New HOA Board members, usually at their first board meeting or perhaps at a board orientation session, hear the term “fiduciary responsibility”.  They may think it means “do a good job” or they may not think much about it.  Just what does the term mean and what effect does it have on their board experience?  Fiduciary duty or responsibility means board members must perform the “duty of care” and “good business judgment”.  It means personal agendas must be set aside and all board activity must be performed in the best interests of the entire community and for the benefit of the community.  Good business judgment means exercising reasonable business judgment in decision making.

Let’s look at some examples.  The association documents spell out duties the board is authorized to perform.  These typically involve collecting assessments, handling association funds, spending money, contracting, creating and enforcing rules and similar quasi-governmental and non-profit corporation functions.  All of these activities require adherence to fiduciary duty.  A Board may delegate the duties and responsibilities noted in the documents, but it retains the fiduciary responsibility to make sure whomever they delegate the duties to, adheres to the same fiduciary principles.  If a Board hires a manager, the Board must exercise good business judgment in the hiring process and must require good business judgment by the manager.  Likewise, for any contractor:  the Board must exercise good business judgment and act in the best interests of the association when hiring a landscape maintenance contractor, building maintenance contractor, blacktopper, painter, attorney, CPA, reserve analyst, or anyone else who is hired to carry out activities for the association.

Part of the Board’s responsibility is to ensure the maintenance, preservation and enhancement of the common property of the community.  Value of property throughout the community depends on the overall condition of the community.  Letting landscaping or buildings deteriorate will affect property values and people’s desire to live in the community. Letting equipment go unmaintained, or broken or worn-out components go unreplaced will reduce values and could create safety hazards and liability for injury or damages.  The Board’s fiduciary duty requires it to ensure this does not happen, which brings up the responsibility for an adequate reserve study and maintenance plan.  Developing reserve studies and maintenance plans costs money, and maintaining them costs money; money that has to come from the homeowners.   Keeping assessments down and saving money for homeowners may be part of the fiduciary responsibility of the Board, but not at the expense of common property deteriorating.  Things wear out, and not putting aside funds for the ultimate replacement of common property items is a breach of fiduciary duty; causing assessments to increase is not a breach, increasing them is good business judgment as long as the need has been documented in a reserve study.

James H. Main, PCAM
President Elect CAI Oregon