Oct 19

QUESTION: I need to know how many times a board member can miss meetings consecutively before being removed from the board.

ANSWER: There is nothing in the law about removing a director for missed meetings. That would be covered by your bylaws.

Bylaws. If your bylaws are silent, a director could miss every single meeting and the board would be powerless to address the problem. At best, the board could censure the missing director and ask the membership to remove him via a recall election.

RECOMMENDATION: You should consider amending your bylaws to make attendance at meetings a qualification for serving on the board. A common provision I use is if a director misses three consecutive regular meetings or a total of four regular meetings in a 12-month period, the board can vacate the director’s seat and appoint a replacement. If you amend your bylaws, you should include other qualifications as well. Let me know if you need assistance.

NONPUBLIC
BOARD MEETINGS

QUESTION: I recently read a statement of a local HOA with whom I do a lot of business (I’m a Realtor) that all association meetings are private. I believe this statement is false under Davis-Stirling.

ANSWER: No, it’s a true statement. Meetings are private in the sense they are not open to the general public. Associations are membership organizations–only those who own property in the development are members and only members have a right to attend meetings. (Civ. Code §4925.)

Board Meetings. Even so, boards often open their meetings to members’ guests and to tenants (unless they become disruptive). If a board decides to exclude non-owner Realtors from their meetings, they have the right to do so. Executive session meetings are closed to everyone, including members of the association, so the board can address matters of a confidential nature, such as personnel issues, member discipline, litigation, etc.

Membership Meetings. As with board meetings, membership meetings (such as the election of directors, special assessments, CC&R amendments, recall elections, etc.) are member-only meetings. Nonmembers frequently attend but do not have a legal right to do so.

PARTIAL PAYMENT
COURT DECISION

A court decision came down this week changing how associations handle partial payments from delinquent owners.

Previously, once an association initiated foreclosure it could refuse partial payments so as to ensure full payment of all monies owed including collection costs.

The court of appeals decided that homeowners associations must accept partial payments from owners who are in the lien or foreclosure stages of collection. If the partial payment reduces the owner’s delinquent assessments to less than $1,800, the association cannot foreclose (judicially or non-judicially) unless the remaining overdue assessments are more than twelve months delinquent.

Payment Priority, Fees & Costs. The court reiterated that any payments made by the owner must be applied to assessments first. (Civ. Code §5655.) The court did not say that the order of application of payments could not be waived by the owner in a payment plan. Nor did it say that owners who reduce their balances can avoid payment of foreclosure fees and costs.

Liens Remain in Place. Although this decision may impact some pending and future collection actions, the court did not require that liens be released when partial payments are made. So long as the delinquent owner is not misled into believing that his partial payment cures the default, the foreclosure can proceed (unless the balance falls below $1,800).

Payment Plans. The court did not state that associations are required to accept payment plans. As provided by statute, an owner may submit a written request to meet with the board to discuss a payment plan but agreement to the terms remain discretionary between the parties. To read the case, see Huntington Continental v. Miner.

RECOMMENDATION: Every HOA billing service, attorney and foreclosure trustee should have a “partial payment letter” that acknowledges receipt of partial payments but states that (i) the payment does NOT cure the owner’s default and (ii) the collection process will continue until payment in full, including all collection fees and costs (subject to the various requirements set forth in the Civil Code and case law).

Thank you to collection attorney Richard Witkin of Witkin & Neal, Inc. for his analysis of this case.

FEEDBACK

Management. Good response to the management question. In addition, the newly elected board should hold a meeting with management to review the past performance for areas of improvement, if any, as well as establish the board’s vision and expectations for management moving forward for the next year. -Tom Freeley, EVP Packard Management


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Oct 12

QUESTION:Our management company is trying to take over all board duties. I for one am against that. Can a board member perform certain duties within the association–like talking to vendors and current contractors to get information for possible work that may be planned?

ANSWER: A management company cannot take over an association on its own. It has no legal authority for such action. The company serves as a managing agent of the association and is given direction through the board of directors. As such, it has as little or as much authority as the board gives it. If a management company is out of control, it’s the board’s fault. 

Director Limitations. The same limitations are true for directors. Board members function within guidelines established by the board. Although directors have a duty of due diligence, they do not have the right to individually start questioning (interrogating as interviewees often see it) employees, contractors, members, and tenants without board approval. Doing so can lead to claims of harassment, interference with contractual relations, discrimination and constructive wrongful terminations.

Potential Liability. A director’s due diligence obligation can be satisfied by other means that don’t create potential liability. It can be done through the managing agent, industry experts and legal counsel. If a director wants to personally investigate a particular matter (and is qualified to do so), he should first get board permission. Otherwise, he may be incurring liability for himself as well as the association.

RECOMMENDATION: Each year following their annual meeting, incoming boards should meet with legal counsel to go over their rights and responsibilities as directors. It will help them avoid stepping on landmines during their tenure and function more cohesively as a board.

WHO OWNS THE
BALLOTS?

QUESTION: A third-party inspector of elections is denying a post-election ballot inspection by claiming the election materials belong to him, not to the association. He will permit an inspection when ballots are returned to the association in one year, at the point when the election can no longer be challenged! We say the election materials belong to the association and the inspector is merely the custodian.

ANSWER: You are correct. The association owns the ballots not the inspector. The election inspector is hired by the HOA to perform a service…count the ballots and hold them for one year so no one can tamper with them. As such, the inspector is the custodian not the owner.

Inspection Rights. Although limited, members have inspection rights.

If there is a recount or other challenge to the election process, the inspector or inspectors of elections shall, upon written request, make the ballots available for inspection and review by an association member or the member’s authorized representative. (Civ. Code §5125.)

Some take the above language to mean that an inspector is not required to produce ballots except for a recount or challenge. Refusing to produce them creates suspicion the inspector is hiding something. Moreover, to satisfy the statute a member need only state he intends to challenge the election. Accordingly, the better policy is to produce the ballots upon demand by a member.

No Right to Copy. Election materials do not fall under the list of records that members have a right to copy. (Civ. Code §5200.) There is no provision in the Davis-Stirling Act, the Corporations Code or the Election Code that provides for the copying of ballots or other election materials. Hence, members have a right to inspect but not to copy ballots.

Inspection Costs. Since professional inspectors do not work for free, there will be a cost associated with the inspection. The issue of who pays for the inspection is not covered by the Davis-Stirling Act. For guidance, we can turn to California’s Election Code. The Code requires the person requesting a recount to deposit monies with the election official to cover the cost. (EC §15624.)

CONCLUSION: Accordingly, it would be reasonable to require the person demanding the inspection to bear the cost. He can either pay in advance to the inspector or reimburse the association for the cost.  The Davis-Stirling Act gives associations general authority to impose fees to defray costs (Civ. Code §5600(b)). The payment method would be at the discretion of the inspector of elections, not the homeowner.

FEEDBACK

Dropped? Did not get my newsletter…did my email get dropped? It is like an institution for me to read it each Sunday. -Bill B.

RESPONSE: I took a week off and spent it doing some construction work for my folks. Now it’s back to the computer keyboard. Because of my schedule, there will likely be no newsletter next week as well.

Ethics. I read with great interest your article on “Good Faith Requirement” and how HOA boards should adopt an ethics policy and make sure directors follow it. I urge everyone to read your ETHICS POLICY for it goes far beyond a director’s financial conduct. Your well written policy goes a long way toward defining personal ethical conduct as well! -Sam R.

RESPONSE: Much obliged for the plug!

Executive Sessions
. Regarding your article on managers attending executive sessions, Yikes! Other than issues with the management contract, what other circumstances would it be in the best interest of the board/assn to exclude management from executive sessions? How could management be held accountable for carrying out board decisions if those decisions made cannot be disclosed to third parties (i.e. management)? Can you clarify? -Bob F.

RESPONSE: The industry standard is for managers to attend executive session meetings so they can provide information to the board, take minutes, and carry out any decisions that may come out of the meeting. When the meeting is about the manager, e.g., evaluations, raises, disciplinary actions, etc., the manager does not attend the meeting or is recused from that portion of the meeting.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 28

QUESTION: I listened to your webinar last week on reserves and have a question. You said that directors must carry out their duties in “good faith.” What does that mean?

ANSWER: As fiduciaries, boards are held to a higher standard. To avoid personal liability for their decisions, the Business Judgment Rule requires directors to act in good faith, in the best interests of the association, and with reasonable inquiry. The good faith element is sometimes referred to as bad faith or lack of good faith when the requirement is violated by a director.

Common Area Repairs. An example of bad faith is for a board to knowingly cause a vendor to breach his contract so the association can cancel the agreement and enter into a less expensive one with another company. The board is arguably acting in the best interests of the association (saving money by reducing the cost of the construction project) but they are doing so in bad faith. One enterprising board did this following the Northridge Earthquake.

Scheming. Their association suffered significant earthquake damage and entered into an agreement with a contractor for extensive repairs. After work commenced, a new director was elected to the board. He convinced his fellow directors they could save a lot of money if they hired a different company to do the work. The problem was how to get rid of the existing contractor. They met in executive session and schemed how to disrupt the work and make it impossible for the contractor to meet his obligations so they could fire him. Being conscientious directors, they recorded their meetings.

Judgment. The board carried out their plan and fired the contractor. He sued. The board’s tape recordings became Exhibit “A” in the proceedings. The damage award against the association was substantial and drove it to the edge of bankruptcy. Not only did the directors breach the requirement of good faith and fair dealing with the contractor, they breached the good faith element of the Business Judgment Rule and exposed themselves to personal liability.

RECOMMENDATION: Boards should adopt an Ethics Policy and make sure their directors follow it. They should reprimand or formally censure directors who violate the policy. And, depending on the seriousness of the breach and if permitted by the bylaws, remove the misbehaving director.

20-POUND DOGS 

QUESTION: Our CC&Rs say we can’t have a dog over 20 pounds. Does this violate Civil Code 4715?

ANSWER: Weight pound limitations on dogs are not uncommon in condominium projects, especially midrises and highrises.

Condo Limitations. In stacked condominiums with long elevator rides, a German Shepherd, Mastiff or Pitt Bull can be a scary proposition for passengers. Even if it’s friendly, a large dog can do a lot of damage if it is hyperactive and likes to jump onto people. Imposing a weight limitation resolves the safety problem for residents.

Pet Prohibitions. In my opinion, Civil Code §4715 does not apply to reasonable restrictions on size and breeds of dogs. Instead, it addresses blanket prohibitions.

No governing documents shall prohibit the owner of a separate interest within a common interest development from keeping at least one pet within the common interest development, subject to reasonable rules and regulations of the association.

Service Animals. Service animals are the exception to weight and breed restrictions. Such limitations do not apply to a service animal assisting a disabled person.

WHO CONTROLS
EXECUTIVE SESSION?


QUESTION: I am wondering if the board can exclude the manager (an employee of the management company hired by the HOA) from executive session meetings?

ANSWER: Yes, the board can exclude the manager. It’s the board’s meeting, not the manager’s. The only exception is if the board contractually obligated themselves to have their manager at every meeting or, in the reverse, never hold a meeting without the manager being present.

Save Money. If such a provision is in the contract, it tells me the agreement was not reviewed by legal counsel. Bypassing the association’s attorney allows the board to save a few dollars in the short term so they can pay a lot more later. It’s a business model used by many but not one I recommend.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 21

QUESTION: Our board approved next year’s budget with an increase in the monthly dues. The increase was not on the agenda and was not the subject of a separate board motion. Our manager said the increase did not require a separate notice and vote. Is this practice permitted by Davis-Stirling?

ANSWER: Your manager is correct. Approval of the budget is sufficient for any increase in assessments (up to 20%) that might be contained in the budget.

Assessment Approval. Approval requirements for an increase in regular assessments are found in Civil Code §5605. The statute requires that any increase must comply with reporting obligations found in Civil Code §5300(b). In summary, an increase is effective only if the board issues an “annual budget report” with the following:

  • A pro forma operating budget.
  • A summary of the association’s reserves.
  • A statement re any deferral of reserve item repairs.
  • A statement whether special assessments are anticipated related to reserves or reserve components.
  • A statement of how reserves will be funded.
  • A statement of how the reserves were calculated.
  • A statement regarding any outstanding association loans.

Budget Approval. The statute does not require a second, separate approval of the assessment increase. Once the budget has been approved by the board, the report must be distributed to the membership not less than 30 nor more than 90 days before the end of the association’s fiscal year. (Civ. Code §5300(a).) It can either be a full report or a summary. (Civ. Code §5320.) Failure to distribute the report within the reporting deadline nullifies the increase. (Civ. Code §5605(a).)

VOTING RIGHTS


QUESTION: We distributed a ballot for a CC&R amendment. One owner turned in his vote and then sold his unit. Must we discard his ballot and issue one to the new owner?

ANSWER: No. The owner of record when the ballots were mailed (the record date) is the one who votes, not the buyer.

DIRECTORS
ON COMMITTEES


QUESTION: Is there a law that limits the number of board members on a committee?

ANSWER: There is no limit on how many directors may serve on a committee. However…

Board Business. Once a quorum of directors gather at the same time and place to “hear, discuss, or deliberate upon any item of business that is within the authority of the board” a committee meeting becomes a board meeting (Civ. Code §4090(a).) When that happens, notice (with an agenda) must be given to the membership so they can attend.

FEEDBACK

Renter #1. Our association defines “renter” as anyone living in the unit who is not the legal owner. Is that wrong? -Jan Y.

RESPONSE: Your definition is too broad. What if the owner’s spouse is not on title? Is he/she subject to rent restrictions and exclusion from the property? So as to avoid potential legal problems, you should rewrite your definition. Contact me if you need assistance.

Renter #2. What about resident owners with roommates? What about guests? What about a resident owner who leaves a “home or pet or child sitter” while traveling? -Terence G.

RESPONSE: You need to cut back on your coffee. If the owner’s roommate occupies the same bed with him/her, they’re not a renter. If they occupy separate rooms, you can restrict room rentals if they are not “family” members. For guests, you should adopt rules defining them. Someone who stays a week is a guest. Someone who stays a year is not. A new guest every night means something else is going on. If you try to kick out a house or baby sitter while the owner is on a business trip, a judge would likely deem it unreasonable.

Renter #3. An owner (California) wants her son (New York) to keep his car parked in our condo association. We have limited space for parking and have a rule of one car per unit, two if there are two full-time residents with two cars. She is trying to say he is a full-time resident by having him open a checking account here and putting him on her deed, but he still lives in New York and visits a few times a year. The board says he is not a resident, she says he is. What determines a “resident” in this case? -June K.

RESPONSE: I agree with your board; he is not a full-time resident. You should amend your rules to define full- and part-time residents. A good start is defining a full-time resident as someone who receives his mail at the address and spends at least 20 days a month sleeping in the unit. You should work with legal counsel to develop your criteria.

Renter #4. Just wondering when Black’s Law Dictionary became legal precedence. -Mark G.

RESPONSE: The dictionary’s definitions provide case law cites which I purposely left out. Good I was not writing a Law Review article—I would have been dinged for the incomplete cite.

Renter #5. If an owner rents his condo, can he hold a position on our board? We have a small 5-condo HOA and our board president rents his condo here and resides in Washington. -George G.

RESPONSE: That depends entirely on your governing documents. If your bylaws are silent on the issue, he can serve on the board. If your bylaws restrict directors to full-time residents, he cannot.

Renter #6. I’m on a board of an association with high tenant occupancy, so we’ve had trouble refinancing. I’m also an appraiser and find it interesting that appraisers are not allowed by FNMA and others to state a property reflects “Pride of ownership,” ostensibly because tenants can have pride of ownership. So then why do they ban loans on properties with high tenant occupancy? -Brian C.

RESPONSE: I see the problem…you’re expecting rational behavior from a federal agency.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 14

QUESTION: What is considered a rental unit? We have individuals purchasing units, not living in them, but putting their children and grandchildren in them to reside.

ANSWER: Good question. If a nephew is given the unit while in college and pays the utilities but nothing else, is he a renter? If a man lets a woman stay in his unit because she provides him love and affection, is her affection considered rent? The Davis-Stirling Act does not define renter, lessee or tenant. For that, we must look elsewhere.

Generally Defined. Civil Code §1940 defines tenant as “persons who hire dwelling units…including tenants, lessees, boarders, lodgers, and others…” Civil Code §1925 defines hiring as “a contract by which one gives to another the temporary possession and use of property, other than money, for reward, and the latter agrees to return the same to the former at a future time.” Civil Code §1951 defines rent as “charges equivalent to rent.”

Conclusion. Rent is defined as consideration for the use or occupation of property. (Black’s Law Dictionary.) Consideration can be money, goods, services or other value. Accordingly, the gratitude of a relative or the affection of a mistress could both qualify as rent and the occupant deemed a tenant.

RECOMMENDATION: How associations define renters/tenants will impact how they answer lender questionnaires and how they regulate the use of HOA amenities. To avoid ambiguity, associations should work with legal counsel to clearly define “tenant” and tenant-related issues. If you need assistance, contact me.

Thank you to attorney Wayne Louvier in our Orange County office for his research on this issue.

30TH ANNIVERSARY
CELEBRATION

Next year is the 30th Anniversary of the Davis-Stirling Act. The Board of Directors of the Davis-Stirling Foundation will honor those who brought stability and transparency to community associations.

They did so by creating financial safeguards, disclosures, insurance protections, meeting guidelines and reserves that allow the now 14.5 million residents of HOAs to govern themselves.

For the Honorees, the Foundation is holding a black-tie dinner for 500 guests at the Fairmont Hotel in Newport Beach. The keynote speaker and other aspects of the celebration will be described as we get closer to the event.

To reserve your seat, you need to purchase a dinner ticket. You can also donate and/or join our growing list of sponsors for this once-in-a-lifetime gala. Go to DavisStirlingFoundation.org for more information.

LIEN NOTICE
TO MEXICO

QUESTION: Pre-lien notices must be sent via certified mail. What do we do if a homeowner lives in Mexico? Certified mail is not offered in Mexico.

ANSWER: According to the US Postal Service website, you can send First Class International mail and add a Certificate of Mailing. While this is technically different than Certified Mail, it offers the same function–it provides evidence that you sent the notice.

Since the return receipt feature and proof of delivery are not required by Civil Code §5660, the important feature in both Certified Mail and Certificate of Mailing is proof of mailing. Registered Mail is also available with First Class International mail but is more expensive. Although the primary purpose of Registered Mail is the insuring of valuables, it also provides proof of mailing.

Therefore both the Certificate of Mailing and Registered Mail options should be acceptable substitutes for Certified Mail when sending a pre-lien notice to someone in another country.

Many thanks to collection attorney Richard Witkin and attorney Wayne Louvier for their assistance with this question.

IGNORING YOUR
RESERVE STUDY

I will join Robert Nordlund, CEO of Association Reserves, Inc. in a webinar that will address three real-life scenarios and the natural, practical, financial, and legal consequences of different board decisions played out over 20 years:

   1.  Selling out (ignoring the advice in the reserve study and continuing to make woefully inadequate contributions).

   2.  Settling (ignoring the advice in the reserve study and making “baseline” funding  contributions.

   3.  Succeeding (following the advice in the reserve study and making “full” funding contributions).

Sign Up. The webinar will be held Wednesday, September 17. Click on the time you wish to attend: at 11:00 a.m. or at 1:30 p.m.

ASSEMBLY BILL 1738
UPDATE

Dear Readers,

Thank you for sending emails and letters to Governor Brown. You sent over 1,300 requests for a veto (and still counting). We are hoping your letters will turn the tide on this anti-consumer legislation.

I will keep you posted on the bill’s status.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 08

Dear Readers,

It’s not often I urge you to write letters. This is one of those times.

Existing Law. Currently, homeowners can informally resolve disputes without involving lawyers. It’s called Internal Dispute Resolution. It’s done without any expense to owners.

Legal Expenses Introduced. Unfortunately, an organization backed by lawyers pushed through Assembly Bill 1738. It is now on the Governor’s desk awaiting signature. This ill-conceived legislation inserts lawyers into IDR, thereby making the process adversarial and expensive. It means higher legal expenses for associations and increased potential for litigation.

 
Assb. Ed Chau

More Exposure. Moreover, the author of the bill, Assemblyman Ed Chau, rejected any attempt to protect statements made by homeowners from being used against them in subsequent litigation. He also rejected amendments that would have prevented “ambushing” parties with legal counsel.

Because lawyers can show-up unannounced and statements can be used in future litigation, parties may feel compelled to have legal counsel attend all IDR meetings so as to avoid inadvertent exposure. This is costly and harmful to homeowners and associations alike.
Train Wreck. To stop this train wreck from becoming law, you need to send letters and emails to Governor Brown urging him to veto the bill. Below is a sample letter you can use as-is or modify. You can do either of the following:

1.  Copy and paste the sample letter into an email and send it to office@caiclac.com,

OR

2.  Paste the letter onto your letterhead, sign it and fax it to (916) 558-3177.

Once received, emails and letters will be delivered to the Governor. Please share this with others and ask them to oppose AB 1738 TODAY.

*****
SAMPLE LETTER


Honorable Edmund G. Brown, Jr.
California State Capitol
Sacramento, CA 95814

Re:   Veto AB 1738

Dear Governor Brown,

Please veto Assembly Bill 1738.

Our existing Internal Dispute Resolution (IDR) statute provides a no-cost way to settle differences in community associations. AB 1738 takes away our rights by inserting lawyers into the process.

We already have a mechanism that uses lawyers through Alternative Dispute Resolution (ADR). We don’t need to ruin IDR by turning it into another ADR.

Not only does AB 1738 take away our no-cost resolution rights, it puts us at risk. It introduces lawyers without providing confidentiality protection. That means anything said in IDR can be used against us in subsequent litigation.

This anti-consumer legislation is harmful to homeowners. To protect our existing no-cost, low-risk resolution rights, I ask that you veto AB 1738.

Sincerely,


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Aug 31

QUESTION: When homeowner A locks his car, the horn beeps. Tenant B screams “I will blow that ****ing car up.” So, A locks his car during the day only, not at night. Unfortunately, B works out of his unit and naps during the day so he can work through the night. B is threatening to sue.

ANSWER: Your tenant sounds like an al-Qaeda recruit. First, put the association’s insurance on notice of a potential claim. I know it sounds silly but you need to preserve the association’s rights under its insurance policy.

Investigate. Next, your board has a duty to investigate the complaint and take appropriate action. If the horn really is a nuisance, “A” needs to stop using his remote. He can manually lock his car or have the beep disabled.

No Nuisance. If the board decides that a beep during the day is not a nuisance, the association does not need to get involved in a neighbor-to-neighbor dispute. The board should, however, document its actions and send a letter to the landlord with a copy to the tenant that it investigated the complaint and found no violation. So the board’s cars don’t get blown up, you may want your lawyer to send the letter.

NOTE: I don’t think it’s widely known but God made ear plugs for people with odd sleeping habits. They’re also cheaper than a lawsuit. The landlord should consider making the investment (or get a new tenant).

VOTING RIGHTS


QUESTION: We circulated a ballot to amend our CC&Rs. We had to extend the voting deadline three times to get enough ballots. One owner turned in his ballot and then sold his unit. Must we discard his ballot and issue one to the buyer?

ANSWER: The seller’s ballot is still valid. If he was the owner of record when ballots were distributed, he is the one with the right to vote. The buyer can vote in later elections.

CABLE TV
CONTRACTS

QUESTION: DRE regulations of the Real Estate Commissioner state on page 282 section (E) that cable contracts can be five years. According to your hierarchy of docs, does that trump the CC&Rs restricting any contract exceeding one year ?

ANSWER: As a side note, California’s Department of Real Estate was renamed the Bureau of Real Estate (perhaps to emphasize bureaucratic creep?). The Regulation you refer to is §2792.21 “Reasonable Arrangements–Governing Body Powers and Limitations.” Subsection (b)(1)(E) deals with the length of contracts.

Purpose of Regulations. The purpose of the regulation is to establish reasonable standards for developers to use when they form homeowners associations. A developer’s proposed CC&Rs must meet these standards or they won’t be approved by the BRE.

Hierarchy of Documents. The hierarchy you refer do does not trump your CC&Rs because there is no conflict. The regulation applies to developers of common interest developments and is concerned with  cable contracts that exceed five years. If the developer’s attorney drafted CC&Rs that restrict the board from approving contracts greater than one year and the BRE approved it, you’re bound by the restriction. Your board would need membership approval for any agreement with a term greater than one year.

RECOMMENDATION: Once the developer has sold his units and turned over control to the membership, you can amend your CC&Rs to modify or eliminate contract limitations. We routinely add longer contract periods when we restate documents for associations. It can also be done with a simple amendment. If you want to take advantage of reduced costs associated with longer contracts, you need to amend your CC&Rs. 

S&L BOARD LEADERSHIP
WORKSHOP

All boards are welcome to attend S&L Management’s annual “Board Leadership Workshop.” Attorney Cang Le from Adams Kessler, Michael Berg from Berg Insurances, Mike Graves from SCT Reserve Consultants, and Krystal Walker from Fox & Stephens CPAs will be guest speakers.

The event will be Friday, September 5 from 8:30 a.m. to 3:00 p.m. at Marie Callender’s Restaurant and Bakery in Temecula. Complimentary breakfast & lunch will be served during the program.

RSVP to Rosy Amlani at rosy@slammgmt.com or (951) 698-4030.

EQUITY BOARD SYMPOSIUM
RE: WATER CRISIS


Equity Management is putting on its Annual Board Symposium. There will be a speaker on the water crisis and how it affects HOA communities.

I will be part of a panel for an “Ask the Attorney” discussion related to the drought (and any other legal questions that may arise). This dinner event will be held on Thursday, September 4 from 5:00 to 9:00 p.m. at the Wilson Creek Winery in Temecula.

RSVP to Melissa Walker at mwalker@equitymgt.com or (951) 296-5640.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Aug 17

QUESTION: A condo owner in our building wants to rent his unit on a short-term basis between the times he comes into town. Our CC&Rs state that all units may only be used as a single-family residence. Would this be a violation of the CC&Rs?

ANSWER: Possibly. The shorter the rentals, the stronger the argument that the owner is using his unit for commercial activity rather than residential, which puts him in violation of the CC&Rs. You should have your attorney review the situation to determine if action can be taken. Your best bet is to amend your CC&Rs to set a minimum lease period. I favor one year.

OFFICERS AND
DIRECTORS

QUESTION: Our bylaws require that directors be members of the association. They also state that officers “shall be a President and a Vice President, both of whom shall at all times be Directors, a Secretary, a Treasurer and such other officers as the Board may from time to time by resolution create.” This has been interpreted to allow renters to serve on the board as long as they are not president or vice president. This seems to be an incorrect interpretation of our bylaws.

ANSWER: You’re right, it’s incorrect. People often get tangled up over the distinction between directors and officers. Homeowners elect directors, and directors elect officers. The qualifications for one can be entirely different from the other. Moreover, directors can vote, while officers cannot. When the president votes, he is not voting as president, he is voting as a director.

CC&R Interpretation. In your case, renters can serve as secretary and treasurer. As such, nonmember officers can attend meetings to fulfill their duties (taking minutes and giving financial reports) but cannot sit on the board because they do not meet director qualifications. Accordingly, seven people attend meetings: five directors (two of whom are officers) and two renters (both of whom are officers) but only the five directors make motions, deliberate and vote. For more information see: Director-Officer Differences.

ASSOCIATION’S
LEGAL COUNSEL


QUESTION: Can I contact the HOA’s legal counsel to verify an issue? I have been told my concerns are being presented to the lawyer for review and advice. Do I have the right to contact the law firm to verify this or to ask questions?

ANSWER: No, not really. Association attorneys represent the association as a corporate entity, not individual owners (nor individual directors). Unless the board authorizes the attorney to speak to you, it’s unlikely she would.

Two Problems. If the attorney takes your call, it creates two potential problems. First–who pays the bill? Second, if the attorney gives you any legal advice, it poses an ethical conflict for the lawyer if your interests become adverse to the association’s. As a result, HOA legal counsel will rarely take calls from homeowners.

FEEDBACK

Herb Garden #1. Your recommendation re “Herb Garden” is a hoot! Your newsletter is such a painless way to get our dose of Association reality. Keep up the great work! -Nancy H.

Herb Garden #2. Use common sense as Judge Larry S. suggested?? Judging from events at home and abroad, I’d say that ship sailed long ago. Maybe too many trips through the herb garden by those in control?? -Wayne W.

Herb Garden #3. I have to email you! Thank you for making me laugh this morning with your response on the herb garden question. I can’t stop laughing, maybe because I don’t cook. -Lorna L.

Herb Garden #4. Your tongue in cheek remark about being nice to anyone who smokes your herbs is lost in a haze of smoke! I suggest you stick to legal advice and leave the humor to the late night pros. -Tom D.

Herb Garden #5. Too funny! -Kit C.

Herb Garden #6. The board should review with their insurance professional the “Products and Completed Operations Hazard” coverage included in the typical HOA liability policy. While the “product” of herbs grown by the HOA may be considered covered, the policy language typically limits coverage to consumption away from premises owned by the insured. The caveat is coverage for goods and services designed for consumption on premises if that is the type of business the insured is in. As such, injury caused by food borne illness may not be covered if the HOA is the provider of the product. -Michael Berg, MBA, CIRMS, CMCA, Berg Insurance Agency

RESPONSE: Insurance is a riddle wrapped in a mystery inside an enigma.

*****

Election Tampering. Another option is to put the remaining directors on notice that if they don’t do something they would be in breach of their fiduciary duties. Next, I would confront the alleged offender with benefit of counsel in executive session and ask him/her for their resignation and then threaten to bring civil action for violation of the association’s rules. Third, I would notify the D&O carrier of the possible breach. I think they would be seriously concerned about coverage of an association that looks the other way when there is serious breach such as this. -Doug C.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Aug 10

QUESTION: Can our association be at risk for planting herbs in the common areas if someone eats them and becomes ill? Will our insurance cover us?

ANSWER: For those under thirty who get their meals from a drive-through window, “herbs” are plants used for flavoring foods. Cooks use the leafy parts of the plant. Can an association be at risk if they plant an herb garden? That’s unlikely.

The negligence standard applied to this issue will look to a foreseeable risk of harm. Is it foreseeable someone will pluck leafs from the plants and use them in their cooking? Yes. If is foreseeable they will keel over and die? No. Could they get an upset stomach? If they’re a bad cook, maybe. Could someone roll them into a joint and smoke them? With kids today, anything is possible. Is it probable? No.

RECOMMENDATION: I don’t see a problem with planting an herb garden. Since you raised insurance concerns, call your agent to see if the policy has an exclusion for herbs. I can’t imagine it does. Also, be nice to anyone who smokes your herbs, they could be the next president of your association…or the United States. You never know.

BALLOT TAMPERING

QUESTION: We have a director who was caught alone with ballots, shredding envelopes and making identifying marks on the inner envelopes. Can you shed some light on ballot tampering and what we can do if the director is elected to the board?

ANSWER: It’s appropriate that your question falls on the 40th anniversary of Watergate.

Election Standards. The California Legislature set clear election standards for tamper-free elections. It did so by requiring double sealed-envelopes (Civ. Code §5115), independent inspectors of election (Civ. Code §5110), and public opening of  ballots and tabulation of votes (Civ. Code §5120). Associations are also required to adopt election rules to meet these (and other) standards. (Civ. Code §5105.)

RECOMMENDATION: If election shenanigans are discovered and the director gets himself elected, the membership has four options:

1. The easiest is to sit on their hands and do nothing. This is popular in many associations but tends to be costly–a director without ethical standards running the association.

2.  The next option is to demand a recount and an inspection of the ballots. (Civ. Code §5125.)

3. A third option is to initiate a recall. If the evidence is clear, the membership can vote the scoundrel out of office. This requires a lot of energy, especially if you have cumulative voting.

4. Assuming the evidence is strong, members can bring a civil action for injunctive relief to void the election and order a new one. (Civ. Code §5145.) This requires a lot of money. However, it may be possible to take it to small claims court. If so, the cost would be minimal.

Thank you to attorney Cang Le for his work on this question.

WHAT HOA ATTORNEYS
NEED TO KNOW


Attorney Cang Le will be in San Francisco speaking to other attorneys on August 22, 2014 at the Practicing Law Institute’s program on homeowners associations.

Cang will address the legal structure governing HOAs and key management concerns for resolving conflicts between HOAs and owners. For more information, see Practicing Law Institute website.

FEEDBACK

Legal Advice #1. I love this newsletter. There are reasons to ignore an attorney’s advice. One reason is if the advice is clearly incorrect (or if the attorney does not carefully explain why they think they are correct when we think they are wrong). -Bert D.

RESPONSE: Also, if it’s clearly wrong, it may be time to get a new attorney.

Legal Advice #2. It behooves anyone making decisions to weigh the attorney’s advice along with any and all other information they have gained over a lifetime before putting their fame or fortune at risk. As I always told the jurors in my court: “You are not required to leave your common sense outside the courtroom. Bring it with you. You are the eyes, ears, and conscience of the community.” So too are board members “the eyes, ears, and conscience of their HOAs and the people who live and work there.” They should listen to everybody all the time, including the attorneys but not exclusively to the attorneys. -Larry S.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Aug 03

QUESTION: A new board wants to review the executive meeting minutes for the last two years. Only one member of this five member board is an incumbent. Does the new board have the right to review another board’s executive meeting minutes and if so, how far back can they demand?

ANSWER: With some narrow exceptions, all board members have the right to review all executive session minutes as far back as they want to go. It does not matter that they were not on previous boards.

Exceptions. Minutes are the historical records of the corporation. By statute, directors have the right to review them. Even so, despite the broad language in the Corporations Code, the right is not absolute. Courts have carved out exceptions involving privacy issues and conflicts of interest.

RECOMMENDATION. If your board has concerns about records as they relate to a specific director, they should talk to legal counsel.

HOARDING WEBINAR
FOR MANAGERS

Attorneys Jasmine Fisher and Cang Le will be presenters in a Webinar Series for managers put on by the California Association of Community Managers. The topic will be “Boxes, Bugs and Blights: How to Combat Hoarding in HOAs.”

The webinar will provide managers with an in-depth review of what qualifies as hoarding, provide strategies for dealing with hoarders, and identify resources that can be used.

The webinar will be held on August 19 from 11:00 am to noon. All community managers are invited to attend. CCAMs earn 1 CEU. Learn more and register at CACM Webinar Series.

FEEDBACK


Ignoring Legal Advice. I found your article extremely interesting. I’m afraid some will take your comments to mean boards can ignore  advice they disagree with. Could you please clarify what you mean? -Marc B.

RESPONSE: A careful reading of my article would not lead to that conclusion. But, I have no doubt some  knucklehead on a board somewhere would do just that or, in the alternative, advocate attorney shopping until he gets the opinion he wants.

Clear Direction. A good HOA attorney will always tell directors what they need to hear, not what they want to hear. Some legal opinions are crystal clear, “No, you can’t do that!” Or, “If you want to call a meeting, here is what the law requires.”

Options. Many times, however, boards are presented with options–Option A or Option B (and sometimes, Option C). The board must then weigh the risks and rewards of each and make a business decision. The attorney might recommend Option A. But, because they are all viable options, the board might weigh factors differently and choose Option C.

Business Judgment. Did they just ignore legal counsel and breach their fiduciary duties? No, they listened, weighed the choices and arrived at a different conclusion. Is it possible there could be fallout? Certainly. If Option C goes badly, so could the membership. Nonetheless, directors are protected from personal liability if they followed the Business Judgment Rule.

*****


Citizen’s Arrest #1.  I wish ALL would follow Linda H’s way of thinking before barking! Common sense is good for the mind and it’s actions. As for George G. and his remark, that is what a newsletter is intended for, helping and protecting no matter what the topic is. It is disturbing if you think this behavior should be on display for all eyes young and old. -Steve C.

Citizen’s Arrest #2. Judging from George G’s remarks, he must engage in the same behavior as the neighbor in the next building. -Will B.

Citizen’s Arrest #3. My comment for George G: If he is exposing himself publicly even through his window he is not “legally viewing” and obscenity and indecency are “illegal content” per the Supreme Court. So I think AK is giving sound legal advice. -Rich S.

Citizen’s Arrest #4. Perhaps George G. might be the one viewing the “legal” movies with his drapes open! He should be the one ashamed of himself! Thanks for my laugh this morning! -Nat R.

*****


Empty Pool. Our HOA considers the pool water a good source for non-potable needs during a disaster.  -John M.

RESPONSE: A valid consideration. An earthquake could rupture water lines with a complete shutdown of the system (as just happened in Los Angeles with a loss of 20 million gallons of water), leaving homeowners with no water for days or weeks. A pool full of water could be a Godsend.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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