Condo Law in California

QUESTION: Because of the new secret balloting requirements, we can’t get enough people to the annual meeting to conduct routine business, such as approving the minutes of the prior annual meeting. Can we skip the approval of minutes?

ANSWER: Yes, you can skip the minutes and leave them for the new board to approve. Normally, approval of the prior year’s minutes is an agenda item at the annual meeting. The secretary will often ask for a motion to waive the reading of the minutes and then ask for a motion to approve the minutes. The membership normally approves with a voice vote. However, it is permissible to leave the approval to the board of directors.

As provided for in section 48 of Robert’s Rules of Order, minutes that do not come up for review within a quarterly time interval, may be approved by the board. Allowing the board to approve minutes has the added benefit of posting meeting minutes within thirty days of the meeting, rather than waiting a year for the next annual meeting.

Adrian Adams

QUESTION: The board claims our reserves are badly underfunded and raised our dues by 20%. They plan to raise them again next year because our manager said we have too much deferred maintenance. I disagree. When I was on the board we always minimized repairs because we have older people who can’t afford high dues. Don’t you agree that boards have to take into consideration people who can’t afford their assessments? Can’t we wait until something breaks and let insurance pay to replace it?

ANSWER: Wow. Where do I start? The fundamental duty of boards is to properly maintain the common areas. Collecting sufficient assessments to carry out that duty is required by statute. Civil Code §1366(a) Deferring maintenance for the wrong reasons can be a serious breach of the board’s fiduciary duties.

Improper Deferrals. Deferring maintenance to avoid spending money or raising dues is very damaging to the membership because it (i) exposes the association to litigation and potential liability for damage caused by the deferrals, (ii) lowers property values, and (iii) increases the cost of the eventual repairs (which can result in huge special assessments). In addition, it may expose directors to claims of gross negligence, breach of CC&Rs, breach of statute (Civil Code §1364(a)), and breach of fiduciary duties. Under those conditions, the business judgment rule will not protect the directors from personal liability.

Proper Deferrals. Planned short deferrals (i) to raise funds for making repairs or (ii) to stagger repairs for scheduling purposes are considered acceptable business practices. Even so, boards must take care to protect members from any damage that might be caused by the delays.

Insurance. Boards who ignore their duties hoping to shift repair costs to the association’s insurance company are in serious breach of their duties. Insurance companies will not pay for deferred maintenance. The purpose of insurance is to pay for unexpected catastrophic losses, such as fires, storms, floods, etc. By floods, I do not mean plumbing failures due to negligent maintenance practices. Boards who think they can get a free ride by dumping it on the insurance carrier are incredibly misguided.

Adrian Adams

QUESTION: The president does not get bids for a repairs over $500. Isn’t that against the law? Aren’t directors required to get three bids anytime they spend the association’s money?

ANSWER: There is no statute requiring three bids. However, good business practice requires bidding for large projects. The threshold amount for seeking bids will depend on the association’s budget. Those with a $5 million budget annual budget will have will have a higher threshold before going out to bid than will associations with a $50,000 budget.

Small Projects. Boards will have difficulty obtaining bids for small repairs, Many contractors will not waste time preparing written proposals for a $700 project. For routine plumbing repairs, most boards will call a plumber who is familiar with the development and pay him as-needed to repair leaks. This is an acceptable business practice.

Large Projects. When it comes to large projects, such as replacing a roof, painting buildings, paving streets, etc, bidding is a good business practice. If a board receives a single bid of $200,000 to paint buildings, it is impossible for the board to determine the fairness of the proposal without competing bids. If the next two bids (from comparably licensed and insured companies) come in at $!60,000 and $152,000, then the board will know that the first bid is excessive.

Low Bid. Boards are not required to accept the lowest bid. Low bid is not always the best bid. The low-bidder may be small and inexperienced. He may be operating on a shoe-string with low levels of insurance, limited equipment and minimal staffing. If someone quits or equipment fails, your project will suffer. With a more established company, the chances are better the work will be done on time and on budget.

Specifications. A critical factor for bidding projects is the preparation of specifications. It will be impossible to properly compare bids if companies are not bidding the same work. For a large painting project, are all bidders power washing the exterior? Are they filling cracks and caulking around window frames? Are they using the same quality paint and applying it to the same thickness? To compare apples to apples, have a consultant prepare the specifications. Only then can boards truly compare bids.

Adrian Adams

QUESTION. There were three vacant seats on our board. Counting the ballots yielded two clear winners with a three-way tie for the third seat! What to we do??? Do we have to send out more ballots with double envelopes and hold another meeting, or is there another way to handle the tie?

ANSWER: Breaking the tie can be done by one of two methods. If the candidates agree, the winner of the third seat can be selected by flipping a coin for two-way ties or drawing names for three-way ties. If the tied candidates do not agree to this arrangement, you must hold a runoff election.

NO RIGHT TO E-MAIL LIST

QUESTION: I received a request from a board candidate to distribute a campaign letter via our e-mail database of homeowners. My question . . . are we required to give him our list? Are we required to distribute the letter for him?

ANSWER: No to both questions. Owners have a right to the membership list containing members’ names and mailing addresses, not their telephone numbers or e-mail addresses. If you distribute campaign materials for one candidate via e-mail or any other means, you must distribute materials for all candidates as well as any member who wants to express an opinion. Civil Code §1363.03(a)

PROXIES

QUESTION: Because of the potential for fraud, can we prohibit owners from using proxies altogether?

ANSWER: I’ve never liked proxies. When coupled with cumulative voting, they lead to proxy wars. Now that proxies must be two-page affairs with owners retaining the voting instructions, they are wide open to fraud. My preference is to ban them altogether. However, if they are provided for in your governing documents, you will need to amend your documents to eliminate them. If you amend your documents, you should also eliminate cumulative voting and quorum requirements for the election of directors. Talk to your association’s legal counsel or contact us about a package of amendments.

Adrian Adams