Understanding Fiduciary Duty: What Every Community Association Board Member Should Know

Serving on a condominium, homeowner (HOA), or townhome community association board is a meaningful role. Board members are responsible for making decisions that shape the community’s financial health, governance, and daily operations. But with that responsibility comes a serious legal obligation referred to as fiduciary duty.

Fiduciary duty is the foundation of ethical and effective board service. It means board members must act in the best interests of the association and its homeowners. Unfortunately, this duty can often be misunderstood, overlooked, or even breached which can lead to legal consequences and community unrest.

Breaking Down Fiduciary Duty: The Three Core Obligations

Community association fiduciary duty can be divided into three key principles:

• Duty of Care: Board members must make informed, thoughtful decisions by reviewing relevant information, attending meetings, and considering how decisions affect the community. This includes seeking advice from qualified professionals including property managers, attorneys, insurance brokers, and accountants.
• Duty of Loyalty: This means placing the association’s interests above personal or financial interests. Board members must avoid conflicts of interest and never use their position for personal gain. Transparency and impartiality are crucial to maintaining the community’s trust.
• Duty to Act Within the Scope of Authority: Boards must follow their association’s governing documents including bylaws, declaration (CC&Rs), and rules/ regulations. It also means abiding by relevant local, state, and federal legislation. Acting outside that authority can expose the association (and an potentially individual board member/s) to legal risks.

Fiduciary Duty in Practice

When a board upholds its fiduciary duty, it promotes trust, transparency, and effective governance. This reassures homeowners that decisions are made with integrity. It also helps reduce potential legal exposure, as actions taken in breach of fiduciary duty can result in costly lawsuits or financial penalties.

Here are several practical steps board members can take to fulfill their fiduciary obligations:

• Review financial statements regularly and ensure association funds are spent appropriately.
• Disclose any potential conflicts of interest before votes or decisions.
• Seek professional advice when faced with questions addressing legality, engineering, accounting, etc.
• Enforce rules fairly and consistently, without favoritism or personal bias. That may involve working with the association’s legal counsel to draft formal policies that address rentals, pets, parking, noise, odors, trash, and architectural standards.

Most community association board members are volunteers with good intentions. They serve because they care about their neighborhoods and want to make a difference. By understanding and embracing fiduciary duty, board members can ensure they are protecting their community, reducing legal risk, and fostering a strong, transparent governance structure.

If you’re unsure whether your board is meeting its fiduciary obligations, it’s always a good idea to consult with experienced community association counsel.

What Happens When Fiduciary Duty Is Breached?

Failing to uphold fiduciary duty can lead to serious consequences, including:

• Legal Action: Homeowners or fellow board members may file lawsuits against individuals or the board for mismanagement, self-dealing, or violations of the governing documents.
• Financial Loss: Poor decisions can lead to budget deficits, special assessments, or wasted community resources.
• Loss of Trust: Perhaps the most lasting consequence is community distrust, resulting in apathy, disputes, and difficulty recruiting new board volunteers.

Legal Resource

Fiduciary duty is more than just a legal concept – it’s the backbone of responsible community association leadership. When board members uphold their duties of care, loyalty, and authority, they help create a well-managed association. By staying informed, seeking professional guidance, and acting in the community’s best interest, board members not only protect themselves from liability but also strengthen the trust and confidence of their fellow homeowners. Whether you’re a newly elected volunteer or a seasoned board member, understanding and practicing fiduciary duty is essential to the success and stability of your association.

Do not hesitate to contact our law firm if your association has questions about board member responsibilities, conflicts of interest, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

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