Business judgment rule covers an HOA board's ADU denial, and it is staying published
Business judgment rule covers an HOA board's ADU denial, and it is staying published
2026-09-09 · California · Courts
California now has published authority that a homeowners association board's denial of an accessory dwelling unit application is protected by the business judgment rule — and that judicial deference under Lamden is not confined to maintenance decisions.
Eng v. Opperman (Portola Ranch Association), Nos. A170737 and A171745 consolidated, (2025) 117 Cal.App.5th 354, was filed December 19, 2025 and certified for publication three days later.1
The follow-on is as newsworthy as the opinion. At its petition conference of April 15, 2026, the California Supreme Court acted on a combined petition for review and for depublication (S295059) and the result was “Denied (review & depublish)”. Both were refused, so the opinion stays on the books.2
What happened
Craig and Michelle Opperman applied to Portola Valley Ranch's Design Review Committee to convert a detached garage into an ADU and relocate the garage into the front building envelope.
The committee declined to review the application, saying it lacked ADU expertise, and formally referred it to the Board. The Board investigated, retained an independent architect, and twice asked the Oppermans to split the ADU application from the garage application. They twice refused.
On December 13 the Board denied the application, citing concerns about traffic and fire safety — specifically emergency access and vehicle maneuvering on an adjacent common-area lot.
The Oppermans cross-complained against the association for breach of governing documents, breach of fiduciary duty, interference with prospective economic advantage, and declaratory relief. The association won summary judgment, and the amended judgment included $113,531.50 in attorney's fees.
Affirmed on three grounds
The Board could take up the application. A CC&R provision making the Board the Design Committee “if, for any reason, no Design Committee exists” reasonably permits the Board to act when the existing committee refuses to and formally refers the matter.
Lamden is not maintenance-only. The rule of judicial deference in Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249 reaches discretionary operational decisions including approval or rejection of improvement plans — “most courts have broadly construed the Lamden rule.”
The business judgment rule applies. As a nonprofit mutual benefit corporation, the association gets the presumption under Corporations Code sections 309 and 7231 that directors' decisions rest on sound business judgment — rebuttable only by fraud, bad faith, overreaching, or an unreasonable failure to investigate material facts.
The Oppermans raised no triable issue of bad faith. The Board had asked them to split the applications, and it approved their second ADU application in June 2023 during the litigation.
Civil Code section 4765 was central: architectural decisions must comply with law, building codes, land use and public safety regulations.
What it changes for boards and managers
Public safety is a defensible ground even where the guidelines speak in aesthetics. The Board did not deny on appearance; it denied on emergency access and vehicle maneuvering, and section 4765 required its decision to comply with public safety regulations. A board that can articulate a safety basis, and can show it investigated one, is on considerably firmer ground than one relying on design taste.
The investigation is what earns the deference. Both doctrines are conditional. The Board here retained an independent architect and engaged with the applicants twice before deciding. That record is what defeated the bad-faith argument — not the outcome, and not the board's good intentions.
A committee's refusal to act does not stall the application. Where the governing documents make the Board the design body in the committee's absence, a formal referral moves the decision up. Whether an association's documents contain that fallback matters, because without it a refusing committee creates a genuine gap.
Splitting an application is a reasonable request, and refusing it has consequences. The Oppermans' two refusals to separate the ADU from the garage relocation featured prominently in the court's bad-faith analysis. Where an application bundles a protected element with an unprotected one, asking for separation is a way of narrowing the dispute — and the record of asking is itself evidence of good faith.
The fee exposure runs to the challenger. Civil Code section 5975(c) makes the prevailing party's fee award mandatory in an action to enforce the governing documents. The unchallenged $113,531.50 award here is the practical deterrent, and members considering litigation over an architectural denial should be told the number.
What this does not say about ADUs
This is where careful reading matters, because the headline is easy to over-read.
Eng does not hold that associations may prohibit ADUs. Civil Code section 4751 voids covenants that effectively prohibit or unreasonably restrict an ADU or junior ADU on a lot zoned for single-family residential use, and AB 130 removed fees and other financial requirements from the definition of a reasonable restriction as of June 30, 2025.
What Eng holds is narrower and still significant: a board's denial of a particular application, on public-safety grounds, after investigation, is protected. The statute constrains blanket prohibitions; it does not convert every application into an automatic approval.
The depublication denial is the part worth noting for anyone tracking authority. A depublication request asks the Supreme Court to strip an opinion of citability without deciding the merits. Refusing it is an affirmative decision to leave the holding available — and it came from a court that granted no review in any common interest development matter all year.
The limit the doctrines have, illustrated the same year
Boards reading Eng as a general shield should read Ridley v. Rancho Palma Grande Homeowners Assn. (2025) 114 Cal.App.5th 788 alongside it.
There, the Sixth District affirmed an injunction and $250,000 in punitive damages against an association that rejected a unanimous expert consensus about a buried well without a rational basis, withheld information from its own consultants, and misstated the record to government agencies. Both the business judgment rule and Lamden deference failed, because both require good faith and reasonable investigation.
The two decisions describe the same rule from opposite ends. Deference is real, and it is earned by process.
What to watch next
AB 956, on the Governor's desk, would change sections 714.3 and 4751 from lots “zoned for” to lots “zoned to allow” single-family residential use, and would raise from one to two the number of detached ADUs a local agency must ministerially approve. It is not signed; the Governor must act by September 30, 2026.
Whether the ADU statutes reach condominium associations at all remains unsettled. A San Diego County Superior Court reportedly ruled in April 2026 that they do not, in a dispute over a Carlsbad condominium garage conversion — a trial court decision that binds no other court and is not citable authority. No California appellate court has decided the question.
Related California HOA Topics
- Eng v. Opperman (Portola Ranch Association), Nos. A170737, A171745 — slip opinion, Court of Appeal, First Appellate District, Division Two (certified for publication) ↩
- California Supreme Court, results of the petition conference of April 15, 2026 (S295059 — review and depublication both denied) ↩
- Civil Code § 4765, California Legislative Information — architectural review decisions and compliance with public safety regulations ↩
- Ridley v. Rancho Palma Grande Homeowners Assn., No. H052560 — slip opinion, Court of Appeal, Sixth Appellate District (business judgment rule and Lamden deference defeated) ↩
Stay on top of California HOA law
Every week: new California legislation, court rulings, and regulatory developments affecting condos, planned communities, and property managers. Free.
No spam. Unsubscribe anytime.