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July 7, 2007
Managers Giving Advice On Amending Docs - Be Careful ...
I received a question from a reader about amending bylaws. This is it:
"We were told by our management company that changes in the byaws could no longer be decided by the majority of the board but needed the majority approval of the voting membership just like the CC&R's. Is this true?"
Here is the long answer to the short question. There are two things going on that I think are important to point out:
1. What is required for document amendments; and
2. Is the manager giving legal advice on a question that should have been posed to an attorney. (By the way, I see some variation of this just about every day, sometimes innocently - such as a manager responding to a question by spouting what he or she learned at a recent seminar or by reading an industry journal, and sometimes with the intent of avoiding legal fees. )
So on to the answer to these two items:
There are instances where non material Bylaw amendments can be made by a Board (very few). Tthe Corporations Code allows for this so it would only apply to incorporated HOAs. See the following:
7150. (a) Except as provided in subdivision (c) and Sections 7151, 7220, 7224, 7512, 7613, and 7615, bylaws may be adopted, amended or repealed by the board unless the action would:
(1) Materially and adversely affect the rights of members as to voting, dissolution, redemption, or transfer;
(2) Increase or decrease the number of members authorized in total or for any class;
(3) Effect an exchange, reclassification or cancellation of all or part of the memberships; or
(4) Authorize a new class of membership.
I am not going to recite all of the exception statutes - they cover just about everything. Suffice it to say that the board could not make any material changes at all, and certainly none related to membership, voting, elections and recall, the number of board members, terms, or anything meaninful to the members. The safest assumption always has been that amendment of the Bylaws in a homeowners association requires membership approval and the requirement for the percentage is normally stated in the Bylaws.
When a board is considering amending the bylaws, it is always best to get good legal advice from a practitioner experienced in the particular field of law. Managers do not generally know the Codes as well as an experienced HOA attorney, nor have they seen as many mistakes or misconceptions as an experienced and educated HOA attorney (although there may be many that know more than an inexperienced HOA or non HOA attorney). And this situation is a particularly good example of how the answer can get convoluted by complicated laws. As for recent changes in the law ...
The changes in the elections laws for homeowner association that took effect last year (2006) may be what the manager was referring to, but I am not sure without talking to the manager whether he or she fully understands the impact of the new election laws. The new law does "muddy up the waters" because the new elections requirements do relate to document amendments. The new laws (in a nutshell) provide that anytime the Board is conducting an election to amend the bylaws (or other governing documents) the election must be conducted per the new double envelope secret ballot system . Some might loosely interpret it to mean that all amendments require membership approval but I do not believe that to be the case exactly. See the language:
"Notwithstanding any other law or provision of the governing documents, an election within a CID regarding assessments, election and removal of members of the association board of directors, amendments to the governing documents, or the grant of exclusive use of common area property pursuant to Section 1363.07 shall be held by secret ballot in accordance with the procedures set forth in this section.
So while it is true that the law does pertain to elections for bylaws amendments when an election is required, it does not require that an election be held for amendments to the governing documents. Likewise, it does not require any election of members to approve amendments to the rules, which are also included within the definition of governing documents.
There is a difference, as you can see. Perhaps the manager, in referring to a recent change, was referring to the new elections laws; but if the manager's "opinion" was stated correctly to me, and the change being explained to the board is stated as it occurred, it reflects a misunderstanding of the impact of the changes in the new elections laws. They do not force or authorize elections on any topic - they simply apply to situations where an election is warranted.
Understanding seemingly minor technical differences can be quite important.
So, to get back to the bylaws amendment question, if the Bylaws are silent on a membership voting requirement, and the HOA is incorporated, the statute recited above would allow some amendments without membership approval (assuming the proposed amendments do not fall into any of the exceptions that are noted which collectively cover just about everything important). And if no election of members is required, that no vote would be required and thus, the new election requirements would have no bearing on the process.
And now, you are probably asking - if the Bylaws are silent on voting requirements to amend, and the subject matter of a proposed amendment is material, then what happens? The answer: any measures that fall into the many exceptions to Board approval would still have to be approved by the members, per the Corporations Code.
So, again, the safest and most conservative position to take on considering amendments to the bylaws is that membership approval is required.
Now, the next question... should managers write bylaws amendments and prepare the voting materials?
I think that is fine, but I also believe before presentation to the members, a board needs to have its election rules formulated and if possible, in place, and needs to have a knowledgeable attorney review the proposed amendment measure to assure it is properly stated so that it does not raise other issues of some kind. A very common mistake in proposing document amendments is to propose a change in language, without identifying that it replaces or supplements existing sections or without proposing a necessary corresponding elimination of lexisting anguage in the documents that needs to be modified or eliminated. Without this extra attention, the Association can be left with difficult conflicts in language and impact as between the original document and the amendments.
And I imagine now you are thinking ... attorneys just complicate things ...
I respond ... contradictory and hard to understand laws provide fuel for the fire!
Posted by Beth Grimm at July 7, 2007 7:29 AM