Are HOA board members personally liable?

Sometimes, depending on state law, the governing documents, insurance and the facts. Some states limit liability for volunteer directors who act in good faith, such as California's Civil Code section 5800, but protections have conditions and exceptions. Ask an attorney.

Does fiduciary duty apply to a property manager?

It can. Florida's statute says nothing in its fiduciary provision removes or provides for a fiduciary relationship between a manager and the unit owners, and the management agreement and state law matter. Confirm the details for your contract.

Can a director hire their own company?

Some states allow it only with disclosure and approval steps. Florida HOAs, for example, require disclosure, a two-thirds vote of directors present and a report to members (section 720.3033). Check your own state's conflict-of-interest rules.

How can owners enforce fiduciary duty?

Options vary by state and can include raising concerns at meetings, electing different directors, recall procedures and, in some cases, legal action. Time limits can apply, such as the Michigan limits above, so consult an attorney promptly.

HOA Glossary

Fiduciary Duty of an HOA Board

Fiduciary duty is the legal obligation of HOA directors and officers to act in good faith and in the best interests of the association and its members, not for personal gain. It generally includes a duty of care, meaning reasonable prudence, and a duty of loyalty, meaning avoiding conflicts of interest and self-dealing.

What fiduciary duty means

A fiduciary is someone trusted to manage something for the benefit of others. HOA directors hold that role: they control community money, sign contracts and make rules affecting every owner. The law therefore holds them to standards stricter than those that apply between ordinary neighbors.

Two duties usually appear in the case law and statutes. The duty of care asks directors to act with the attention and prudence an ordinary careful person would use. The duty of loyalty asks them to put the association's interests ahead of their own and to disclose conflicts.

Examples from state law

These are examples only, and your state may differ.

Florida condominiums: the statute states that the officers and directors of the association "have a fiduciary relationship to the unit owners." It also bars an officer, director or manager from soliciting, offering to accept or accepting a kickback, which is a third-degree felony, and requires removal from office (Florida Statutes section 718.111(1)(a)). For Florida HOAs, section 720.3033 requires a board that contracts with a director, or with an entity in which a director is an officer or financially interested, to follow the disclosure rules in section 617.0832, record disclosures in the minutes, approve the deal by a two-thirds vote of directors present, and disclose it at the next member meeting, where members can cancel the contract by majority vote.

California: for associations organized as nonprofit mutual benefit corporations, the Corporations Code says a director must perform duties "in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances." A director may rely on information from officers, employees, counsel or accountants whom the director believes reliable, if the director acts in good faith and without knowledge that makes reliance unwarranted (Corporations Code section 7231). Separately, Civil Code section 5800 limits personal liability for certain volunteer directors who act in good faith within the scope of their duties, when the association carries at least the required insurance, and it states that it is not meant to expand or limit fiduciary duties.

Michigan: the Nonprofit Corporation Act requires a director or officer to act in good faith, with the care an ordinarily prudent person in a like position would exercise, and in a manner reasonably believed to be in the corporation's best interests. It also protects reasonable reliance on certain reports and sets a deadline for suing: within 3 years after the claim accrues or 2 years after it was or should have been discovered, whichever comes first (MCL 450.2541). Michigan's Condominium Act separately requires condominium bylaws to include an indemnification clause that excludes willful and wanton misconduct and gross negligence (MCL 559.154).

What the duty looks like day to day

No statute lists every action, but sound practice usually includes the following.

Read the governing documents and follow them, including notice and meeting rules.
Review financial statements, budgets and reserve information before approving them.
Get competing bids for large contracts and document the reasons for the choice.
Disclose conflicts and step back from the vote where required.
Enforce rules consistently and in good faith.
Keep accurate records and carry appropriate insurance, including directors and officers coverage.
Rely on qualified professionals, such as attorneys, accountants and managers, for matters outside the board's expertise.

What fiduciary duty does not mean

It does not require a perfect outcome. Many statutes and courts protect directors who act in good faith, with reasonable care and on an informed basis, even if a decision turns out badly. Where a board member has a personal stake in a decision, the picture changes, which is why disclosure and recusal rules exist. Whether a particular court applies a business judgment rule varies by state, so confirm with counsel.

This entry is general information, not legal advice. Laws and governing documents vary; ask your association's attorney about your situation.

FAQ