California Condo & HOA Law

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February 28, 2007

USE OF GARAGES - WHICH "CAMP" ARE YOU IN?

Are you in the "camp" that thinks that garages in HOAs should be used for storage, home offices, workshops, storage sheds or pool/ping-pong recreation rooms? Or the "camp that thinks garages should be used for parking of vehicles that are used for transportation?

I am guessing it depends on how much of a parking problem you have in your HOA. I often joke that developers plan for 1 and 1/2 parking spaces for every residence in an HOA in California, knowing full well that the average household has 3 vehicles, especially if there are any children past the age of 16. And that to get the 1 and 1/2 spaces, they "cheat" and paint for the Geo Metro, knowing full well that many Californians, like Texans, think that "bigger" is "better". But it's no joke.

I almost always assume that if there is no parking problem today, there will be tomorrow. There are many garden variety problems and I have written about several right here on the blog. Using the garage for storage of anything and everything other than a vehicle used for transportation is just another one of them. I bet you can guess which camp I am in. Yes its true. But Why? I am also in the camp that believes Americans are prone to collecting too much stuff ... (yes, including me, but I still have room in the garage for the requisite two vehicles).

My experience is that Boards that look the other way and let owners use the garages for storage, end up fighting the fight over use of the common area parking spaces. While the Board may battle to reserve a few or all of the common area parking spaces for guest use and service vehicles, the owners who store stuff in their garages are fighting a war for use of those spaces.

If the Board and Owners who want the extra spaces reserved for guests win the war, then they end up fighting the arguments over whether the "regular" visitors are guests or residents (i.e., the "sleep-over" guests.)

So, the HOA adopts a "permit program" to try and regulate the parking space use. And then, the accusations begin about who gets permits for overnight parking. Whether or not the Board is fair about issuing permits, there are always residents who believe that the Board wants to pick and choose who gets the permits that grant owners or residents the right to park overnight in the common parking area without the fear of being towed.

There are owners who will argue that ALL homeowners should have equal access to the common area parking spaces. The point may be made that if the HOA wants to institute permit parking, that all homeowners should get at least 1 permit, and if there are additional parking spaces, owners should be able to purchase additional permits if needed. Of course, all these options depend a lot on how many parking spaces are available.

If a board issues parking rights based on permits, and everyone gets one, and there are no remaining spaces, then the guests would have to park in the owner's garage or out on the public streets - sometimes this is a real s.t.r.e.t.c.h. However, the owner can decide which vehicle sits out for the night, so sounds fair to me.

The truth is that there is no one way that things should work. There is no law that dictates how the parking should be implemented and the documents should be enforced. The documents may have specifics, and they may be general enough to leave room for adopting rules. However, usually, the Board has some latitude to determine the best use of the common area parking spaces. In any event, Boards should definitely take into account the needs of all owners, and try to balance them appropriately. Reasonable exercise of power is always the best exercise.

Posted by Beth Grimm at 5:32 PM

February 23, 2007

Terminating the Manager - How Hard Can It Be?

Here is a common set of questions related to management that I get, either by telephone or email: "We terminated our management company. We just got sick of them not performing. They did not do anything over the past 6 months. We found a great new manager and we [either want to or have already] sign(ed) a contract. We called the old management company and asked to come over to get the records, and they won't give them to us. What do we do?"

Wow, there are so many potential issues here. In a nutshell, my questions and comments (and the responses) commonly go something like this:

Did you review the contract before terminating management? Is there a contract, even? I would need to review the termination provisions in order to advise you as to what is required to legally terminate the management agreement.

Common Answer: "I will look for it. I have never seen it. We don't have a copy of any contract - maybe the manager has it."

My response - ask for a copy of it - it is the Association's record. And ...

Do you have anything in writing you can provide to me - such as notices to management, responses from management, problems that occurred, attempts to cure, etc.? It will be pertinent, especially if the contract contains language providing that notices of problems and chances to cure must be given prior to termination.

Common Answer: "They know, we have been asking them for months. we get nothing ... "or I get this: "uhhh.hhh.hhh.hhh ... what do you mean?"

My response: I mean writings, a paper trail, anything.

How did you give the termination notice, by telephone, in writing? Can you provide me the letter?

Common response: "We need you to write a letter. We don't want anything else to do with our old manager."

I tell them I need to review all paperwork, and I need a chronology of what has happened, a list of complaints and when they arose, in writing, as closely as can be recalled if there is no writings, and any other information related to the situation, and sometimes I suggest a meeting with the Board, but that is not needed prior to review of the contract - that seems to me to be the most important first step.

What boards often miss is that there is a legal contract formed when management is hired. Most often it is in writing; however, it has often been so long since a board originally signed it, and so long since anyone reviewed it, that it has gathered a lot of dust - somewhere, yet to be determined.

Contracts can be simple, with simple written notice termination clauses; however, sometimes they contain clauses that allow associations to fire management only with cause, and cause sometimes provides the opportunity for management to redeem itself. Some require the Board to provide notice to the manager, and give the manager a certain amount of time to cure. Some have very difficult notice/rollover clauses that lock the Board in for months or a year or more if the Board is not on top of the timeline and notice required to stop the follover clause from kicking in.

I could say much the same about terminating management as said about terminating an employee in a concurrent blog. The contract is closely equivalent to the job description for a hiree - it should set forth the terms of "engagement", and cover the rights with regard to "redemption", vacation, sick leave, etc. It serves as the basis for determining whether both parties have performed as required. It should cover termination of the contract.

And as for evaluations - yes, they should be done on a regular basis. And reporting should be done in writing so there is a written record of the reviews. A manager may well assume that everything is all right unless you tell them it is not. A person, whether employee or vendor, deserves to know when the employer is not satisfied with the work. And it would also be enlightening and perhaps premptive of an unpleasant result if the Board were to survey the members now and then about their reactions to management. Like some diseases, a problem with a provider, vendor, staff or employee is much more susceptible to a cure if caught in the early stages.

Unfortunately, some boards feel so intimidated by their managers that they are afraid to say when they are dissatisfied. I commonly recommended to an association that they do at a minimum annual evaluations of management. I provided one association with a checklist evaluation sheet, and when the manager got wind of it, she was livid. I tried to explain to the manager that it is in management's best interest, as well as the association's, to have regular communication about performance. I was able to stand up for my principles with this manager, but its much harder for Boards to cope when this happens.

Posted by Beth Grimm at 7:03 PM

Employee Claims - Don't Invite Them

Lawsuits for wrongful termination in employment are costly, and painful. Practitioners who work in this area of the law doing mediations or litigation will come right out and say that they are more often than not triggered by an emotional component. It makes sense. Rarely do you hear about a sensational employment wrongul termination case where the ex employee sues because they were fired for not typing fast enough.

A very common thread in these type of lawsuits (leaving out the harassment and discrimination categories for now) is a failure of expectations. The employer fires the employee because they did not live up to the expections of the employer and the employee sues the employer because they felt they not only met, but exceeded the expectations. So what happened, exactly?

The perceived expectations were as different as day and night.

How does one close the gap? Here are some valuable tips.

Make sure the expectations are clearly stated, unambiguous, and in writing.

Job Application Process: Make sure the persons that do the interviews are trained to carefully read the applications and question the applicants within legal parameters of course, and that they look for and question applicants carefully about gaps in employment and anything else that leaves a question to be answered. Catch the problems early, before hiring.

Job Description What better way to clarify expectations than to have a clear, concise and to the point job description. If something is left off, to be added later, or appears on the description and the hiree is not the right person for the job, and practical changes are to be made, make sure that changes in the description are discussed and it is modified as appropriate, and review and if pertinent, updated, at least annually. Make sure that time off, vacation accrual, sick leave and all other leave, and absence matters are written down either in the job description or association policies that are shared with new hire.

Ongoing Evaluations: Clarify expectations, as well as lack of satisfaction and failure to fulfill the job description, in ongoing employee evaluations, in writing. Share these with the employee so that they may respond, verbally or in writing, and so that they may know the areas of concern and be given the opportunity to tender a response.

Do not think that you are too small an association to need the above things. Small employers get sued under the same causes of action that large employers do. The complainants do not discriminate, and the courts do not take sympathy, based on size. (And see concurrent blog related to termination of management.)

Posted by Beth Grimm at 6:26 PM

February 22, 2007

Failure to Apply for Architectural Approval - How Do You Get The Members Attention?

In many HOAs, the governing documents require that members apply to an Architectural Committee, or the Board (which in some cases acts as the Architectural Committee if volunteers cannot be recruited), and get written approval before beginning construction on any improvements or changes to the exterior of the homes, units or structures. In many HOAs, the owners ignore these requirements and it leads to serious problems. Owners start constructing things and making changes and at some point the Board understands that there is a big problem brewing. If owners continue on track, at some point, the governing document provisions providing control over architectural style, aesthetics, and the look and character of the development will fall. They will become unenforceable. Talk about individuality ... it could sprout and spread like a bad weed. The whole purpose of having architectural limitations is to preserve the original look, style, architecture, and consistency of the buildings and improvements. This vision began with the developer of the property and lives in the owners who are in favor of reasonable controls.

Once the Board is dealing with 2 or 3 or 4 or more works of "improvement" that were commenced without regard for the approval process, it knows real stress (as if that has not occurred already). A decision has to be made on many fronts:

What is it going to do about the changes that have already been made - ignore them? Ask the owners to apply for retroactive permission? Force the owners to remove or change the improvements?

What if the changes are something that would have been approved if asked? Is that something that is worth addressing? What if those owners decide to make more improvements, but the new ones are not something that would be approved?

What is the Board going to do about changes that would not have been approved? Demand that they be removed? Negotiate a settlement of some kind that would help to avoid precedent?

I cannot answer these questions or provide any kind of advice without knowing specifically what is happening, and this column is not for advice anyway, but I can suggest some ways to avoid this kind of scenario.

1. Give the owners the scoop, early and often, as to what the documents require, when they must apply, where to apply, how and to whom. I said often. I said often. I said often. Do you get it now? You can publish a box in your newsletter everytime one goes out. You must, under California law, circulate the architectural processes and procedures each year with the annual budget packet. You need to include these procedures and processes with all new owner packets.

2. Keep on top of the situations where owners have not applied prior to commencing construction of improvements that require approval. Get stop notices out immediately in any situation where you can, with a warning that proceeding with the construction, painting or whatever is occurring will be at owner's risk of having to remove or redo the job. If the Board is diligent with these, word will spread.

3. Consider disciplinary action. Develop a fine schedule that works as it should - as a deterrent more than a fund raising tool, but consider a hefty fine fine for failure to apply for architectural approval when the application is required. What do you think - is $1000 too steep? $500? $250? Be sure the fining policy allows for daily, weekly or monthly fines. Fines have to be sufficient to "deter". A $50 per month fee might not work as punishment for a room addition that sends the neighbors balistic, for example. But be sure that you are not adopting a fine schedule for which there is no authority in your documents or the law, or that conflicts with limitations in the association governing documents. And be sure to follow all requirements related to distribution of the fine schedule to members for comment before adoption (a California requirement.)

4. Check the documents to see if the Board has the right to charge back attorneys fees and costs to the owner of the unit or lot involved, as a reimbursement assessment, when the fees and costs are incurred in attempting to enforce the governing documents.

5. Negotiate agreements when necesary that help prevent precedent, that disclose to future purchasers any agreements made to remove improvements on sale, that "grandfather" existing situations that cannot be remedied because of facts, circumstances or cost concerns.

6. In addressing architectural violations, do not give advantages to "friends" or "favorites". In other words, if you are taking action on specific types of violations, make sure that all owners with the same violations are getting letters and being asked to do the same thing. If you are holding hearings and fining people, make sure these actions are consistent. However, I understand that you may end up in a position where the Board has to take one or more matters a step further, asking for court intervention, and in this case, it may not be fiscally prudent to move to this point with all current situations. Perhaps it is time to ask the court for a declaration of what is right, or an injunction mandating action, or damages. If you cannot afford to take the maximum action against any or all of the owners in the same boat, document the reasons as to why you are moving forward. If the Board has determined that legal intervention is needed to "stop the bleeding" or for some valid reason, it should be acceptable to choose one situation and not the others. And the reason as to why one existing problem is being "taken up higher" and not others needs to be palatable, for any potential hearing officer who has to respond to complaints of favoritism or inconsistent treatment to understand and accept them.

Why would I ever suggest a hefty fine for the "simple act" of failing to seek architectural approval? If you have ever had to get an attorney involved in a situation where residents have commenced various "projects" without regard to the required approval process and the documentary architectural controls, you know that it does not take much activity to incur costs and fees upwards of $1000. So ............... starting out with the threat of a fine of $1000 for failure to apply for architectural approval when application is required seems a reasonable place to start. Fines and fees may always be waived, suspended or deferred if the facts and circumstances warrant it; but the point here is getting the owners' attention about the application requirements prior to construction. That might do it.

A Board's "job" is not easy. What I am suggesting here is to just think about these things. Diligence and deterrence .. these principles are important and helpful in many areas, and this is one of them.

Posted by Beth Grimm at 6:30 PM

How To Get Document Amendments Approved When Owner Apathy Reigns

In California, there is a way to try and get updated documents (specifically the Declaration of Covenants, Conditions and Restrictions - i.e. - CC&Rs) approved if the members do not come through. If the CC&Rs require a percentage of approval that is higher than 51% (many of the older documents require 2/3 or 75% approval) but the board is not able to get that kind of return on the ballots, the Board may file a court petition asking for court approval of the docs. There must be at least 51% approval to ask the court to approve the amendments.

Once the petition is filed, the owners need to be notified and they can respond to the court proceedings and appear if they want to. It can be costly. Sometimes the form of notice required is costly. The court could require that all members be notified of the proceeding by personal service or certified mail instead of first class mail. Some judges are more lenient. As a matter of proof of a good faith attempt to get the members to vote, the Association would have to present to the judge all efforts to get members to vote and convince the judge that it made a good effort, and that apathy is the reason why the updated documents did not pass.

The costs could could reach or exceed $4000-$5000 (even if there is no material resistence) to $50,000 or more (if opposition is vehemently waged). While the Association often can ask for reimbursement of attorneys fees for actions related to the documents, in this case, at least in California, the Association cannot recover the attorney fees or costs from anyone since the petition is seen as a non-adversarial process.

Civil Code Section 1356.

It is nice to know that this process is available, but the better plan is to do the footwork needed to get owners to vote, even if that means block assignments, a major campaign, going door-to-door, or making phone calls to get owners to vote. Many Boards do not believe they can ever get enough members to vote to approve updated documents when a high percentage of approving votes is needed, but most will exceed all expectations, if they get enough people involved and just give it a serious effort.

Posted by Beth Grimm at 5:53 PM

February 21, 2007

Appointing A "Minutes" Committee - Who Is Right For The Job?

A reader of my materials wrote this email to me about appointing a "Minutes Approval Committee":

"I'm very interested in your article about approving annual meeting minutes. It makes sense to me that the Board can approve them now. (We don't really need an Minute Approval Committee.) "

This is an example of how Boards can sometimes accept adaptations of what is said without thinking through all of the issues that might arise. In my business, believe me, the result of years of experience is that the questions sometimes start popping in your head as soon as a premise or conclusion is offered . The makeup of the "Minutes Approval Committee", if it is the Board and no other members of the Association, could be called into question. This is why:

The basis for the "Minutes Approval Committee" comes from Roberts Rules, and not a specific law on the subject of approving minutes. There is no guidance I can find that defines who should serve. While it might be OK to designate the Board as the committee, from a practical standpoint, if there was any question about objectivity, not having any non-board members on the committee might cause it to be seen as self-serving and the actions taken might be suspect - if any owner ever makes a challenge to the process.

In many associations, finding members to serve on the board is hard enough, let alone trying to find additional members to serve on committees. And of course the "Minutes Approval Committee" must consist of members that will be present at the annual membership meetings, since it would be charged with writing and finalizing the minutes. So, it seems it would make sense to have at least one non-board-member on the "Minutes Approval Committee".

Posted by Beth Grimm at 9:07 PM

Recall Elections Under the New Law - How Hard Can it Be?

I am receiving lots of calls about recall elections. Practitioners all over the state are faced with inquiries from groups of owners and board members who are looking for information as to how recall elections should be conducted under the new elections law. In some cases members have petitioned for it. In others, boards have received these petitions.

I have spoken with different attorneys about how these processes might be handled under the new law. I believe there are at least two viable approaches:

(1) Prepare two ballot packages to be mailed at the same time, one for the recall election itself and one for electing board members if the recall is successful (which would have "write in" capabilities because potential candidates will necessarily be identified ahead of the recall meeting), with complete instructions to owners as to how the processes at the meeting will be handled for both elections, in case both are needed.

OR

(2) Prepare a ballot package for the recall election, and appoint a person (choosing a professional in some capacity would be wise) to take charge of the second election process in case the Board is recalled. Consider a Resolution that would preclude the Board, if recalled, from taking action in the interim before the election for directors for any business other than proceeding with the election, except, of course, any business that MUST be conducted during that period. Make sure the person appointed has limited authority and knows how to conduct the election under the new laws.

The elections laws are too new to have worked out the kinks, but I think the key is to look for the most fair and above-board practices that attempt to comply with what is written in the law as closely as possible, with regard to all elections that are subject to the new law, board elections and recall elections being two of the types that are subject to it.

Posted by Beth Grimm at 8:56 PM

February 11, 2007

Getting a Quorum of the Board - It's As Hard As Getting a Quorum of the Members - What Do We Do?

The title to this blog is the question: "Getting a Quorum of the Board - It's As Hard As Getting a Quorum of the Members - What Do We Do? "If your association faces this kind of serious issue, here are some considerations:

1. Seek approval of the membership of an amendment to the Bylaws lowering the number of Directors. (Just be apprised that you cannot remove a current board member from serving out their term by doing this).

2. Seek approval of the membership of an amendment to the Bylaws to lower the percentage required for Board approval of actions (although I would not likely ever be inclined to recommend lowering the Board approval requirements to less than a majority of the Board).

3. Encourage those board members who do not attend meetings to resign.

4. If you have such provisions in your Bylaws, take action as a board to vacate the board position of any board member who misses 3 or more consecutive board meetings, or 3 or more a year (depending on how the right is defined as that is the authority) and appoint some other member who is committed to attend meetings.

[AND ... No, this does not mean the Board can remove or recall board members - that takes member approval except for the right to vacate the position if the documents allow it.]

5. Conduct meetings on a timed agenda using Roberts Rules or some good form of parliamentary procedure so the meetings do not become a free-for-all or last all night (as this may discourage even good board members from attending.

6. Be sure to schedule board meetings with an attempt to pick a time spot that all Board members could reasonably manage. Remember that commuters cannot always get back home, eat and be ready to make decisions by 5:30 pm.

7. Make sure your meetings are conducted in such a manner that all board members are given equal respect and that any bully's are dealt with in some way before their conduct gets out of hand and scares off good board members.

8. And remember that in California anyway, there is one action that board members - or even a single remaining board member - can take without regard to the usual majority approval requirements. That is appoint other board members to positions that have been vacated. (This right is found in the Corporations Code so if your association is not incorporated, proceed carefully and definitely with legal advice.)

Posted by Beth Grimm at 4:27 PM

Boards Making Decisions By Telephone Poll - Is it Legal?

Making Board decisions (taking action) by telephone poll is not in and of itself a legal way to do business. The telephone may be used in some circumstances as described in more detail below. I can only speak for California law, though, where most HOAs are incorporated. There should be a set of Bylaws that governs the processes and operations of the Board and that provides and explains voting rights, board authority and duties, choosing of officers and their duties, and the things that relate to "running the ranch." The restrictions and rights of owners that relate to the uses of property they own are generally in a separate document called some variation of "Restrictions" and these "Restrictions" should be recorded with the county Recorder's office. I have seen lots of document machinations, but this is pretty much the way it is supposed to work and these are pretty much the most important of the regulatory documents. Why am I telling you this? Because the Bylaws may have something to say about the conduct of business that fits into this discussion.

The Bylaws and the California Corporations Code set up a structure that provides for membership meetings and Board meetings. The members have more participation rights on the membership meetings, and Board meetings are where the Board is expected to conduct the association business. In California as well as some other states there are open meeting laws that require Boards to allow members to attend, listen, and sometimes, offer their own input, and sometimes address the Board on matters of importance to them (as in California). As a cavaet, many states have public open meetings acts and they do not generally relate to private entities such as homeowners associations. Many people get confused about this. In California, for example, some think "The Brown Act" applies to HOA meetings. It does not by its own terms, but I will not say that it "never" applies because then someone will show me a set of documents where the drafter has incorporated that body of law (yes, you might see this even when there is a specific statute in the Davis Stirling Act addressing open meetings that should be treated as the primary authority on this).

In California, Civil Code Section 1363.05 sets forth the requirements for open board meetings.

Okay, so what can happen? Here is an example, from a reader:

"I have been asked by our Board to inquire whether the Board of an HOA can vote on matters before the Board. Specifically, in the event that a quorum of board members is not present at the time of a Board meeting and matters requiring a majority vote are needed, does the Board have the authority to take a poll of members not present following the meeting to ascertain their position and/or authority to approve the actions? In other words, can the President take a vote of those present and then subsequently contact the absent board members and secure their position? Your thoughts please."

A telephone poll could be taken. I mean no board member is restricted from questioning others on what they think about something. No one is going to bug the board members phones to see if they are calling any other board members to talk about board business, and there is no prohibition on discussing business with a "colleague" anyway .... until the conduct rises to the level of decision-making for the association. In California there is also the question of whether a majority of the Board members are in one place at one time (this could be on the telephone) discussing board business and there are only 3 board members total. Then, two board members talking to each other would constitute a meeting subjet to homeowner notice laws. While talking to each other is not a crime, deciding business this way and coming into meetings and discussing everything before the members as if the decisions are a "done deal" is a very different thing in principle.

And it falls far short of legal requirements for HOA Board action. If action is needed on an item and the Board cannot get notice out to owners and a quorum of Directors together in one place at one time - then there are some possible alternatives to do what needs to be done, i.e., get a board decision on an action matter.

One such alternative is: an emergency telephone, web or video conference call meeting. A conference call is different than a telephone polling call - it is a process where all board members are on the call or in the virtual meeting room at the same time, or at least a majority is. An attempt must have been made to contact all board members giving notice of the scheduling of the call. If done right, with proper notice to board members, it could iconstitute a valid meeting (see more below)., even if there is not full attendance but a majority "show up" for the process. This is one way to hold an emergency board meeting,

Member notice requirements may be an issue for this method. Although in California, Boards must give owners at least 4 days notice of open board meetings, there are specific exceptions to this notice requirement for executive sessions (matters that have certaiin protections because of the importance of confidentiality) and emergency meetings. I suggest getting legal advice as to what might truly qualify as an emergency meeting if this method might meet your needs of getting some business done when there was not a quorum of directors present at the board meeting.

Short of handling the emergency matter this way, written unanimous consent is another option that may be available for corporate boards. Check with your local counsel on this. It probably is not consistent with your state's staturory scheme for HOA meetings, if there is such a statute, but on the other hand, it does not necessarily present a direct "conflict" either. And some bylaws provide for written unanimous consent as one way to make board decisions. When I am writing documents, I qualify the right to decide something by written unanimous consent so that it is available only in emergency situations where a board meeting is not feasible (being aware that the open meetings law for California CIDs (common interest development acts) exempts emergency meetings from the usual homeowner notice requirements). But it requires, of course, some communication, whether that be by telephone, email or fax, AND a signed written consent form signed by all board members - hence, the "unanimous" aspect being satisfied.

In the event a meetiing cannot be called where the Board can meet and discuss the business at hand, and debate and hear and speak to one another, then polling might be a fair preamble to a written unanimous consent board decision. If all of the Board members are in favor of some action, and a written unanimous consent form is prepared and signed, an action item could conceivably be decided in this fashion. Generally then, the Board should then announce the action at the next meeting and refer to the form that was signed by all, unless there is an executive privilege component, which is for a separate discussion.

Neither the emergency board meeting nor action by written unanimous consent processes should be flaunted, overused or misused, and again, I feel that use of either should be made only in the most emergent of situations where a conference call or other type of meeting cannot be convened in time to resolve a problem or alleviate a difficult situation. The key to legality of the written unanimous consent method is UNANIMOUS CONSENT, not a majority, and the other important key is to be prepared to answer the challenge as to why this business couldd not be done at a duly called open board meeting. The reason had better be good.

The alternate processes mentioned above are not recommended to be used in place of open Board meetings except in the rarest of circumstances but may be available in your state in the difficult circumstances such as that suggested. Neither is as controversial or suseptible to challenge as simply coming to a final decision by polling board members who were not at the meeting on an item that requires action. If the meeting is held, there are not enough board members present to make a decision on something that requires immediate attention, then .... I would suggest only with your legal counsel's blessing, the polling might be useful tool to get to the right end result. (And you wonder why we - attorneys - never say never!)

The problem that has to be addressed in separately polling board members is that it leaves too much power in the hands of the caller. For example, if each Board member called is told that other Directors voted in favor of against a measure (whether they did or not), that could have undue influence. If a board member raises a possible issue to consider on some item and the concern does not get transmitted to other board members, the vote might be seriousy flawed. A Director's position might be misreported, and any Director could be at a disadvantage for not having been privy to everything that has been said by all other Board members. Commonly, there are the board leaders (shepherds) and then those Directors who always "yes" the President or always vote with their friends and whose opinions are never expressed (the sheep) and the shepherds could accomplish quite a bit addressing the sheep one by one. And sometimes it would not matter anyway because when the shepherds speak, the sheep always follow. Still, there are perceptions and legalities to be concerned with. It is always better to be above board and try to avoid actions that might trigger unwarranted criticism.

And here is another thought: if the Board member(s) who are not at the meeting are available by telephone - why not arrange for them to be present by speaker phone or video conference on a computer in the room. This can be arranged so that everyone can participate as if they were in the same room. Just be cognizant of owner notice and attendance rights. Just make sure proper arrangements are made. Members that are not board members can sit in the meeting room while the business is going on, and as long as all board members can hear and be heard and talk to each other, the meeting should be legal (assuming neither the association governing documents nor specific state laws do not preclude it). I do not believe in California there is any law that precludes a speakerphone or telephone conference call meeting so long as these requirements are met: proper notice and an opportunity to attend was given to board members and to HOA members, and all Board members are on the call or in the virtual room at the same time, can hear each other, be heard, and can communicate their views. The California Corporations Code provides for electronic attendance at board meetings. There is no eq2uivalent entitlement in the Davis Stirling Act related to HOAs, though, and it is always important to consult your own legal counsel on these matters and at anytiime when the Board cannot seem to get a quorum of directors to attend on a regular basis. And for more suggestions, see the concurrent blog for suggestions on dealing with difficulty in achieving quorum.

Posted by Beth Grimm at 3:11 PM

February 8, 2007

IS DECLARING A BOARD TO BE ELECTED BY ACCLAMATION LEGAL?

Many people, both on boards and owners who live in HOAs want to know the ins and outs of the legality of declaring directors to be seated by acclamation, rather than requiring an actual election. Acclamation is a process whereby the candidates are declared board members without counting votes. It has been used for years by many associations, simply because finding enough volunteers to fill a board is often a challenge in itself, let alone hoping for a contested election. Yes, its true, in many more cases than not, there are not enough volunteers to fill the seats of the vacating board members. The Boards have to scrounge for volunteers to find enough, and often a full slate of candidates is not even enrolled until the annual meeting.

Now, with the new elections laws in California, the question arises at what point in the new procedures is acclamation an acceptable approach? The new law says nothing about this process. After SB 61 became law, and before SB 1560 (the cleanup bill) was signed into law (Sept 22, 2006), it appeared that meetings could be avoided and the intent was that voting would be done completely by mail ballot, and the only need for the meeting would be to count ballots. However, after SB 1560, the law changed such that it appears the annual meeting has regained importance, and it appears that if the documents call for nominations from the floor, not allowing them may lead to successful challenges to elections. After, SB 1560, the governing documents become important. It seems to me that If the association finds itself without enough candidates after the nominations are closed to warrant a "contested election" (meaning more candidates than open board positions), that declaring the positions filled by acclamation should be acceptable. What would seem important though, is whether the Board has conducted the nominations procedures such that members were given a fair opportunity to be nominated. Whoever wants to challenge any electiion that was completed by acclamation will have to explain why they did not come forward to nominate himself or herself when given the opportunity.

Some owners are complaining that they did not get a fair opportunity to run for the Board. In some cases the nominations are closed before the annual meeting, even when the association documents provide that nominations shall be taken from the floor at the annual meeting. There are no cases under the new law that I know of yet that set any legal precedent and there are not likely to be any anytime soon simply because the legal processes move slow, and also because it is possible that these kind of challenges may be resolved in small claims court, where there are no precedent setting decisions.

If the Association documents allow for nominations from the floor at the annual meeting, there are a couple of ways to proceed. As long as the Board gives reasonable notice of the opportunity to be nominated, gives reasonable notice of timelines, and waits to make the decision about acclamation until after the nominations at a meeting have been closed (in cases where the bylaws allow nominations from the floor), there will be little room for challenge. In a case where an association has decided to adopt a process whereby elections ballots are to be mailed out after the annual meeting, and uses that meeting to take and finalize nominations, declaring the electiion by acclamation when there are not more candidates than positions would seem to be reasonable.

Corporations 7522 does address acclamation but it only applies to a corporation with 5,000 or more members. It provides these guidelines for the larger associations with regard to acclamation: "(d) If after the close of nominations the number of people nominated for the board is not more than the number of directors to be elected, the corporation may without further action declare that those nominated and qualified to be elected have been elected."

This statute provides guidance and might be helpful if a board gets to the point of having to declare an election based on the number of candidates being less than the number of positions open. The new elections law for HOAs does not make any provision for this, and in fact, states that it controls over any other codes that are in conflict with it. The question is whether 7522 conflicts with it - the new law requires boards to conduct elections via the double envelope balloting procedures and does not leave open the option to forego the election by its terms.

In any case, if the courts are going to be reasonable in interpretation of the new elections law, it seems that raising Corporations Code Section 7522(d) as guidance in the situation where apathy leads to declaring an election by acclamation, may be helpful. There is no assurance of this and the new laws are very challenging, and there are lots of questions. The most important thing is to make the best attempt possible to follow the law and the association documents and to make sure all processes are fair and above board. That is probably the best defense if your election is challenged.

Posted by Beth Grimm at 8:56 PM

February 5, 2007

May a Board Reduce Assessments Mid Year?

It is not that common, but sometimes an Association ends up having overbudgeted - an example would be an association that budgeted to keep up the earthquake insurance coverage and then, after an unanticipated renewal hike, and a member vote, decided not to renew (because of high cost, lowered coverage, etc., you may have faced the scenario of difficult choices). So now, there is a budget item that is no longer applicable.

In most cases, in California, a budget may be revised any time the board realizes that the estimations were short or long, or some item does not any longer apply. It is important to document the reasons for revisitng the budget and explain the basis for the change when any change is made and a new budget or notes on the modifications are sent out to the members. It is important to make sure that the governing documents don't specifically prohibit mid year budget revisions. It would not make sense to me that there would be such a prohibition, however, there may be some clause that raises a question about mid year changes. There would be limitations on the amount an assessment could be increased if a budget item was missed and added later, or a cost increased such that the current assessment needed to be increased more than the Board could increase it without a membership vote. But lowering the budget and the assessment is much less likely to violate a covenant.

However, before lowering the assessments, make sure there are not other expenses that have been underestimated, and also look at whether alternate use of the income makes sense. An example would be if the earthquake insurance was dropped, but there were other things that might benefit the association - such as considering retrofits, self insuring to any degree etc. I am not recommending these things necessarily but I am suggesting that many things need to be considered before decreasing the budget and lowering the assessments. It would be unfortunate to be like the State of California and send out refunds for taxes to all Californians because of a change in the budget or needs of the State and to follow that with announcements that the budget would be insufficient for the coming year and taxes would have to be raised.

Posted by Beth Grimm at 8:32 PM

February 3, 2007

Voluntary Clean Up Committees - Should a Board Let the Risk Deny the Opportunity?

Here is a question asked today via email: "Our association wants to appoint a 'voluntary work crew' to clean up the common areas and do some planting of vegetation. Our members want to participate - however, the Board attended a seminar recently and the speaker said in this scenario an association needed each participant to sign a waiver of responsibilty to protect the association. Do you prepare these? Will they protect our association?"

Some associations have given up on volunteer work parties simply because they are aware that if someone gets hurt on such a crew, the association can be held responsible and end up in an expensive lawsuit. This association apparently does not want to scrap the project, but does want to do whatever is possible to protect the Association.

My answer was that I could prepare a waiver of responsibilty for owners who want to participate to sign. However, how such a waiver of liability holds up can be a quandry. It depends on what is asked/allowed and whether there is any kind of negligence leading to damages. An HOA (or any entity for the matter) cannot get out from under a negligence claim with a signed waiver of rights. The courts call it being unable to "exculpate" one's self from negligence by getting an agreement ahead of time. In lay terms, this means neither a person or entity can save themselves from a negligence legal claim by simply getting someone to sign a form that they will not make a claim. Don't mix this up with a scenario where someone signs a waiver that they will not sue if injured skydiving or doing something dangerous like that. The concept is the same. If the Association sends someone down a steep slippery slope (puts someone in harms way when it would clearly be their assumption that what they are expected to do would not be dangerous) to clear vegetation and the person slips and falls, it is conceivable they might successfully assert a claim. If a skydiving instructor forgets to tell a student that there is a back up safety pull for the parachute and that person is injured specifically because of that failure of communication, even though they signed a waiver, they would probably be able to assert a claim of negligence or worse, because something happened that suggested negligence.

There is much more to the inquiry than analyzing a simple waiver. Common sense can help figure it out. Each level of risk needs to be weighed against the level of protection and the balance that dictates whether "its" worth it is somewhere in between. No entity can insulate itself from a claim for negligence and if the negligence is there, the level of damages has a direct cause and effect relationship.

But don't let the fear of being sued prevent you from considering community based projects that might boost morale, save dollars, engender community, or clean up the neighborhood and let neighbors help neighbors.

Posted by Beth Grimm at 9:02 PM

Committees - How Accountable Do They Need To Be?

Should Committees be accountable for their meetings, decisions, and roles in the Association? Certainly, they should be formed and should operate in a business like manner and serve a purpose. How does that tend to happen? It happens when they have structure, and guidance, and instructions, and a functional purpose. It is more likely to happen when they have a "charter" or are appointed by a resolution of the Board that specifies who will serve, how they will be chosen/appointed/elected, how long the members will serve, what the purpose of the committee is, what kind of reporting is required to the Board, and whatever limitations may need to be stated.

Seem simple enough? Surprisingly, it is all too common that the Board members are conducting business and something comes up like, for example, a decision to look for a new landscaping contractor. A board member makes a motion to appoint a committee to bring information to the Board to help find a new contractor. Two of the board members volunteer (out of 5) and two owners sitting in the audience volunteer and voila, a committee is appointed. The meeting minutes reflect this. That is all they reflect.

In the ensuing weeks, the committee members communicate via email. They have no instructions so when disagreements arise as to how to go about it, they lose some precious time and have nothing to report at the next board meeting. The Board threatens to disband the committee. The appointees agree to try again. They contuinue to communicate, but do not really "listen" to each other. The two board members call a committee meeting and one of the owners comes, but not the other. They decide to interview landscapers. They start asking around for names. The 4th committee member (non board member) has a brother in law who happens to be a landscaper just starting a business. The other three decide they want to beat out the member with the brother in law and so they decide among themselves to choose one of the contractors interviewed.

At the next board meeting, one of the board members on the committee reports that the committee has interviewed 4 contractors, received bids for the work and signed up one of the contractors. No specifications were provided. to the contractors. They just asked for the usual "mow and blow" services. The 4th committee member pipes up that his cousin wants to bid the job and he has brought in the bid. He explodes when he hears that the other committee members already chose a contractor. He says the bid was much lower than the one signed by the committee. In fact, the bids are quite vastly different. No one on the committee has checked licenses or references.

The Board is quite offended. The committee was not supposed to commit the Association. And there is no followup to check licenses; no one checks references; no one investigages why there is such a difference in the bids (which are all produced on a one page tear off contractor form proposal), and of course, no legal review of the contract that is ending or the contract that was signed by the Committee Chair. The Board assumes it is stuck.

On top of all that, an owner asks for a copy of the minutes of the meetings of the committee. In California, owners have a right to inspect minutes of committee meetings. Of course, there are no minutes since everything was done via email.

Good committee experience? Not............ This association could be headed for trouble.

First of all, the committee exceeded its authority - it did not have the right to commit a landscape contractor. It did not do any due diligence with regard to followup regarding licenses, references, etc. It did not report progress to the Board or allow the Board the opportunity to meet with contractors or ask questions about disparity in bids. It did not consider that legal review might be important, and worst of all, it acted in haste with an improper purpose. And furthermore, it produced no minutes for the record.

Can the Board reverse the decision? That pretty much depends on whether the contractor was aware that the committee member did not have the authority to sign the contract. He or she may have even believed the committee member was a board member and had the authorization. It is possible that to get out of the contract, if that was where the board was heading, a big price would have to be paid.

Can the owner sue whose brother in law lost out because of an unprofessional bidding/contractor situation? There might be a "breach of fiduciary duty" claim looming here.

What about the owner who wants to see the minutes of the committee? Do they have a cause of action? Possibly, if there are damages that can be proved - but maybe not choosing the least expensive contract could be the basis for the claimed loss.

Or do owners who accuse the Board of not following the law (in this case allowing an operating committee not only to exceed its authority, possibly by providing no guidance, instructions or limitations, and failing to meet or produce minutes) even have to prove damages?

Failure to follow the law in California, and probably many other states, is considered "negligence per se". In lay terms, this means one does not have to prove any damages to win a lawsuit, and get an award.

Now, I am not suggesting everyone go out and sue their board for every technical statutory viiolation, regardless of whether damages or losses can be proved or not. But I am suggesting that proper appointment, use, purpose and procedures for committees and committee meetings are important, not just from the perspective of any owner that might sue. They are important practices that may make the difference with regard to the question of whether the Board successfully manages the association or it becomes one of those that is "doomed" in the end for lack of structure.

Posted by Beth Grimm at 7:55 PM