Overview

When it comes to governing over California homeowners associations, the Davis–Stirling Act empowers the board of directors as the central authority. Management companies, by contrast, are third-party contractors hired by the board to handle certain administrative and operational tasks. They are not elected, they do not answer directly to homeowners, and they owe no fiduciary duty to members.

Problems arise when boards delegate too much to managers. A disengaged, or cowed, board can allow management companies to assume too much control over enforcement, communications, and even governance decisions. When that happens, the HOA risks financial loss, legal violations, and declining homeowner trust. And managers that allow that to happen are best described as bad HOA managers.

This Fact Sheet explains what management companies are supposed to do, how their contracts work, the red flags to look out for to spot mismanagement, and what homeowners can do to force their boards to take back control when they allow managers to overstep.

For a deeper dive, see my article, “How to Deal with a Bad HOA Management Company in California: Your Legal Rights and Options.”

Key Points

Here are the key things California homeowners need to know about HOA management companies and the red flags of mismanagement:

Authority rests with the HOA board. The Davis–Stirling Act gives boards, not management companies, the power to govern HOAs. Managers are hired vendors with no independent authority.

• Defined by contract. The scope of a management company’s duties are set out in contracts approved by the board. Most management agreements fall into two categories:
  • Full-service contracts, covering communications, maintenance coordination, recordkeeping, elections (if delegated), and notices. These are the most common.
  • Financial-only contracts, covering billing, collections, accounting, and financial disclosures.
• Non-delegable powers. Even broadly-worded management agreements cannot give managers powers exclusively reserved by law to the board. Such non-delegable powers include making binding decisions on behalf of the HOA, fining a homeowner or rejecting an architectural application without express board authorization, or denying a records request unless instructed by the board and supported by the law.
• How managers are hired and fired. Boards hire and fire management companies by contract. Homeowners cannot vote them out directly, but under Civil Code 5200, members are entitled to inspect contracts and board minutes approving them.
• Typical management contract provisions. Most management contracts:
  • Run for one to three years.
  • Contain automatic renewal clauses.
  • Require 30–90 days’ notice for termination.
• Liquidated damages clauses. Some management contracts include early-termination penalties. Under Civil Code 1671 (as well as case law interpreting that statute), liquidated damages provisions are unenforceable if they are deemed punitive. They are only valid if they reasonably estimate the actual damages that the non-breaching party could’ve anticipated would result from a breach. This is why your HOA’s management contracts should always be reviewed by the HOA’s attorneys before the board signs them.
• Red flags of mismanagement. Common red flags you can look out for to indicate a problem you’re your management company include the following (for a full explanation of what these mean, refer to the main article referenced above):
  • Routine delays in responding to homeowner inquiries.
  • Missing or withheld records despite the Civil Code 5200 right of inspection.
  • Repeated accounting errors or unexplained late fees.
  • Inconsistent or selective enforcement of rules.
  • Poor communication of meetings, notices, or agendas.
  • Managers inserting themselves into recalls, elections, or board decision-making.
  • Repeated no-bid vendor renewals or apparent kickbacks.

Homeowners cannot discipline or remove a management company directly, but they can act through the board. Practical steps include:

• • Demanding contracts and board minutes under Civil Code 5200.
  • Reviewing whether contracts were competitively bid or simply rubber-stamped.
  • Organizing neighbors to press the board or use recall rights if directors refuse to act.
  • Pressing the board to re-bid contracts even before renewal dates.
  • Using Internal Dispute Resolution (IDR) under Civil Code 5910 to force face-to-face discussions about mismanagement.

Ultimately, the board is responsible for addressing these red flags. If directors refuse to supervise managers properly, the solution is to replace the directors who enabled the problem.

FAQs

About MBK Chapman Fact Sheets

Homeowners searching for answers online will often come across articles that appear authoritative, but are actually written as search-engine marketing content rather than by an experienced HOA lawyer. These pieces tend to prioritize keyword density over clarity, accuracy, or legal context, which often leaves homeowners more confused than informed.

At MBK Chapman, our Fact Sheets are part of our HOA Law Library and are written by Michael Kushner, an HOA lawyer with decades of hands-on experience representing California homeowners. In fact, Michael Kushner is the HOA lawyer who pioneered the systems and strategies used by some of California’s most successful homeowner-side HOA law firms.

Each Fact Sheet is deliberately concise, statute-based, and designed as a quick-reference guide to help homeowners understand key HOA laws and enforcement rules at a glance.

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