January 11, 2026 | Mark Luis Foster
One of the concepts we explore in the Introduction to Homeowner Associations for New Board Leaders course is the Business Judgment Rule (BJR), which is a rule that all homeowners, new and veteran, should fully understand. Essentially the BJR says that HOA directors must perform duties “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.”
A recent article that summarizes the rule from the Orange County Register caught my eye, and it’s written by an attorney who has a good handle on it. He summarized the rule a bit better here:
The BJR requirements on HOA actions are simple: Good faith, acting in the best interests of the entire community, and reasonable inquiry. Directors risk personal liability by not meeting these three requirements.
The author goes on to describe these three requirements, since they are nebulous at best and often misunderstood by those of us with no legal background. The land of HOA rules and regs are rife with the terms “reasonable” and “good faith,” and frankly, those words are enabling a wide berth of interpretation. So we thought we would dive in:
Good Faith
It is the absence of bad faith, and others (judges or jurors) will decide your good faith from your actions and statements. So what is important is not what YOU think, but what someone else thinks of your actions.
Best Interests
I often hear from network members that their board has a member with a “conflict of interest,” meaning that their cousin Eddy is mowing the lawn for the association, or the family business is doing the maintenance for the association, etc. An argument here is that in some smaller communities there may be limited resources to get things done fairly and competitively, so what’s a board to do when Eddy offers the best price and service even though he’s related to the board president?
If there is any possibility of the appearance of conflict of interest or favoritism, then back away, Recuse yourself from the discussion and the vote, thereby eliminating any accusation you voted to serve your individual personal interests instead of the Association’s. The best way to recuse yourself is to ask that the item be moved to the end of the agenda so you can leave the meeting before the item is discussed.
Our advice is that board members try to avoid any such conflicts like the plague, as optics can do as much harm as the good it might for an association, no matter how well meaning.
Directors should make reasonable decisions based upon the information brought to the board. Make sure the board has sufficient and qualified input appropriate to the decision at hand. Sometimes boards must spend money to confirm its decision is correct.
The BJR is one of those things that all members should understand well and take to heart. The article sums it up this way:
The Business Judgment Rule is like a three-legged stool. If even one leg is missing, the result can be painful – and dangerous.
Read the whole article HERE.
You can find the entire BJR in Corporations Code 7231(a).
