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February 9, 2008
HOA Owners Are Continually Confused By Assessment Limitations
About assessments ... sometimes when I write about assessments, I get questions back that I do not really understand, meaning I do not comprehend what is going through the minds of readers. So then I think it is time to try and explain.
Here are some such recent questions that were asked me by a reader:
"My questions to you are as follows:
Doesn't the quorum requirement stated in 1366 (b) below have to do with the HOA's ability to conduct the Special Meeting to discuss the Special Assessment, rather than the percentage of Membership approval?"
My answer to this is: The quorum requirement in 1366 clearly defines what percentage of owner approval is needed to approve an assessment that exceeds the legal limits as stated. It has does not dictate meeting requirements.
The statute says:
"(a) Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title. However, annual increases in regular assessments for any fiscal year, as authorized by subdivision (b), shall not be imposed unless the board has complied with subdivision (a) of Section 1365 with respect to that fiscal year, or has obtained the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election of the association conducted in accordance with Chapter 5 (commencing with Section 7510) of Part 3 of Division 2 of Title 1 of the Corporations Code and Section 7613 of the Corporations Code. For the purposes of this section, "quorum" means more than 50 percent of the owners of an association.
(b) Notwithstanding more restrictive limitations placed on the board by the governing documents, the board of directors may not impose a regular assessment that is more than 20 percent greater than the regular assessment for the association's preceding fiscal year or impose special assessments which in the aggregate exceed 5 percent of the budgeted gross expenses of the association for that fiscal year without the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election of the association conducted in accordance with Chapter 5 (commencing with Section 7510) of Part 3 of Division 2 of Title 1 of the Corporations Code and Section 7613 of the Corporations Code. For the purposes of this section, quorum means more than 50 percent of the owners of an association. This section does not limit assessment increases necessary for emergency situations. ...[ctd.]"
... And in anticipation of your questions, yes, the language of the statute is confusing.
Next question asked: "If not, why do HOAs need to have governing documents which contains different Membership percentage approval requirements, example 67% for Special Assessments? What about Corporations Code which permits higher percentages of Membership approval? How do those affect HOA governing rules and Civil Code?
Confusing question, yes? The answer I would offer is the Corporations Code does not govern assessment increases, the Civil Code does. And there are still many governing documents in existence that do not reflect what the law says accurately. In those cases, attorneys have to determine which controls, and I have already stated my interpretation of CC 1366 is that it controls.
And here is the last question posed to me: "Maybe I'm not understanding the statute (like you stated in the article...ha!)...Is, as in the aforementioned example, 67% considered more than 50 percent of the Owners of the Association?"
A 67% approval requirement is more than 50%. A majority requirement is more than a majority of a quorum. People often confuse quorum and voting requirements, and that is really understandable. For assessment increases that are put to a vote because they exceed 20% of the regular assessment or a special assessment that exceeds 5% of the budgeted gross operating expenses for the fiscal year, according to CC 1366, which I believe controls, more than half of the members need to vote, and of those that vote, more than half need to approve the assessment, for it to be valid.
I hope this helps.
One last word - the elections for assessment increases that need to be voted must be conducted using the elections procedures under Civil Code Section 1363.03. That form of voting requires distribution of a double envelope balloting packet and at least 30 days between sending out the ballot and counting them, so while the ballots may be counted at a meeting, according to California law, the vote may not specifically be "taken at a meeting".
Posted by Beth Grimm at February 9, 2008 10:11 PM