As a Board member, you are entrusted with the money, property, and day-to-day business of your Association. Serving on your Association’s Board can be an important way to positively impact and maintain your community’s well-being. However, to serve responsibly and avoid potential legal liability, it is important to know your fiduciary responsibility as a Board member.
Under Corporate Law, the fiduciary duties of Community Association Board members are outlined by individual state corporate law. Most HOAs are nonprofit corporations, typically formed by filing Articles of Incorporation in the state in which the community is located. Recognizing that a corporation’s Board members serve in a position of trust, every state’s corporation law imposes a fiduciary duty on the Association (a.k.a. corporation’s) Board of Directors, requiring them to act in the best interests of the HOA. This fiduciary responsibility applies to HOAs even though they are typically nonprofit corporations and HOA Board members serve as volunteers.
The Three Components of Fiduciary Responsibilities
Your fiduciary duties involve three basic components: the duty of care, the duty of loyalty, and the duty to act within the scope of authority. Understanding fiduciary responsibility in these areas is crucial.
Duty of Care
Research, research, research! To meet the duty of care, Board members must make informed decisions. This may require a little or even a lot of research before you act or vote on an HOA matter. Familiarize yourself with your Association’s CC&Rs and your state statutes. Board members must also act in a prudent and reasonable manner, use sound business judgment, and avoid uninformed or impulsive actions. For example, you can’t discriminate against a homeowner for painting his or her garage door orange and blue just because you don’t like that color if it is not in violation of the Association documents. Here, acting with fiduciary responsibility by researching thoroughly is key.
Duty of Loyalty
Board members must act fairly, in good faith, and for the benefit of the Association as a whole. Board members must not make decisions based on personal interest or gain. Board members should also avoid acting where there is a conflict of interest. For example, a Board member who is helping select a new landscape vendor for the property should abstain from voting if a close friend or family member owns a landscape company participating in the bid process. Loyalty to fiduciary responsibility is essential in maintaining trust.
Additionally, a Board member must protect members’ confidentiality and not divulge information provided in confidence. For example, if a homeowner confides in a Board member about their impending home foreclosure in order to arrange a payment plan for dues, the Board member should not disclose this information to a friend or neighbor. Confidentiality is a crucial aspect of fiduciary responsibility.
Duty to Act
This requires the Board to perform the duties it is obligated to carry out but prohibits the Board from making decisions or acting on matters without the authority to do so. The authority of the Board comes from its obligations under state laws, as well as the authority granted to it in the Governing Documents, specifically the Articles of Incorporation, Bylaws, CC&Rs, and Rules and Regulations. In short, Boards must obey applicable laws and their Governing Documents while performing their duties. Ensuring all actions align with fiduciary responsibility prevents overstepping.
Your fiduciary responsibilities are one of the most important components of being a community leader. It is important that your management company provides the tools for you to succeed as a Board member and should encourage you to attend board training sessions. If you have specific questions about your fiduciary obligations as a Board member you can always reach out to your community manager.
In conclusion, understanding and upholding your fiduciary responsibility is crucial to your role as an HOA Board member. By adhering to the duties of care, loyalty, and authority, you not only protect yourself from potential legal liability but also ensure the well-being and success of your community. Remember, your management company should be a valuable resource, providing the support and training needed to navigate your fiduciary responsibilities effectively. Always prioritize informed decisions, act in the best interest of the community, and stay committed to the integrity of your Board position.