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August 28, 2007
Elections in HOAs in California -Round Two
It's been a year now that we have had a completely revamped elections system for HOAs in California (Civil Code Section 1363.03 and following). The final wrap up of the law came in September 2006, with clean-up legislation that made a complicated and imperfect set of laws somewhat less complicated and imperfect. We are still living in the fallout. Here is an all too common question that comes to me:
"Does the new law require us to change our governing documents?"
Apparently, some attorneys are saying that the answer is "yes". Some managers have decided the answer is "yes". However, the answer is an emphatic "No!" The law does not require amendments to the governing documents.
If there is any exception I have yet to see anything suggesting that. I have seen plenty of documents that present some challenging hurdles (like those below), but I have yet to see a set of documents that presents an impossible hurdle. There are ways to conform the rules to satisfy the documents, at least closely, and the law fills in the blanks for things that are unclear.
It is conceivable that in some cases attorneys say the documents need to be changed so that the Association documents will conform to the attorney's rules because the attorney likes his or her rules and does not want to change them. Maybe the rules are really good, and changing the documents is a good idea to simplify procedures. But still, amending the governing documents is not a legal requirement ... and rules can be adjusted to comport with every set of governing documents I have seen to date.
And then there is the problem of rules that were drafted either without any regard to what the governing documents say, or were drafted after the law was signed, and before it was "fixed". Check your rules! Here are some areas to consider, i.e., the most common areas of controversy:
Board Elections at the Annual Meeting. Obviously, under the new law, board member elections cannot be accomplished wholly at the annual meeting. But if the documents say that elections "shall" be held at the annual meeting, and if they say nominations shall (or possibly even "may") be presented at the annual meeting, then it is my belief that there should be an annual meeting involved in the process and the process must allow for nominations at the meeting. This takes some "finesse" in the process. I believe the annual meeting can be the culmination of the collection of ballots and counting (allowing for turnover of ballots at the meeting after the nominations) or it can occur during the balloting process (while the polls are open), or it can be used as the "kickoff" for the annual board election as a night for candidate statements, etc., and the ballots can be sent out afterwards. (They do have to be counted at a meeting but I believe it can be a board meeting after the annual meeting.)
Qualifications. Lots of Boards would like to add qualifications to the election rules. Since the law says that the rules shall contain qualifications, more and more people are asking what they are and liking what they hear. "Good standing" is a perfect example. It usually means current in assessments and not in violation of the governing documents, although some documents do not define it at all. But the last changes in the law specifically point to the fact that the qualifications to be in the rules are what appears in the governing documents. So yes, you may want to amend the documents to provide qualifications, so you can have them in your rules, but you do not want to prevent any person from running as a candidate based on disqualification, without the backing in the governing documents (most likely - the Bylaws).
Proxies. Some are apparently interpreting the new law to mean that proxies are no longer applicable and they cannot be used. The new law does not say that. In fact, it requires reflecting what is in the governing documents. The new law says that HOAs do not have to distribute proxies, and doing so can complicate the intended mail in balloting process, but it does not say it eliminates proxy use. In fact, the request was made to the legislator authoring the bill that proxies be eliminated, but he purposely did not go that far because it was quite controversial.
Adoption of Rules. Some associations amend their documents (owner approval is required) but do not adopt rules, being under the misimpression that the amendment of the documents is enough. It's not. Some associations have not adopted rules, some on purpose and some that simply have not heard about the new law or just heard about it. The law is clear - HOAs shall adopt rules. So buck up and get help and go through the process to get good rules!
Appointment of Inspectors: Some Associations are using managers or the HOA attorney without having any rules in place. You may get away with it once, but the law clearly says that if a paid vendor of the Association is going to be used, the rules must say that.
Cumulative Voting. Cumulative voting complicates things under a voting process that is accomplished for the most part by the mail. In fact, the California Corporations Code says that an election using cumulative voting cannot be conducted by written ballot. But the new elections law requires that cumulative voting be in the rules if it is in the governing documents. So it cannot be eliminated simply by changing the rules. Now this is a case where you definitely may want to seek an amendment to the governing documents; however, the new law does not require that you amend the governing documents - it just requires you to provide for cumulative voting if its in the documents.
The law certainly may complicate things, and things can be simplified by governing document amendments. However, there is no requirement to change the documents to fit the law.
Posted by Beth Grimm at August 28, 2007 9:59 PM