An HOA board of directors is the governing body of a residential community. The purpose of an HOA board is to make and oversee decisions regarding community assets and regulations. Most HOA boards are non-profit organizations where each board member serves based on trust. Fiduciary duty requires board members to uphold that trust by acting in the best interest of the community.
What is fiduciary duty?
Cornell Law School defines fiduciary duty as the obligation a professional has to act in “a way that benefits someone else, usually financially.” In the case of HOAs, it’s specified as the duty to act in a way that benefits the community. Fiduciary duty is essentially an ethical code of conduct mandated by law that HOA board members must follow. A breach happens when there is an abuse of power. It’s important to remember that fiduciary duty is not owed from the board to each homeowner in an HOA as an individual, it’s actually an obligation to the community as a whole.
Fiduciary duty can be broken down into three main components: the duty to care, the duty to loyalty, and the duty to obedience.
Duty to Care
The duty to care requires HOA boards to make informed decisions. Board members must have a comprehensive understanding of their association’s regulations, such as CC&Rs, and they must act in accordance to those specific guidelines without personal motive. Duty to care also means that board members should make decisions that preserve the standard of living homeowners have paid for, which means keeping up with maintenance and repairs.
Duty to Loyalty
Duty to loyalty is the board’s responsibility to “make decisions honestly and in good faith.” The duty to loyalty is breached if there is a conflict of interest. For example, a board member cannot hire a property management company that they own or are employed by. This kind of conflict is self-serving, and it jeopardizes the community’s trust in their HOA board.
The duty to loyalty also involves an HOA board’s responsibility to keep personal information confidential. Board members may have access to sensitive information about homeowners within the community. To uphold their fiduciary duty, they must not divulge that information to anyone else without reason.
Duty to Obedience
The duty to obedience is the obligation to act within the scope of one’s authority. This means board members must adhere to the rules laid out in an HOA’s governing documents as well as those required by regional laws. Regulations and CC&Rs vary from one HOA to another, so board members must make sure to stay informed.
What HOA fiduciary obligations do property managers have?
Property managers don’t need to worry about HOA management company fiduciary duty due to the fact that managers hold no legislative responsibilities. Phrased another way, property managers don’t make governing decisions. Instead, they act on behalf of the board and execute decisions that the board makes.
For example, an HOA board may instruct a property manager to erect a new fence around the perimeter of their community. If the community complains or raises an issue about the fence, the responsibility falls on the HOA board, not the property manager.
Property managers should always review a contract before signing it to ensure their business is protected.
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