Glossary, Topics and Index

Glossary, Topics and Index

Utah HOAs are required to do certain things annually.  Incorporated associations are required by the Nonprofit Act to hold an annual meeting.  All associations are required to:

  • Annually provide owners a summary of the most recent reserve analysis or update performed pursuant to Section 57-8a-211 for community associations, and 57-8-7.5 for condominium associations.
  • In formulating its budget year, an association must include a reserve fund line item in an amount the board determines, based on the reserve analysis, to be prudent, or if a higher amount is required by the governing documents in a community association, or by the declaration in a condominium association, than in that higher amount (id.). 
  • Additionally, boards of community associations (non-condo HOAs) are required to, at least annually, prepare and adopt a budget for the association and present the adopted budget to the association members at a meeting of the members (Section 57-8a-215).  There is no corollary requirement for condominium associations. 

What is "business judgment"?

What is commonly called "business judgment," is the standard established by the law that all directors must adhere to.  A director must discharge the director's duties:
      (1) in good faith,
      (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and
      (3) in a manner the director reasonably believes to be in the best interests of the corporation.

See Utah Code Section 16-6a-822.

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus, for instance, that the director is entitled to liability protection.  See Utah Code Subsection 16-6a-822(3).

Generally, common-interest community members are entitled to judicial review of claims that association actions are ultra vires, are made in bad faith, or are made by interested (conflicted) directors, or that the actions are arbitrary, capricious or discriminatory.  (Citation)

Utah courts have also indicated that decisions of a board must be reasonable to be protected by the business judgment rule.  (See, e.g., Fort Pierce v. Shakespeare (2016 UT 28).  But, the Utah Supreme Court has also held that where a board acted (1) within its discretion and, (2) in good faith, then the decision of the board was reasonable, made in good faith, and not arbitrary or capricious.  (See id. at ΒΆ 29).

What is a "chapter" in the Utah Code?

The Utah Code is divided into titles, chapters, parts (sometimes), sections and subsections. A citation to a section of the Code, for instance, a citation to Section 57-8a-101, includes the title, chapter and section. The first number before the first hyphen indicates the title (Title 57 in this case). The second number indicates the chapter (Chapter 8a in this case). The third number is the section (in this case, 101). If a chapter is divided into parts, the first number of that third number is the part. So, Section 57-8a-101 is located in Part 1 of Chapter 8a of Title 57.

Does a board set a precedent when it decides a specific issue, such as whether to pursue an individual enforcement action? 

Generally, waiver of the right to enforce against one violation does not waive the right to enforce against other violations that are different in degree or kind.  Instead, the more probable concern is violation of the duty of fairness and impartiality.  However, as indicated in this statute, if circumstances have changed, or the cumulative effect of the violations makes enforcement desirable at a later date, the association may proceed with enforcement.  

An association is obligated to treat members fairly and impartially.  It cannot act arbitrarily or on an unreasonable whim (without good reasons, capriciously).  This means that if a board decides to take an action or decides not to take an action, under a specific set of circumstances, then the association is generally obligated to take, or not take, similar action in the future in the same manner under the same set of circumstances.  But the association is not obligated to take, or not take, similar action in the future if the facts or circumstances are materially different or if the association has good reason. 

This is one reason it is important for a board to document its decisions to enforce or not enforce in board meeting minutes.  If a board is faced with a violation and the board decides not to enforce or to engage in limited enforcement of the violation, and then later the board is faced with another violation by the same person or a different person, the board can take different or greater enforcement actions than were previously taken as long as the board is not acting arbitrarily or capriciously, rather than relatively consistently and predictably, and fairly and evenly.

If the person being enforced against disputes the enforcement on the basis that the association declined to enforce or ceased enforcement in the past, the it will be much simpler, quicker and cheaper to overcome that challenge if the board articulated in board meeting minutes the reasons for its prior decisions that show the board fairly reviewed the issue, acted in good faith and without conflict of interest, and that under those earlier particular circumstances: (1) the association's legal position did not justify taking any or further enforcement action, (2) the prior violation was just a technicality that wasn't material and did not justify expending the association's resources, (3) or it was not in the association's best interests to pursue an enforcement action, based upon hardship, expense, or other reasonable criteria.

Definition of indemnify
transitive verb

1: to secure against hurt, loss, or damage
2: to make compensation to for incurred hurt, loss, or damage

Source: https://www.merriam-webster.com/dictionary/indemnify

Liability.  What liability do directors and officers have under the law?  None, if they act with what is commonly called "business judgment," which is carrying out of the director's duties:
      (1) in good faith,
      (2) with care an ordinarily prudent person in a like position would exercise under similar circumstances, and
      (3) in a manner the director reasonably believes to be in the best interests of the corporation.

The law states that a director or officer is not liable to the nonprofit corporation or its members for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (1) the director or officer has breached or failed to perform the duties of the office:
            (a) in good faith,
            (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and 
            (c) in a manner the director reasonably believes to be in the best interests of the corporation, and
      (2) the breach or failure to perform constitutes:
            (a) willful misconduct; or
            (b) intentional infliction of harm on the nonprofit corporation or the members; or
            (c) gross negligence.

(See Utah Code Subsections 16-6a-822(2) and (6)).

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus that the director is entitled to liability protection.  See Utah Code Subsections 16-6a-822(3).

For indemnification of directors and advance of defense expenses of directors, see Sections 16-6a-901 through 910.

What is a "part" in the Utah Code? 

The Utah Code is divided into titles, chapters, parts, sections and subsections.  Each section indicates what title, chapter and part the section is in. 

For instance, if we look at Section 57-8a-402, the first number before any hyphen indicates the title (Title 57 in this case). The second number, after the first hyphen, indicates the chapter (Chapter 8a). The third number is the section (in this case, 402).  If a chapter is divided into parts, the first number of that third number reflects the part the section is located in.  So, Section 57-8a-402 is located in Part 4 of Chapter 8a of Title 57.

Liability.  What liability do directors and officers have under the law?  None, if they act with what is commonly called "business judgment," which is carrying out of the director's duties:
      (1) in good faith,
      (2) with care an ordinarily prudent person in a like position would exercise under similar circumstances, and
      (3) in a manner the director reasonably believes to be in the best interests of the corporation.

The law states that a director or officer is not liable to the nonprofit corporation or its members for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (1) the director or officer has breached or failed to perform the duties of the office:
            (a) in good faith,
            (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and 
            (c) in a manner the director reasonably believes to be in the best interests of the corporation, and
      (2) the breach or failure to perform constitutes:
            (a) willful misconduct; or
            (b) intentional infliction of harm on the nonprofit corporation or the members; or
            (c) gross negligence.

(See Utah Code Subsections 16-6a-822(2) and (6)).

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus that the director is entitled to liability protection.  See Utah Code Subsections 16-6a-822(3).

For indemnification of directors and advance of defense expenses of directors, see Sections 16-6a-901 through 910.

Liability.  What liability do directors and officers have under the law?  None, if they act with what is commonly called "business judgment," which is carrying out of the director's duties:
      (1) in good faith,
      (2) with care an ordinarily prudent person in a like position would exercise under similar circumstances, and
      (3) in a manner the director reasonably believes to be in the best interests of the corporation.

The law states that a director or officer is not liable to the nonprofit corporation or its members for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (1) the director or officer has breached or failed to perform the duties of the office:
            (a) in good faith,
            (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and 
            (c) in a manner the director reasonably believes to be in the best interests of the corporation, and
      (2) the breach or failure to perform constitutes:
            (a) willful misconduct; or
            (b) intentional infliction of harm on the nonprofit corporation or the members; or
            (c) gross negligence.

(See Utah Code Subsections 16-6a-822(2) and (6)).

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus that the director is entitled to liability protection.  See Utah Code Subsections 16-6a-822(3).

For indemnification of directors and advance of defense expenses of directors, see Sections 16-6a-901 through 910.

Liability.  What liability do directors and officers have under the law?  None, if they act with what is commonly called "business judgment," which is carrying out of the director's duties:
      (1) in good faith,
      (2) with care an ordinarily prudent person in a like position would exercise under similar circumstances, and
      (3) in a manner the director reasonably believes to be in the best interests of the corporation.

The law states that a director or officer is not liable to the nonprofit corporation or its members for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (1) the director or officer has breached or failed to perform the duties of the office:
            (a) in good faith,
            (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and 
            (c) in a manner the director reasonably believes to be in the best interests of the corporation, and
      (2) the breach or failure to perform constitutes:
            (a) willful misconduct; or
            (b) intentional infliction of harm on the nonprofit corporation or the members; or
            (c) gross negligence.

(See Utah Code Subsections 16-6a-822(2) and (6)).

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus that the director is entitled to liability protection.  See Utah Code Subsections 16-6a-822(3).

For indemnification of directors and advance of defense expenses of directors, see Sections 16-6a-901 through 910.

Liability.  What liability do directors and officers have under the law?  None, if they act with what is commonly called "business judgment," which is carrying out of the director's duties:
      (1) in good faith,
      (2) with care an ordinarily prudent person in a like position would exercise under similar circumstances, and
      (3) in a manner the director reasonably believes to be in the best interests of the corporation.

The law states that a director or officer is not liable to the nonprofit corporation or its members for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (1) the director or officer has breached or failed to perform the duties of the office:
            (a) in good faith,
            (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and 
            (c) in a manner the director reasonably believes to be in the best interests of the corporation, and
      (2) the breach or failure to perform constitutes:
            (a) willful misconduct; or
            (b) intentional infliction of harm on the nonprofit corporation or the members; or
            (c) gross negligence.

(See Utah Code Subsections 16-6a-822(2) and (6)).

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus that the director is entitled to liability protection.  See Utah Code Subsections 16-6a-822(3).

For indemnification of directors and advance of defense expenses of directors, see Sections 16-6a-901 through 910.


Print   Email