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Business Judgment Rule Applies to Every Board Decision


Condominium and homeowner association Board members face many decisions during their time in office. Some decisions are routine while others can be challenging and difficult. It’s your fiduciary obligation to follow the Business Judgment Rule when making decisions. The rule requires Board members to understand association operations and research every business decision before taking action.

 

This regulation helps to protect the community and Board members. It ensures that Board members follow the Duty of Care in making the best decision possible for the community. However, running a community can be risky because many decisions aren’t black and white. When Board members act in what they believe to be the best interest of the community, they are not liable for poor decisions.

 

Here’s how your Board can ensure that you are following the Business Judgment Rule for every decision:

 

  1. Thoughtful deliberation. Allow time for Board members to discuss and consider all sides of an issue.
  2. Reasonable inquiry. Research and/or solicit input and guidance from professionals so that you have a solid foundation for which to base a decision.

 

An example can help to clarify the Business Judgment Rule:  A community needs to replace an exterior fence, so Board members solicit input from licensed fence installers. Several of the fence installers recommend a type of vinyl fencing, so the Board members choose that material. However, the fence degrades faster than normal and requires early replacement. The Board members are not liable because they followed the Business Judgment Rule. They used thoughtful deliberation and reasonable inquiry when the made the decision.

 

Adhering to the Business Judgment Rule helps you make better decisions for the community and protects Board members from liability in the event of a poor decision. Keep your Board on track by following this rule for every business decision.

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Wise Property Solutions is a property management company serving East Tennessee with offices in Knoxville, TN and the Tri-Cities, TN-VA. Specializing in Condominium Association Management, Home Owners Association Management, HOA Management and Gated Community Association Management.

 

 

 

Tri-Cities, TN-VA: 423-926-7373

 

 

 

Knoxville, TN: 865-643-8989

 

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