Condo Law in California

QUESTION: I have been told that I will be fined if I continue to email the board instead of directing my comments and questions to the management company. Is this legal?

ANSWER: Yes, you can be fined for continuing to send emails once you’ve been told to stop. Directors are volunteers and have private lives. They don’t sign on for round-the-clock emails (or phone calls) from members. Matters affecting the association can be addressed via the management company or during open forum at board meetings. Accordingly, the board may rely on the nuisance provision of the CC&Rs for the fines or it may adopt specific rules regarding harassing emails and phone calls.

PAYING TAXES

QUESTION: We are a 6-unit unincorporated condo association. Do we have to file a tax return? We have never done so and were now wondering if we are out of compliance.

ANSWER: Being an unincorporated association does not exempt you from filing an income tax return. For federal purposes, unincorporated associations still file as if they were incorporated. For California, if taxable income is less than $100, a California corporate return is not necessary. Additionally, most associations have filed for exemption status under Revenue & Tax Code §23701t and must file an annual information return (Form 199). If the association’s average revenue falls below $25,000, Form 199 is not required.

Thank you to Steven Schonwit of the Schonwit Consulting Group for his information on answering this question.

TURNING OFF WATER

QUESTION: In regards to suspending privileges, is it possible to suspend partial water privileges? For instance, can a plumber go into an owner’s unit who lives below the deadbeat and install turn-off valves for the unit, so they have some water but making it difficult for them to either bathe or do their dishes?

ANSWER: No.

SOLAR PANEL LOAN

QUESTION: Our board is considering securing a 5-year loan for the purpose of installing solar panels to generate electricity and solar heating for our pools. We estimate the costs will be almost completely off-set by the savings in our gas and electric expenses. We plan to submit a ballot to all home owners to confirm approval from a majority before we proceed. Is this required? And how will this indebtedness impact individual home owners?

ANSWER: If the loan requires a special assessment of more than 5% of the budget, you need homeowner approval. The indebtedness should have no effect on owners’ credit since the loan will be to the association and not to individual owners.

CHANGING POOL HOURS

QUESTION: Can the board change the hours of the pool without a vote from the homeowners?

ANSWER: As part of its management authority, the board can establish and modify pool hours without a vote of the membership. If members are unhappy with the decision, they have recourse by electing directors who are more responsive to their wishes.

ARCHITECTURAL COMMITTEE

QUESTION: Is it a requirement that HOAs have an architectural committee? Or can the board of directors make architectural decisions?

ANSWER: It depends on your governing documents. If the documents do not call for an architectural committee, then none is required and the board can review and approve architectural submittals. Most governing documents require the appointment of a committee. If so, the board must appoint members to the committee. Some documents allow the board to serve as the committee if no committee members are formally appointed. I recommend amending your CC&Rs so the board automatically becomes the architectural committee if committee members are not specifically appointed. Otherwise, you may have legal challenges to architectural decisions.

We provide a free Job Market where associations and management companies can post job openings. If you are looking for a manager, manager assistant, maintenance supervisor, etc. the Association Job Market gives you quick and easy access to industry specialists.

Job Alert. In addition, we provide free automatic email notification to job seekers whenever a new job is posted. This “Job Alert” service quickly brings managers and employers together.

Salary Surveys. Our website also provides the results of salary surveys to help boards determine appropriate compensation levels for management candidates. We update our surveys every two years and will be conducting new ones in the next few months. If you are an onsite manager and wish to participate, please notify Adriana Hernandez.

NUMBERED BALLOTS

QUESTION: Our board recently mailed secret ballots to homeowners to vote on a proposal brought to the board by a homeowner. However, we noticed that every ballot was given a number before mailing them. Doesn’t the ballot numbering effectively make them no longer secret ballots, since the board may have a list identifying which ballot went to which residence?

ANSWER: The numbering on ballots might be an innocent control mechanism to ensure there are no duplicate ballots so as to prevent ballot box stuffing. This system was used by many management companies prior to the new election requirements in the Davis-Stirling Act. However, since all voting must now be done be secret ballot (Civil Code §1363.03(e)) there should be NO markings on ballots that could be used to identify voters.

MANAGEMENT PROXIES

QUESTION: At our last annual meeting, some homeowners designated the management company as their proxy. Other owners voiced concern over possible conflicts of interest since the next board would determine if that company’s contract would be continued. When the question was raised as to who could act as a proxy, the manager claimed that even a dog could be designated as a proxy. Is that true?

ANSWER: Although the Corporations Code does not restrict who may act as a proxyholder, the Davis-Stirling Act does. It limits proxyholders to members only. Civil Code §1363.03(d)(1)(A). As a result, neither a dog nor the management company may serve as a proxy.

SIGNED BALLOTS

QUESTION: If owners sign their ballots, does it invalidate them?

ANSWER: No, signing ballots does not cost owners their votes; they simply lose their anonymity. Restrictions on signing are imposed on associations, not owners. As such, associations can not require that members sign their ballots. Civil Code §1363.03(e). Hence, inspectors of election should not invalidate an owner’s vote just because they inadvertently signed their ballot.

CHECK SIGNER MARRIED
TO CHECK MAKER

QUESTION: Our treasurer is the primary check signer; he is also married to our office clerk who prepares the checks. Is this spousal relationship in conflict with the Davis-Stirling Act???

ANSWER: The arrangement is not illegal, but the board could be deemed negligent because the arrangement lacks internal financial controls. Because the check maker and the check signer are married, (i) the signer might not examine checks and invoices for accuracy or (ii) the two could conspire to embezzle funds. It does not mean they will, but the association is vulnerable. The more prudent course of action is to make someone else treasurer and remove the existing treasurer as a signer on the bank account. This protects everyone, including the office clerk and her spouse/director.

QUESTION: The vice president of our board has sold his place and is moving. Another person will be appointed to take that board member’s seat. Does the new director automatically become vice president?

ANSWER: No. The office remains open until the board decides who to designate as vice president.

WRITE-IN ELECTION
FOR RESIGNED DIRECTOR

QUESTION: I had a temper tantrum and resigned last summer after a dispute with another director. At our annual election, homeowners voted for me as a write-in, so I was elected. I just received a letter from our management company that says the “nomination is considered invalid due to my resignation.” Can they keep me off the board?

ANSWER: Unless your governing documents state otherwise, your resignation from one board does not disqualify you from being elected to future boards. As provided for in Civil Code §1363.03(a)(3), qualified candidates may nominate themselves to serve on the board.

QUESTION: Our board president for the last 9 years has ALSO been the manager of our HOA. He RULES the board and claims the board appointed him as manager. He gets $30,000 a year. Since we are a nonprofit corporation I thought directors are NOT supposed to get a salary.

ANSWER: Undoubtedly his salary is earned as a manager, not as a director. However, the two roles are hard to separate and this creates significant conflicts of interest. It is not “illegal” for the president to also be the paid manager but it is an unhealthy arrangement. If the membership were smart, they would end the arrangement by (i) removing the manager from the board or (ii) replacing the manager with an outside management company. If the membership is content with the current set-up, at some point they will suffer the consequences and will have no one to blame but themselves. As de Tocqueville observed, “In a democracy, people get the government they deserve.”

MANIC BEHAVIOR

QUESTION: When I was manic last year, I put trash in front of another homeowner’s door and during the period of one hour, I walked back and forth to her door 13 times which was on the surveillance camera of the pool deck. The board fined me 13 x $200 = $2,600 saying it was justified even though it was one incident. Now they are threatening to file a lien on me if I don’t pay it in 30 days. They refused internal dispute resolution and alternative dispute resolution. Can they refuse my request?

ANSWER: Your manic behavior probably scared the daylights out of everyone and earned you a well-deserved fine. The size of the fine may or may not be deemed reasonable by a judge. It will depend on whether the judge believes your actions constitute one incident or 13 incidents. You’re lucky the owner didn’t seek a restraining order. Regarding the threat of a lien, the board cannot lien your unit for unpaid fines. Civil Code §1367.1(e) As for ADR, the board is not required to accept your request for mediation or arbitration. However, the board should not refuse your request for “internal dispute resolution.”

READER FEEDBACK

Firing Contractors. I strongly disagree with your advice about terminating contractors in executive session since it only further promotes a lack of transparency. Any and all issues regarding contractors that the general membership is asked to underwrite, vis-à-vis their association dues should not be kept from those who attend meetings as it will only promote further clandestine actions and/or discussions by the board if they can get away with discussing issues (such as terminating contractors) that are not in fact reserved for executive sessions. -K.D.

Response. Balancing transparency and protecting the association from liability is never easy. Feedback from Tom Frutchey below may offer some balance -Adrian Adams

Transparency. I think the board’s discussion regarding termination of a contract should, as you relate, take place in executive session. I suggest the best practice should be to notice the consideration of termination of the contract as an open session item and, after the executive session discussion, to hold the board vote for the termination in open session. -Thomas Frutchey, CCAM, AMS

Verifying Violations. I do not think you addressed the question asked in “verifying complaints.” Note that the question of the homeowners being anonymous was not raised in the question. It appears to me that the question simply asked if the board can take their word or does a board member have to witness it. I cannot imagine that the latter is correct. -J.S.

Response. The board still needs to hold a hearing but it does not need to independently verify the complaint if the witnesses are willing to testify. If neighbors testify to the violation and the accused denies it (he said, she said), the board can still decide whom to believe and impose penalties if appropriate. -Adrian Adams

Quorum Failure. I do not share the same view as attorney Richard Neuland in not holding meetings if continued quorums are not met. If the CC&Rs include a provision or clause requiring annual meetings, the HOA is in violation of the CC&Rs if the meeting is not held annually, whether quorums are met or not. -W.H.

Response. I’m not aware of any statutory or appellate case opinion which compels such efforts. Rather, I subscribe to the position that CC&Rs are to be interpreted as the courts look at contracts and statutes. That view requires the reading of the word “reasonable†whenever an act is required but there is insufficient information or direction in the writing to cover the situation in question. For example, if the writing specifies that a fee will be paid for some privilege or activity, but the amount of the fee is not specified, the courts will consider it to require the payment of a “reasonable†fee. I view the CC&R or Bylaw provision requiring an annual meeting as compelling a “reasonable†effort or attempt to conduct a meeting. Nothing less is sufficient, and nothing more is required. -Richard Neuland, Esq. of Neuland, Nordberg, Andrews & Whitney

Board Positions if Quorum Fails. With regard to ending further attempts at holding an annual meeting, what would happen if there was competition for the board positions. Does the existing board continue or what? -A.Z.

Response. The Corporations Code explains that a currently seated director remains in his/her position as a director until the expiration of his/her term and the election of a successor. If a meeting is not held because no quorum is established then the current director remains the director until the successor is elected or the current director is lawfully removed and is replaced or resigns. -Richard P. Neuland, Esq.

Flowers. In your example of a side discussion leading to the board scheduling an item for decision, there is a suspect element; that is, the suggestion that money could be borrowed from the reserves for planting new flowers. There are pretty strict limits on borrowing funds from the reserves, and a relatively routine thing like plantings would seem an odd action for such borrowing. Would it not make more sense to spend funds from operations? -S.F.

Response. That’s why the issue needs to be discussed at a board meeting in open session. The board needs to determine what it will cost and how to properly fund the project. If they have a line item in the reserves for plant replacement, it can be paid from reserves. If not, it should come from operations. If operational funds are not available, the board will need to special assess the membership. Membership approval will depend on the amount being assessed. -Adrian Adams

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FIRING CONTRACTORS IN
EXECUTIVE SESSION

QUESTION: I received two conflicting attorney opinion letters on whether the termination of a contractor must be done in open session. What is your opinion?

ANSWER: Although terminating a contract is not one of the approved categories for executive session (Civil Code §1363.05(b)) canceling contracts should be done in executive session. Before ending a contract, boards often engage in a wide-ranging discussions about problems with the contractor, possible legal consequences related to the termination, and input from legal counsel on how best to minimize legal exposure. If the debate were done openly, it would compromise the association’s legal position and expose the board to potential claims from the contractor. Accordingly, discussions related to the termination should take place in executive session. It goes without saying that anytime the board contemplates terminating a contract, it should get advice of counsel.

REMOVING COMMITTEE MEMBERS

QUESTION: Is it possible to vote a member off a committee if he/she works against the committee and gives out inaccurate information presented by the committee?

ANSWER: Unless your governing documents provide otherwise, committee members may be removed at any time, with or without cause. Unless the committee has been established by your governing documents and its members elected by the association, committees serve at the pleasure of the board. Accordingly, the board can remove committee members at will and without explanation. The board can also delegate such authority to the committee chair or to the committee itself.

VERIFYING COMPLAINTS

QUESTION: I know you’ve had a lot of comments already about owners’ due process rights when there are violation complaints. If we have a number of owners complaining about the same thing, does someone from the board have to see/hear it for themselves to verify it, or can we take them at their word?

ANSWER: Because people have the right to know the evidence against them and to present a defense (due process), claiming that two or three anonymous owners complained is not sufficient “evidence” to discipline a member. If the complaining parties refuse to be identified and the board cannot independently verify the complaint, the board cannot levy penalties.

FAILURE TO ACHIEVE QUORUM
FOR THE ANNUAL MEETING

At some point there is no benefit to continued attempts at an annual meeting when quorum (either in person or by proxy) is not even close to being achieved. Directors have a duty not to waste the corporation’s income, so at some point they should stop. I recommend that the board decide how many times they must try before stopping. The board should take into consideration the cost of noticing the members, the likelihood of success in reaching quorum, and any other factors which should be taken into consideration when making their decision. For example, if the association has 400 homes that must be noticed of the annual meeting, the board can expect to spend at least $500 in costs for paper, envelopes and postage. There may be additional expenses from the management company for a 2d and 3rd try which should be considered. I believe that they must try a second time. But beyond that, there is no obligation I’ve ever found stated in any statute or published appellate opinion for any follow-on meetings. -Richard P. Neuland, Esq. of Neuland, Nordberg, Andrews & Whitney

MEETING AT A BARBEQUE

QUESTION: In your June 28, 2009 newsletter, you stated it was okay for a majority of directors discuss matters if they are not scheduled to be heard. The Civil Code also notes that a board cannot discuss anything that is not on a published agenda. Therefore, shouldn’t the quorum of board members refrain from any discussion of a matter unless the matter being discussed is published on an agenda of a duly noticed board meeting?

ANSWER: The statute does not prohibit directors from talking to each other outside of a board meeting; it only prohibits discussing matters scheduled to be heard at a meeting.

For example, if a majority of directors attend a barbeque and one of them says, “The landscaping is looking tired. I think we should tear out all the shrubs and plant flowers.†The other directors nod and one of them asks, “What kind of flowers and how do we pay for them?†The first director responds, “I like Geraniums and I think we can borrow money from reserves to pay for it. Let’s put it on the agenda for our next meeting.” The other directors agree.

In my opinion, their flower discussion did not violate the Davis-Stirling Act. It does not meet the definition of a “board meeting.” Civil Code §1363.05(j) Once the flower proposal is on the agenda, the board can discuss the matter in front of the members, debate the type of flowers to plant, investigate costs, and appoint a committee to make recommendations.