Conflict of Interest
A situation where a board member has a personal, financial, or familial interest that could improperly influence — or could reasonably appear to influence — their decision-making on behalf of the association. Conflicts of interest arise in many contexts: voting on a vendor contract when the board member has a business relationship with the vendor, making enforcement or architectural decisions involving the board member's own property, hiring a management company where a board member's relative is employed, or using confidential association information for personal benefit. Conflicts are not inherently prohibited — they are an inevitable part of volunteer board service in communities where board members are also homeowners. What matters is how they are handled. Best practices include adopting a written conflict of interest policy that requires prompt disclosure of any actual or potential conflict, mandatory recusal from discussion and voting on conflicted matters, and documentation of both the disclosure and recusal in the meeting minutes. In California, Corporations Code Section 7233 provides a framework for transactions involving director conflicts: the transaction is permissible if approved by a majority of disinterested directors in good faith after full disclosure, or if shown to be fair and reasonable at the time it was authorized. Many associations adopt conflict of interest policies that go further than what the law requires, as a proactive measure to maintain community trust and reduce the risk of legal challenges.
Example in Context
The board adopted a conflict of interest policy requiring each director to complete an annual disclosure form and to verbally disclose any new conflicts at the start of each meeting before the agenda is addressed.
Frequently Asked Questions
Should an HOA have a written conflict of interest policy?
Yes. While not legally required in most states, a written conflict of interest policy is a governance best practice that reduces legal risk and builds homeowner trust. The policy should require board members to disclose any personal, financial, or familial interest in a matter before the board, recuse themselves from discussion and voting on conflicted matters, and have the disclosure and recusal recorded in the minutes. Many association attorneys recommend adopting such a policy as part of the board's governance framework.