Fiduciary duty

Just try saying that five times fast. Not only is it a serious mouthful, it also carries serious legal obligations and potential consequences. As board members, your community has entrusted you with the “power” to make decisions on their behalf and in the best interest of the community. It is your obligation to remove your “homeowner’s hat,” act as an officer of a corporate board, and exercise the best business judgment possible. To help your board avoid any breaches in fiduciary duty, we’ve got a few simple ways to help you navigate your duties easily.

Let’s talk about the three basic parts of a board member’s fiduciary duties:

The Duty of Care

As board members it is your job to conduct the necessary research to ensure the best decisions are made for the HOA. This can be as simple as researching multiple lawn care companies to get the community the best quality work within the allotted budget, to something more complicated like knowing the ins and outs of the CC&R’s before approaching homeowners over violations. Always avoid arbitrary actions, like issuing a violation for something just because you don’t like it (just as an example). It’s important to always reference the CC&Rs, too. It is a legal and binding document between the association and homeowners, and it will guide you and protect you from legal consequences if you use it correctly.

Related: 5 Symptoms of HOA Board Fatigue

The Duty of Loyalty

This one is just like it sounds. Your job as a board member is to act in (or be loyal to) the best interests of the community, not your own personal agenda. While not every issue your HOA encounters will have conflicts of interest, you’re guaranteed to come across at least a handful of these issues and it’s critical to navigate these cases correctly. If someone on the board has a conflict of interest, it is best for them to recuse themselves from the situation. For example, if a homeowner is in conflict with the board over a violation and one board member is a very good friend/family member of the homeowner, it is probably best to recuse themselves. This not only protects the board, but it also protects the individual board member from breaching their fiduciary duty and the subsequent legal consequences.

Now is also a good time to point out that board members are required to protect and maintain confidentially. If a homeowner confides information relevant to the HOA, the board member cannot disclose the information to a friend or neighbor. To do so would be another breach of fiduciary duty and a big no-no.

The Duty to Act within the Scope of Authority

This is just like it sounds. Do your job as detailed by your CC&Rs and state law, but don’t overstep. To do so can bring a lot of potential legal consequences that no HOA wants or needs to deal with. As a board member, make sure you clearly understand your duties by studying your CC&Rs and state laws as they pertain to HOAs.

An HOA board plays a very important role and we hope the above information doesn’t scare you away from being a board member. If you’re ever unsure of your fiduciary duty, or you’re worried about breaches, take the time to research state laws and your community’s legal documents. One of the best ways a board can protect itself is to enlist the help of an association management company, like Spectrum, that can guide the board through tough decisions with sound business management and judgment.