The Board of Directors (Board) is responsible for the management and maintenance of the homeowners’ association (HOA). The Board has fiduciary duties to the members of the HOA that arise primarily from state corporate law. These duties mimic those that pertain to corporate officers and directors in corporations. The primary duties of the Board are the duty of care and the duty of loyalty.
Duty of Care
The Board must exercise care when acting as a decision maker for the HOA. The level of care required under the law is that which any reasonable person would exercise in the same situation. In order to satisfy the duty of care, the Board should ensure that it acts in the best interests of the HOA, exercises its duties according to applicable statutes and covenants, maintains the property of the HOA in good condition, and treats the members of the HOA equally and fairly. Like corporate directors, HOA Board members have the benefit of the “business judgment rule.” According to the business judgment rule, which is codified in A.R.S § 10-3830, a Board member has fulfilled his fiduciary duties when he acts in good faith by exercising the care of an ordinarily prudent person in a like position and under similar circumstances, and acts in a manner the director believes to be in the best interests of the corporation. A Board member might be accused of breaching his duty of care if he authorizes an important decision without proper research and investigation.
Duty of Loyalty
The second fiduciary duty imposed on HOA Board members is the duty of loyalty. This duty requires Board members to be loyal to the HOA, to act solely in the best interests of the HOA, and to avoid making decisions for personal gain. The Board can comply with this duty by enforcing the governing documents in an equal and consistent manner, disclosing potential conflicts of interest, recusing oneself when a personal conflict arises, and maintaining accurate records. Most often a breach of loyalty occurs when a Board member has a financial interest in a matter presented to the Board and does not declare a conflict of interest to the Board in an open meeting. Another example of a breach of loyalty occurs when a Board member gives favorable treatment to an HOA member when enforcing the HOA’s regulations.
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