Know the Duties and Responsibilities of Your HOA Board

The primary obligation of a director is to ensure that the community is abiding by the governing documents of the community along with complying with all relevant federal, state, and local laws.

We all have what we like to think is a general understanding of the essential elements of a homeowners’ association. There is a president, the board, and a set of rules that these nice people are entrusted to enforce. The cursory understanding of these elements of an association is perfectly fine until something happens.

Upon the formation of a dispute between a homeowner and a homeowner’s association, these seemingly innocuous details will suddenly be anything but. To assist our readers in such a scenario, we will explain the two categories of needed information thoroughly:

The purpose and practices of community association board, and
the relevant duties and responsibilities assigned to the board members.

Each will be addressed in turn.

What is an HOA Board?

Simply put, the board and officers are just regular homeowners that have decided to become more involved in the day-to-day function of their local neighborhood by running for elective office. But why govern neighborhoods through an HOA at all?

The governing structure is a product of how many of these communities came into existence; one builder initially owned and developed all the land, only to later sell off individual plots. Once a sufficient number of plots are sold, the developer will transfer governing rights to a board of directors elected by the homeowners.

There are also a few practical benefits to governance by a board of directors. There are requirements for a governing body to protect the property values of the members of an association. There needs to be enforcement of agreed-upon aesthetic standards to protect the curb appeal of all the neighborhood homes.

Additionally, common areas of a community like parks, pools, or trails need to be cared for and looked after. With these and other vital responsibilities, homeowners (those with jobs, families, and other obligations) need someone to be responsible for these common obligations.

Most homeowners do not have the spare time to meet with all owners in a neighborhood to confer each time a decision of any magnitude must be made. Instead, electing representative homeowners to make these decisions and be responsible for everyday obligations is much more efficient.

The process of how a board is elected is dictated by the articles or bylaws of the community, as well as the length of the term of office for the directors. The bylaws determine how the elections for directors take place.

Each homeowner is considered a member of a homeowner’s association as consideration for the monthly fees paid. With this membership comes one vote for the board held at a meeting again determined by the corporate bylaws.

At the voting meeting, the bylaws will require a quorum (the specific amount dictated by the bylaws yet again) of homeowners to be in attendance. Without a quorum present, there cannot be a legal election. It may be possible to vote with proxies depending on the jurisdiction and relevant bylaws. Here is a sample template of association bylaws.

Now that we have a firm understanding of what the board of directors is and how they are elected, let us explore their obligations.

The Duties and Responsibilities of the HOA Board of Directors

The primary obligation of a director is to ensure that the community is abiding by the bylaws and other corporate documents of the community along with complying with all relevant federal, state, and local laws.

Depending on where our readers live, state laws may require much of the directors, or very little[1]. For example, let us go back to the election discussion above. If homeowners live in California, Civil Code Section 5105 mandates that an association must have election rules drafted, separate from what is listed in the bylaws, to protect homeowners. A California director is liable under California law if an election is held without these rules in place.

Florida is another example of a powerful state law governing homeowners’ associations. The process for removal of a director is often determined by the bylaws or election rules of the community. However, under the Florida Condominium Act, Section. 718.112(2) a director can be removed from the board automatically if she or he is convicted of a felony, charged with certain theft felonies, or more than ninety days delinquent in paying dues.

Although directors are most often unpaid, the position entails quite a bit of responsibility. Associations function under corporation laws in most states, meaning that the directors owe a fiduciary duty to their fellow members that are fairly broad in scope.

We have previously published the article “The Fiduciary Duties of HOA Board Members,” which elaborates on what the law requires of an HOA Board concerning its obligations toward homeowners. The failure to meet this fiduciary duty will permit a member injured by the violation to bring a claim against the HOA and possibly the directors themselves.

A simple definition of fiduciary duty is the obligation to act as a reasonably prudent person would in the same situation. This definition sounds simple enough, but issues can get out of hand without careful planning.

Let us use the maintenance of common areas as an example. Because the common areas of a community do not belong to any single homeowner, it is necessary for aesthetics that the board devise a plan for adequate upkeep. Boards will develop a maintenance plan to have a set procedure as to what improvement is to be completed at what priority to deal with member requests evenhandedly.

Also, concerning their fiduciary duty, the board needs to ensure regular inspections and improvements occur at the common areas with due prudence to protect against the costs of extensive damages that could be mitigated, like a leak.

Budgets and Assessments

Related to the duty to protect against unreasonable costs in the maintenance of common areas is the responsibility to maintain a budget and collect assessments.

Initially, the directors meet and upon reflection of previous years’ budgets along with consideration of future costs, determine the budget for the coming year. Their fiduciary duty also requires the board to collect enough dues to maintain a reserve fund for the community to protect against any unexpected emergencies.

Once this final budget is determined, the board divides the costs equally across the members, assigning what is called a maintenance assessment to each. The board needs to keep books and records of financial transactions to protect against certain legal liabilities and to ensure fair dealing for the members.

The fiduciary duty applies to the collection of these assessments. No matter the personal feelings of the directors toward any of the members, the enforcement of assessments must be complete and fair. If, for example, the board members are friendly with a homeowner that is suffering financial difficulties, the board cannot give him a special pass for the month on the assessment because the board owes a duty to all of the members to protect the finances of the association.

The fiduciary duty to enforce assessment collection can extend even further, depending on the jurisdiction. In Texas, for example, under the Texas Residential Property Owners Protection Act, a board is permitted to open foreclosure proceedings against a member that has defaulted on his dues.

Let us use the above example of the homeowner who is in financial troubles. If he were behind in his assessments in such jurisdiction, the board would not only be expected not to forgive late payments, but also to pursue the necessary judicial remedies to recover the assessments.

Sometimes, the duty to the community will require directors to take actions they would prefer not to.

Uniform Enforcement of the Rules

The fiduciary duty of directors extends to their application of rules. From aesthetic requirements like house color and lawn care to noise to parking, the adoption of rules must be consistent with the community’s governing documents.

The enforcement of these rules must be strict and consistent because the rules are there to protect the quality of life of the member residences and their property values.

If there is a violation, on behalf of all the members, the board must follow the prescribed procedure expressly made in the governing documents to encourage compliance, whether that be fining the violating homeowner or the more extreme option of bringing legal action against the homeowner. We explain these obligations in the article “HOA Violations: The Homeowner’s Right to a Fair HOA Due Process.”

Also, the interpretation of the rules by the directors must be reasonable and uniform. It is impossible to draft rules so that there is no scenario where the text will be seen as ambiguous. In cases where the rules are subject to interpretation, the directors will want to adopt a consistent process of consideration; hopefully, one that is in writing that all members can consult.

The Business Judgment Rule, Judicial Deference & Reasonableness

It may seem from our discussion so far that the fiduciary duties of directors are so extensive that there needs to be limits set for protection, or the directors could be sued over every decision made. And there are.

There are two standards from which courts—dependent on jurisdiction—will analyze the business decisions of boards: judicial deference and reasonableness.

In states that apply what is called the business judgment rule, board members are not held liable for detrimental decisions made on behalf of the community so long as the decision was made with sound business judgment. A good definition of what is considered sound business judgment is found in California Corporations Code Section 7231.

Section 7231[2] protects directors if the decision is made in “good faith,” with the “best interests” of the community in mind, and that the decision was come to with the “reasonable inquiry” that an “ordinarily prudent person” would apply.

Similarly, sounding—frustratingly so for people that do not read case law all day—is the reasonableness standard applied by other jurisdictions[3].

Under the reasonableness framework, a court will consider “whether the action taken was within the legal powers granted to the governing body by relevant statutory or condominium document provisions… ensure that they bear a relationship to the ‘health, happiness, and enjoyment of the life of various unit owners’...[and] [t]hirdly determine whether they have an unfair or disproportionate impact on only certain unit owners” [4].

It is not obvious how these two standards differ in application, and in fact, there are jurisdictions[5] that conflate the two. Luckily, the New York Court of Appeals addressed this ambiguity head-on and provided some helpful guidance for the rest of us.

After acknowledging the apparent similarities between the two standards, the New York court noted the “difference between the reasonableness test and the rule we adopt [the business judgment] is twofold.

First, unlike the business judgment rule, which places on the owner seeking review, the burden to demonstrate a breach of the board’s fiduciary duty, reasonableness review requires the board to demonstrate that its decision was reasonable.

Second, although in practice, a certain amount of deference appears to be accorded to board decisions, reasonableness review permits indeed, in theory, requires the court itself to evaluate the merits or wisdom of the board’s decision[6].”

Ok, maybe lucky was the wrong word, but the guidance helps clarify the difference. The most critical distinction was in the first clause—the shifting burden of proof. Depending on where homeowners live, the requirements of what one needs to prove in a claim differ.

In a business judgment rule state, the homeowner is obliged to prove that the actions of the board constitute a breach of the fiduciary duty owed.

Under the reasonableness standard, courts will be more inclined to engage with the facts and examine the decision-making of the board to determine if the action taken was “reasonable.”

The bottom line, it is more challenging to bring a claim against an association for malfeasance under a business judgment standard than a reasonableness one.

Hopefully, homeowners now have a better understanding of what a homeowner’s association is, and what duties and obligations the board owes to all community members. Thanks for reading.