Fiduciary Duties of HOAs and Real Estate Agents & Brokers – What You Need to Know

June 2019

Representing business, commercial and real estate clients, as well as insurers 
and their policyholders
June 2019

Steven G. Wood


Below is the fifth article in our “Fiduciary Duties” newsletter series discussing “Fiduciary Duties of HOAs and Real Estate Agents & Brokers.” If you missed our last newsletter, “Spotting Issues Common to Institutional & Quasi-Institutional Fiduciaries,”  click here to read.

Please contact Steve Wood at 650.517.5509 or swood@grayduffylaw.com with any questions.

The Sanctity of “Home” Under Traditional Anglo-American Law Finds Modern Protection from the Application of Fiduciary Principles

Anglo-American Home as Castle Concept

“A man and/or a woman’s home is their castle.” [Adapted for 21st Century mores.] This iconic precept was established as law by lawyer and politician Sir Edward Coke (pronounced Cook), “[t]he house of everyone is to him his castle and fortress, as well for his defence against injury and violence, as for his repose.” Sir Edward Coke, Semayne’s Case (1605). Again, in The Institutes of the Laws of England, 1628 Coke admonishes that “[f]or a man’s house is his castle, et domus sua cuique est tutissimum refugium [and each man’s home is his safest refuge].”

 
William Blackstone opined that the law has “so particular and tender a regard to the immunity of a man’s house that it stiles it his castle, and will never suffer it to be violated with impunity.” 4 William Blackstone, Commentaries on the Laws of England 168, 223 (1769)
 
Real estate is one of the most tradition laden sectors of the economy. “Real estate” is so named for reasons that hearken back to the Middle Ages. Under medieval law, only land was real property and title to it came from the King. Even in the era of rockets to the moon, Mars, and beyond, saying that a man’s home is his castle sounds fine even if the reality may be otherwise.
 
For instance, consider the difference between a “client” and a “customer.” By law, a real estate agent owes fiduciary obligations to a client but usually only damages for breach of contract to protect a customer. When one sells a home or condominium, the seller’s agent bears moral, ethical, and legal burdens to extract every penny the buyer is willing to pay. With general exceptions, the seller’s agent is also bound to confidentiality about most defects in the property.

Although William Pitt, Earl of Chatham, echoing Coke, declared in a famous speech to Parliament [W. Pitt, Speech on the Excise Bill (1763) (quoted in Miller v. United States, 357 U.S. 301, 307 (1958)], that a man’s home is his castle, this is not necessarily true of condominiums, as a Florida appellate court explained in Sterling Village Condominium, Inc. v. Breitenbach, 251 So.2d 685, 688 (Fla. App. 1971):

Every man may justly consider his home his castle and himself as the king [or queen] thereof; nonetheless his sovereign fiat to use his property as he pleases must yield, at least in degree, where ownership is in common and in cooperation with others. The benefits of condominium living and ownership demand no less. The individual ought not be permitted to disrupt the integrity of the common scheme through his desire [or disdain] for change . . . .
 
Traditional Anglo-American deference to, and respect for, the sanctity of “home” has found modern expression in the application of fiduciary principles to the purchase, sale and maintenance of single-family homes and condominiums.
 
Traditional examples of fiduciary relationships in the residential real estate context of agents/principals, include a real estate agent/broker and a client, as well as a condominium owner and the governing homeowner’s association (“HOA”) Horiike v. Coldwell Banker Residential Brokerage Co. (2016) 1 Cal.5th 1024, 1042 (hereinafter cited as “Horiike“) (associate real estate licensee, discussed in detail below); Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 30; Thomson v. Canyon (2011) 198 Cal.App. 4th 594.

Fiduciary Duties of HOAs
 
“Private” communities, traditionally defined as communities governed by private covenants, conditions, and restrictions and some form of private HOA, have existed for more than half a century in the United States and began to gain more attention as they became more common. See Hannah Wiseman, “Public Communities, Private Rules,” 98 Geo. L.J. 697, 771 nn.68-70 (2010) (citing Evan McKenzie, Privatopia: Homeowner Associations and the Rise of Residential Private Government (1994)); Industry Data, Community Ass’ns Inst., https://bit.ly/2HnZzvisee also Paula A. Franzese & Steven Siegel, Trust and Community: “The Common Interest Community as Metaphor and Paradox,”72 Mo. L. Rev. 1111, 1116-17 (2007) (describing the growth of private communities).

 
Many cases characterize the relationship between the HOA director, the HOA, and the members served as fiduciary in nature. See, e.g., Talega Maintenance Corp. v Standard Pac. Corp. (2014) 225 Cal.App.4th 722; Raven’s Cove Townhomes, Inc. v Knuppe Dev. Co. (1981) 114 Cal.App.3d 783, 799. The directors of an HOA have a fiduciary duty to the members and are liable for the breach of those duties.See, e.g., Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal. App. 4th 268 (“business judgment rule” did not bar claim for breach of fiduciary duty when there were triable questions of fact whether director exercised reasonable diligence and good faith in unilaterally terminating or entering into contracts and loans).

In the next newsletter, we will examine 

“Stockbroker & Investment Advisers and Professional Fiduciary Relationships.”

 

Gray·Duffy has more than three decades of experience parsing, preventing and prosecuting fiduciary claims in all aspects of real estate and other matters. Please contact us to discuss any fiduciary issues you’re facing.

About     Practice Areas     Profiles     Testimonials         

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.