The degree to which a vacancy on the board may be filled by the board or by the membership depends primarily on the circumstances which created the vacancy—namely, whether the vacancy was created by the resignation of a director or instead by the removal (or “recall”) of a director. (Corp. Code § 7224.)
Vacancy Created by Resignation Unless otherwise provided in the association’s articles or bylaws, a vacancy created by the resignation of a director may be filled by approval of a majority of a quorum of the board pursuant to Corporations Code Section 7224(a). Where the number of directors then in office is less than a quorum, the vacancy may be filled by: (Corp. Code § 7224(a)(1)-(3))
The unanimous written consent of the directors then in office,
The affirmative vote of a majority of the directors then in office at a duly held and noticed meeting, or
A sole remaining director.
Participation of Resigning Director – A resigning director may participate in the board’s selection of the resigning director’s replacement, provided that the selection takes place prior to the effective date/time of the resigning director’s resignation. (Mayo v. Interment Properties, Inc. (1942) 53 Cal.App.2d 654; See also “Resignation of Directors.”)
Failure to Appoint – If the board fails or refuses to fill a vacancy, the membership may elect a director at any time to fill the vacancy. (Corp. Code § 7224(b).) The election process is initiated by filing a petition with the board to hold a special membership meeting to elect a director to fill the vacancy.
Vacancy Created by Removal Unless the articles or bylaws provide that the board may fill vacancies created by reasons of removal (“recall”) of a director, such vacancies may be filled only by approval of the members. (Corp. Code § 7224(a).)
In their efforts to manage the common interest development, the directors of an association have numerous duties under California law and as specified in the association’s governing documents. The general duties of directors include:
Enforcement – Enforce the governing documents through disciplinary measures and in some instances litigation.
Maintenance – Maintain and repair the common areas and other items which the association may have an obligation to manage under the governing documents or other contractual agreements.
Financial Management – Levy and collect assessments, pay the association’s bills, review financial records, prepare budgets and financial statements, and manage the reserve account.
Operations – Manage the day-to-day operations of the association. This typically involves utilizing professional management, legal, accounting, landscape, pest control, and insurance services. In addition, the board must set policies to ensure the smooth operation of the association and to govern the use of the association’s common area facilities and recreational amenities.
The powers and authority granted to the board under California law and the association’s governing documents are aimed at assisting the directors in carrying out these duties.
Fiduciary Duties As fiduciaries, directors are held to a high standard of conduct in carrying out their duties for the benefit of the association and its membership.
Delegating Duties Subject to certain limitations, the board may validly delegate some of its duties to other persons, such as a professional manager or committee of the association.
Though HOA directors serve as fiduciaries, they are afforded several liability protections under California law. One of those protections is a legal doctrine known as the “Business Judgment Rule.” It generally shields directors from personal liability that may result from their decisions, provided that the decision was made (1) with care, (2) in good faith, and (3) was based upon what the director believed to be in the best interest of the association.
Corporations Code The Business Judgment Rule is mainly found at Corporations Code Section 7231. Where a director performs his/her duties in accordance with subdivisions (a) and (b) of Section 7231, the director “shall have no liability based upon any alleged failure to discharge the [director’s] obligations as a director.” (Corp. Code § 7231(c).)
In “a manner [the] 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.”
In performing their duties, directors are entitled to “rely on information, opinions, reports or statements, including financial statements and other financial data,” that are prepared by: (Corp. Code § 7231(b))
Officers or employees of the association whom the director believes to be competent;
Counsel, independent accountants or other qualified professionals or experts; or
Committees upon which the director does not serve, subject to certain requirements.
The Business Judgment Rule has been interpreted by California courts as setting “up a presumption that directors’ decisions are based on sound business judgment. This presumption can be rebutted only be a factual showing of fraud, bad faith or gross overreaching.” (Ritter & Ritter v. Churchill Condominium Assn. (2008) 166 Cal.App.4th 103, 123.); See also “Rule of Judicial Deference.”)
No Automatic Protections for Directors who Remain Willfully Ignorant
“When courts say that they will not interfere in matters of business judgment, it is presupposed that judgment—reasonable diligence—has in fact been exercised. A director cannot close his eyes as to what is going on about him in the conduct of the business of the [HOA] and have it said that he is exercising business judgment.” (Palm Springs Villas II HOA v. Parth (2016) 248 Cal.App.4th 268, 280.) The Business Judgment Rule’s protections do not apply to directors who choose to “remain ignorant and to rely on their uninformed beliefs” as to the issues surrounding their decisions, or their authority to make those decisions in their capacity as directors. (Parth, at 268.)
Bad Faith Strips Protections
“Under the rule of judicial deference and the business judgment rule, courts are required to defer to the discretionary decisionmaking of a homeowners’ board only if the board acted in good faith…
…substantial evidence supports the trial court’s findings that the HOA…acted in bad faith, and therefore the trial court properly rejected the HOA’s rule of judicial deference and business judgment rule defenses.” (Ridley v. Rancho Palma Grande HOA (2025) 114 Cal.App.5th 788, 808.)
Davis-Stirling Act (Civil Code) Elements of the Business Judgment Rule underlie the liability protections for volunteer officers and directors under Civil Code Section 5800. Section 5800 shields volunteer officers and directors from personal liability “to any person who suffers injury, including, but not limited to, bodily injury, emotional distress, wrongful death, or property damage or loss as a result of the tortuous act or omission” of the volunteer officer or director where all of the following criteria are met: (Civ. Code § 5800(a))
The act/omission “was performed within the scope of the officer’s or director’s association duties”;
The act/omission “was performed in good faith”;
The oct/omission “was not willful, wanton, or grossly negligent”; and
“The association maintained and had in effect at the time the act or omission occurred and at the time a claim is made one or more policies of insurance which shall include coverage for (A) general liability of the association and (B) individual liability of officers and directors of the association for negligent acts or omissions in that capacity; provided, that both types of coverage are in the following minimum amount:
(A) At least five hundred thousand dollars ($500,000) if the common interest development consists of 100 or fewer separate interests.
(B) At least one million dollars ($1,000,000) if the common interest development consists of more than 100 separate interests.”
“Rule of Judicial Deference” to HOA Boards In the context of homeowners associations, the California Supreme Court has adopted a rule which it termed as analogous to the Business Judgment Rule: the “Rule of Judicial Deference.” The Rule of Judicial Deference (aka “Business Judgment Doctrine”) generally requires courts to defer to decisions made by HOA boards even if a reasonable person would have acted differently in the same situation:
“…We hold that, where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.” (Lamden v. La Jolla Shores Clubdominium HOA (1999) 21 Cal.4th 249, 265.)
The directors of an association serve as fiduciaries that must act in the best interests of the association and its members as a whole:
“…it is well settled that directors of nonprofit corporations are fiduciaries.” (Raven’s Cove v. Knuppe Dev. Co. (1981) 114 Cal.App.3d 783, 799.)
“…in recognition of the increasingly important role played by private homeowners’ associations…the courts have recognized that such associations owe a fiduciary duty to their members.” (Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d. 642, 650-651.)
“Directors of nonprofit corporations such as the Association are fiduciaries who are required to exercise their powers in accordance with the duties imposed by the Corporations Code…This fiduciary relationship is governed by the statutory standard that requires directors to exercise due care and undivided loyalty for the interests of the corporation.” (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 513.)
As fiduciaries, directors are held to a higher standard of conduct and are required to uphold two (2) primary fiduciary duties: (1) the duty of care, and (2) the duty of loyalty.
Duty of Care (Due Diligence) The duty of care (aka “due diligence” or “duty to investigate”) generally requires directors to be diligent in performing their responsibilities as directors of the association.
“…Directors are not merely bound to be honest; they must also be diligent and careful in performing the duties they have undertaken. They cannot excuse imprudence on the ground of their ignorance or inexperience, or the honesty of their intentions; and, if they commit an error of judgment through mere recklessness, or want of ordinary prudence and skill, the corporation may hold them responsible for the consequences…” (Burt v. Irvine Co. (1965) 237 Cal.App.2d 828, 852.)
In satisfying a director’s duty of care, a director must (1) attend and participate in board meetings so that the director can be kept informed of association business, (2) make reasonable inquiries regarding maintenance issues, member violations, contract issues, etc., (3) make decisions on association business, and (4) ensure that adequate association records are kept. Making reasonable inquiries is also a component of the liability protection afforded to directors under the Business Judgment Rule.
Duty of Loyalty (No Self-Dealing) The duty of loyalty requires directors to refrain from engaging in conduct that places their interests above those of the association and its membership. The duty of loyalty is implicated in situations where directors seek to use their positions to improperly derive benefits for themselves, their friends or families (i.e., through awarding a maintenance contract to a company owned or operated by a director or his/her family member):
“…the duty of undivided loyalty…applies when the board of the directors of the Association considers maintenance and repair contracts, the operating budget, creation of reserve and operating accounts, etc. Thus,…directors of an association…may not make decisions for the association that benefit their own interests at the expense of the association and its members…” (Raven’s Cove, at 799.)
Liability Protection As volunteers, directors are afforded various liability protections under the law and the association’s governing documents. (See “Director & Officer Liability Protection” and “Business Judgment Rule.”) The liability protections afforded to a volunteer director may not extend to situations where the director breaches his or her fiduciary duties:
“[I]ndividuals on the board are held to a high standard of conduct, the breach of which may subject each or all of them to individual liability…” (Raven’s Cove, at 800.)
Statute of Limitations The statute of limitations for an action against an association or a director for breach of fiduciary duties is three (3) years from the discovery of the act giving rise to the breach. (Code Civ. Pro. § 309; Smith v. Superior Court (1990) 217 Cal.App.3d 950.)
A director or the entire board may be removed (aka “recalled”) from office under a number of circumstances. The removal may be performed by the board, the membership, or a court of law. Removal of a director is distinct from the resignation of a director.
Removal by Court A superior court has the authority to remove any director in response to the director’s “fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation.” (Corp. Code § 7223.) In addition, where a director has been declared to be of “unsound mind by a final order of court,” or has been convicted of a felony, the board has the authority to declare the director’s seat vacant. (Corp. Code § 7221(a).)
Removal by Board Some sets of bylaws or CC&Rs may specify circumstances under which an individual director may be removed by the majority vote of the remaining directors then in office. Those circumstances typically involve situations where the director to be removed “fails or ceases to meet any required qualification that was in effect at the beginning of the director’s current term of office.” (Corp. Code § 7221(b); See also “Director Qualifications.”)
Removal by Membership In general, an association’s membership has the authority to remove any or all directors with or without cause. (Corp. Code § 7222(a).) The membership approval requirements applicable to such removal actions may vary greatly depending upon whether the entire board is to be removed as opposed to an individual director or directors comprising less than the entire board.
Entire Board Removal of the entire board is often straightforward because any cumulative voting issues are not factored into the voting requirements. The procedural issues which must be considered are (1) the amount of members whom are entitled to vote in the recall, and (2) the size of the association.
For small associations (those with fewer than 50 members) the removal must be approved by the affirmative vote of a majority of all members entitled to vote. (Corp. Code § 7222(a)(1).)
For large associations (those with 50 or more members) the removal must be approved by the affirmative vote of a majority of the votes represented and voting at a duly held meeting at which a quorum is present, with the affirmative votes also constituting a majority of the required quorum. (Corp. Code § 7222(a)(2).)
Individual Director or Directors In circumstances where an association’s CC&Rs or bylaws provide for cumulative voting, removing any number of directors comprising less than the entire board is often far more complex and difficult than removing the entire board. In such circumstances, the required process is confusing and there are differing opinions as to how it should ultimately work. One opinion is as follows:
Step 1 – Voting to Approve Removal
The membership first votes by secret ballot to remove the director. The approval requirements are governed by the size of the association and the number of members entitled to vote. (Corp. Code § 7222(a).)
Step 2 – Voting to Block Removal
If the required number of members approve the removal of the director, the cumulative voting requirement allows for the removal to still be blocked pursuant to Corporations Code Section 7222(b)(1):
“In a corporation in which the articles or bylaws authorize members to cumulate their votes…no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written ballot, all memberships entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected.”
Though the wording of this language is poorly written, the following formula illustrates a popular interpretation of its requirements and effect:
V > (1/[D+1])*M
V = # of votes needed to block the recall
M = total # of members eligible to vote
D = total # of directors authorized in the bylaws
Members Who Do Not Vote An unsettled question in this area involves the extent to which those members whom do not vote in the removal election ultimately affect the formula for blocking the removal of an individual director. This question focuses around the following language in Corporations Code Section 7222(b)(1): “…no director may be removed…when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively…” (Emphasis added.) To the extent that any members who do not vote are treated as “not consenting in writing to the removal,” it would make blocking the removal of a director easier.
Staggered Terms Another unsettled question in this area involves the extent to which directors that serve staggered terms ultimately affect the formula required to block the removal of an individual director. This question surfaces around the following language in Corporations Code Section 7222(b)(1): “…no director may be removed…when the votes cast against removal…would be sufficient to elect the director if voted cumulatively at an election…and the entire number of directors authorized at the time of the director’s most recent election were then being elected.” (Emphasis added.) If the variable “D” of the above formula is based only upon the number of directors up for election at the prior election, and not the total number of directors authorized in the bylaws, it would make the blocking the removal of a director more difficult.
Replacing Removed Directors Unless otherwise stated in the association’s articles or bylaws, the board does not have the authority to replace a director that has been removed by the membership. (Corp. Code § 7224(a); See also “Filling Vacancies on the Board.”)
Designated Directors Designated directors may not be recalled without the approval of the designator. (Corp. Code § 7222(f).) A “designated director” is not one appointed by the board to fill a vacancy, but rather a director who is designated in the articles or bylaws. (Corp. Code § 5220(d).) Designated directors serve until their term, as specified in the articles or bylaws, expires, or until they resign, die or are declared “to be of unsound mind” by an order of the court pursuant to Corporations Code Section 7221(a). Directors appointed to serve by a court pursuant to Corporations Code Section 5220(e) are similarly shielded from membership recall without the court’s approval.
Court Authority to Validate Results of Recall Election Corporations Code section 7616 grants a court the authority to determine the validity of the results of an election to recall an HOA’s Board of Directors (See Lake Lindero HOA v. Barone (2023) 89 Cal.App.5th 834.)
A director may resign from the board “upon giving written notice to the chairman of the board, the president, the secretary or the board of directors” of the association. (Corp. Code § 7224(c).) The association’s bylaws may also contain additional procedural requirements governing a director’s resignation. The resignation need not be approved by the board in order for it to become effective. The resignation of a director is distinct from the removal (or “recall”) of a director.
Effective Date of Resignation A resigning director may set the effective date/time of when the director’s resignation becomes effective. (Corp. Code § 7224(c).) Until the resignation becomes effective, the resigning director continues to remain in office and retains his/her authority and functions as a director.
Selecting Replacement: Participation of Resigning Director Unless otherwise provided in the association’s articles or bylaws, a vacancy on the board resulting from a director’s resignation may be filled by approval of a majority of the remaining directors. (Corp. Code § 7224(a); See also “Filling Vacancies on the Board.”) Where a director’s resignation is to become effective at a later date, the resigning director may still participate in the selection of his or her replacement, provided that the selection takes place prior to the effective date of the resigning director’s resignation. (Mayo v. Interment Properties, Inc. (1942) 53 Cal. App. 2d 654.)
Distinct from Resigning Officers The resignation of a director is distinct from the resignation of an officer.
Volunteer officers and directors of an association are required to make decisions which may have significant legal and financial implications for the association and its membership. Because they do not receive any compensation in their roles as volunteers, they are afforded certain protections against personal liability similar to those afforded to directors and officers of other types of nonprofit corporations. Those protections are necessary in order to ensure that an association will be able to recruit people to serve on its board:
“The Legislature finds and declares that the services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California. The willingness of volunteers to offer their services has been deterred by the perception that their personal assets are at risk for these activities…It is the public policy of this state to provide incentive and protection to the individuals who perform these important functions.” (Corp. Code § 5047.5(a).)
The liability protections which are extended to directors and officers are as follows:
Directors and Officers Insurance (“D&O Insurance”) D&O Insurance protects against errors and omissions made by officers and directors while they were serving on the board. Subject to certain criteria, Civil Code Section 5800 also protects volunteer directors and officers from personal liability in excess of the association’s insurance coverage provided that the board maintains at least the minimum levels of D&O Insurance required by Civil Code Section 5800(a)(4). The required minimum levels are contingent upon whether the common interest development consists of “100 or fewer separate interests” or “more than 100 separate interests.” (Civ. Code § 5800(a)(4)(A)-(B).) However, the protections under Civil Code Section 5800 do not apply “to a volunteer officer or director who…is an owner of no more than two separate interests in the common interest development.” (Civ. Code § 5800(e); See also “Directors & Officers (D&O) Insurance.”)
Statutory Indemnity
California law protects volunteer directors and officers from personal liability while serving on the board subject to certain criteria. (Civ. Code § 5800; Corp. Code § 5047.5(b).) The Corporations Code also extends additional liability protections for directors and officers under the Business Judgment Rule. Directors and offers may also be indemnified by the association if the directors and officers had no reasonable cause to believe their conduct was unlawful. (Corp. Code § 7237.)
Governing Documents
An association’s CC&Rs and/or bylaws may also contain exculpatory, hold harmless and indemnity provisions that provide liability protections for officers and directors arising from negligent acts or omissions they made while serving on the board.
The board of directors of an association is granted broad authority and powers under the law and as specified in the governing documents of the association. Unless the governing documents provide otherwise, the board, on behalf of the association, may generally exercise the powers granted to a nonprofit mutual benefit corporation as enumerated in Corporations Code Section 7140, regardless of whether the association is in fact incorporated. (Civ. Code § 4805.) The powers granted to the board typically include the following:
Financial Manage and disburse funds from the reserve account; Invest funds; Levy and collect regular, special and emergency assessments; Pay expenses incurred by the association; Prepare and adopt budgets
Management Manage the association; Delegate management and certain board powers; Maintain and repair the common areas; Construct limited capital improvements; Negotiate and enter into contracts;
Insure the association;
Hire and fire employees and vendors of the association
Delegate Powers
Under certain circumstances, the board has the authority to delegate certain powers of the board to the association’s manager, committees, or other persons. (See “Delegating Duties & Authority.”)
Judicial Deference
Provided that a board acts within the scope of its authority and in furtherance of its duties, courts will defer to decisions made by the board regardless of whether the board could have made a better decision. (See “Rule of Judicial Deference.”)
An association’s “board of directors” is comprised of persons elected to govern the common interest development. Because most associations are incorporated as nonprofit mutual benefit corporations, they are legally required to have a board to exercise corporate powers in the management of the association’s activities and affairs. (Corp. Code § 7210.) The boards of older, unincorporated associations are often defined as “boards of governors.”
Number of Directors The number of directors that are elected by the association’s membership to serve on the board is typically established in the association’s bylaws. The number is often an odd number (in most cases, five (5) directors) in order to prevent dead-locked boards and tied votes.
Role of the Board
The board is vital to the effective operation and management of the association, as well as to preserving the property values of the association’s members. The primary responsibilities of the board are to: (1) manage the common areas, (2) enforce the governing documents, (3) manage the association’s finances, and (4) set policies to assist the operation of the association. These responsibilities must be performed “in good faith, in a manner such director believes to be in the best interest of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.” (Corp. Code § 7231(a); See also “Duties of Directors (Generally).”) For information on the authorities and powers typically afforded to the board, see “Board Powers & Authority.”
Fiduciary Duties
The board is entrusted with significant financial and operational responsibilities in managing the association’s affairs. Directors are therefore held to a higher standard—they are deemed “fiduciaries” with the obligation to act in the best interests of the association and its membership. (See “Fiduciary Duties of Directors.”)
Volunteer Capacity The directors serve on the board as volunteers. The term “volunteer” is defined under Corporations Code Section 7231.5(b) to mean:
“…the rendering of services without compensation. ‘Compensation’ means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section.”
Director Compensation As volunteers, directors may not receive a salary or other form of consideration (i.e., a discount in assessment payments) in exchange for their services. (Corp. Code § 7231.5.) A director may, however, be reimbursed for “actual expenses incurred…in the execution of the [director’s] duties” without affecting the director’s status as a volunteer. (Civ. Code § 5800(b).) An association’s bylaws and CC&Rs typically contain provisions explicitly prohibiting the directors from receiving compensation in exchange for their services.
Every member of an association has certain rights to inspect and copy various association records. However, those rights are not absolute, as some records may be validly withheld or redacted by an association. Additionally, an association is entitled to charge a member for certain costs incurred in fulfilling the member’s records request (i.e., copying, mailing and redacting costs); however, the association is generally prohibited from charging the member a fee “that exceeds the amount necessary to defray the costs for which it is levied.” (Civ. Code § 5600(b).)
Copying & Mailing Costs Where records are copied and mailed by an association in satisfaction of a member’s request, the association may charge the member for the direct and actual cost of copying and mailing the requested records. (Civ. Code §§5205(f),4950(a).)
Redacting Costs An association may charge the member “an amount not in excess of ten dollars ($10) per hour, and not to exceed two hundred dollars ($200) total per written request, for the time actually and reasonably involved in redacting an enhanced association record.” (Civ. Code § 5205(g).)
Informing the Member of the Anticipated Costs An association is required to inform the member of the amount of copying and mailing costs, including estimated redacting costs, and the member is required to agree to pay those costs, before providing the member with the requested records. (Civ. Code § 5205(f)-(g).)
Costs for Electronic Transmission of Records A member has the option of receiving specifically identified records “by electronic transmission or machine-readable storage media so long as those records can be transmitted in a redacted format that does not allow the records to be altered.” (Civ. Code § 5205(h).) In such cases, the “cost of duplication shall be limited to the direct cost of producing the copy of a record in that electronic format.” (Civ. Code § 5205(h).)
