Standard of Care for Boards

Owners and Board members are often confused about what standard of care the law imposes on Board members, and with good reason.  The Condominium Act (the “New Act”) imposes one standard of care upon Board members, but that standard of care also applies to board members for “Old Act” condos (those formed under the Horizontal Property Regimes Act).  As if that weren’t confusing enough, the standard of care for HOA board members is that detailed by the Non-Profit Corporations Act, unless otherwise provided in the governing documents.

So, here’s the simplest way to break it down.  The Board of Directors for a condominium association is required to act “in all instances on behalf of the Association.”  RCW 64.34.308.  In executing their duties, board members for condominiums are required to exercise reasonable and ordinary care if they are elected by the unit owners.  (We’ll talk about the standard of care for Declarant-appointed board members in a moment.)  This standard of care is imposed by the New Act and also applies to Old Act condos.  An additional obligation of good faith is imposed on all duties governed by the Condominium Act.

HOA board members must act in good faith, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. RCW 24.03.127.  When discussing the standard of care imposed under the Homeowners’ Association Act, Washington Courts state that boards must act reasonably and in good faith.

Declarant-appointed board members have a heightened standard requiring them to act with the care required of fiduciaries of the unit owners.  A fiduciary is one who has the power and obligation to act for another under circumstances which require total trust, good faith and honesty.  If you are appointed to a board by the declarant of a condominium project, you should be aware of this heightened standard and adjust your policies and decision-making process accordingly.  In all things, you must act with the care that a fiduciary of the unit owners would take.

Board members should remember the following guidelines when carrying out their Board-member duties:

  • You are acting on behalf of the Association as a whole, not on your individual behalf;
  • Exercise reasonable and ordinary care in carrying out your duties as a Board member;
  • Do not let your emotions interfere with your ability to make decisions and/or execute your Board-member duties;
  • Act in good faith;
  • Be aware that if you are a Declarant-appointed Board member, the standard of care is higher than it would otherwise be.

Courts will usually not second-guess board decisions that are made in good faith and where the evidence shows that the board made reasonable inquiries and acted with the care that a reasonably prudent person would have taken in their shoes.  However, this does not entirely insulate boards from court censure.  Boards should take care to make all decisions in light of these standards of care, and carefully investigate and research all decisions they make.  Good faith alone is not enough to protect the board, especially if the board chooses to remain willfully ignorant of some fact that would throw its decision into question.  Be sure to consult with your attorney if you don’t know what standard of care applies to your board.

If you have any questions we can answer, please feel free to leave a comment or contact us directly.  We look forward to continuing this conversation with you in our future posts!

Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • del.icio.us
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks
4 Responses to Standard of Care for Boards
  1. Leroy W. Demery, Jr.
    July 29, 2012 | 11:19 pm

    Valerie,

    The problem with this post is with what you do not</b say: Homeowners might have no practical recourse against a board member determined to act in his/her own interest (rather than those of the Association as a whole).

    We have a small "Old Act" condo – four apartments. Two are not owner-occupied (one "resident" homeowner owns a second apartment, rented out). The two owner-investors (landlords) adhere to the governing documents only when they need to do so to advance their own interests.

    The person who owns two units – and therefore has a 50 percent share of votes – has acted as unelected “president-for-life” and “treasurer-for-life” for nearly eight years. The governing documents are explicit: the terms of officers expire after one year, and annual elections are mandated. Most financial details have are not disclosed, e.g. the location of the association's account, bank statements and so forth. Questionable financial practices include commingling, charging of personal expenses (i.e. not authorized by the Board) to the Association, entering of expenses for capital improvements as "maintenance," and so forth.

    I could go on, but further elaboration should not be necessary. I hope that you will discuss that scofflaws do exist and sometimes dominate or control condo association boards – and will provide some general information about available recourses for the "other" homeowners.

  2. Valerie Farris Oman
    August 10, 2012 | 3:44 pm

    Leroy, it is certainly true that occasionally, a board member will do what we call “going rogue” – meaning they will take it upon themselves to act on the association’s behalf without the approval of the rest of the board, or to controvert association funds, etc. It is hard for us to give blanket suggestions for how to respond when such things happen, other than to say consult an attorney immediately! Every situation is so different, requiring a unique response. Thanks for the input.

  3. Leroy W. Demery, Jr.
    September 4, 2012 | 1:06 pm

    Thank you, valerie, for addressing this.

  4. […] An association’s board of directors has many legal obligations to the association. Possibly the most important of these obligations is that the board of directors, and each of its members, has duty of care to the association. (For details about this duty of care, such as how it is different for elected or appointed board members, or for board members of COAs or HOAs, see our previous post Standard of Care for Boards.) […]

Leave a Reply

Wanting to leave an <em>phasis on your comment?

CommentLuv badge

Trackback URL http://www.condolawgroup.com/2010/10/16/161/trackback/

Standard of Care for Boards

Owners and Board members are often confused about what standard of care the law imposes on Board members, and with good reason.  The Condominium Act (the “New Act”) imposes one standard of care upon Board members, but that standard of care also applies to board members for “Old Act” condos (those formed under the Horizontal Property Regimes Act).  As if that weren’t confusing enough, the standard of care for HOA board members is that detailed by the Non-Profit Corporations Act, unless otherwise provided in the governing documents.

So, here’s the simplest way to break it down.  The Board of Directors for a condominium association is required to act “in all instances on behalf of the Association.”  RCW 64.34.308.  In executing their duties, board members for condominiums are required to exercise reasonable and ordinary care if they are elected by the unit owners.  (We’ll talk about the standard of care for Declarant-appointed board members in a moment.)  This standard of care is imposed by the New Act and also applies to Old Act condos.  An additional obligation of good faith is imposed on all duties governed by the Condominium Act.

HOA board members must act in good faith, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. RCW 24.03.127.  When discussing the standard of care imposed under the Homeowners’ Association Act, Washington Courts state that boards must act reasonably and in good faith.

Declarant-appointed board members have a heightened standard requiring them to act with the care required of fiduciaries of the unit owners.  A fiduciary is one who has the power and obligation to act for another under circumstances which require total trust, good faith and honesty.  If you are appointed to a board by the declarant of a condominium project, you should be aware of this heightened standard and adjust your policies and decision-making process accordingly.  In all things, you must act with the care that a fiduciary of the unit owners would take.

Board members should remember the following guidelines when carrying out their Board-member duties:

  • You are acting on behalf of the Association as a whole, not on your individual behalf;
  • Exercise reasonable and ordinary care in carrying out your duties as a Board member;
  • Do not let your emotions interfere with your ability to make decisions and/or execute your Board-member duties;
  • Act in good faith;
  • Be aware that if you are a Declarant-appointed Board member, the standard of care is higher than it would otherwise be.

Courts will usually not second-guess board decisions that are made in good faith and where the evidence shows that the board made reasonable inquiries and acted with the care that a reasonably prudent person would have taken in their shoes.  However, this does not entirely insulate boards from court censure.  Boards should take care to make all decisions in light of these standards of care, and carefully investigate and research all decisions they make.  Good faith alone is not enough to protect the board, especially if the board chooses to remain willfully ignorant of some fact that would throw its decision into question.  Be sure to consult with your attorney if you don’t know what standard of care applies to your board.

If you have any questions we can answer, please feel free to leave a comment or contact us directly.  We look forward to continuing this conversation with you in our future posts!

Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • del.icio.us
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks
4 Responses to Standard of Care for Boards
  1. Leroy W. Demery, Jr.
    July 29, 2012 | 11:19 pm

    Valerie,

    The problem with this post is with what you do not</b say: Homeowners might have no practical recourse against a board member determined to act in his/her own interest (rather than those of the Association as a whole).

    We have a small "Old Act" condo – four apartments. Two are not owner-occupied (one "resident" homeowner owns a second apartment, rented out). The two owner-investors (landlords) adhere to the governing documents only when they need to do so to advance their own interests.

    The person who owns two units – and therefore has a 50 percent share of votes – has acted as unelected “president-for-life” and “treasurer-for-life” for nearly eight years. The governing documents are explicit: the terms of officers expire after one year, and annual elections are mandated. Most financial details have are not disclosed, e.g. the location of the association's account, bank statements and so forth. Questionable financial practices include commingling, charging of personal expenses (i.e. not authorized by the Board) to the Association, entering of expenses for capital improvements as "maintenance," and so forth.

    I could go on, but further elaboration should not be necessary. I hope that you will discuss that scofflaws do exist and sometimes dominate or control condo association boards – and will provide some general information about available recourses for the "other" homeowners.

  2. Valerie Farris Oman
    August 10, 2012 | 3:44 pm

    Leroy, it is certainly true that occasionally, a board member will do what we call “going rogue” – meaning they will take it upon themselves to act on the association’s behalf without the approval of the rest of the board, or to controvert association funds, etc. It is hard for us to give blanket suggestions for how to respond when such things happen, other than to say consult an attorney immediately! Every situation is so different, requiring a unique response. Thanks for the input.

  3. Leroy W. Demery, Jr.
    September 4, 2012 | 1:06 pm

    Thank you, valerie, for addressing this.

  4. […] An association’s board of directors has many legal obligations to the association. Possibly the most important of these obligations is that the board of directors, and each of its members, has duty of care to the association. (For details about this duty of care, such as how it is different for elected or appointed board members, or for board members of COAs or HOAs, see our previous post Standard of Care for Boards.) […]

Leave a Reply

Wanting to leave an <em>phasis on your comment?

Trackback URL http://www.condolawgroup.com/2010/10/16/161/trackback/