ABSTRACT-The statutory framework of NRS 116 in Nevada creates a fiduciary duty for all homeowners’ association (HOA) board members, regardless of whether they are elected by homeowners or appointed by the declarant (developer). However, a close reading of relative statutes reveals a systemic asymmetry: while fiduciary obligations are universally imposed, conflict of interest protections are applied unevenly—particularly favoring declarant-appointed directors. Nevada’s statutory framework acknowledges the potential for conflicts of interest (COI) involving declarant-affiliated directors, even as it creates specific exemptions that weaken traditional fiduciary safeguards. These structural conflicts, not just token owner participation or disclosure is needed. Additionally, a relatively recent statute amendment introduced "profit" or "compensation" as disqualifying criteria for board service, yet fails to define either term, specify who determines whether these conditions are met, or outlines due process- potentially abusive when applied to rival candidates in a board election.
INTRODUCTION
Nevada law (NRS 116.3103) imposes a fiduciary duty on all HOA board members—appointed or elected. The statue reads:
"In the performance of their duties, the officers and members of the executive board are fiduciaries and shall act on an informed basis, in good faith and in the honest belief that their actions are in the best interest of the association." (underline added)
Directors are held to be fiduciaries entrusted with the authority to make decisions on behalf of others and are expected to act with loyalty, care, and good faith toward the interests of the entity (the collection of owners) they serve. In the context of HOAs, corporations, nonprofits, and even certain public entities, this fiduciary status arises from the director’s position of trust and control over the organization's affairs and assets.
However, tension exists where Nevada's HOA laws lack clarity and introduce ambiguity as to who can be excluded from being a fiduciary --e.g. serve as an HOA director.
The reality is:
Appointed directors during the declarant control period are often employees, contractors, or otherwise beholden to the declarant- while itself, is not a violation of law despite;
Their livelihood, bonuses, promotions, or continued employment may depend on pleasing the declarant—not serving the independent interests of the HOA,
creating structural fiduciary violations and loss of homeowner trust, even if no NRS 116 statute misconduct occurs.
HOA owners can be deemed ineligible to be a director
based on rules more rigid than applied to city councilmembers, commissioners, legislators, or judges, despite less public accountability, and
without due process given ambiguous and arguably absurd statutory language
Before going forward and discussion the problems this creates, two typical misconceptions need to be addressed.
“A developer in control of the association or its board owes a fiduciary duty of loyalty to the association. That duty prohibits self-dealing and requires full disclosure of conflicts.” [i]
A decalant (developer), during its "control period", actually owns a significant percentage of units in the association. This may not be the case and my experience is it not typical (outside builders who may purchase parcels from developers most common in "sub-associations"). What the declarant owns are units it seeks to put in the association- at a time TBD- or maybe not at all. Read more on this here.
Problem #1- Can an employed or affiliated declarant appointee act as a fiduciary for the association without violating conflict-of-interest principles?
NRS 116.089: “Special declarant’s rights” defined
This provision allows the declarant during the declarant control period may appoint and remove any member of the executive board. Importantly, it does not restrict who the declarant can appoint.
Developers often appoint employees, contractors, or family members to serve on the board, leading to inherent conflicts of interest.
These appointees may act to advance the declarant’s business interests, not the association’s.
This lack of restricting who can be appointed, should a declarant appoint an affiliate or employee- as is often the case- creates a violation of COI principles.[ii] The following are the core reasons for this position:
Fiduciary Law Prohibits Divided Loyalty — Not Just Actual Misconduct. Fiduciary duty is not about good intentions—it is about undivided loyalty and avoiding situations that compromise independence, even if no harm occurs.
Employment Creates Inherent Financial Dependence — and Risk of Impaired Judgment. When a declarant appoints its own employee, contractor, or agent to the HOA board that person’s income, job security, or advancement may depend on aligning with the declarant’s interests. Even without a direct financial gain in a specific vote, the structural dependence violates the fiduciary norm of disinterestedness.[iii]
Fiduciary Law Measures Conflicts Objectively — Not Subjectively. The law does not ask whether the director believes they can act independently—it applies an objective standard: Would a reasonable person in that position have divided loyalties?
The Legislature Itself Implied the Conflict Exists. The statutory design implicitly concedes that declarant affiliation creates an inherent conflict, but then proceeds to shield those conflicted directors from the very recusal obligations that would otherwise apply. (read more below)
NRS 116.31084: Disclosure and Abstention (legacy statute)
NRS 116.31084 provides; “A member of an executive board who stands to gain any personal profit or compensation of any kind from a matter before the executive board shall (A) disclose the matter to the executive board; and (b) Abstain from voting on any such matter. Except:
[a director shall not] solely by reason of such employment or affiliation, be deemed to gain any personal profit or compensation." (NRS 116.31084(3)
This statute governs how directors with a financial interest must behave:
Must disclose the interest,
Must abstain from voting,
Except, if an employee or affiliate of the declarant, where the interest arises solely from employment or affiliation.
While NRS 116.31084(3) exempts declarant-appointed directors from disclosure and abstention rules, it does not nullify their fiduciary obligations under NRS 116.3103. The exemption likely reflects a pragmatic legislative compromise, not a rejection of fiduciary principles. The exemption is procedural, not substantive. Declarant-affiliated directors may vote on conflicted matters, but if their decisions are self-serving, harm the association, or violate the duty of loyalty, they can still be held liable for breach of fiduciary duty under substantive law. Nevada law does not immunize directors from acting contrary to the association's best interests.
Reform recommended- Until Nevada law prohibits a declarant from appointing an affiliated person to serve as director, a structural conflict of interest exists that erodes the fiduciary ideal.
Problem #2- Tension in director eligibility and COI resulting from ambiguous statutory language?
An examination of the applicable statutes finds:
NRS 116.31034(10): Candidate Disqualification Rule
NRS 116.31034(10)(a)(2) provides “A person may not be a candidate for or member of the executive board or an officer of the association if:… The person stands to gain any personal profit or compensation of any kind from a matter before the executive board of the association” unless,
a person is appointed by the declarant.
Critique of this 2015 statutory change:
The statue provides a prophylactic disqualification rule—one that preempts a broader and more flexible application of COI analysis commonly used in public governance and corporate law. Was it legislative intent to remove discretion from conflicted boards entirely, by creating bright-line disqualification rules? If so, it stands in opposition to COI exemptions granted declarant-appointed directors (see below). This provision may be understood as legislative mistrust of HOA boards’ ability to regulate their own conflicts- creating its own tensions.
Benefits- Arguably removes discretion from boards that may protect insiders and proactively prevents abuses-by noncompliant directors.
Costs-
Exempting affiliated declarant-appointed directors creates split loyalties.
May deter qualified candidates over vague or minor "financial interests",
Could chill dissent or participation—especially if used as a tool to exclude challengers, and
Appears more rigid than rules applied to city councilmembers, commissioners, legislators, or judges, despite less public accountability. [iv]
Ambiguities-
NRS 116 contains no definition of "personal profit" or "compensation."
What does "stand to gain" mean, e.g. would an owner who is a principle in a company the association could contract with, but does not at present nor has a contract before it, be ineligible because it could in the future? Similarly, does a director become ineligible if a company he/she is affiliated seeks to contract with the association?
Who has the authority to make the determination of eligibility and what due process is required?
Note: When read in conjunction with NRS 116.31084(10) the statutes produces an absurd result. By declaring a conflict of interest and abstaining, a director becomes no longer eligible to serve. There is no Nevada case law interpreting NRS 116.31034(10)(a)(2) or for that matter any part of NRS 116.31034- until recently. This is a question currently before the Nevada Supreme Court, see Kosor v Southern Highlands Community Association (SHCA) case #89439.
DISCUSSION
Courts generally presume directors owe duties to the HOA, not the declarant. But Nevada's statutory framework does not enforce that loyalty through structural safeguards (like independent board requirements). Reform must target the structural conflict, not just requiring token disclosure.
Policy disconnect in permitting declarant to appoint affiliates or employees
Nevada’s statutory framework acknowledges the potential for conflicts of interest involving declarant-affiliated directors, even as it creates specific exemptions that weaken traditional fiduciary safeguards.
NRS 116.31084(3)(a) provides that a board member who is employed by or affiliated with the declarant “shall not, solely by reason of such employment or affiliation, be deemed to gain any personal profit or compensation.”
⟶ This carve-out narrows the application of conflict-of-interest rules, but it also tacitly recognizes that such affiliations ordinarily present a presumptive conflict—hence the need to expressly exempt them.
Additionally, NRS 116.31084(3) categorically exempts declarant-affiliated directors from the disclosure and abstention requirements of subsection (1) altogether.
⟶ If no conflict were present, such an exemption would be superfluous. Its inclusion confirms that the Legislature anticipated a structural conflict with declarant appointees but did it intend to permit them to vote on matters, where conflict affecting the association exists?
Taken together, the statutory design implicitly concedes that declarant affiliation creates an inherent conflict, but then proceeds to shield those conflicted directors from the very recusal obligations that would otherwise apply. The impact:
Fiduciary Clarity: HOA directors must owe undivided loyalty to the association — not to their employer (the declarant). Fiduciary law prohibits divided loyalty. Fiduciary duty is not about good intentions—it is about undivided loyalty and avoiding situations that compromise independence, even if no harm occurs. When a declarant appoints its own employee, contractor, or agent to the HOA board:
That person’s income, job security, or advancement may depend on aligning with the declarant’s interests.
Even without a direct financial gain in a specific vote, the structural dependence violates the fiduciary norm of disinterestedness.
Governance Integrity: Even during declarant control, board decisions affect association operations, budgets, and long-term obligations (e.g., maintenance responsibilities, reserve planning).
Transparency and Legitimacy: Independent directors, even if appointed by the declarant, create greater legitimacy and help deter self-dealing or litigation risks.
Reforms prohibiting a declarant from appointing affiliated directors (i.e., employees, agents, or those with a financial stake in the declarant) would be targeted and effective in addressing much of the governance tension during the declarant control period without impairing the declarant’s legitimate development rights. Prohibiting affiliated appointments would not impair the declarant’s development powers because:
The declarant retains all development rights under NRS 116.2105–.2113.
The declarant still controls the board, just via independent appointees (e.g., third-party professionals or neutral owners).
The declarant can still protect marketing rights, model units, signage, and infrastructure planning without needing board votes for core development decisions.
Removes the need to problematic carve-outs like NRS 116.31084(3).
Establishes better governance culture from the outset.
Viewpoint Discrimination in Ethical Governance
The statutory scheme arguably creates a viewpoint-discriminatory structure:
One class of directors (elected by homeowners) is disqualified from even serving if they are perceived to benefit from board decisions.
Another class (appointed by the developer) is not only allowed to serve, but also shielded from disclosure and abstention requirements where the benefit arises from affiliation.
Because the declarant may appoint a majority or all of the board,
there is no internal check on conflicts of interest until turnover occurs. The board’s decisions can reflect the declarant’s business interests, not the community's long-term health.
Declarant-controlled boards may:
Defer necessary maintenance or underfund reserves to keep assessments low and units attractive to buyers,
Sign lopsided contracts favoring declarant affiliates,
Dismiss or delay litigation for construction defects.
As such it appears Nevada's COI are content-based and should be presumed unconstitutional as it applies to First Amendment restrictions where courts apply heightened scrutiny. [v] Content-neutral laws must be narrowly tailored to serve a significant government interest, leave open ample alternative channels of communication, and be content-neutral in their application. Read more here.
This system burdens homeowner-aligned directors while empowering developer-aligned directors, despite the fact that both groups vote on the same matters with identical powers. That is a functional inequality that may violate principles of equal protection or, at minimum, sound governance norms.
Conflict of Interest in Enforcing Eligibility
If a sitting board (or its managing agent or attorney) is tasked with assessing a rival candidate’s eligibility, it becomes:
A self-interested party in the outcome of the election;
A potential arbiter of vague, subjective standards (e.g., what qualifies as “compensation”?);
An enforcer of rules that could be politically weaponized to suppress dissent.
The lack of neutrality undermines confidence in fair elections.
Absence of a Neutral Decision Maker or Process
Nowhere in NRS 116.31034 is there:
A designation of NRED (Nevada Real Estate Division), the CICCH Commission, or a court as the arbiter of eligibility disputes;
A requirement for a hearing, notice, or appeal;
Safeguard against board members policing their political opponents.
This stands in tension with the principles of procedural fairness and due process—especially for statutes that restrict a homeowner's ability to participate in governance.
Ambiguity of Key Terms: "Profit" and "Compensation"
These terms are not defined in Chapter 116, leaving room for:
Overbroad interpretations (e.g., treating any reimbursement or indirect benefit as “compensation”);
Confusion over whether non-monetary benefits (such as favorable policy outcomes) count;
Misapplication to litigants, whistleblowers, or critics—groups who may be falsely framed as having “interests” in board outcomes.
In the absence of guidance, the board may substitute its subjective judgment—potentially using the vagueness of the terms as a tool for exclusion.
Example: A homeowner sues the association over a governance dispute (seeking equitable relief). The board or its counsel then claims the lawsuit creates “personal compensation or profit,” disqualifying the homeowner from running. That decision is used to prevent the plaintiff from seeking reform via electoral means. This example is a real world issue currently before the Nevada Supreme Court, see Kosor v Southern Highlands Community Association (SHCA) case #89439 found here.
Comparative Legal Principles
In public elections, eligibility challenges are typically:
Resolved through judicial review;
Accompanied by formal procedures, including evidentiary hearings;
Decided by a neutral party (e.g., court, election official, or commission).
HOA boards are not neutral in this context—especially if the candidate is running in opposition to current members.
In corporate and nonprofit governance, disqualifications for conflicts are typically:
Based on objective criteria (e.g., contracts with the corporation);
Reviewed by disinterested directors, or sometimes by the membership;
Subject to member override or external adjudication.
NRS 116.31034 provides none of these safeguards. Leaving disqualification determinations to incumbent HOA boards invites structural abuse, even if unintentional? The lack of a formal process, combined with:
Undefined statutory language,
Lack of independent oversight,
Inherent political bias in electoral contests,
creating governance vulnerability—especially in associations with polarized or contested elections.
Reform Recommendations
To resolve this structural inequity, reforms should include:
Prohibit a declarant employee or affiliate from being appointed as a director
Define "personal profit" and "compensation" as used in COI laws
Apply conflict of interest disqualification rules to all directors, regardless of how they are seated.
Narrow the employment/affiliation exception in NRS 116.31084 to prevent self-dealing under the guise of affiliation.
NRED proactively investigate and the CICCH Commission adjudicate alleged conflict violations - especially during the declarant control period.
Summary
Prohibition on declarants appointing affiliated directors is a narrow and proportionate reform that would restore fiduciary integrity to HOA governance during the declarant control period without impairing the developer’s reserved legal and financial rights. It would also eliminate the need for problematic exemptions like NRS 116.31084(3) and promote early homeowner confidence in community governance. Defininging statutory terms, authorities, and due process related to election eligible, key to the governance of an HOA, is critically needed.
Mike Kosor
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[i] The Restatement (Third) of Property: Servitudes § 6.20, comment b (on HOAs)
[ii] The Restatement (Third) of Agency § 8.03 makes this clear:“An agent has a duty not to deal with the principal as or on behalf of an adverse party in a transaction connected with the agency relationship.” Restatement (Third) of Trusts § 78(2) (2007): “A trustee shall not place himself in a position where his personal interest may conflict with the interest of the beneficiaries.”
[iii] While Nevada courts have not to my knowledge issued a headline opinion stating verbatim, “Declarant-appointed directors owe duties to the association, not the declarant,” the combination of Beazer Homes Holding Corp. v. Dist. Ct., 128 Nev. 723, 291 P.3d 128 (2012): "Directors of an association owe fiduciary duties to the association and its members." Saticoy Bay LLC Series 1702 Empire Mine v. Flamingo 94 Trust, 429 P.3d 293 (Nev. 2018) (unpublished): “Directors... have a fiduciary duty to the association and must act in the association's best interests”, and NRS 116,3103
[iv] Public ethics laws, like Nevada’s NRS 281A.420, often focus on direct involvement in decisions that affect personal financial interests. They allow public officials to serve so long as the interest is disclosed, the official abstains from deliberation and vote, and there is no appearance of impropriety that undermines public confidence.
[v] Nevada Commission on Ethics v Carrigan, 564 U.S. (2011)
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