rs or a rule written specifically for HOAs.
It comes from corporate law, not HOA law
Most HOAs are organized as nonprofit corporations. That single fact matters more than it sounds: it means a director's fiduciary duty is not invented by the association's declaration or bylaws. It is imposed by the state's nonprofit corporation code, the same body of law that governs the board of a food bank or a private school.
"A director shall perform the duties of a director... 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
That is California's wording, and it is the most commonly cited version of this rule nationally. Other states impose an analogous duty through their own nonprofit corporation code, worded differently. Check your own state's statute rather than assume this exact language applies.
One sentence, two duties
Read the quote above closely and it splits into two obligations. "In the best interests of the corporation" is the duty of loyalty: put the association's interests ahead of your own. "Reasonable inquiry, as an ordinarily prudent person... would use" is the duty of care: actually pay attention before you decide.
A director who votes for a contract that personally benefits them has a loyalty problem. A director who votes for a contract without reading it has a care problem. Both come from the same statutory sentence; they fail in different ways.
The wording differs, the shape does not
North Carolina requires a director to act "in good faith," "with the care an ordinarily prudent person in a like position would exercise under similar circumstances," and "in a manner the director reasonably believes to be in the best interests of the corporation." The District of Columbia separates the same two ideas into distinct clauses rather than one sentence.
The exact phrasing, and which statute applies, depends on the state where your association is incorporated. The shape (good faith, informed care, loyalty to the corporation) repeats across states; the words do not. This is also why fiduciary duty sits above your bylaws in authority: your governing documents can add rules, but they cannot lower the standard the state's corporation code already sets.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A newly elected board member tells you fiduciary duty comes from a special statute the legislature wrote just for HOAs. What's wrong with that claim?
A director votes to approve a $40,000 roof contract after skimming it for thirty seconds, without asking any questions about the competing bids. Which duty does this most directly risk?
Two directors disagree about where fiduciary duty comes from. One says the bylaws set it entirely. The other says every state uses identical statutory wording. Which view is accurate?
Sources
- Cal. Corp. Code § 7231, California Legislature
- N.C. Gen. Stat. § 55A-8-30, North Carolina General Assembly, via FindLaw
- D.C. Code § 29-406.30, Council of the District of Columbia
Related elsewhere in the Academy
Board Authority & Fiduciary Duties
Ready to see what the duty of care actually asks of you at a meeting? Read the next lesson.
The exact statutory wording of the duty of care and duty of loyalty, and which state's nonprofit corporation code applies to your association, vary by state. Check your own state's statute and your bylaws for how they define a director's authority.