COLORADO: Discover How Implementing a Code of Conduct Simplifies Board Members’ Legal Duties of Care

Colorado law requires HOA board members to act in good faith, with the care an ordinarily prudent HOA board member in a similar position would use, and in a manner they reasonably believe to be in their HOAs’ best interests.

This may seem straightforward. Acting in good faith means to act with honest intentions. Acting prudently means to be informed and to act cautiously. And acting in the best interest of the HOA means putting the community’s overall interests before those of any individual homeowner or group of homeowners.

But how do these concepts translate into daily governance? What does it really mean to act with the care of an ordinarily prudent person? This is where a code of conduct may be helpful. Creating a code of conduct turns these legal obligations into concrete guidelines and standards that HOA board members can rely on to guide their actions.

For example, let’s consider how a code of conduct can help an HOA board member approach a potential capital improvement project. An HOA board member’s duty of care would include the following:

1. Researching the potential project to determine whether it is necessary and/or aligns with the community’s needs and priorities. This may include prioritizing projects that provide the greatest overall benefit to the community while balancing budgetary constraints and financial sustainability. This may also include soliciting and considering input from homeowners through surveys, town hall meetings, or other forms of community feedback.
2. Obtaining multiple bids and compare costs to ensure the association receives competitive pricing (at least, in cases where the scope and price of the project is determined by the HOA rather than its insurance company).
3. Evaluating each bid, considering factors such as cost, potential benefits to the community, impact on property values, and long-term maintenance requirements.
4. Evaluate the potential long-term financial implications of the project, including funding sources, reserve fund allocations, and potential special assessments.
5. Communicating transparently with homeowners about the decision-making process, rationale behind project selections, and projected timelines for implementation.
6. Ensuring that all decisions regarding capital improvement projects are made in accordance with the association’s governing documents and applicable laws and regulations.

Having a written code of conduct that addresses common HOA board operational decisions promotes consistency, transparency, and accountability in decision-making and fosters a well-managed and harmonious community environment. Among other things, a written HOA board code of conduct should address: (1) the architectural review process so the HOA’s design standards are consistently applied; (2) the board’s budget creation and approval process to ensure that funds are raised and allocated responsibly; (3) the protocols for selecting vendors so the Association’s interests are safeguarded; (4) how insurance claims, including deductible assessments, are processed and handled; and (5) how the HOA processes and handles its legal matters.

A written HOA board code of conduct should also remind the board members, who are volunteers with various degrees of experience, of their duties to keep certain information confidential, to refuse gifts, and to act without bias. A code of conduct may even go beyond documenting only legal duties to create a set of professional standards that will facilitate board cohesion and productivity. To that end, a code of conduct may require board members to support final board decisions (or at least refrain from public disapproval of such decisions), even when a vote was not unanimous, or may prohibit personal attacks on other board members and association members.

While a code of conduct establishes the behavior that is expected from board members, a board member’s violation of the code does not automatically incur consequences. For a breach to bear a penalty, an HOA’s governing documents must substantiate such action, such as when an association’s bylaws disqualify a board member from their position if they violate the code. Even without “teeth,” however, a code of conduct establishes a uniform interpretation of board members’ responsibilities and serves as a handy reminder to board members of their duties to act professionally and in the best interest of the association.

A further, perhaps underrated, benefit to adopting a code of conduct is the message that doing so sends to the community. If homeowners know that board members are holding themselves to a code of conduct, it maintains the association’s credibility and promotes accountability. And by complying with the code, the board will consistently conduct association business respectfully and with the common goal of serving the community, which will set a standard for homeowners to meet in their own dealings with the association.

If your association is interested in adopting a board member code of conduct, reach out to one of our community association attorneys to discuss your association’s unique needs.