TL;DR — Key Takeaways
- California HOA directors owe a duty to act in good faith, in the association’s best interests, and with the care of an ordinarily prudent person, including reasonable inquiry.
- Courts defer to a board’s reasonable, good-faith decisions about how to carry out its duties. That deference ends where the board failed to investigate, acted in bad faith, or exceeded its authority.
- A director with a personal financial interest in a decision generally loses the benefit of that deference and has to prove the transaction was fair and reasonable.
- Civil Code section 5350 bars a director from voting on specific matters that affect them personally, such as their own discipline or a lien on their own unit.
- A volunteer director is generally protected from personal liability for ordinary negligence. That protection does not extend to self-dealing.
- Most board decisions owners disagree with are not breaches of duty. Disagreement with a reasonable decision is not a claim.
California HOA directors owe the association a duty to act in good faith, in a manner they believe to be in the association’s best interests, and with the care, including reasonable inquiry, that an ordinarily prudent person in a similar position would use. Courts generally defer to decisions made that way. The protection fails when a director did not investigate, acted in bad faith, acted outside the board’s authority, or had a personal financial stake in the decision. That last category, self-dealing, is where directors face personal liability.
The duty directors owe
Most California HOAs are nonprofit mutual benefit corporations, and their directors are governed by Corporations Code section 7231. The standard has three parts: good faith, a belief that the action is in the association’s best interests, and the care of an ordinarily prudent person in a like position, which the statute says includes reasonable inquiry.
The reliance protection. Section 7231 allows directors to rely on information, opinions, and reports from officers and employees they reasonably believe reliable, from professionals such as attorneys, accountants, engineers, and reserve study providers acting within their expertise, and from board committees. A director who relies in good faith, after reasonable inquiry where circumstances call for it, is protected.
The immunity. A director who meets that standard is not liable for an alleged failure to discharge their obligations as a director. Separate provisions give volunteer directors additional protection from personal liability for ordinary negligence, subject to conditions including the association carrying specified insurance.
The practical point for a board is that the protection depends on process. Getting a professional opinion, reading it, discussing it, and recording the decision is what earns it.
When courts defer, and when they do not
The California Supreme Court established the rule for HOA decisions in Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999). Where a board, after reasonable investigation, in good faith and with regard for the community’s best interests, exercises discretion within its authority to choose among ways of discharging a maintenance obligation, courts should defer to its judgment. In Lamden the board chose to spot-treat a termite problem rather than fumigate the building; the Court declined to second-guess it.
That deference is real but bounded. Later decisions have drawn its limits clearly:
No reasonable investigation. A 2025 Court of Appeal decision held that the rule of judicial deference will not protect a board that failed to conduct a reasonable investigation or acted in bad faith.
The scope of the duty, not the means. Deference applies to how a board carries out an obligation. It does not apply to whether the obligation exists. A board that decides it is not responsible for repairing something the governing documents require it to repair is not exercising discretion over means, and courts decide that question themselves.
Acting outside authority. A decision beyond what the statutes and governing documents permit gets no deference.
If you are a director trying to understand where your decision-making protection ends, or an owner trying to understand whether a decision crossed the line, that assessment turns on the record the board made. Call Bay Legal at (650) 668-8000 in Northern California or (213) 668-8000 in Southern California.
Conflicts of interest and self-dealing
This is where directors face serious personal exposure.
Interested-director transactions. Corporations Code section 7233 governs transactions in which a director has a material financial interest. Such a transaction is not automatically void, but it survives only under defined conditions: generally, that the material facts and the director’s interest were disclosed, that the transaction was approved in good faith by disinterested directors or members, and that it was just and reasonable to the association when approved. Alternatively, the person asserting the transaction’s validity can prove it was just and reasonable. Corporations Code section 310 contains parallel rules for business corporations.
Section 5350. Civil Code section 5350 makes the interested-director rules apply to every HOA, whether or not it is incorporated. It also bars a director from voting on specific matters that affect them personally: discipline of that director, an assessment against that director for damage to the common area, that director’s request for a payment plan, and a decision to foreclose on a lien on that director’s separate interest.
The loss of deference. In Coley v. Eskaton (2020), two directors of an association were employed by entities affiliated with the developer. They shared the association’s privileged communications with those entities and approved assessments that benefited the affiliates at the owners’ expense. The Court of Appeal held that directors acting under a conflict of interest cannot claim the business judgment rule; that a conflicted director must prove the transaction was fair and reasonable; and that the two directors should have been held personally liable.
That shifted burden is decisive in practice. In an ordinary dispute, an owner challenging a board decision has to prove the directors breached their duty. Where a director had a material conflict, the director has to prove the decision was fair.
When directors are personally liable
Directors are not ordinarily personally liable for board decisions. The association acts through its board, and the protections above cover good-faith decisions made with reasonable care.
Personal liability generally arises where those protections do not apply: self-dealing or a material undisclosed conflict, bad faith, knowing violations of law, fraud, or conduct outside the scope of the director’s authority. It is also where insurance is least helpful. Directors and officers policies commonly exclude fraud, dishonest acts, and claims arising from personal profit to which the director was not entitled, which means the conduct most likely to create personal liability is the conduct least likely to be covered.
HOA fraud and consumer remedies covers the owners’ side: derivative and individual claims, unfair competition claims against associations and managers, and how insurance affects recovery.
Practical protections for a board
Disclose early and completely. A director with any financial relationship to a vendor, contractor, or developer should disclose it before the matter comes up, in writing, and step out of the discussion and vote.
Build the record. Minutes that show what information the board had, what professional advice it received, and why it chose as it did are the evidence that earns deference.
Get professional input on significant decisions. Reserve studies, engineering reports, and legal advice are what the reliance protection is built around.
Watch developer-affiliated directors. In a newly transitioned association, directors appointed by or connected to the developer face an inherent conflict in any decision about claims against the developer. HOA developer transition covers that period.
When the owner’s complaint is not a breach of duty
Worth being direct about this, since it is where most disputes start.
A board decision can be unpopular, expensive, or one a majority of owners would not have made, without being a breach of fiduciary duty. Choosing one roofing contractor over another, deferring a project, raising assessments within the statutory limits, or adopting a rule owners dislike are ordinarily within the board’s discretion. If the board investigated reasonably, acted in good faith, and stayed within its authority, a court will generally not substitute its judgment.
The remedy for a board decision owners disagree with is usually governance, not litigation: attending meetings, running for the board, or recalling directors. Litigation over a reasonable decision tends to cost the association money that comes, ultimately, out of every owner’s assessments, including the owners who sued.
Bay Legal advises boards and owners on director duties and conflicts. Reach us at (650) 668-8000, (213) 668-8000, or through baylegal.com/contact-us.
Frequently Asked Questions
What fiduciary duties do California HOA directors owe?
Under Corporations Code section 7231, directors must act in good faith, in a manner they believe to be in the association’s best interests, and with the care, including reasonable inquiry, that an ordinarily prudent person in a like position would use. Directors may rely in good faith on reports from officers, professionals, and committees they reasonably believe reliable.
When does the business judgment rule stop protecting a director?
Courts defer to a board’s reasonable, good-faith decisions about how to carry out its duties under Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999). That deference ends where the board failed to investigate reasonably, acted in bad faith, exceeded its authority, or where the director had a material conflict of interest.
What is a disqualifying conflict of interest under Civil Code 5350?
Section 5350 applies the interested-director rules to every HOA and bars a director from voting on their own discipline, an assessment against them for common-area damage, their own request for a payment plan, and a decision to foreclose on a lien on their own separate interest.
Can directors be held personally liable?
Generally not for good-faith decisions made with reasonable care. Personal liability arises from self-dealing, undisclosed material conflicts, bad faith, fraud, or conduct outside the director’s authority. In Coley v. Eskaton (2020), the Court of Appeal held that conflicted directors lost the business judgment rule and should have been held personally liable.
What remedies do individual owners have?
Owners may have individual claims where they were harmed personally, and derivative claims on the association’s behalf where the association was harmed, subject to procedural requirements. Remedies can include voiding a self-dealing transaction and recovering improper gains. Bay Legal’s post on HOA fraud and consumer remedies covers the owners’ options in detail.
