HOA Board Fiduciary Duty in Kentucky: A Plain-English Guide for Volunteer Directors

Serving on a homeowners association board in Kentucky is a real legal responsibility, not just a volunteer job. The moment you accept a board seat, you take on what the law calls a fiduciary duty — a higher standard of care than you owe in most other parts of life. Many new board members don’t fully understand what that means until something goes wrong.

This guide explains fiduciary duty in plain English: where it comes from in Kentucky law, what the three core duties actually require, how the business judgment rule protects boards that act in good faith, and the practical situations where directors most often run into trouble. The goal is to help you serve confidently and avoid the common pitfalls.

What “fiduciary duty” actually means

A fiduciary is someone who is trusted to act for the benefit of others. When a court calls a relationship a fiduciary one, it’s saying that the person in charge has to put the interests of the people they serve ahead of their own. Trustees, executors, lawyers, and corporate directors are all fiduciaries.

HOA board members are fiduciaries to the association and, through it, to every owner in the community. That means each board decision — approving a budget, hiring a vendor, enforcing a rule, settling a dispute — has to be made for the good of the community as a whole, not for the personal benefit of any one director or any one owner.

The standard is higher than the standard you owe to a stranger or a casual acquaintance. It is roughly the same standard a careful person would apply to managing money and property that belongs to someone else — because that’s exactly what board members are doing.

Where the duty comes from in Kentucky

Most Kentucky HOAs are organized as nonprofit corporations under KRS Chapter 273, the Kentucky Nonprofit Corporation Act. KRS 273.215 sets the basic standard for directors: a director must discharge their duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the best interests of the corporation.

That single sentence is the foundation of board fiduciary duty in Kentucky. Three things to notice in it:

• Good faith — you have to actually be trying to do the right thing.
• Ordinary prudence — you have to take reasonable care, not perfect care.
• Best interests of the corporation — the association comes first, not any individual.

Condominium boards have an additional source of duty in the Kentucky Condominium Act (KRS 381.9101 to 381.9207), and your governing documents typically restate or expand these duties. For a broader look at the Kentucky statutes that apply to HOAs and condos, see our guide to Kentucky HOA laws.

The three core duties

Courts and treatises usually break fiduciary duty into three parts: care, loyalty, and good faith (sometimes called obedience). They overlap, but each one captures a different kind of failure.

Duty of Care

The duty of care requires you to make informed decisions. You don’t have to be an expert on every topic — most board members aren’t accountants, lawyers, or engineers — but you do have to gather enough information to decide responsibly.

In practice, the duty of care looks like this:

• Reading meeting materials before the meeting, not during it.
• Asking questions when something doesn’t make sense.
• Getting bids from more than one vendor for significant work.
• Reviewing financial statements regularly, not just at year-end.
• Consulting professionals (attorneys, CPAs, engineers, reserve specialists) when a decision is outside the board’s expertise.
• Keeping accurate meeting minutes that show what was decided and why.

Directors who skip meetings, sign documents without reading them, or rubber-stamp whatever the loudest voice in the room wants are exposing themselves and the association to risk.

Duty of Loyalty

The duty of loyalty requires you to put the association ahead of your personal interests. Conflicts of interest are the most common loyalty issue. Examples that come up in real HOA work:

• A director’s spouse owns a landscaping company that wants the contract.
• A director lives next to the proposed pool location and would benefit (or suffer) from the decision.
• A director is delinquent on assessments and votes on the collection policy.
• A director has a personal dispute with an owner facing a violation hearing.

The right move when a conflict exists is to disclose it on the record, and then either recuse yourself from the discussion and vote or — at minimum — abstain. KRS 273.219 specifically addresses conflicting-interest transactions for nonprofit directors, and your governing documents may add their own requirements. Quietly voting through something that benefits you personally is the textbook breach of loyalty.

Duty of Good Faith (Obedience)

The duty of good faith — sometimes called obedience — requires directors to act consistently with the association’s governing documents and its lawful purpose. The board cannot just make up rules that contradict the CC&Rs. The board cannot use association funds for purposes the documents don’t authorize. The board cannot ignore statutory requirements like open meetings or member voting rights.

This duty is also where you find the obligation to enforce the rules consistently. Selectively enforcing a covenant — strict on one homeowner, lax on another for the same conduct — is one of the fastest ways for an HOA to face a real legal claim.

The Business Judgment Rule

Here’s why it matters. Boards make hundreds of judgment calls a year: which paving company to hire, how much to budget for reserves, whether to grant a variance, how to handle a difficult owner. Some of those calls will look wrong later. The business judgment rule means that being wrong is not the same as breaching your duty — as long as you did the homework, considered the alternatives, and made a reasonable choice.

What the rule does not protect:

• Decisions made without information (“nobody read the bid package”).
• Decisions tainted by undisclosed conflicts of interest.
• Decisions that violate the law or the governing documents.
• Decisions made in bad faith or to harm a specific owner.

If you process decisions carefully — minutes show the discussion, alternatives were considered, professional advice was sought when needed — the business judgment rule is doing real work for you.

Practical situations where boards get into trouble

Financial decisions and reserves

Underfunding reserves is one of the most common slow-moving fiduciary issues. A board that skips reserve contributions to keep dues artificially low is shifting a known future cost onto future owners — and future boards. That can be a duty-of-care problem if the board never commissioned a reserve study, and a duty-of-good-faith problem if the documents require funding that’s being ignored. For more on how dues and reserves work, see our guide to HOA fees and what they cover.

Vendor selection

The duty of care generally calls for getting more than one bid for significant work, comparing scope and price, and documenting why the chosen vendor was selected. The duty of loyalty calls for disclosing any personal connection to a bidder. Ad-hoc “let’s just call my buddy” vendor decisions are a recurring source of complaints.

Enforcement consistency

If the board cites one homeowner for a fence color violation but ignores three other identical fences, the inconsistently-cited homeowner has a strong argument that the board breached its duty. Enforcement should follow a written process, apply equally, and be documented. A consistent approach also makes architectural review decisions defensible.

Conflicts of interest

Disclose them on the record. Recuse from discussion and vote when the conflict is direct. Let the rest of the board make the call. The minutes should reflect that the conflict was disclosed and how it was handled. This single discipline prevents most loyalty claims.

Meeting practices

Boards should meet regularly, give proper notice, allow owner input where required, take real minutes (decisions and discussion, not transcripts), and follow the procedures in the bylaws for voting and quorum. Decisions made informally — by text thread, by hallway conversation, by a couple of officers acting alone — are harder to defend if challenged.

Records and transparency

Owners generally have a right to inspect association records under both KRS 273 and most governing documents. Boards that stonewall reasonable records requests, refuse to share financial statements with owners, or operate behind a wall of secrecy invite both fiduciary claims and member revolts. Transparent boards are easier to trust and easier to defend.

Directors and Officers (D&O) insurance

Most HOAs carry — or should carry — Directors and Officers liability insurance. D&O coverage pays defense costs and (within limits) judgments or settlements when a director is sued for an act in their board capacity. It is not a substitute for acting carefully, but it is the safety net that makes volunteer board service realistic. Two practical points:

• Confirm coverage exists and is current. Ask to see the declarations page. Coverage limits, exclusions, and deductibles vary widely.
• Know what isn’t covered. D&O policies typically exclude intentional wrongdoing, fraud, personal financial gain, and bodily injury or property damage (those are covered by general liability, not D&O).

If your association does not currently carry D&O, raising it as an agenda item is itself a discharge of your duty of care.

What happens if a director breaches their duty?

Most fiduciary disputes do not end in lawsuits. They end in resignations, recall votes, owner meetings that get heated, and sometimes a written demand letter from a homeowner’s attorney. When they do reach court, possible outcomes include:

• An order directing the board to take or stop a specific action.
• Removal of a director.
• Money damages payable to the association (covered by D&O if the conduct is within policy terms).
• In rare cases involving fraud or self-dealing, personal liability that D&O won’t cover.

The vast majority of board members never face any of this — because the day-to-day disciplines of preparation, disclosure, consistency, and good documentation prevent the situations that lead there.

How professional management supports board fiduciary duty

A community association manager doesn’t replace the board’s judgment — directors still make the decisions. What good management provides is the infrastructure that makes informed, consistent, well-documented decision-making practical for a volunteer board:

• Properly prepared meeting packets so directors can read materials in advance.
• Multiple vendor bids gathered and presented for comparison.
• Financial statements produced on a regular cadence.
• Consistent enforcement workflows that apply rules uniformly.
• Records management that supports owner inspection requests and board transparency.
• Reserve study coordination and budget preparation that account for long-term obligations.
• Meeting minutes and decision documentation that support the business judgment rule.

If your board is currently making decisions on the fly, with thin documentation, no comparative bids, and inconsistent enforcement, the board’s exposure is higher than it needs to be. For a deeper look at what to look for in a management partner, see our guide to choosing an HOA management company.