Personal liability of executives of home owners’ associations

It is unusual for executives of home owners’ associations (HOAs) to be held personally liable for a failure of the association to perform any of its obligations. HOA executives act for and on behalf of the association, not in their personal capacities, when dealing with the business of the HOA. The HOA is an independent legal entity and any action taken would be taken against the association, not against its members or executives. Most of the risk of liability comes when executives put their own or a third party’s interests before that of the association. As long as the individual executive acts honestly, responsibly and in the best interests of the association, he or she is most unlikely to incur personal liability in performing his or her executive duties. But part of performing honestly and responsibly is understanding and following the legal requirements inherent in those duties. This is particularly so for the executives of HOAs that are constituted under section 21 of the Companies Act. The Act makes directors and other officers of the company guilty of an offence for breaches of many of its provisions. True, this liability is generally based on the director “knowingly” doing or failing to do something, but people accepting nomination to executive positions would be well advised to make sure that they are adequately educated in these areas.

Difficulties could arise in a number of ways.  A director should make sure that the company’s name is stated on any cheque, letter or invoice that he or she signs.  He or she must also, as far as reasonably possible, make sure that the contents of reports, returns, certificates and financial statements that he or she signs are accurate. Where documents must be kept in specific ways or submitted to the Registrar of Companies from time to time, a director must ensure that these requirements are met.

Directors should not be reluctant to seek professional advice when they are unsure of something. It is also usual and sensible for the HOA to take out liability insurance that covers its directors and officers for possible liability.