HOA Board Fiduciary Duties: A Homeowner’s Guide to Board Accountability
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Key takeaways
- Directors are fiduciaries. Nevada says so in NRS 116.3103. California applies a similar standard through Corporations Code §7231.
- Process matters more than outcome. Courts defer to boards that investigate and act in good faith, even when owners disagree.
- Conflicts must be disclosed. Nevada requires a director with a personal stake to disclose it and abstain.
- Money, records and enforcement carry hard rules. Each has statutory deadlines and penalties owners can use.
- Accountability has a ladder. Records, meetings, dispute resolution, elections, and court, usually in that order.
Your board decides how your assessments are spent, which rules are enforced, and who gets the contracts. HOA board fiduciary duties are the legal standard that governs all of it. They do not require the board to be right, only careful, loyal and honest. This guide explains what those duties mean in Nevada and California, where they are written down, and the practical steps owners can take when a board falls short.
Guides in this series
- HOA misuse of funds: warning signs and your rights
- HOA harassment by board members and retaliation
- HOA election rules in Nevada and California
- California HOA records request
- Nevada HOA records requests: the 21-day rule
- How to file a Nevada HOA complaint with the Ombudsman
- Master vs. sub-associations in Nevada
What are HOA board fiduciary duties?
In short: a duty to act in good faith, on an informed basis, and in the association’s best interest, with the care of a prudent director.
Nevada states it directly. Under NRS 116.3103, the officers and members of the executive board are fiduciaries. They must act on an informed basis, in good faith, and in the honest belief that their actions serve the association. They must use the ordinary care of nonprofit directors, subject to the business judgment rule, and follow nonprofit conflict of interest rules.
California reaches the same place through Corporations Code §7231, which applies to directors of nonprofit mutual benefit corporations, the form most California associations take. A director must act in good faith, in the corporation’s best interests, and with the care of an ordinarily prudent person, including reasonable inquiry.
In practice, HOA board fiduciary duties break into two parts. The duty of care asks whether the board did its homework. The duty of loyalty asks whether it put the association ahead of personal interests.
What is the business judgment rule?
In short: a rule that protects reasonable, good-faith board decisions from second-guessing, even when the decision turns out badly.
Owners often assume that a bad decision breaches HOA board fiduciary duties. Usually it does not. The California Supreme Court held in Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249 that courts should defer to maintenance and repair decisions made on reasonable investigation, in good faith, and within the board’s authority.
California directors may also rely in good faith on reports from officers, lawyers, accountants and other experts. A director who meets that standard has no liability for an alleged failure to perform director duties (Corporations Code §7231).
The protection depends on the process, so it fails when the process fails. Deference is hard to claim for a decision made without investigation, made in bad faith, tainted by an undisclosed conflict, or outside the board’s authority. That is why the questions owners ask should focus on how the board decided, not only what it decided.
How do HOA board fiduciary duties apply to conflicts of interest?
In short: a director with a personal stake must disclose it, and in Nevada must abstain from the vote.
Under NRS 116.31084, a board member who stands to gain personal profit or compensation from a matter must disclose it and abstain from voting. If a household member or close relative stands to gain, the member must disclose that before voting. Owning a unit in the community does not, by itself, create a conflict.
Nevada goes further for contracts. Directors and officers generally may not contract with the association to provide goods, services or financing, or take any commission from it (NRS 116.31187). For larger projects, the association must seek at least three bids where reasonably possible, and the bids must be opened at a board meeting (NRS 116.31086).
In California, a contract between the association and an interested director must meet the rules in Corporations Code §7233, which apply through Civil Code §5350. Directors also may not vote on certain matters that affect them personally, such as their own discipline or payment plan.
Disclosure and a disinterested vote carry real weight. In Harvey v. The Landing Homeowners Assn. (2008) 162 Cal.App.4th 809, the court found no material financial interest in a decision that benefited some directors’ units. It also upheld the decision because a disinterested majority approved it and it was just and reasonable to the association.
Questions about how your board made a decision?
Send us the board minutes for the decision, the contract or bid documents, any conflict disclosures, and your correspondence with the board. We can tell you in one conversation whether the process met the board’s fiduciary duties and which records to request next.
What do HOA board fiduciary duties require with association money?
In short: regular review of the accounts, honest use of reserves, and independent checks on the books.
California boards must review reconciliations, bank statements and the budget comparison every month (Civil Code §5500). Nevada boards must review a similar set at least once every quarter, and no less than once every 100 days (NRS 116.31083). Both states require two signatures to withdraw reserve funds: two directors, or one director and one officer who is not a director.
Reserves are planned through a reserve study. Nevada requires one at least every five years with an annual review (NRS 116.31152). California’s rules are explained in our guide to the California HOA reserve study.
When money goes missing or reserves are spent on the wrong things, the fiduciary question becomes urgent. Our guide to HOA misuse of funds covers the warning signs, the records to demand, and where to report it.
How transparent must the board be?
In short: owners can inspect the records, attend open meetings and speak, and in Nevada force a complaint onto the agenda.
Transparency is part of HOA board fiduciary duties, because owners cannot judge decisions they cannot see. California lets members inspect budgets, minutes, invoices and bank statements on firm deadlines. Nevada requires copies of the financial statement, budgets and reserve study within 21 days of a written request. See the California HOA records request and Nevada 21-day rule guides.
Meetings matter too. In California, board meeting notice must go out at least four days ahead with the agenda (Civil Code §4920). Any member may attend open sessions and speak within a reasonable time limit (Civil Code §4925).
Nevada gives owners an agenda right. If an owner sends a written complaint that the board violated NRS Chapter 116 or the governing documents, the board must acknowledge it within 10 business days. On the owner’s written request, the board must also put it on the next regular meeting agenda (NRS 116.31087).
Must the board enforce the rules fairly?
In short: yes. Uneven or retaliatory enforcement can breach HOA board fiduciary duties, not just basic fairness.
In Nevada, a rule that is not uniformly enforced may not be enforced against any owner (NRS 116.31065). In California, the Supreme Court has said that enforcement must be in good faith and applied uniformly (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361). Both states also require notice and a hearing before fines.
Retaliation crosses a clearer line. Nevada bars retaliation against owners who complain in good faith, recommend new vendors, or request records (NRS 116.31183). Our guide to HOA harassment by board members covers how to document it, and how to contest an HOA fine covers the hearing.
Can HOA board members be personally liable?
In short: rarely, if they act in good faith within their role. The protection shrinks for willful or grossly negligent conduct.
California protects volunteer directors from personal liability in tort beyond the association’s insurance, under Civil Code §5800. The act must be within the director’s duties, in good faith, and not willful, wanton or grossly negligent. The association must also carry the required liability coverage, at least $500,000 or $1,000,000 depending on its size.
Nevada directors are measured against the nonprofit director standard and the business judgment rule in NRS 116.3103. Directors who meet their HOA board fiduciary duties by investigating, disclosing conflicts and following the governing documents are in the strongest position. Those who exceed their authority, hide conflicts or misuse funds are far more exposed, because the standard depends on good faith and informed decisions.
How can homeowners hold the board accountable?
In short: climb the ladder in order. Each step builds the record for the next one.
Step 1: Get the records. A precise written request for minutes, bids, contracts and financial statements answers most questions. A board that stalls creates a second problem with its own penalties.
Step 2: Use the meetings. Raise the issue at an open meeting so it lands in the minutes. In Nevada, use the agenda right in NRS 116.31087.
Step 3: Use the dispute process. California owners can request internal dispute resolution in writing (Civil Code §5910). Nevada owners can file an intervention affidavit with the Real Estate Division, as explained in our Nevada Ombudsman guide.
Step 4: Use the ballot. Elections and removal votes are often faster than lawsuits. Nevada owners can remove a director, other than a developer appointee, with at least 35 percent of all voting members and a majority of votes cast (NRS 116.31036). See our guide to HOA election rules.
Step 5: Go to court if needed. California generally requires an attempt at alternative dispute resolution before many enforcement suits (Civil Code §5930). Nevada generally requires state mediation first (NRS 38.310).
Throughout, keep paying assessments. Withholding them turns a governance dispute into a collections case, which strengthens the board’s hand.
What should board members do to meet their fiduciary duties?
In short: investigate before deciding, disclose conflicts, follow the documents, and write down the reasons.
Get more than one bid and record why the winner was chosen. Have interested directors disclose and step out on the record. Review the financial reports on schedule and answer records requests on time.
Apply the rules the same way to every owner, and keep personal disputes out of board decisions. Our governance support page explains how we help boards build these habits.
Frequently asked questions
The duty to act in good faith, on an informed basis, and in the association’s best interest, with the care of a prudent director. Nevada states this in NRS 116.3103. California applies a similar standard through Corporations Code §7231.
Not by itself. Under the business judgment rule, courts generally defer to decisions made after reasonable investigation, in good faith and within the board’s authority. The question is how the board decided, not only the result.
In Nevada, the member must disclose the relative’s interest before voting, and must abstain if the member personally stands to profit (NRS 116.31084). In California, interested-director contracts must meet Corporations Code §7233 through Civil Code §5350.
It is difficult when the director acted in good faith within the role. California shields volunteer directors from tort liability beyond the association’s insurance if statutory conditions are met (Civil Code §5800). Willful or grossly negligent conduct is not protected.
Yes. Owners can file an intervention affidavit with the Nevada Real Estate Division after giving written notice of the violation and a reasonable chance to correct it. The Ombudsman tries to resolve it, and unresolved cases can go to the Commission for Common-Interest Communities.
In Nevada, through a secret-ballot removal election, with votes for removal of at least 35 percent of all voting members and a majority of votes cast (NRS 116.31036). In California, removal votes use the secret ballot procedure in Civil Code §5100.
Ready to Protect Your Rights?
Whether you are an owner who believes the board has crossed the line, or a director who wants to get it right, we can help. We will review the records and tell you where you stand. Schedule your free consultation and speak directly with a Nevada and California HOA attorney.
Conclusion
HOA board fiduciary duties come down to a simple test: did the board do its homework, put the association first, and follow the rules? Nevada writes that test into NRS 116.3103, and California applies it through Corporations Code §7231 and the courts.
Owners do not need to prove a board was wrong, only that it skipped the process. Start with the records, use the meetings, and move up the ladder one step at a time. The guides in this series cover each step in detail. For a state-by-state overview, see our Nevada NRS 116 guide and Davis-Stirling Act guide.
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