California Condo & HOA Law

« November 2006 | Main | January 2007 »

December 31, 2006

New Committee Requirements for HOAs

In California, beginning January 1 this year, the law changes and requires more of committees, some committees anyway. A reader sends this question:

"I read (somewhere) that starting January 1, 2007, committees will be required to take minutes at any meeting. Also, our Bylaws state that committee meetings and notice of such meetings shall conform to the same requirements contained in the Bylaws for meetings held by the Board of Directors. I interpreted this to mean that committee meetings are then open to homeowners to sit in and listen (to "attend", not to participate). The Board won't answer the questions about this, will you?"

I can answer the question as to the new law - after January 1, committees that "have decision-making power" are required to keep minuteds, and owners have a right to inspect those minutes. The law itself does not require that committee meetings be open to members or that notice be posted or sent out. However, if a set of bylaws has requirements about meetings, chances are they should be honored. I say "chances are" because I have not reviewed the documents in question but I do have experience with members adopting their own "interpretation" of language that does exist. Sometimes it is right and sometimes it is off the mark.

I can imagine situations where it would be a problem for committees to have to provide notice of their meetings and/or allow owners to attend. Say it is a 5000 unit association and there is a social committee to plan events, or an architectural commiittee to review plans, or a nominations committee whose job it is to find willing volunteers to serve. If notices had to be sent to owners or posted everytime there was a meeting by one of these committees, it could become quite cumbersome.

There is a situation where notice must be given of committee meetings. If a majority of the board serve on or attend the meetings and intend to discuss association business, then I believe that the meeting would qualify as a meeting that requires notice to owners, because it would actually satisfy the definition of a "meeting" under Civil Code Section 1363.05.

Posted by Beth Grimm at 6:12 AM

December 19, 2006

Would You Drive A Car Without Any Training? What About Manage an HOA?

People like simple answers. Its hard sometimes to give them. However, this is how I see it. Anyone who takes off in a vehicle and drives into traffic without any training, competence, or insurance, is taking on a huge responsibility with even bigger ramifications for mistakes in judgment. That person should not be doing what they are not qualified to do - and the price can be high. Now, if its a matter of life and death, that might be different ... but if it is a matter of deciding that it probably will be okay because .... well, making decisions for an HOA, that is not a matter of life and death. It may be a matter of earning a living, or a matter of stepping up to the plate when no one else will. But it is not very wise.

Consider these things:

1. Mismanaging finances can lead to losses and the bigger the budget, the bigger the losses, and the bigger the losses, the more it generally costs to recover the losses, and the more that is lost, the bigger the "net" is that goes out to sweep in potentially culpable parties. Do you want to be among them?

2. Misjudging reserves needs based on acceptance of a reserve study without regard to legal or other requirements can lead to losses, see # 1 above.

3. Violating the governing documents or the law can be an accident. And accidents can be small, or large. Violations can lead to Association fines (for missing important statutes like the Open Meetings Law, the Records Inspection Laws, the Election Laws, and things like that). Violations can also lead to losses in terms of dollars, and the bigger the ... you get it, refer to #1 above.

4. Knowingly violating the governing documents or the law can lead to losses, and also to "punitive" remedies (those are the kind of damages juries award against big corporations when they knowingly stomp on the little guys), and no one is fully protected by the Association or insurance if they intentionally cause damage to others - and the more atrocious the conduct, the bigger the damages, and .... go back to #1 above.

5. Discriminating against anyone, or allowing it to happen on your watch, can lead to .... well, you know the drill.

6. The same goes for removing a pet without grounds to do so, starting a fistfight over an architectural violation, name calling, humiliating someone, picking favorites, meeting in secret, etc. Losses caused can be considerable, especially when you consider that recovering attorney fees may be up for grabs to the prevailing party.

So, the moral of the story is, don't go driving without driver's training or a license, and definitely do not venture out without directors and officers liability or errors and omissions liability coverage.

And it certainly makes sense to get educated! Watch the website: http://www.californiacondoguru.com for basic and other educational offerings in the months to come. 2007 is the year.

Posted by Beth Grimm at 6:15 PM

Can a Non-Member of an HOA be a Candidate or Serve on the Board?

A lot of Associations have run happily for years, never knowing or really paying attention to who is qualified to or is serving as a board member, some simply because it is so hard to find board members that no one questions the right to serve when volunteers step forward. And here is the kicker - if the other board members like the board member who turns out to not be qualified, and they find out about it, they tend to look the other way. But if they do not like the Board member, and he or she turns out not to be qualified, they demand the immediate resignation.

So what's the law say? The advent of Civil Code Section 1363.03 has brought this to a head in many associations. Why? Because an HOA in California has to adopt Election Rules, and those rules have to state qualifications for serving on the board. In an earlier blog I addressed the difference between qualifications to actually serve, and qualifications to actually be nominated, as I believe it is important to pay attention to detail if you are trying to help a board cope with new (or any for that matter) laws.

In this blog I am sticking to member vs. nonmember service. If the HOA bylaws say that a board member MUST be a member of the Association, then that provision is enforceable. However, the important attention to detail is "who then, is a member?" The reason I bring this up? Some argue that since they have a legal right to a share of the property by community property laws, that they are in effect an "owner" or a "member" (members are usually owners and vice versa but read the fine print). So, is that true? Not if the governing documents define an owner or member as as "record" owner", as that generally means the owner's name must show up in the official property records of the county.

Some argue that since they are "buying the property", they are the owner/member and can serve on the board. Again, "record owner" may be a factor. Some membership definitions include contract purchasers, and some include contract sellers instead. So if one is buying a property on contract, they may or may not be entitled to serve on the Board.

As usual, there is more to this than meets the eye. Look for the definition of member, owner, and qualifications for board service in answering this question.

And the other question that arises is whether a person that has been serving for years who is not a member must get off the board when someone discovers that the documents say that board members must be members of the association. I would say this - it certainly is a good idea. If the Board continues to allow someone to serve that is not a member of the Association, when the Bylaws state that Board members must be members of the Association, and the person therefore clearly does not qualify, a member can challenge decisions of the Board.

Sometimes documents require a hearing before any Board member's position can be vacated because of non-qualification. That needs to be explored too.

Like the discovery that the Association has been charging assessments in a manner contrary to what the documents state as the correct allocation, the changeover from accidental (or purposeful) noncompliance, may require finesse, to avoid legal challenges and claims.

And you wonder why attorneys get paid the big bucks. Does this all confuse you too much? Then take this away: Do your best to comply, to follow all rules and requirements, treat people fairly, and govern responsibly.

And get the proper kind of professional help when you need it.

And one more thing: find out more about the new elections laws in California and also about checking for qualifications for board members at http://www.californiacondoguru.com.

Posted by Beth Grimm at 5:57 PM

December 17, 2006

Renters in HOAs - What Do They Need To Know?

Renters seem to be on the mind. I receive a lot of questions about renters in condos and townhouses. They are not usually indicative of a favorable relationship. So for starters, one good question is what an owner is required to give their tenant when it comes to documentation.

Homeowners who rent out their units in a condo or townhome situation need first to check the governing documents to make sure they are entitled to do so. Some documents limit the ability to lease.

If an owner is entitled to lease their unit, at the very least the the renter should get a copy of the Association handbook or ground rules. The renter should be instructed to read them. Some documents require owners who lease their units to get a statement from the tenants that they have read certain documents including the rules, and sometimes even the CC&R's and Bylaws. CC&Rs are generally difficult to read and Bylaws are generally geared to operations of the Association (and generally, of little interest to the tenants) so it will probably be of even more value for an owner to sit down with the tenant(s) and go over the basic "rules of the road."

Another thing that owners who want to rent should do is include in their leases a clause that a violation of the governing documents is cause to terminate a lease, at the discretion of the owner renting the unit. This is because an owner can be caught in the middle if they place a tenant who tends to break the rules or cause problems, and there is no cause in the lease to terminate it. Owners are responsible for the conduct of tenants, including nuisance activities and other violations of the rules, damage to property, and the like.

Being a landlord owner does not absolve the owner of all responsibility in the Association. To the contrary, it adds more responsibility to the mix because the owner is responsible for the conduct of another.

So make sure as a landlord owner to carefully screen tenants, check references, do credit checks, use written agreements that provide an out when a "problem tenant" is discovered, and make sure the tenants understand all rules that could possibly be violated, to the extent you can figure that out from the documents.

The reader who sent me the above question also asked:

"What site would you recommend for rental contracts (free possibly) that may pertain to garage rentals?"

There are lots of sites with form contracts to lease, and a search for those terms would open a lot of doors. For those shy of buying on the internet, some stationary stores and office stores sell packets of forms - leases and other form contracts.

However, the one thing you probably will not find is the above advice about including a clause in the lease that allows an owner to terminate a lease if the tenant violates the rules or governing documents. The catch is that the lease should not terminate based on something the owner did not understand was an obligation, so make the wording and the "tenant education" clear if you want to avoid unexpected legal issues.

Posted by Beth Grimm at 8:29 PM

Want to Build a Condo? Where Do You Start?

This is kind of a craze in California, and a question sent to me recently: "I am currently purchasing property and hope to build a small condo complex (4 units) I don't know where to start. Can you point me in the right direction please?"

If it is not a condo conversion, its wanting to build a small condo building. Its a good investment, and the place to start is with an attorney who is familiar with condominium law in California, and who can write documents that will work. But that's not all. There are County and City requirements to consider, as any plans would have to be approved locally. And if the condo will contain more than 4 units, the subdivision plans and governing documents have to be approved by the Department of Real Estate (and that is probably why 4 or fewer is such a popular number).

Here are some ways to find knowledgeable attorneys: Call Community Associations Institute - your local Chapter - and get a directory that will list practitioners. You can find out your local chapter by going to caionline.org. And when you get a directory, start calling. Ask for references. Call your local Bar Association and get the name of real estate attorneys and start calling. Get references. Check the State Bar website for attorneys in the Common Interest Subdivision Section and start calling. Your local bar association may be able to refer you to a real estate attorney who does developer work via the reference panel. Each county bar association has a panel of attorneys listed working in various specialties. However, I have to warn that I sent a person who called me to the local panel in my county to ask for an attorney that represented homeowners in HOA law and the person was assigned to a law school classmate of mine that I did not consider to be very good in any field of law and especially not well versed in homeowner association law. Sometimes that happens. Cold calls are not as good as referrals, but these lists are available as a starting place. Your local planners may even know of attorneys that have worked with owners in similar circumstances that they found reasonable to work with.

One of the most important things, though, is to get good documents written. When there are an equal number of units in a condo association one of the toughest things that I see happen is that the ownership goes to people who cannot seem to get along, and then they end up disagreeing on important decisions with an even number for and against. And there is no reasonable way written into the documents for resolving differences. So give some thought as to how the owners can work together to make important financial decisions, as their asset will be inextricably intertwined, unless each unit is of separate construction, and their conduct will be under closer scrutiny than most "over-the-fence" neighbors.

Posted by Beth Grimm at 8:04 PM

If an HOA Owner Signs A Ballot - Does That Invalidate It?

Under the new HOA elections laws in California, owners are invited to return their ballots inside an inner envelope that is unmarked. This package is intended to be returned inside a larger envelope that is addressed to the inspector(s) of election for the association. The owner is supposed to sign the outer envelope beneath his or her return address identifying the separate interest they own.

In an email I recently received, a reader asks this question: As I understand it, the new elections law says:
"In order to preserve confidentiality, a voter may not be identified by name, address, or lot, parcel, or unit number on the ballot." So, what happens if a member voluntarily signs or writes his name on a secret ballot - is the ballot still valid? "

I say the answer to that question is probably "it depends" (not an uncommon attorney answer) - in this case - on who is in charge. I would say count it. The law says that the voter "is not to be identified", not the voter "is not to identify himself or herself". This means the Association is not to have identifying marks, numbers or signature blanks on the ballot that it wants returned. The Association is not supposed to be able to identify who the voter is that voted this way or that way. The Association is only supposed to be able to identify that the person returning the ballot is indeed an owner in the development and/or the person that is entitled to vote on behalf of the owner.

However, the law does not contemplate the inability of Boards to fully explain processes to owners, or the inability of owners to follow instructions, and we all know that both scenarios occur. So, if an owner signs the ballot, it seems to me that he or she is voluntarily waiving the right to secrecy, not the right to vote. I believe the vote should be counted, unless there are other factors to be considered that might suggest further inquiry.

The secrecy offered by the statute is for the protection of the owner, and if an owner ignores that protection, then I would say it still should not trip up their opportunity to vote. The cases I have reviewed related to questions that come before inspectors of election seem to me to encourage counting votes, when it seems obvious the owner intended to vote, even if they screwed up the proper return of the package. If the owner can be identified as one with the right to vote, then he or she should be able to do so.

An additional problem that has arisen in some associations is that owners do not want to sign the outer envelopes because of the possibility of identity theft, so they sign the inner envelopes. Should their ballots be counted? Again, I believe so, as long as during the check in the inspectors can verify the owner's name and, if checking signatures (although I do not believe it necessary to do so in most elections), the signature.

Other attorneys might say something different .. and there may be more to this question than meets the eye, so do not take this as legal advice for any given situation. Some legal counsel are sticking tight to "the rules" - so tight in fact that many owners may be robbed of voting for lack of being able to read and follow instructions. Is that bad? Maybe so. Maybe not.

If you want more information on the "What Ifs" in the new election laws, or want to know what they say, visit the Guru at http://www.californiacondoguru.com, and click on the link to the information on Elections After SB 61.

Posted by Beth Grimm at 7:36 PM

December 12, 2006

What To Do If Board Meets In Secret

An email I received recently claims that the Board of the Association meets "in secret" in one of the Board Members homes and the sender wanted to know if this was illegal and what he could do about it. That is not really an uncommon complaint and it may or may not be a problem. If the Board holds all of the meetings in a Board Member's home, that is not necessarily a problem, especially when there is no clubhouse. However, if all of the meetings are in a Board Member's home, and homeowners are not notified of any of the meeting dates and times, or allowed to come, then there is a problem. There are only a few subjects that entitle a Board to meet "in secret". In California, those subjects are basically related to discussions of threats of or pending lawsuits, with or without legal counsel present, contract negotiations, personnel matters, and disciplinary matters. These subjects are considered appropriate for "executive sessions" (which are essentially the same as a "secret" meeting when homeowners are not invited to attend). In addition, holding an executive with the association counsel to discuss attorney-client privileged matters of a legal nature are appropriate. All other board meetings must me disclosed, and owners have a right to at least 4 days' notice, either by mail, posting in the common area, newsletter, provisions in bylaws, etc.

So what happens if a Board is not complying with these requirements? The requirements are found in Civil Code Section 1363.05 which is part of the Davis Stirling Common Interest Development Open Meetings Act (which is similar but not exactly the same) to "the Brown Act" which relates to public meetings. If a Board violates the provisions of Civil Code Section 1363.05, then 1363.09 provides a remedy to owners. It says, in pertinent part:

"1363.09. REMEDIES. (Operative July 1, 2006.)

(a) A member of an association may bring a civil action for declaratory or equitable relief for a violation of this article by an association of which he or she is a member, including, but not limited to, injunctive relief, restitution, or a combination thereof, within one year of the date the cause of action accrues. Upon a finding that the election procedures of this article, or the adoption of and adherence to rules provided by Article 4 (commencing with Section 1357.100) of Chapter 2, were not followed, a court may void any results of the election.

(b) A member who prevails in a civil action to enforce his or her rights pursuant to this article shall be entitled to reasonable attorney's fees and court costs, and the court may impose a civil penalty of up to five hundred dollars ($500) for each violation, except that each identical violation shall be subject to only one penalty if the violation affects each member of the association equally. A prevailing association shall not recover any costs, unless the court finds the action to be frivolous, unreasonable, or without foundation.

(c) A cause of action under Section 1363.03 with respect to access to association resources by a candidate or member advocating a point of view, the receipt of a ballot by a member, or the counting, tabulation, or reporting of, or access to, ballots for inspection and review after tabulation may be brought in small claims court if the amount of the demand does not exceed the jurisdiction of that court."

As you can see, there are some remedies that could apply to a violation of the meetings act and also the new elections laws. It's best to comply, of course. If an Board has extenuating circumstances that lead it to believe it can have closed meetings, it should seek the opinion of a knowledgeable attorney. There are some circumstances that would suggest seeking court approval of alternative meeting structures to deal with disruptions or other potentially serious problems.

Posted by Beth Grimm at 10:58 PM

December 3, 2006

Elections - Are "Homemade" Ballots OK?

I often get emails asking me to give my "blessing" to somethin that is being contemplated or has already been done. Of course, I cannot give unsolicited legal advice and have to be careful about unwittingly creating an attorney-client relationship, so a common answer from me is that while I cannot give specific legal advice, I will try to address the topic on the blog, in a general nature. Here is one of "those" questions from a reader:

"From what I have read it appears that the following scenario should not violate any laws. Please confirm.

Secret ballot packages have been properly mailed to all members. While an incumbent board candidate is campaigning door-to-door a member asks for another ballot package since they have misplaced theirs. Anticipating this, the candidate hands the member a new one and advises that the member should vote the ballot in private and then mail or deliver the sealed ballot package to the election inspector themselves. The candidate neither observes the voting or takes possession of the completed ballot."

It would seem appropriate to me that the Board would make arrangements for an owner who misplaces or does not ever receive their voting packet to get a replacement packet. Boards may be required to have extra ballot packets available to provide to proxy holders. The idea of control numbers for the envelopes does not really work anymore in California, at least not as to the ballot envelopes themselves, because everything has to be secret for certain elections including board elections and placing a control # on a ballot envelope of the ballot iitself would make it traceable back to the owner submitting it. And having the owners sign and identify the outer mailing envelope should be control enough.

A question I had, however, was "Why would a candidate have extra blank ballot packages and where did he or she get them?" Obviously, if one candidate gets them and another does not that could be a problem. Especially if that candidate was an incumbent.

The reader also asks: "One point I have not seen addressed anywhere regards "official" ballots versus "home-made" ballots: are "home-made" ballots void? I can't imagine that a vote would be denied because a member submitted a home-made ballot in lieu of the ballot sent by the HOA. I would think that as long as the member had the opportunity to vote secretly via HOA provided secret-ballot materials but the member chose not to use them then anything the member submitted, as long as there was a signature, name and address, would be OK. even if they submitted their ballot without any interior envelope. what do you think?

The new law says this: " Ballots and two preaddressed envelopes with instructions on how to return ballots shall be mailed by first-class mail or delivered by the association to every member not less than 30 days prior to the deadline for voting. In order to preserve confidentiality, a voter may not be identified by name, address, or lot, parcel, or unit number on the ballot. The association shall use as a model those procedures used by California counties for ensuring confidentiality of voter absentee ballots, ...."

If one remains focussed on the intent of the legislator to model public elections, no "homemade" ballots would be accepted. I have my frustrations with trying to work with the public model but on this point, I believe associations should be equipped to provide ballot packages if an owner loses theirs or does not receive it, or if an owner assigns a proxy and does not give the proxy holder the ballot package. It seems best to me if the inspectors receive ballot packages that are identical from the owners or in the case where a proxy has been assigned, from the proxy holder, and so it seems reasonable to me that that the Association's ballot package should be required. In a public election, I do not believe the elections officials can accept "homemade" ballots.

However, a problem is presented if a Board is unwilling to provide any means for an owner who claims not to have received their ballot package to be able to get a replacement ballot package, and in that case if an inspector accepted a "homemade" package, and it was constructed like the rest, it would not be the end of the world, in my opinion. Why? Because I believe the cases analyzing voting mistakes generally opt in favor of having a voter's intent satisfied, to the extent that is possible, and I also believe it may be unfair to refuse to provide replacement ballot packets to people who do not receive them or who misplace them. But as for any advice about what associations should do in such a case ... I will leave that up to the inspectors to make the determination as to whether such a packet should or should not be accepted.

Posted by Beth Grimm at 8:31 PM