HOA and Condo Directors – Who Do They Represent?

A common question among unhappy owners who are in dispute with the board: who does an HOA or Condo director (or attorney) represent anyway, the board or the owners?

Here is an email on topic from a reader:

Hello.  Our HOA legal counsel has raised an interesting dilemma.  It’s whether a director’s duty is to the homeowners or to the board (regarding the disclosure of a conflict of interest to homeowners).  Can you respond or include this in a blog article?

 When a director (A) learns from sources independent of the HOA and its board, that director B has a major conflict of interest, and director B admits to the COI, and the other directors acknowledge its existence, may director A inform homeowners about director B’s conflict of interest

 Director B very strongly opposes disclosure of the COI to the homeowners, as do most other directors.  They and legal counsel claim that disclosure to the board is all that’s legally required. Disclosure of this particular conflict-of-interest could provoke an angry reaction from homeowners, perhaps even a recall of the entire board. 

 Is a director’s duty first (or only) to the homeowners, or to the board itself? 

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A Director’s duty is to act in the best interest of the community, not any individual owner or any fellow board member, and there is no duty to hide board secrets, except that there would be a duty to protect legally confidential records such as those generated  by executive session. Before disclosure of any particularly touchy subject that might carry confidentiality, or lead to owner mutiny, I would suggest seeking legal advice from counsel knowledgeable in corporate, HOA, and Condo matters to see what should be done and how.

The HOA or Condo attorney’s duty is to act in the best interest of the corporation/community also, and not in the best interests of any individual board member or the board itself, although the attorney is instructed by California ethical rules to take his or her directions from the elected board (and not any individual owner or individual board member). In simple terms, the board is authorized to request legal services and opinions, but if the attorney is asked to do something contrary to the best interests of the membership of the association, he or she should act appropriately and decline to do so.

Corporations Code Section 310 which ties into the Davis Stirling Act through Civil Code Section 1365.6 (relating to financial interest in contracts) requires disclosure of any financial interest in a contract to the directors and shareholders. Failure to make the disclosures could lead to an action to declare the contract void, but it is not automatically void just because of the contract.

Generally, contracts or transactions where a board member has a financial interest or gain are not automatically void, but may be voidable if required disclosures are not made.

Here, I do not know if a contract is involved or what the “COI” is. It concerns me greatly that the board is holding onto a secret about a Director “COI” that would likely anger owners so much that it could lead to recall of the board simply for having knowledge of it. Sounds like a dangerous secret, whether legally allowed or not.

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