When owners are elected or appointed to the board of directors, it’s critical to understand the importance of fiduciary duties.  A fiduciary is a person “to whom property or power is entrusted for the benefit of another.”  In homeowner and condominium associations, directors are fiduciaries who must act in the best interests of the association and the membership as a whole.

Washington law states:

A director shall perform the duties of a director, including the duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. (RCW 24.03)

Oregon’s standard of conduct for directors is similar:

General standards for directors. (1) A director shall discharge the duties of a director, including the director’s duties as a member of a committee:

      (a) In good faith;

      (b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

      (c) In a manner the director reasonably believes to be in the best interests of the corporation. (ORS 65.357)

There are four key elements to fiduciary duties:

1.  Act in the best interests of the association

Board members must act in the best interests of the entire membership. In other words, directors may not favor particular members because of personal interests, friendships, or financial gain.  This also implies that directors must put their own interests below the interests of the community, even if those interests conflict.

2. Act with care and seek advice

Courts generally review actions of board members and compare those actions with what a reasonably prudent person would have done in the same circumstances.  If directors must make decisions with legal implications, then an attorney should be consulted.  If issues arise involving tax or financial issues, the board should speak with an accountant.  Get expert advice when necessary in order to make informed decisions. Acting with care also requires acting within the scope of the board’s authority.  There must be authority for every action and decision of the board, whether it’s from state law, the CC&Rs, bylaws, or rules and regulations.

3. Act in good faith

Board members are generally protected from personal liability if they exercise sound judgment and fulfill their fiduciary duties.  However, if board members make decisions based on fraud, malice, or discrimination, personal liability may arise because of the failure to act in good faith.

4. Avoid conflicts of interest

Oregon law defines a conflict of interest as: 65.361 Director conflict of interest. (1) A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest.

Conflicts of interest arise when board members make decisions in which they have a personal or financial interest.  If those situations arise, board members must disclose the conflict and (in most cases) recuse themselves from voting.

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