Just imagine how attentive politicians would be to “the people’s business” if they faced personal liability to the voters for financial losses resulting from “doing nothing” or “going too far”?

In America, once someone wins an election to public office, the only thing they really have to worry about is getting re-elected. For those selected to serve in Washington DC or state capitals, accountability and political reckoning come only through the result of the next plebiscite. Presidents can pursue their own initiatives and legislatures can opt to do nothing.

Winning the election to your HOA’s Board of Directors is no such animal. Under California law, however, HOA Boards are obligated to take appropriate affirmative action on behalf of the Association and its membership, and can trigger significant legal and financial liabilities for themselves and their Associations by either failing to act or by taking actions beyond their limited authority as directors.

The governance of an HOA is not simply a matter of winning an election and proceeding with a self-perceived “mandate” until the next election. Many Associations have learned the painful lesson that California courts can and will carefully examine a Board’s decisions and actions to determine whether they are authorized by the CC&Rs and whether CC&R mandated decision-making procedures were followed. Only then will a California court grant “judicial deference” to the actions or decisions of an HOA Board of Directors.

The touchstone of legitimacy for HOA Board actions is always the CC&Rs. Courts will not second-guess any decision that the CC&Rs specifically authorize the Board to undertake, but will generally give no deference at all to a Board’s interpretation of the CC&Rs themselves. Thus, if there is any prospect of controversy, the prudent HOA Board will consult with its counsel to ensure that a contemplated action or decision is a matter upon which the CC&Rs has granted the Board such authority. If a Board is subsequently found to have taken unauthorized actions that caused economic losses to an Association member, significant financial liability for the Association and the individual Board members may arise.

While the authority to act is the stepping off point for any HOA Board undertaking, the process by which the decision itself is reached will also impact whether it is entitled to judicial deference. Simply stated, if the CC&Rs specify a process, procedure, timeline or sequence of actions that a Board must take, the failure to strictly follow that process will delegitimize the resulting decision.

HOA Boards also should understand that only Board decisions are subject to protection through judicial deference. If the Board specifically delegates a decision to its property manager, that decision is not protected because it was not a decision or action by the Board itself. This can be a significant source of risk when managers are delegated maintenance responsibilities.

The fairness and reasonableness of the decision-making process also will be considered by a court in deciding whether to afford judicial deference. The requirement of fairness permits judicial invalidation of decisions that are discriminatory or biased, including decisions by Board members with conflicts of interest in the subject matter. The requirement of reasonableness allows judicial invalidation of summary decisions that are not made with due inquiry and full consideration of the issues or circumstances. HOA Boards should be particularly careful to avoid what might be viewed as “knee-jerk” denials of membership-driven requests.

Finally, in these difficult economic times, it is important that Board decisions to “take no action” also be made only with due inquiry and fair consideration to ensure that they survive subsequent legal challenge. If non-action is determined to be in the best interests of the membership in light of all available options, the basis of that conclusion should be well documented in the Association records. The worst things an HOA Board can do is ignore a problem or continually put off making a hard decision.

Yes, yes, we see that sort of thing from our elected politicians all the time. But HOA Boards have no such option to do nothing, and that is why your Homeowner Associations keep functioning, even without complete unanimity of purpose among the membership.

By Allison L. Andersen, Esq.
Northern California Managing Partner
Fenton, Grant, Mayfield, Kaneda & Litt