May 22

QUESTION: The board announced that it does not have to post new rules they plan to adopt or amend for our pool, park area, and tennis courts. The president claims the rules are line item rules and not general operating rules so members are not allowed to comment on them before the board approves them. Is he right?

ANSWER: If the board is making non-substantive changes (grammatical corrections or renumbering), there is no need for membership comment. If substantive changes are made, such as modifying existing rules, adding new regulations, eliminating restrictions or altering the fine structure, it needs membership input.

Rules Defined. I don’t know what your President means by “line item rules.” That term does not exist in the Davis-Stirling Act. The rules you described are operating rules. Operating rules are defined as any regulation that applies to the management and operation of the association or the conduct of its business and affairs. Civil Code §1357.100. This includes pets, parking, the common areas (such as use of pools, parks and tennis courts), member discipline, architectural standards, election procedures, monetary penalties, etc. Civil Code §1357.120(a).

Notice of Change. If the board changes any of the association’s operating rules, it must mail the proposed changes to the membership along with an explanation of their purpose and effect at least 30 days before voting on the change. Civil Code §1357.130(a).

Adoption of Changes. After the 30-day period, the board may adopt the changes at a duly noticed open meeting of the board, taking into consideration any comments made by the membership. Civil Code §1357.130(b). Within 15 days of voting on the rules, the board must notify the membership of the results of the vote. Civil Code §1357.130(c). Members have a limited right to veto any new rules and rule changes.

MASTER PLANNED
COMMUNITIES


Kudos to attorney Helene Fransz who just completed a new chapter for the Continuing Education of the Bar’s treatise on Forming California Common Interest Developments. The two volume CEB manual serves as a reference guide for lawyers. Her new chapter on “Master Planned Communities” explains the many legal issues attorneys must consider when representing developers of master planned communities.

Ms. Fransz is also author of the chapter “Financing Sales of Units in Common Interest Developments” which discusses current FHA, Fannie Mae and Freddie Mac lending guidelines for common interest developments. Ms. Fransz represents both residential and commercial developers. She is also Of Counsel to Adams Kessler PLC, representing clients in connection with special projects.

THE BROWN ACT

QUESTION. Does the Brown Act apply to homeowners associations?

ANSWER. No. The Brown Act regulates the meetings of public agencies, not private associations. The Brown Act specifically covers (i) counties, cities, school and special districts, (ii) legislative bodies of each agency, (iii) standing committees of a covered board, and (iv) governing bodies of nonprofit corporations formed by a public agency (Government Code §§54951-54952).

Instead of the Brown Act, community associations in California are regulated by the “Open Meeting Act” found in Civil Code §1363.05.



Azedeh Saghian, Esq
.

NEW REVENUE STREAMS

QUESTION: The board is looking for new revenue streams instead of raising assessments. They want to allow business advertising in the laundry rooms. I thought that funds could only come from assessments. Wouldn’t advertising revenue cause problems with the association’s nonprofit status?

ANSWER: No, the outside revenue will not cause problems. Instead of being “tax exempt” like charities, most HOAs are nonprofit mutual benefit corporations. There are a number of ways that tax exempt entities can lose their tax exempt status none of which apply to HOAs.

Tax Filing. Whether an HOA files its tax returns under Internal Revenue Code (IRC) §528 (1120H) or as a non-exempt entity operating within the rules of IRC §277 (1120), there are provisions to deal with non-member user fees and revenue streams. An HOA may end up paying an income tax on such non-member income. However, most CPAs familiar with the HOA industry can minimize this potential tax.

Thanks to Donald W. Haney, CPA, MBA, MS(Tax) of Haney Inc. for his assistance with this question.

FEEDBACK


Following is a sampling of the emails I received about the Navy SEAL team. Sorry I could not print them all; I ran out of ink. -Adrian

I don’t know what lending a hand means in the case of the Seals, but it sounds interesting. -Norm K.

Tell us more. Are you serious? -Don A.

Can you say where they are? Thought they were in Pakistan. -Trudy M.

Wow!  We’d love to hear more! -Marjorie L.

RESPONSE: I could tell you more but then I’d have to wrap you in a sheet and drop you over the side of an aircraft carrier.

You are not really in Afghanistan… -Jill S.

Your credibility might have just gone out the door! :)   -Helgo J.

Thanks for helping the Seals….Great Job!! -Deana K.

RESPONSE: Condo duty is the toughest in the world. That’s why they called me.

Really! -Paul P.

WHAT!!! I’m going through withdrawals!! Looking forward to the next letter. -Helene S.

I read your reason for no newsletter this week to my son the Chief EOD type and his only reply was to tell you “BEADED WINDOW”. -Marc P.

RESPONSE: Uh-Oh. Sounds like another secret mission.

Thank you for your help on the Seals Team; you’re my hero! -Maxine C.

You are awesome!!! -Diane R.

RESPONSE: I keep telling my wife but she’s not buying it.

I was wondering if you could ask those Navy Seals if they could recover my lost equity? -Cynthia

RESPONSE: Hey, they’re only human.

BRAVO on your service to our Country! :)   -Lisa D.

How about bringing your SEAL 6 friends back with you to enforce our CC&Rs? Some of our homeowners need to mow their lawns and some actually park on the street. -Alan O.

RESPONSE: That may require a weapons upgrade.

I thought I saw the same intrepid characteristics in your letters as in the SEALS. -Lynda S.

-Adrian J. Adams, Esq

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May 08

QUESTION: Two of our board members resigned. The president advertised the openings and held an executive meeting to interview applicants. Is this on any level legal?

ANSWER: It is probably legal. Interviewing board candidates may not exactly fall into one of the five categories of executive session topics but it most closely fits the “personnel” exception.

Appointments. Appointments and elections are similar. In elections the membership selects directors they believe will best represent their interests. During the election process candidates can meet individually and privately with members or they can meet in group settings that may be open or closed. When it comes to board appointments, directors have the right to interview and select someone they believe will be compatible with fellow directors and best represent the interests of the association. I believe the interviews can either be open or closed at the board’s discretion.

Voting. Even though the interviews may be done in executive session, the vote to fill the empty seat should be done in open session. A good argument can be made that that voting for the candidate in executive session is part of the “hiring” process but I’m not convinced. Other than a dissenting director wanting to grandstand for an audience, there is no compelling reason to take the vote in executive session.

RECOMMENDATION: Because this is an unsettled area of the law, boards should run it by legal counsel and follow their attorney’s advice.

VIRTUAL MEETINGS


QUESTION: I understand from your website and the Corporations Code that boards can arrange a virtual meeting. Suppose owners who wish to participate must call into the meeting and the phone number is not toll free. Is that okay? Or do you think it must be a toll free number?

ANSWER: It depends.

Web Conferencing. Increasingly associations are exploring the option of broadcasting their meetings over the internet so members can observe the meeting and participate in the Open Forum via their computers. Some of the more common web conferencing services include Webex, GoToMeeting.com, Adobe Connect, GoMeetNow.com and Microsoft Live Meeting. For improved sound quality, the audio portion of the meeting can be done by telephone instead of the internet. Typically, there is an additional cost associated with this feature.

Who Pays? If the meeting is both live and virtual, i.e., members can attend in person or call in, the association can shift the call-in cost to  participants since virtual attendance is optional. If, however, the meeting is entirely virtual and members cannot attend in person, then I don’t see how the association could charge participants for attending.

RECOMMENDATION: For associations where most members live onsite, virtual meetings are an interesting novelty. For HOAs where a large percentage of owners live offsite, web conferencing is more of a necessity. So as to encourage openness and member participation, boards should include the cost of web conferencing in the association’s budget and make attendance free to all participants.

HANDICAP POOL CHAIR


QUESTION: One of our board members wants to install a pool chair for the handicapped. By installing it, are we opening ourselves to potential liability?

ANSWER: Of course. As with any amenity, there is always potential liability–people can twist ankles on tennis courts, be thrown from horses on HOA trails, drown in association pools, trip over clubhouse furniture, etc. It is impossible to operate anything without potential risk, especially an association. At best, risks can be minimized by proper maintenance and good rules enforcement.

New Amenities.
When it comes to adding a new amenity to the common areas, such as a hot tub, playground equipment, billiard tables, or handicap pool lifts, the trick is weighing the benefits of the new amenity against the risks. If the benefits outweigh the risks, add the amenity. If the risks are too great (bungee jumping for toddlers), don’t. If a new amenity is installed, it must be properly maintained and appropriate rules adopted and enforced.

Reasonable Accommodation. When making a decision about a handicap chair lift, boards should take into account laws that encourage accommodation of the handicapped. Following are some of those laws:

1.  Americans With Disabilities Act. In 2010 ADA Standards were changed to require all commercial facilities, such as hotels, motels and health clubs, to provide accommodations for disabled pool patrons. HOA pools are not affected unless they are open to the public. Allowing the public to use the pool (usually for a fee) or allowing swim competitions with outside groups are examples that would subject an HOA pool to ADA regulations. Carolyn v. Orange Park.

2.  Federal Fair Housing Act. HOAs cannot prevent residents from using their own pool lifts to get into and out of the association’s pool. HOAs can require owners to store their equipment when it’s not in use.

3. Fair Employment and Housing Act (Calif. Gov. Code §§12900-12996) requires reasonable modification of an association’s rules and policies to allow a disabled person equal opportunity to use and enjoy the premises.

4. Davis-Stirling Act (Civil Code §1360) allows owners to make alterations to the common areas at their own expense to accommodate their disabilities.

RECOMMENDATION: If a handicap issue is raised by a resident, boards should seek legal counsel and consider ways to reasonably accommodate the request. Even if handicap issues have not yet been raised, board should budget for and make facilities ADA compliant whenever possible. Handicap advocates and their lawyers tend to be aggressive and fighting over such issues can be expensive. It may be less expensive to make amenities handicap accessible than to spend money on lawyers.

FEEDBACK

Protecting Signatures. Another alternative [to protecting owner signatures from identity theft during elections] is placing their signed #2 Envelope containing the ballot and #1 envelope in another, usually #10 envelope, addressed to the Inspector and mailing their ballot that way. -Marc Poland, The Inspectors of Election

-Adrian J. Adams, Esq.

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