Member Code of Conduct

Role and Responsibilities of HOA Board of Directors

Sample Board Member Code of Conduct

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. This document is intended to make all the specific duties and responsibilities of a director clear to the director as well as members of the HOA community. It is in addition to the information contained in the bylaws which are often vague and general in nature and scope. This document should be amended from time to time as circumstances in the HOA community and/or local, state, or federal law may require. It should be considered and operating document in the sense that all directors must continually review it to ensure that their actions, policy, and procedure are guided by and within the scope of the document. 

Directors are an unpaid position, but the position entails quite a bit of responsibility.  HOAs function under California corporation law meaning that the directors owe a fiduciary duty to their fellow members that are fairly broad in scope. “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.

It should also contain a clear statement of when and how a director can be removed from the board (ie. automatically if convicted of a felony, charged with certain theft felonies, or more than ninety days delinquent in paying dues).

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.

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].