DOING RIGHT BY THE COMMUNITY: How Boards make decisions that hold up

Serving on an association board often means making decisions that not every owner will like, and sometimes decisions the directors themselves would prefer to avoid. Owners may want lower assessments, delayed repairs, or exceptions to the rules. But the board’s role is not to accommodate every individual request. Its role is to act in the best interests of the association and that means the community as a whole. That tension is exactly why fiduciary duties matter. Board members are expected to make informed, good-faith decisions for the benefit of the entire community, even when those decisions are unpopular with individual owners. Making those decisions require upholding a fiduciary duty and this article seeks to generally explain what that is and how board members can avoid liability. 

What Are Fiduciary Duties?

A fiduciary duty is a legal obligation to act in someone else's best interest. For HOA board members, that obligation runs to the membership and is mandated by statute. California Corporations Code section 7231 requires directors of nonprofit mutual benefit corporations to perform their duties in good faith, in the best interests of the corporation, and with reasonable inquiry under the circumstances. It’s often an instinct, but for those who have lost their moral compass, the law seeks to provide instruction. 

This generally breaks down into two core duties. The duty of care requires board members to make informed decisions. Boards are not expected to be experts in law, construction, accounting, or insurance, but they should make reasonable inquiry before acting. That means reviewing governing documents, obtaining bids, consulting management, speaking with legal counsel, and seeking input from qualified professionals when needed. Bureaucracy and written findings to show your work helps to avoid liability when it doesn’t work out. Not all decisions need to be perfect, but they should be reasonably researched. 

The duty of loyalty requires board members to put the association's interests ahead of their own. A board member who has a personal stake in a matter should disclose the conflict and recuse themselves from deliberation and voting. Civil Code section 5350 sets out the framework for managing conflicts of interest in association governance, reinforcing the importance of transparency and avoiding self-interested decision-making. 

Serving on a Board Is Never a Popularity Contest

In most communities, owners have competing priorities. Some want lower assessments. Others want more repairs done. Some push the board to spend less; others want more enforcement. The board's job is to weigh those competing interests and make the decision it believes is best for the community as a whole, not the decision that satisfies whoever is most vocal at any given meeting. Notably absent from the law on fiduciary duty is whether the decision is most well-liked. If the decisions is not subject to membership vote, the Board cannot stand on the fact that “people like it” as the sole basis for pursuing any particular path. The decision must be rooted in research and for the benefit of all. 

The Business Judgment Rule: Protection From Liability and Its Limits

California law provides boards with meaningful protection when they act in good faith. The business judgment rule shields board decisions from second-guessing, provided the board acted in good faith, made reasonable inquiry, and believed the decision served the community's best interests. In Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal.4th 249, the California Supreme Court held that courts should defer to board decisions on ordinary maintenance and repair matters when the board has acted reasonably and in good faith (Here, the Board opted to spot treat for termites instead of the more expensive option the challenging homeowners were seeking). In Nahrstedt v. Lakeside Vill. Condo. Assn. (1994) 8 Cal. 4th 361, the court affirmed broad board discretion in rule enforcement, upholding a no-pets restriction even against a sympathetic owner who had more cats than allowed under the rules.

The business judgment rule is not always a hall pass, however, and its application is highly fact-specific. In the recent decision Ridley v. Rancho Palma Grande Homeowners Association (2025) 114 Cal.App.5th 788, the court found the HOA and individual board members personally liable after the association failed to timely investigate and repair water intrusion, mold, and termite damage affecting multiple units caused by an abandoned common area well.

The evidence showed the HOA delayed responding to repeated complaints, ignored (or worse yet, buried conflicting) recommendations and warnings from contractors and consultants regarding the source of the flooding, rejected recommended remediation measures, and delayed meaningful repairs for approximately 19 months while advancing cheaper, alternative theories unsupported by experts. The evidence seemed to suggest that certain board members sought opinions that supported their dislike of those particular homeowners. Homeowners presented evidence of ongoing water intrusion, mold growth, and deteriorating conditions affecting habitability and safety.

The court found the board acted with indifference to the dangerous consequences of its inaction, in bad faith, and in gross negligence. The result was a multi-million dollar judgment. There was no insurance coverage “bailout”  given the findings made by the Court. The case serves as an important reminder that the business judgment rule protects boards that act reasonably, investigate issues, listen to experts, fulfill their obligations in good faith, and address serious issues affecting the community.

How to Make Decisions That Hold Up

Follow the governing documents. Easier said than done. Before acting, and at every decision point, the board should ask itself the following questions: (1) What is the HOA’s duty as described in the governing documents; (2) Who does the Board need to consult to make this decisions (i.e., qualified expert and it could be multiple); (3) Is there a conflict of interest among those on the Board who may vote on this; (4) Does this decision make sense with the Association’s financials; (5) What is the corporate process to decide on the issue pending? (Board vote or membership vote?). These are some of the practical questions board members must ask in advance of making decisions that impact the communities that they serve. 

By: Maria Kao and Melina Rezaei are Association Attorneys at Briscoe Prows Kao Ivester & Bazel LLP. Practice areas focus on representing common interest developments throughout California in governance, enforcement, and litigation matters. Importantly, their work is unmatched by other association attorneys since they frequently defend board decisions in California state and federal courts.