Dec 14

QUESTION: Can the board of directors overrule an architectural committee’s approval of a homeowner’s application?

ANSWER: Depending on how the committee is structured by your governing documents, an architectural committee either (i) makes recommendations to the board or (ii) has direct authority to approve or disapprove applications. In either case, the board has final say in architectural matters.

Board Options. In the first instance, the architectural control committee (ARC) makes recommendations to the board, which directors can accept or reject. The board makes the final decision. If the governing documents give the architectural committee independent decisionmaking authority, the board still retains control via four avenues.

1. Reconsideration. The first is when the ARC disapproves an application, the applicant can appeal to the board for a reversal of the committee’s decision. By statute, the board is given authority to reconsider and reverse ARC disapprovals.

2. Override ARC Decision. Where a committee’s decision is contrary to the CC&Rs (such as approving a structure in the setbacks), the courts have made it clear that CC&Rs control. Thus, boards can override an ARC approval so as to comply with the association’s governing documents. (See case law.)

3. Replace Committee Members. Nearly all documents provide that ARC members are appointed by the board. If the ARC refuses to reverse a decision, the board can remove committee members and replace them with members in line with the board’s wishes. (If committee members are elected by the membership, the board cannot remove them and will need court intervention.)

4. Seek Court Order. If the ARC cannot be removed by the board, it has the option of going into court for an order reversing the ARC’s decision. If, however, the disagreement between the board and the ARC is one of aesthetics rather than violation of the CC&Rs, the court will likely side with the ARC.

RECOMMENDATION: Make sure your association has clear architectural standards with application requirements, notice and review periods, rejection guidelines and, if appropriate, a reconsideration procedure. Where an architectural committee goes off the rails and makes decisions contrary to the governing documents, the board should immediately seek legal counsel.

THANK YOU!

I want thank everyone for their support and feedback this past year. You’ve been terrific. In addition to being loyal readers and critics, you visited our website 637,000 times with 3.1 million page-views.

In addition, you provided valuable suggestions for improving our website, which we are implementing.

Thanks to you, my firm continues to grow with the addition of five outstanding lawyers this past year. I deeply appreciate your confidence in our work.

May you and your families enjoy the holidays and have a New Year filled with peace, prosperity and happiness. From all of us at Adams Kessler, Merry Christmas and Happy New Year.

AK TEAM: Larry Stirling, Adrian Adams, Gary Kessler, Richard Witkin, Bill Dunlevy, Paul Ablon, Aide Ontiveros, Jasmine Fisher, Wayne Louvier, Cang Le, Karen Jacobs, Russ Higgins, Tina Chu, Eric Freedman, Nathalie Ross, Laura Whipple, Carolyn Houtz, Maureen Davidson and Laurie Paramore.

FEEDBACK

Caregivers #1. What about mobilehome senior communities? I thought they could restrict the age of caregivers. -A.L.

RESPONSE: You’re correct; mobilehome communities have a separate set of statutes governing them, two of which set the age restriction for caregivers at 18 or older. Civil Code §798.34(c) provides that owners can share their mobile home with any person over 18 years of age if that person is providing live-in health care or live-in supportive care to the homeowner pursuant to a written treatment plan prepared by the homeowner’s physician.

Civil Code §799.9(b) similarly states that an owner who resides in a senior mobilehome park may share his mobilehome with any person 18 years of age or older if this person is a parent, sibling, child, or grandchild of the senior homeowner and requires live-in health care, live-in supportive care, or supervision pursuant to a written treatment plan prepared by a physician and surgeon.

Caregivers #2. In your response to caregivers, I think HOAs should be wary of asking questions about health and responsibilities as it may violate privacy regulations. -Gary S.

RESPONSE: Agreed. HOAs can’t willy-nilly start asking health questions. Whenever the issue comes up, they should check with legal counsel about if and how to ask such questions.

Election Inspectors. We used the San Luis Obispo chapter of the California League of Women Voters as the Inspectors of Election. They handled all of the details, are independent and are free. That said, we made a contribution to their chapter. -Bob P.

RESPONSE: That’s definitely a step up from using the board president’s daughter.

*****

My Newsletter Picture. I don’t like the new picture of you in last week’s newsletter. It doesn’t look like you. -Mom

RESPONSE: I changed it back…mothers rule. Love, Adrian


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.

Dec 07

QUESTION: Is there any law on caregivers and how young they can be? We have children who are going to school and grandparents let them stay as caregivers. We are a 55+ senior community.

ANSWER: I asked attorney Cang Le to answer this one. Following is his response:

Not Defined. There is no age-limit for a caregivers in senior communities. The defined term is a “permitted healthcare resident” (Civ. Code §51.3 & §51.11) and they can be a family member of the senior as long as the care they provide is substantial in nature and necessary for the senior’s daily activities or medical treatment or both. Since California considers a 16-year-old mature enough to work and drive a car, it is likely they would be deemed capable of providing care to a senior.

Qualified Resident. The other category of persons permitted to reside with a senior is a “qualified permanent resident,” who could be a disabled child or grandchild.

Policies & Procedures. If an association is concerned with whether a person is really a caregiver or other qualified permanent resident, it can enact rules and policies which require any person residing with the senior to verify the care being provided (or the child’s disability and other information to confirm if the person is a permitted qualified person under the law, including a physician’s certificate).

Cang Le, Esq.
Adams Kessler PLC     

Nuisance. If the person becomes a nuisance or poses a threat to the health and safety of other residents, the association could enforce its nuisance provisions. The law provides a procedure to prohibit the person from continuing to reside in the community.

RECOMMENDATION: Ultimately, the association must balance the expectations of seniors living in a 55+ community and the law’s allowance of other persons to reside with a senior. That balancing act can be better managed with well-defined policies and appropriate enforcement of those policies.

PRESIDENT’S DAUGHTER
HOLDING BALLOTS

QUESTION: Is it proper for the daughter of the board president to accept all election ballots even though she lives in the complex as a renter and has no legal standing or right to vote?

ANSWER: I can’t think of an instance where it would ever be proper. Her status as a renter is not relevant, it’s the “daughter of the president” thing that’s bothersome. As provided in the Davis-Stirling Act, inspectors of election must be:

An independent third party…[and] may not be a director or a candidate for director or be related to a director or to a candidate for director. (Civ. Code §5110(b).)

Using the president’s daughter would be improper, even if she did nothing wrong. Surely in a nation of 316 million people, the board can find a neutral third party to serve as the inspector of elections and hold ballots.

RECOMMENDATION: Hire a professional inspector of elections.

ERIC FREEDMAN, ESQ.
JOINS ADAMS KESSLER

I am pleased to announce that attorney Eric Freedman joined our firm.

Prior Experience. Prior to joining, Eric specialized in business and real estate law. He had a full-service practice providing litigation and transactional legal services to high net worth individuals and middle market corporations drafting and negotiating legal documents such as contracts, lease and purchase agreements, promissory notes, representation agreements and corporate formation documents.

He also managed general and complex litigation including securities, entertainment, contract, tort and intellectual property matters.

HOA Law. As former president and then treasurer of his own homeowners association, Eric brings first-hand experience when counseling boards of directors. Because he is intimately aware of the issues boards face, Eric has a practical approach to problem solving.

In addition to drafting and amending governing documents for HOAs throughout California, Eric works with large condominium projects, planned unit developments, mixed-use and high-rise developments in contract negotiations, land use and easement issues, and corporate governance matters.

Litigation. Eric’s strong background in state and federal court litigation in complex commercial matters, administrative proceedings, and alternative dispute resolution forums gives him the experience to steer boards through contract disputes, rules enforcement, easement issues, and FEHA and ADA obligations.

Education. Eric earned a Bachelor of Arts degree from the University of California, Berkeley where he majored in Legal Studies and Political Science and was on the Dean’s List for academic excellence. This was followed by a Juris Doctorate with Distinction from the University of Iowa College Of Law. Eric served on Law Review as a writer and articles editor.

If your association would like a proposal for legal services, please contact us by email or by phone at (800) 464-2817.

FEEDBACK


Director for Rent. About the realtor/board member who violates CC&Rs with short-term rentals, the City of Santa Monica actively enforces its 30-day rental requirement. A code compliance officer will go to the property, knock on the door and interview the resident. -Vanda H.

RESPONSE: Owners running weekend rentals have been on the rise. They would rent by the hour if they could. However, prostitution carries a heavier penalty so they opt for slightly longer rentals. Some owners use Realtors while others use Airbnb. Short-term rentals violate zoning laws in many areas pushing out long-term renters and negatively impacting neighborhoods. Many municipalities throughout the state frown on the practice and can be called-upon to help HOAs stop hotel-like operations.


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.

Nov 30

QUESTION: In the event of a recall of the entire board is it necessary to vote at the same time for new directors or do we operate without a board for a brief period?

RESPONSE: An association should never operate without a board. By law, corporations are required to have a board of directors:

Each corporation shall have a board of directors. . . . the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. (Corp. Code §300; §7210.)

Replacing Directors. Since an association cannot operate without a board, you have two choices: (i) the recalled board stays in place until a new board is elected or (ii) a new board is elected at the same meeting as the recall.

Option #1. I don’t recommend leaving a recalled board in place. If the membership is so unhappy that it votes to remove an entire board, they tend to get emotional if the recalled board continues running the association for another two or three months while nominations are solicited and a second election held.

Option #2. Electing a new board at the same meeting is the better course of action. Before distributing a recall ballot, the board should solicit nominees and include them on the ballot. At the meeting, the inspector of elections first establishes a quorum. If there is no quorum, the recall fails and everyone goes home. If there is a quorum, the inspector publicly counts the recall votes and announces the results. If there are insufficient votes to remove the board, the recall fails and everyone goes home. If the recall succeeds, the inspector tabulates the votes for candidates and announces a new board.
 
RECOMMENDATION: Associations should amend their election rules to include a section on recall procedures. If your association needs assistance, contact me.

NIGHTMARE
ON ELM STREET

QUESTION: Our president has mismanaged our small association. We’ve been suspended as a corporation; taxes have not been filed for ten years; the building has not been maintained; our reserves were lost; the president used her personal checking account to collect funds; she refuses to enforce the CC&Rs; and our common areas are being rented for storage but we receive no funds due to a side deal. What can be done?

ANSWER: A small claims action should get you access to financial records, assuming there are any to review. You can circulate a petition to recall the president or wait until the next annual meeting to elect new directors. If your membership is so apathetic that they refuse to take action, I see large special assessments in your future for deferred maintenance, underfunded reserves, back taxes, corporate reinstatement, and legal fees.

RECOMMENDATION: If you’re a voice crying in the wilderness, it may be time to sell your unit and run. As the 1800s French historian and author of Democracy in America Alexis de Tocqueville famously observed, “In a community association, members get the boards they deserve.”

BOARD MEMBER
FOR RENT

QUESTION: We have a CC&R prohibition against rentals of less than 30 consecutive days. More than a dozen owners violate the restriction by posting on short-term rental sites. One of our board members is a Realtor. He is telling owners to ignore the CC&R prohibition who then pay him to handle their rentals.

ANSWER: It sounds like your board member is for rent. The scenario you describe is a clear conflict of interest and breach of fiduciary duties. Your errant director should be censured by the board.

Fines. If his activities continue, the board should hold hearings, fine the director and suspend his privileges for promoting and facilitating violation of the CC&Rs. This can be done under the nuisance provision of the CC&Rs. Your board should also amend its rules to make it clear to the ethically challenged that they cannot facilitate others in violating the CC&Rs.

Lawsuit. I’m not a fan of litigation but the board could also go into court for an order that he cease violating the association’s CC&Rs. He would likely have to reach into his own pocket to defend himself. The association’s D&O insurance would probably not defend since the action is for breach of CC&Rs and injunctive relief and because the action is being brought by the board against the director–something often excluded by D&O policies.

RECOMMENDATION: The board should take action against the  misbehaving director. Otherwise, the board itself is open to legal action by the membership. In addition, the board should adopt an ethics policy. To put teeth into the policy, the board can amend the bylaws to make signing and following the ethics policy a condition for serving on the board.

FEEDBACK

Recall Quorum. I strongly disagree with your assertion that ballots count towards whether or not members may adjourn a meeting to a later date. There is no communication to a member who has chosen to vote by mail that their presence may be needed or required in the event not enough ballots or persons attend an original meeting. This is contradiction to a communication I received from this law firm four years ago in regards to this very subject. -Richard P.

RESPONSE: That’s a blow to my ego…a differing legal opinion, who would have thought?


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.

Nov 16

QUESTION: The battle goes on in our community… the second recall election in six months! If they can’t make quorum, the petitioners believe they can adjourn the meeting to a new date with a lower quorum. I thought a recall died if it failed to meet quorum.

ANSWER: It depends on your bylaws. As you already know, special membership meetings are ridiculously easy to call. Only 5% of the membership need to sign a petition to trigger a recall meeting. That means quorum is the key issue.

Bylaws. Following is a typical bylaw provision:

In the absence of a quorum at a Members’ meeting, a majority of those present in person or by proxy may adjourn the meeting to another time… The quorum for such a meeting shall be at least twenty-five percent (25%) of the total voting power of the Association, present in person or by proxy.

No Exception. The provision makes no exception for recall meetings. Since recall meetings are membership meetings, a majority of those present can adjourn to a later date where the quorum drops to 25%. The unintended consequence is that a small number of members can recall an entire board. If only 25 of 100 members cast ballots, the recall meets the reduced quorum. Of the 25, only a majority, i.e., 13, are needed to approve the recall.

I find it troubling that in a 100-unit association, five members can trigger a special meeting and 13 members can recall an entire board. This scenario lends itself to a great deal of abuse as described in my October 26 newsletter. However, a careful reading of the bylaws with the Davis-Stirling Act provides some balance.

Majority of Those Present. The bylaws state that “a majority of those present…may adjourn the meeting” and the Davis-Stirling Act provides that:

each ballot…shall be treated as a member present at a meeting for purposes of establishing a quorum. (Civ. Code §5115(b).)

That means ballots count as members in the room. If 30 ballots were cast and only ten members physically attend the meeting and all ten vote for adjournment, ten is not a majority of forty. Therefore, the motion fails and the recall dies.

RECOMMENDATION: Rather than go through mental gymnastics, associations should amend their bylaws. I recommend eliminating cumulative voting, proxy voting, and quorum requirements for the election of directors (which eliminates the need for reduced quorums). All other meetings (including recalls) require a majority quorum.

Easy-Peasy. With those amendments, elections are easy. There are no reduced quorums and no cumulative voting calculations to create confusion. It’s a straightforward, two-step process. Did the petitioners make quorum? If not, the recall dies–there are no reduced quorum meetings. If they made quorum, did a majority approve the recall? It’s a straight up or down vote to remove a director or an entire board. No further calculations are needed.

If association’s have not already done so, they should update their documents with the above changes along with recall restrictions I described in prior newsletters. Doing so makes for low-cost, low-litigation elections. Contact me if you need assistance.

ABCs of HOAs

I will join a panel of experts in a program for board members that covers new laws affecting associations, insurance issues, collections and foreclosure, management responsibilities, budgeting and maintenance, plus questions from the audience.

This is a free event with a catered lunch and raffle prizes (including an iPad). The program will be held:

  • Saturday December 6, 2014
  • 11:00 a.m. to 3:00 p.m.
  • 7100 Hayvenhurst Avenue, Lake Balboa, CA 91406

Please RSVP to info@hoaorganizers.com or fax (818) 286-9434 or phone (818) 778-3331.

FEEDBACK

Director Loyalty #1. What if a board knows that rules are being violated and chooses not to enforce them? Would a director be expected to publicly support such a decision and keep silent about continuing violations? I think not. I don’t think a board member has a duty to support a decision that is contrary to CC&Rs or the law. -Bob W.

RESPONSE: Refusing to enforce rules is akin to the President refusing to enforce immigration laws–it makes a good campaign issue at election time. If your board actually approved a motion to stop enforcing pet restrictions (such as leash requirements), the board needs to make a rule change and put it before the membership for review and comment. If directors refuse, campaign like heck in the next election.

Director Loyalty #2. As long as a dissenting board member plays within legal, ethical and moral boundaries, they should be free to act as the respectful loyal opposition, to push their alternate agenda, and use whatever legal and appropriate tools at their disposal to challenge decisions and change outcomes. -Don H.

RESPONSE: I agree, provided they are respectful and play within legal, ethical and moral boundaries. Too often they don’t and that’s when I get pulled into the dispute.

Panty Thief. Earlier this year it was discovered that under-aged teens were having sex in one of the pool bathrooms. The board handled the situation in a timely manner and the activity, at least in the common area of our complex, ceased. Timeliness is the essence in such situations. -John A.

Ethics Policy. We need to remind boards that they should be looking to get a code of ethics in place before they need it. In addition, boards should not be emailing one another between meetings and should not put anything in writing that they do not want on the six o’clock news. Board members should remember that anything in an email can be inadvertently passed along. -Steve 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.

Nov 09

QUESTION: Does the “duty of loyalty” mean I have to support, in public, a position reached by a majority of the board? Am I precluded from publicly dissenting and making adverse comments?

ANSWER: You can dissent and make adverse comments in a board meeting when the matter is under discussion by the board. But once a decision is made, it’s time to move on. You don’t have to become a cheerleader for the board’s decision but a director goes too far when he undermines the board or the agreed-upon course of action. Such behavior can result in a breach of the director’s fiduciary duties.

Business Judgment Rule. When a homeowner is elected to the board, he/she automatically becomes a fiduciary and must follow the business judgment rule. That means the actions of a director must be in good faith, in the best interests of the association, and with prudent care. (Corp. Code §7231(a).) Stating you voted against the motion but support the board’s decision is okay. Disrupting operations, attacking fellow directors and undermining an agreed-upon course of action is not okay. It is harmful to the association and falls outside the Business Judgment Rule. When that happens, disruptive directors face personal liability.

Dealing with Rogues. If a director goes rogue, the board may have no choice but to censure him/her and, where appropriate, form an executive committee to exclude the director from sensitive issues. Any director who believes he must win all votes is really not suited to be on the board. If needed, the board can call a membership meeting to remove the director.

RECOMMENDATION: Once the board makes a decision, dissenting directors should either publicly support the decision or keep silent. They should in no way undermine the board. If the director cannot follow this policy, he/she should immediately resign from the board. Once off the board, the former director can publicly oppose the board’s decision, provided he/she does not disclose any privileged information.

CHANGING RESERVE
SCHEDULES


QUESTION: Our past board had a reserve study done. However, much of the information is inaccurate. As a new board are we bound by the study? Many items are in need of repair or replacement but we feel we may get in trouble if we act outside the reserve study. What should we do?

ANSWER: Facts on the ground, not the reserve study, dictate your maintenance needs. The study is merely a guideline and boards have the authority to take appropriate action when it comes to repairs. Moreover, they have the right to notify the reserve specialist of the changed circumstances so adjustments can be made to the study. If the reserve company refuses to update the study with more accurate information, it’s time to change companies.

NOTE: For a more complete explanation of the balance between reserve practitioners and boards, see reasonable reserve alterations.

SMART HOA
UPGRADE


Exciting New Features! Smart HOA management is a constantly evolving product that is powered by feedback from users.

We are happy to announce a new set of features and enhancements just released and immediately available to use! See www.SmartHOA.com for more information and contact us for a demonstration.

FEEDBACK

Panty Thief #1. Years ago there was a teenager in our neighborhood who was a panty thief. That escalated to arson. Non-action by a board in situations such as this probably will result in larger and more serious crimes. -John R.

Panty Thief #2. The problem that disturbed me much more than stolen laundry is that the man is “tugging on a girl’s underwear.” I would not want my girls touched by anyone with this fetish, disabled or not. Let something more happen and the board could be in trouble. Love your newsletters. -Trudy H.

Panty Thief #3. I read your article about the laundry thief. Ha. That happened to me decades ago. The police told me the same thing–it escalates and escalates. In our case, it had been escalating from one pair to two to… They also told me not to go to the laundry room by myself day or night. Scary! Thank you for addressing the topic. -Patty M.

Panty Thief #4. Congratulations on the article you wrote regarding boards who ignore potential liability. The article was informative and well written. -Roy S.

*****

Abusive Recalls. Your emails are must-reads for me. I appreciate the discussion of trying to limit abusive recalls. But one point may have been left out. In the association I live, the requirements for recalls are in our bylaws. There is no limit on the frequency in the bylaws. With what little I know about the law, I’d doubt the board could enact rules that go against the bylaws. -Henry C.

RESPONSE: You’re right, election rules cannot contradict your bylaws (unless your bylaws conflict with the law). If your bylaws are silent on the number of recalls, your election rules can establish reasonable restrictions. If your bylaws specifically state that recalls cannot be limited, then you must follow your bylaws.


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.

Nov 02

QUESTION: There is a man living in our complex who appears to have Down’s syndrome. He goes to the laundry facilities and steals women’s underwear and bras. He has even tugged on a girl’s underwear as she was bending over. The board is afraid of lawsuits and refuses to send the owner a letter. If anyone complains, they say “go to the police.” What can we do?

ANSWER: I passed this hot potato to attorney Jasmine Fisher. Following is her response:

Disability Rights. Your board may be unduly concerned about disability rights. Fortunately, the law only requires “reasonable” accommodation of disabilities. There is no law or case on record (yet!) that gives a disabled person the right to steal undergarments. That means your panty thief may create liability for your association if the board refuses to act.

Association Liability. While the association is normally not responsible for the criminal acts of a third party, Frances T. v. Village Green made an exception when the crime is foreseeable. In Frances T, the board knew about the increased crime in the area, failed to install exterior lighting Frances T. had requested (to make her unit safer) and actively prevented her from installing lighting. She was subsequently raped and robbed in her unit. The court found the association and its directors liable because the harm was foreseeable and they did nothing.

With your panty thief, it is foreseeable the thefts will continue and may escalate into something more physical. If so, your association could be liable for your board’s failure to act. Simply saying “Go to the police” will not remove the liability exposure.

Board’s Options. The courts provide a wide degree of latitude to board decisions so there is no right or wrong option, aside from doing nothing. The board can use the nuisance provision of your CC&Rs to call a hearing to warn the owner. If the behavior continues, fines can be levied (following another hearing). If that does not work, a letter from legal counsel threatening litigation can be next. Ultimately, a lawsuit may be necessary. If needed, the board can skip the early steps and jump to a lawyer letter and potential litigation.

Notice to Members. Should the members be warned? Notifying owners can be tricky. If you don’t notify the membership and your panty thief escalates to sexual assaults, your board could be sued for failing to warn the members. If the board says too much, they could be sued by the panty thief. It’s the same problem boards face when a registered sex offender moves into a complex. They can’t post a notice that sex offender Dilbert Smith moved into unit 301. They must be more circumspect.


Jasmine Fisher, Esq.
Adams Kessler PLC     

RECOMMENDATION: As JFK said, “There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.” To minimize legal exposure, boards who are aware of criminal activity in the development should coordinate with legal counsel for appropriate (i) action against the perpetrator and (ii) notice to the membership.

ASSESSMENT
COLLECTION

QUESTION: As part of our assessment collection policy, should late fees, interest, collection and management fees be listed in the our fee schedule and policy?

ANSWER: You can but you don’t need to. I asked my collection guru, attorney Richard Witkin. He pointed out that according to Civil Code §5310(a)(6) and (a)(7) associations must distribute information on collection policies and procedures to the membership. Section (a)(6) specifically requires distribution of the “Notice Assessments and Foreclosure” set forth in Civil Code §5730.

This notice requirement is somewhat general in nature but does review many of the specific code sections controlling collection of delinquent assessments. Section (a)(7) requires distribution of “A statement describing the association’s policies and practices in enforcing lien rights or other legal remedies for default in the payment of assessments.”

However, this latter section does not specify how detailed a description must be. Collection policies can vary from one page to ten pages or more. A specific listing of the exact amount of fees and costs is not required. Too much detail can make it difficult to comply 100% with the policy. These two sections are not to be confused with Civil Code §5310(a)(8) and §5850 which require distribution of a specific schedule of monetary penalties (fines).

WE ARE HIRING
A CLIENT RELATIONS
PROFESSIONAL

We are looking for a full-time client relations professional to assist our law firm’s growing client base and territory. The person must possess high energy, self-motivation and an understanding of the HOA industry.

The position requires travel, so a flexible schedule and reliable transportation are a must. The person will work out of our corporate offices in West Los Angeles.

Please contact Nathalie Ross at nathalie@adamskessler.com or by fax: (310) 945-0281.


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.

Oct 26

QUESTION: Our board is proposing election rules that prohibit more than one recall per year. What is your opinion?

ANSWER: It makes sense. There are dysfunctional elements in some associations that launch recall after recall to torment boards. They hover over each ballot count with another recall petition in hand in case the board survives their recall. The petitioners will force three or four recalls in a row to wear down directors to get them to quit.

Disruptive. This little band of crazies does not care that they disrupt operations and burden the membership with needless expenses. It is not unusual for them to become abusive with vendors and staff, make repeated demands for records inspections, and threaten lawsuits in an effort to coerce people into giving them what they want.

Reasonable Restrictions. Such behavior need not be tolerated. Associations can adopt election rules to deal with serial recalls. Because neither the Davis-Stirling Act nor the Corporations Code address this issue, we can turn to California’s Elections Code for guidance. California puts the following restrictions on recalls:

Recalls may not be started against an officer of a city, county, special district, school district, community college district, or county board of education if: (a) the officer has not held office during the current term for more than 90 days; (b) a recall election has been determined in the officer’s favor within the last six months; (c) the officer’s term ends within six months or less. (Elections Code §11007.)

RECOMMENDATION: Boards should adopt something similar. I recommend the following:

Recalls may not be started against the board as a whole or any individual director if: (a) the board or director has held office during the current term for less than 90 days; (b) a recall election has been determined in the board’s or director’s favor within the last six months; or (c) an annual meeting will be held within six months or less. Additionally, if a recall of the entire board fails, a six-month waiting period must be observed before recall petitions may be filed against individual directors.

This should limit abusive recalls. If you need assistance, contact me.

POLICIES VS. RULES 

QUESTION: What is the difference between a policy and a rule? When we create a policy, do we need to send it to the membership for thirty days for review and comment?

ANSWER: The difference confuses a lot of folks, so much so that rules are sometimes mislabeled as policies and vice versa. Rules tell residents what they can and cannot do, a violation of which can result in penalties. A policy or procedure describes how things are done. For example,

It is the policy of the Architectural Committee to only review signed, written applications submitted through the management office. The procedure, for submitting a written application is to obtain a form from the management office, fill it out completely, sign it, and return the application to the management office so it can be logged in. As part of our architectural rules, no work may commence without the prior written approval of the Architectural Committee. Violation of this rule may result in a $500 fine.

Adopting Policies & Procedures. Unlike proposed rules, the adoption of policies and procedures, whether by management, committees or boards, does not require a 30-day waiting period for member input. The reason for the difference is that rules have penalties attached to them, whereas policies and procedures do not.

RECOMMENDATION: If you’re not sure, have legal counsel review your rules, policies and procedures.

FEEDBACK


Missed Meetings. I think you made a mistake. I believe the Corporations Code allows boards to remove directors for missed meetings. -Jen M.

RESPONSE: You’re thinking of Corporations Code §7221(a). It does not give separate statutory authority for removing absent directors. Instead, it defers to a corporation’s bylaws. It states:

The board may declare vacant the office of a director…if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.

As I noted last week, the board cannot remove a director for missed meetings unless they first amend their bylaws to add attendance as a requirement. Even then, it would not take effect until the next election cycle for the absent director.


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.

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.

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.

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.