Better watch out if you are a Board Member in your HOA Making All the Decisions

Better watch out if you are a Board Member in your HOA Making All the Decisions. The courts of California have rendered a decision at the appellate level (which makes the decision binding law) that allows a court to look past the business judgment rule to see whether any diligent investigation or vetting of options and discussion with board members was done by a Board President before signing contracts. The contracts went south. The contractors sought damages, and now the Association is looking at whether it can extract some damages from the Board President. The Board President’s legal counsel is seeking review by the California Supreme Court asking that it turn over the decision that allows a judge to look past the Business Judgment rule when the director argues he or she was acting in good faith. The allegation challenging the good faith aspect is that the director did not make reasonable inquiry about the contractors, did not seek the advice of proper experts, and ignored the governing documents regarding requirements for construction contracts and procuring loans.

If you want to follow my own writings about this case, watch the blogs and sign up for the E-newsletter. The very next one will be on this most important case and how board member conduct (or should I say misconduct) can lead to individual director liability, whether you are the do-er or the directors who sit by and let the do-er run unchecked.


This topic is BIG. You can also come to a live discussion of this and other very hot topics, coming soon at the South Coast Homeowners Association program on October 13, 7-9. Visit their site to join. It’s a great resource. Here is the notice for the Program:


PALM SPRINGS VILLAS II BID FOR SUPREME COURT REVIEW. This CASE is added because of an existing court decision that is the subject of a request for review by the highest court in California. Granted or not, this case will establish some important law in the state. It will speak to the question of whether an individual board member can be held responsible for any losses that an association suffers because of bad decisions. The Board President on the hot seat is an 87 year old woman who signed construction contracts allegedly without investigation of contractor licenses and without board approval, and signed loan documents without a vote of the members and may be put to the task of “proving” diligence. The HOA was sued by a contractor for breach of contract. The Association has sued the individual board member seeking judgment. At stake in California is the future of the protections afforded by the Business Judgment Rule, Directors and Officers Liability insurance options, and the pros and cons of board service.  It’s way too hot to not talk about!!


REPAIR AND MAINTENANCE PROBLEMS? Are you dealing with any maintenance, repair and replacement questions or disputes in your HOA or Condo Association? Are you confused by AB 968 and the law (before, now and after January 1, 2017) relating to responsibility for exclusive use common area maintenance and repair? Are you concerned or confused about who fixes windows, doors, balconies (flooring, railings, joists, privacy walls, enclosures, etc.), stoops, planters, painting, siding, roof covering vs. the structural parts of the roofs, roof decks, washers, dryers, leaks from roofs, washers and dryers?


RENTAL LIMITATIONS? What about short term rentals and limiting rentals? What are the pros and the pitfalls?  And which controls, the law or your documents? Can you ban Air BnB rentals altogether or cash in on fees that are similar to the local “taxes” and fines being imposed by municipalities throughout the state?


Come to this session and Beth Grimm will try to give you some simple strategies for dealing with and heading off the problems in these areas. She will do her best to keep you awake (this is an evening program for a change) offering strategies to avoid horror stories in these areas. You may need help just deciding whether policy-making can alleviate the problem, or you need an overhaul of your governing documents (meaning amendments or updates).


Beth says she is looking forward to coming to Goleta, as usual, to share a few hours with you brainstorming solutions to HOA and Condo quandaries.


Date – Thursday, October 13

Time –  7-9 PM (refreshments at 6:45)

Place – Encina Royale Clubhouse – 250 Moreton Bay Lane, Goleta


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2 Responses to Better watch out if you are a Board Member in your HOA Making All the Decisions
  1. Holland Marshall
    September 1, 2016 | 6:03 pm

    The courts in Ontario ruled that the Business Rule does not apply for non-profit condo corporations.

    If a director signs a contract that has not been passed by a majority of directors at a duly called board meeting, the contract is null and void.

    The contractor has to ensure that the proper process was followed. Most contractors don’t know this.

    • Beth Grimm
      September 5, 2016 | 2:25 am

      Are you talking about the Superior Court in Ontario, or the 4th appellate court decision in Palm Springs II? Because the 4th district appeals court overturned the Superior Court decision in the case where the lower court ruling was the judge would not look past the Business Judgment Rule. The appellate decision says that the matter of liability based on proof of diligent investigation will go to court.

      And that is a binding appellate decision but it has been appealed to the Supreme Court of California so we will have to see what happens with that. The bottom line is that if the governing documents for the association require more than one bid, or have a limit to signing contracts, or a director signs a contract without regard to having a board discussion on it, and without board approval, there can be individual liability. As far as I know it is not up to the contractor to determine what authority the signor of the contract has. Generally the contractor is able to dodge a problem and the contract turns out to be perfectly legal and the contractor can act on it, unless he or she had reason to believe the person who signed the contract did not have authority. A contract is not void because of a board gaff unless by its terms it says it shall terminate upon such an event. There is no automatic about it. These things often get bounced into litigation. I will be writing about the lessons of the Palm Springs case but the bottom line is that no board can depend on hiding behind the Business Judgment Rule for all actions. Stay tuned to the blogs and sign up soon so you can also receive the next E-newsletter for free, which will be on this very topic. Thanks for sharing your thoughts!