When you hear the term “fiduciary duty,” you may associate it with the business or corporate world. However, an HOA board of directors also has fiduciary duties to the HOA and its members.
Although HOAs are non-profits and being an HOA board member is a voluntary position, HOAs must still follow corporate law when it comes to fiduciary duties.
A fiduciary duty is an obligation that a fiduciary owes to a beneficiary. In an HOA, the board members are the fiduciaries and the HOA and homeowners are the beneficiaries. There are three key fiduciary duties of an HOA.
Duty of care
Duty of care requires the HOA board of directors to make reasoned and informed decisions on HOA matters. The HOA board may rely on HOA members or others to provide information on decisions that must be made, but the board makes the final decision and must do so after careful review and examination of the HOA rules and regulations.
Following the rules and regulations is an important piece of the duty of care. An HOA cannot penalize homeowners for acting in a way that they do not like if the rules and regulations do not otherwise prohibit the action. This could be considered a violation of the duty of care.
Duty of loyalty
Duty of loyalty means HOA board members must always act in good faith and make decisions that are in the best interests of the HOA rather than their own personal interests. The duty of loyalty also requires board members to avoid conflicts of interest.
Conflicts of interest are not always clear. There are plenty of gray areas and situations involving indirect conflict. Adhering to the duty of loyalty means being honest about potential conflicts, discussing them with board members and deciding what is in the HOA’s best interest.
Duty to act within the scope of authority
HOA board members have a duty to act within the scope of their own authority. This means they cannot act or enforce rules that are outside of the HOA rules and regulations.
For example, HOA rules do not supersede the law. An HOA rule that violates federal, state or local law cannot be enforced. A board member trying to enforce this type of HOA rule is in violation of their duty to act within the scope of their authority.
Why do we have fiduciary duties?
These fiduciary duties are extremely important. They promote responsible behavior by HOA boards and hold board members accountable for their actions.
If you are an HOA board member, adhering to your fiduciary duties protects you from potential lawsuits. A homeowner could sue you claiming a violation of your fiduciary duty. You would then need to show that the action you took or decision you made was in the best interest of the HOA.
Knowing the fiduciary duties as an HOA board member requires thorough reading the governing documents of your HOA. You should review the rules and regulations regularly and consult them when analyzing HOA issues.