HOA Board Conflicts of Interest: Rules for Directors
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Key takeaways
- Directors owe a duty of loyalty. They must put the association’s interests ahead of their own.
- California bars some votes. A director cannot vote on their own discipline, payment plan, foreclosure or architectural request.
- Nevada requires disclosure and abstention. A board member who would personally profit from a matter must disclose it and not vote.
- Contracts with insiders are restricted. Both states limit deals between the association and its own directors.
- Owners have remedies. Records requests, open meeting rules and removal can address a conflict.
A board member’s brother-in-law wins the landscaping contract, or a director votes to approve their own patio addition. An HOA board conflict of interest happens when a director’s personal interests could influence a decision they make for the association. California and Nevada both have rules to prevent this, and boards that ignore them can face legal challenges. This guide, part of our series on HOA board fiduciary duties, explains those rules.
What is an HOA board conflict of interest?
In short: a situation where a director stands to gain, or a relative stands to gain, from a board decision.
Directors are fiduciaries. In Nevada, board members and officers must act with the honest belief that their actions are in the association’s best interest (NRS 116.3103). California directors of incorporated associations must act in good faith and with reasonable care (Corporations Code §7231).
Common examples of an HOA board conflict of interest include contracts with a director’s business, decisions about a director’s own unit and hiring a relative. A conflict does not always make a decision invalid. What matters is whether the director disclosed it and stepped aside when the law requires.
When can a California director not vote?
In short: on six matters that directly affect the director personally.
A California director or committee member may not vote on the following matters about themselves (Civil Code §5350):
- Their own discipline.
- An assessment against them for damage to the common area.
- Their own request for a payment plan on overdue assessments.
- A decision whether to foreclose on a lien on their unit.
- Review of a proposed physical change to their unit.
- A grant of exclusive use common area to them.
The architectural rule matters in practice, because directors often submit their own projects. See our guide to HOA architectural review. Payment plan requests are covered in our guide to HOA payment plan rights.
How does California handle contracts with directors?
In short: through the self-dealing rules in the Corporations Code.
California applies Corporations Code §§7233 and 7234 to association contracts and transactions, whether or not the association is incorporated (Civil Code §5350). A transaction in which a director has a material financial interest is not void just because of that interest if certain conditions are met.
One path is full disclosure of the material facts to the board, with approval in good faith without counting the interested director’s vote. The transaction must also be just and reasonable for the association when approved (Corporations Code §7233). Without proper approval, whoever defends the deal must show it was just and reasonable.
In practice, when an HOA board conflict of interest arises, the interested director should disclose the interest, leave the discussion and not vote. The minutes should record each step.
What are Nevada’s conflict of interest rules?
In short: disclose and abstain, avoid insider contracts and limit gifts.
Disclose and abstain: a board member who would gain personal profit or compensation from a matter must disclose it and abstain from voting (NRS 116.31084). If a household member or close relative would gain, the board member must disclose it before the vote. Owning a unit in the community does not, by itself, count as personal profit.
No insider contracts: a board member or officer generally may not enter into or renew a contract to provide financing, goods or services to the association (NRS 116.31187). They also may not receive a commission or profit for providing them. Limited exceptions apply for people connected to the developer.
Gift limits: board members, officers and community managers may not accept compensation or gifts that would improperly influence their decisions or appear to (NRS 116.31185). Gifts from vendors, attorneys and the developer are capped by regulation at no more than $100 per year per source.
Candidate disclosure: each nominee must make a good faith effort to disclose relationships or interests that could create a conflict (NRS 116.31034). Certain family members of other board members, and people who would profit from board matters, generally cannot serve. See our guide to HOA election rules.
Think a board member has a conflict of interest?
Send us the contract or decision at issue, the meeting minutes, any disclosure the director made and what you know about the relationship. We can give you an initial read in one conversation on whether the rules appear to have been followed, and explain your options.
Can an HOA board conflict of interest be decided in a closed session?
In short: generally not when it involves contracts in Nevada.
A Nevada board may not consider bids or enter into, renew, modify or terminate a contract in executive session (NRS 116.31085). That keeps contract decisions in open meetings, where owners can attend. California allows some contract discussions in executive session, but the matters must be noted in the minutes.
Our guide to HOA executive session rules explains what boards can discuss in private. Open meeting rights are covered in our guide to HOA board meeting rules.
What are the warning signs of a conflict?
In short: no bids, vague minutes and vendors with close ties to the board.
Watch for contracts awarded without competing bids, or vendors who share a name or address with a director. Other red flags include a director voting on their own project and minutes that never mention disclosures or abstentions. Unexplained spending increases are another sign.
If the conflict involves money, see our guide to HOA misuse of funds. Collection decisions can also raise conflict issues, as explained in our guide to HOA late fees and collection costs.
What can owners do about an HOA board conflict of interest?
In short: get the records, raise it in writing and use the available remedies.
Request records: ask for contracts, bids, invoices and minutes. See our guides to the California HOA records request and Nevada HOA records requests.
Raise it in writing: send the board a short letter naming the conflict and the rule. Ask for the matter to be reconsidered with the interested director abstaining. Raise it during the open forum so it is in the minutes.
Escalate: in Nevada, you can file a complaint with the Real Estate Division, as explained in our Nevada Ombudsman guide. Owners in both states may also consider removing a board member. Our HOA dispute resolution team represents owners and boards in both states.
Ready to Protect Your Rights?
Whether a contract went to a director’s relative or a board member voted on their own request, we can help. We will review the records, the votes and the disclosures, and tell you where you stand. Schedule your free consultation and speak directly with a Nevada and California HOA attorney.
Frequently asked questions
Not in California, where a director may not vote on a proposed physical change to their own unit (Civil Code §5350). Nevada has no rule that specifically bars this vote, but a board member must abstain where they would gain personal profit or compensation.
In Nevada, a board member or officer generally may not contract to provide goods or services to the association (NRS 116.31187). A deal with the member’s company can also trigger the disclose and abstain rule. In California, the deal is protected only if it meets the Corporations Code §7233 conditions.
Often, yes. In Nevada, a board member who stands to gain, or whose household member or relative would gain, must disclose before the vote. In California, full disclosure is a condition for protecting an interested director transaction.
It depends. In Nevada, the board member must disclose a relative’s interest before the vote, and some family relationships bar board service. In California, check the governing documents and the self-dealing rules.
In Nevada, gifts that could improperly influence decisions are barred, and vendor gifts are capped at no more than $100 per year per source. California associations often address gifts in their own policies.
The decision may be challenged, and the director may face removal or liability. In Nevada, owners can also complain to the Real Estate Division.
Conclusion
An HOA board conflict of interest is not always illegal, but it must be handled openly and on the record. California bars directors from voting on six personal matters and applies self-dealing rules to contracts. Nevada requires disclosure and abstention, limits insider contracts and caps gifts.
Ask for the records, watch for disclosures in the minutes and raise concerns in writing. For each state’s wider framework, see our Nevada NRS 116 guide and Davis-Stirling Act guide.
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