Client Alert: Smart Tool, not a Substitute for Judgment – What Community Association Boards Need to Know About Artificial Intelligence
As artificial intelligence (“AI”) becomes an increasingly common part of everyday business, community associations must understand both its capabilities and its limitations in order to manage risk. Used thoughtfully, AI can improve efficiency by assisting with administrative tasks such as summarizing meeting minutes and organizing records. However, AI should be viewed as a tool that supports, rather than replaces, the advice of qualified professionals.
This distinction matters because community association directors are fiduciaries. As stewards of property and funds belonging to others, directors owe the association a duty of care and a duty of loyalty and must act in good faith and in the best interest of the association as a whole. The duty of care requires informed and careful decision-making, including a duty of inquiry when a matter warrants further investigation. Relying solely on AI in place of informed, independent judgment can undermine these duties.
AI and the Business Judgment Rule
The business judgment rule generally protects directors from personal liability for decisions made in good faith, on an informed basis and in the best interest of the association. Under statutes such as Virginia Code § 13.1-870, directors are entitled to rely on information, opinions and reports prepared by officers, legal counsel, accountants and other persons whom they reasonably believe to be competent in the matters presented. Notably, AI is not a qualified professional. A decision based on unverified AI output may not be considered adequately informed, which could weaken the protections the business judgment rule would otherwise provide and expose the association, and potentially individual directors, to claims. Boards that use AI as a starting point, verify its output with the appropriate experts and document that process in their minutes will be far better positioned to demonstrate that they acted with due care.
These principles apply equally to community managers. Boards often rely on management to carry out day-to-day operations, and managers are increasingly using AI to prepare budgets, draft owner correspondence, track violations and organize records. When management uses AI to support the association, it should do so with the same care expected of the board: verifying AI output for accuracy, protecting confidential and personally identifiable information, deferring legal, financial and technical questions to the appropriate professionals and never presenting AI-generated content to the board as a substitute for professional advice. Because directors are entitled to rely on information and reports from those they reasonably believe to be reliable and competent, boards should ask management how AI is used in preparing the materials they receive and consider addressing AI use in the management agreement or the association’s AI use policy.
Privacy and Data Security
The use of AI also raises significant privacy concerns. Entering personally identifiable information (e.g., resident names, vehicle registration information or Social Security numbers) into AI platforms may expose that information to third parties and increase the association’s vulnerability to data breaches. Boards should review the privacy terms of any AI tool before use and confirm with their insurance broker whether the association’s cyber liability coverage addresses AI-related data incidents.
Another important consideration is owners’ growing use of AI to prepare lengthy correspondence and even legal filings. AI-generated content may appear to be well supported when, in fact, it contains fabricated (“hallucinated”) citations and unsupported conclusions. Boards should promptly refer such communications and filings to legal counsel so that they can be evaluated and addressed appropriately.
Associations may also be tempted to use AI for substantive tasks such as interpreting governing documents or statutes, reviewing reserve studies or drafting responses to owner inquiries. AI-generated information, however, may be inaccurate, incomplete, outdated or fail to account for applicable federal, state and local law. For these reasons, boards should consult the appropriate professional, whether legal counsel, the community manager, a reserve specialist, an accountant or an insurance advisor, before acting on AI-generated content.
Best Practices for Responsible AI Use
- Treat AI output as a first draft, never a final answer.
- Verify any legal, financial, insurance or engineering content with a qualified professional before relying on it.
- Never enter confidential, privileged or personally identifiable information into public AI tools.
- Ensure that all board decisions are made collectively at a properly noticed board meeting and that the minutes reflect the basis for each decision.
- Consider adopting a written AI use policy that applies to directors, committee members and management.
Appropriate Uses of AI
- Summarizing meeting minutes and lengthy reports.
- Organizing and searching non-sensitive association records and documents.
- Improving the readability and accessibility of community newsletters.
- Assisting with data entry, document formatting and other administrative tasks.
When Not to Rely on AI
- Making board decisions based solely on AI-generated information.
- Drafting or reviewing vendor contracts without review by legal counsel.
- Processing confidential, privileged or sensitive information.
- Over-automating resident communications and interactions.
- Interpreting governing documents, statutes or fair housing obligations, including reasonable accommodation requests.
The attorneys at Whiteford regularly advise community associations on the practical and legal challenges presented by the growing use of artificial intelligence. If your association has questions about the appropriate use of AI, developing an AI use policy or responding to AI-generated owner communications and legal filings, we would be pleased to assist.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.