The Business Judgment Rule: Protecting Board Decisions

Serving on a homeowners association (HOA) board comes with serious responsibility, and sometimes, difficult decisions. Board members must act in the best interests of their community, but they are not expected to be perfect or always “right.” What matters is that decisions are made in good faith, with reasonable care, and in the best interests of the association.

This principle is known as the Business Judgment Rule (often abbreviated “BJR”).
It’s a fundamental legal concept that protects volunteer directors and officers from personal liability for honest mistakes in judgment.

Purpose of the Business Judgment Rule

The Business Judgment Rule recognizes that board members:

• Regularly make decisions involving competing interests and limited information.
• Serve as fiduciaries, owing duties of loyalty, care, and good faith to the association.
• Should be encouraged to make decisions without fear of personal liability—so long as they act responsibly and in good faith.

The rule therefore protects well-intentioned board members who act honestly, prudently, and for the benefit of the association, even if the outcome later turns out to be unfavorable.

Three Core Elements

To receive protection under the Business Judgment Rule, board decisions must generally meet three standards: