Relation to “reasonableness” and “business judgment” rules. Case law governing the liability of associations to members and the ability of HOA members to challenge actions of the association tends to be somewhat confusing and unsatisfactory, in part because there is a tendency to lump together several different questions for treatment under a single rule. In recent years a number of state courts have decided HOA cases by adopting either the “reasonableness rule” or the “business judgment rule.” Although these two “rules” are discussed as if they were substantively different, they appear to allow the same challenges to association actions. Under either rule, HOA members are entitled to judicial review of claims that association actions are ultra vires, are made in bad faith, are made by interested directors, or that the actions are arbitrary, capricious, or discriminatory.
"In applying the business judgment rule, courts generally apply a presumption of reasonableness." Fort Pierce Ind. Park Phases v. Shakespeare, 2016 UT 28, ¶ 28, 379 P.3d 1218 (citing Plumbers Local No. 137 Pension Fund v. Davis, Civ. No. 03:11-633-AC, 2012 WL 104776, at *6 (D. Or. Jan. 11, 2012) ("In order to overcome the presumption afforded a board's business judgment, the plaintiff must establish, generally, a reasonable doubt that the challenged action was the result of reasonable business judgment."); Bender v. Schwartz, 172 Md.App. 648, 917 A.2d 142, 153 (Md. Ct. Spec. App. 2007) ("'The burden is on the party challenging the decision to establish facts rebutting the presumption' that the directors acted reasonably and in the best interests of the corporation.").
"[A]n architectural committee's decisions made in the course of the approval or denial of prospective house plans and specifications "must be reasonable and made in good faith and must not be arbitrary or capricious." Fink v. Miller, 896 P.2d 649 (Utah Ct. App. 1995).
The covenants, conditions and restrictions in a condominium declaration must be reasonable. See Utah Code § 57-8-10(1) ("a declaration shall be recorded that contains the covenants, conditions, and restrictions relating to the project that shall be enforceable equitable servitudes, where reasonable"). However, because CC&Rs are approved by the owners and recorded, they are presumed reasonable.
A community association's rules and a condo association's rules must be reasonable. See Utah Code §§ 57-8a-218(18) and 57-8-8.1(6).
The association's governing documents must be reasonably complied with by the owners and the board. See Utah Code §§ 57-8a-212.5 and 57-8-8 ("Subject to reasonable compliance therewith by the board, each lot owner shall reasonably comply with the governing documents").
Statutes and Cases:
(For reference: 57-8 is the Condo Act, 57-8a is the Community Association Act, 16-6a is the Nonprofit Act)