{"id":317,"date":"2023-05-26T17:17:38","date_gmt":"2023-05-26T21:17:38","guid":{"rendered":"http:\/\/blog.tarleyrobinson.com\/?p=317"},"modified":"2023-05-26T17:17:38","modified_gmt":"2023-05-26T21:17:38","slug":"317","status":"publish","type":"post","link":"https:\/\/blog.tarleyrobinson.com\/?p=317","title":{"rendered":"What does it mean to be on the Board of Directors of your HOA? Fiduciary Duties (Part 1 of a series)"},"content":{"rendered":"

\"\"<\/a><\/p>\n

Board members are told that they have fiduciary duties to the community association, but what does that really mean?\u00a0 Fiduciary duties arise because the members of the association entrust a board member to act in the best interest of the association when handling the association\u2019s business.<\/p>\n

There are three components that are important to understand fiduciary duty.\u00a0 First, the Virginia Code, at \u00a7 13.1-870<\/a>, imposes on directors a requirement that a director exercise her duties in good faith and in the best interest of the association.\u00a0 This requirement is the so-called \u201cbusiness judgment\u201d rule. Second, Virginia case law imposes duty of care that requires a board member to act as a reasonable person would under similar circumstances.\u00a0 Third, Virginia case law imposes a duty of loyalty that requires a board member to put the association before any personal interest.\u00a0 These last two duties are referred to as \u201ccommon law\u201d duties.<\/p>\n

The statutory \u201cbusiness judgment\u201d rule found in the Virginia Code at \u00a7 13.1-870<\/a> applies to any acts taken as a director or any failure to take action.\u00a0 The business judgment rule protects the decisions a board member makes so long as the decision was made in good faith and in the best interests of the association.\u00a0 A board member must educate herself on the contents and effects of the governing documents of the association; inform herself about the business of the association; and participate in board meetings.<\/p>\n

A board member is entitled to rely on rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by:<\/p>\n

    \n
  1. One or more officers or employees of the corporation whom the director believes, in good faith, to be reliable and competent in the matters presented;<\/li>\n
  2. Legal counsel, public accountants, or other persons as to matters the director believes, in good faith, are within the person’s professional or expert competence; or<\/li>\n
  3. A committee of the board of directors of which the director is not a member if the director believes, in good faith, that the committee merits confidence.<\/li>\n<\/ol>\n

    The common law duties of care and loyalty are applicable to the decisions a board member makes, and they are also applicable to a board member\u2019s conduct.<\/p>\n

    The duty of care requires a board member to exercise the skill and care that a reasonable person would use under similar circumstances. This duty is also referred to as the \u2018ordinary prudent person\u201d standard.\u00a0 Failing to take action to prevent a loss, making decisions without obtaining information, encouraging or participating in unruly behavior at board or member meetings are examples of breaches of the duty of care.<\/p>\n

    The duty of loyalty requires a board member to place loyalty to the association above all other interest. Under Virginia law, the duty of loyalty has been referred to as \u201cunbending.\u2019\u00a0 According to the Supreme Court of Virginia, \u201c[a] director must act in the utmost good faith and this good faith forbids placing himself in a position where his individual interest clashes with his duty to [the] corporation.\u2019\u00a0 Engaging in self-dealing,\u00a0 failing to disclose material information to the board, failing to comply with the governing documents, and failing to enforce the governing documents are examples of breaches of the duty of loyalty.<\/p>\n

    In our next post on these issues, we will discuss a board member\u2019s potential liability.<\/p>\n

    \"Susan

    Susan Tarley<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

    Board members are told that they have fiduciary duties to the community association, but what does that really mean?\u00a0 Fiduciary duties arise because the members of the association entrust a board member to act in the best interest of the association when handling the association\u2019s business. There are three components that are important to understand […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,3,57,5,7,25],"tags":[45,14,16,71,9,300,44,224,244,28,40,10,378,8,42,110],"_links":{"self":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts\/317"}],"collection":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=317"}],"version-history":[{"count":11,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts\/317\/revisions"}],"predecessor-version":[{"id":2890,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts\/317\/revisions\/2890"}],"wp:attachment":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=317"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=317"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=317"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}