Condo Law in California

QUESTION: Who sets the agenda for board meetings? I’m concerned the board president may prevent discussion of needed items by refusing to put them on the agenda.

ANSWER: When it comes to setting board meeting agendas, any director may place items on the agenda. However, once an item has appeared on the agenda and has either died for lack of a second or is voted down, it may not reappear on future agendas unless requested by a director who was on the prevailing side of the first vote. (See Robert’s Rules of Order, section 37) Otherwise you will have the opposite problem where an eccentric director insists on placing the same twenty items on the agenda every meeting, even though those items are of interest only to that director and have already been discussed at previous meetings.

QUESTION: I am the president of a board and I have a director who insists that I can use the word “Other” as an agenda item to facilitate changes to the agenda that come in after the required posting date of the agenda. The way I interpret the new Open Meeting Act, I cannot add or remove any agenda items once the agenda is posted. Could you please respond to this??

ANSWER: I’ve had similar questions from other readers. One asked, “Can ‘Old Business’ and ‘New Business’ indicate all items under these headings without specifics?” Your understanding of the new law is correct. Boards cannot dodge the new law by creating broad categories called “Other†or “Landscaping” or “Contracts”, etc. and then throwing action items into those categories at the meeting. This has the effect of keeping owners in the dark since they will have no idea prior to the meeting what matters might be discussed and voted on at the meeting.

QUESTION: Last week you said there cannot be more than one assessment in any fiscal year. What if there is an emergency?

ANSWER: There are actually two exceptions. Although boards are limited to one 5% special assessment per fiscal year, boards are allowed to impose additional emergency assessments as defined by the Davis Stirling Act. The second exception is the membership itself. Although boards are limited to 5% per year, the membership may assess itself without regard to the size or frequency of the special assessments. As a result, you could have an unlimited number of special assessments in a twelve month period. As a practical matter, this will never happen because the membership is loathe to assess itself, and the board has strict limitations.

Adrian Adams

QUESTION: The board recently informed everyone that we are facing a large special assessment to reroof and waterproof our buildings. I don’t believe them. What can I do to stop the assessment?

ANSWER: In her 1969 book, On Death and Dying, Swiss-born psychiatrist Elizabeth Kubler-Ross outlined the five stages of grief of someone who is dying. Over the years I’ve witnessed owners going through the same stages when they face large special assessments. Following are the stages:

• Denial. “They don’t know what they’re talking about.” “The contractor is just looking for work.” “The repairs are not necessary.” “The board must be getting a kickback.” “Let’s recall the board.”

• Anger. “Who can we sue for this disaster?” “Management was incompetent.” “Let’s recall the board and sue somebody.”

• Bargaining. “Can we defer the repairs?” “Can’t we just patch the roof (until I sell my unit)?” “Are there cheaper alternatives?” “Will insurance pay for the repairs?” “The board is being unreasonable; let’s circulate a recall petition.”

• Depression. “I can’t bear the costs.” “This will force me to sell my unit.” “I can’t put my family through this.” “How do we recall the board?”

• Acceptance. “I’m ready, I don’t want to struggle anymore.”

Recalls. Unfortunately, some associations don’t make it to “Acceptance.” Instead, a small group of owners will lead a charge to recall the board and stop the repairs. Sitting directors will often throw up their hands and resign or be recalled. The new board then shuts down all work and fires everyone in sight. This usually leads to litigation from owners who are suffering from water intrusion and mold. Finally, after costly litigation, the association is forced to make the repairs originally proposed; only now they have legal fees and the repairs are more expensive.

Recommendation: Make the repairs. It’s cheaper in the long run.

QUESTION: If an association presently has a special assessment in place (which will continue through August) can the Board levy another 5% special assessment or do they have to wait until the first assessment is completed?

ANSWER: As long as the second assessment is levied in a different fiscal year, it can overlap the first assessment.

Adrian Adams

QUESTION: I believe there is an error in your last week’s newsletter. There is no difference between a 20% total increase in dues and a 20% increase on each variable assessment.

ANSWER: The variable assessments I referred to last week are also called “blended rates” because owners’ assessments are assigned using a uniform rate for some budget items and a percentage rate for others. These kinds of assessment formulas make it impossible to simply increase everyone’s assessment by a fixed percentage. For example, if the board increases the budget by 7%, some owners would have a 5 or 6 percent increase in their dues while others might receive a 7, 8 or 9 percent increase. The owner receiving the highest individual increase would be the benchmark for the overall increase. I should have made that clearer last week. Sorry about that. Fortunately, most associations use a uniform rate (everyone pays the same amount) or a pro rata rate based on the square footage of owners’ units. In either of these cases, a 7% increase in the annual dues would be the same for all owners.

SPECIAL ASSESSMENT TO
SETTLE LITIGATION

QUESTION: We had a case in which an owner sued the association because of mold. The board agreed to a settlement that requires a large special assessment against the membership. Since the assessment is greater than 5% of the association’s budget, is the board required to get membership approval?

ANSWER: In other words, does the settlement constitute an “extraordinary expense” as provided for by Civil Code §1366(b)? If it does, the board may impose the assessment without membership approval. If not, the assessment must be approved by the membership. The answer depends on the nature of the settlement. If it’s is a garden variety settlement, I do not believe it qualifies as an “order of the court” and the assessment would, therefore, require membership approval. If the settlement is a stipulated judgment, or the acceptance of a statutory offer which results in a judgment, then it might qualify. You board should seek legal counsel before imposing the assessment.

HOW MANY
SPECIAL ASSESSMENTS?

QUESTION: If the 5% limit on special assessments is law, is there any limit on the number of special assessments a board may levy in a single year?

ANSWER: There is no limit on the number of special assessments, only on the total percentage. In other words, the board can levy five 1% special assessments in a single year, or one special assessment of 5%. Once the board hits an aggregate of 5% of the budgeted gross expenses for that fiscal year, the membership must approve any further special assessments (unless the additional assessments qualify as emergencies). See Civil Code §1366(b)

Adrian Adams

QUESTION: Special assessments cannot be more than 5% of the budget. If the budget is $100,000, then the special assessment is $5,000. Is that $5,000 per unit or $5,000 divided by the total number of units?

ANSWER: The $5,000 is divided between the number of units according to the allocation schedule in your CC&Rs.

QUESTION: I have an association that has variable assessments. Increasing the budget by 20% would cause one group of owners’ individual assessments to be 30% over last year’s. Is this allowable?

ANSWER: No. By statute, the board may not increase any owner’s dues by more than 20% without membership approval. As a result, the budget increase is limited by the owner with the highest variable assessment.

QUESTION: Is there a time limit on the expenditure of special assessment funds for designated purposes?

ANSWER: There is no time limit unless imposed by the assessment itself or your governing documents.

QUESTION: We had a special assessment to paint the building. We are charging owners according to their percentage ownership in the common area. Are we obligated to show each owner what the other owners are paying?

ANSWER: Because the formula for each owner’s portion of the assessment is set forth in the governing documents, there are no privacy issues regarding the assessment–each person’s obligation can be readily calculated by others. Accordingly, the board should provide a breakdown of the assessment to any member who requests it.

NEW VENDOR DIRECTORY. We’ve added a new vendor directory to the website to better help associations find companies that specialize in serving community associations. If you know someone who should be in the directory, please let them know.

For $200 per year, vendors get their company’s name, address, telephone number, e-mail address and a link to their website. They can also add their company’s logo at no additional cost.

Adrian Adams