Real Estate & Property Law

Business Judgment Rule Applies to HOA and Condo Association Boards

For Boards who do not know: there is some help in the laws of California in the form of legal protection. It is called the "Business Judgment Rule".

Boards of directors get some immunity which helps avoid personal liability for decisions that are made by the Board - if the board member performs his or her duties:

1. In good faith
2. In a manner which the director believes to be in the best interests of the association, and
3. With such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

[This protection is found in Corporations Code 7231(c) and applies to incorporated HOAs and Condo Associations.]

The Davis-Stirling Act additionally provides protections for all HOAs and Condo Association Boards if:

1. The act or omission was performed within the scope of the officer's or director's duties;
2. The act or omission was performed in good faith;
3. The act or omission was not willful, wanton, or grossly negligent;

And the association carries insurance as set forth in Civil Code 1365.7(a)

[Note: You can look up the Davis Stirling Act laws on my website by clicking on the Davis Stirling Act. You can look up the Corporations Code section at www.ca.gov by navigating to the "29 Codes of California".]

So if you avoid punching or killing anyone, defaming or purposeful discrimination, stealing money from the HOA, and avoid purposefully violating the law or abusing your powers, and if you consult with attorneys on legal issues, managers on management issues, insurance reps on insurance issues, qualified contractors on construction issues, and treat people as if they are human too, you should be all right!

Full post as published by California Condo & HOA Law on March 24, 2010 (boomark / email).