Mar 25

QUESTION: My husband and I made a standing request for board minutes but management said we have to submit a new request EVERY month! This seems ridiculous.

ANSWER: I suspect a judge would agree with you. The Open Meeting Act states that minutes must be distributed to any member upon request. Civ. Code §1363.05(d). The statute does not state how often the request must be made, which means it is open to interpretation. A judge could deem the requirement for monthly requests to be an unreasonable barrier to a member’s right to minutes. If so, the court could impose a $500 fine and order the association to produce the minutes. Civ. Code §1365.2(f).

Expenses. If the board is concerned about the expense of copying and mailing minutes, they can bill you for the cost. Civ. Code §1363.05(d). To avoid those costs, the minutes could be emailed each month once you give authorization for electronic delivery. Civ. Code §1365.2(h).

Transparency. To eliminate the problem altogether, your board can and should routinely post minutes (except for executive session minutes) on your association’s website in a password protected area of the site. If your association doesn’t have a website, the board should (i) summarize its meetings in a newsletter, (ii) post minutes on common area bulletin boards and/or (iii) distribute the information each month in the billing statement.



Aide Ontiveros, Esq.
Adams Kessler PLC

Requiring members to submit a monthly request makes it look like the board is hiding something. That only creates distrust. Instead, the board should create openness and transparency by keeping members timely informed about the board’s activities.

BANKRUPTCY
VOTING RIGHTS

QUESTION: Would taking away the voting rights of a delinquent homeowner who has filed bankruptcy be a violation of the automatic stay? This homeowner is currently in an accepted payment plan with the HOA.

ANSWER: Your question is a little unclear. If the owner is currently in bankruptcy, you cannot suspend his voting rights. If the owner is out of bankruptcy but delinquent in his payment plan, the association can suspend his voting rights. Your board should run this by legal counsel before taking any action.

HARASSMENT
OF BOARD MEMBERS


Homeowners who volunteer to serve on their boards quickly learn they cannot please everyone. Some owners have legitimate complaints, some complain because they love to complain, and a third category turns malicious. The board of a small association in Orange County had close encounters of the third kind and fought back.

The board suffered through years of abuse from a husband and wife. When the couple focused their attention on the president with unrelenting harassment that culminated in threats and 119 harassing telephone calls in less than two months, the president sued the couple.

The trial lasted five days. The twelve jurors were outraged by the couple’s conduct and returned a unanimous verdict awarding the president $1 million in emotional distress and punitive damages. (Avetoom v. Fridman, Case No. 30-2010-00345490.)

SECRETARY OF STATE


QUESTION: According the the Secretary of State website, I cannot file Form SI-100 online because a CID corporation must also file a SI-CID. For some reason the second form is not online. I submitted paper forms via snail mail only to find out 5 months later that one field was missing a +4 zip code. An online process with a credit card would be much more efficient and insure that forms are correctly filled out before submission. What can I do to help push this process into the computer age?


ANSWER: California government is always behind the business community when it comes to new technology and customer service. As a rule, state agencies tend to be slow, inefficient and costly. Recent paleontological digs have found California’s seal mixed with dinosaur bones in the fossil record. Unlike dinosaurs, however, state agencies never die. They just get bigger.

RECOMMENDATION: Lobby your legislator.

FIDELITY BOND
REQUIREMENTS


The FHA adjusted an element of the certification requirement for condominium associations.

Previously, management companies had to provide a separate fidelity bond insuring the association as well as themselves (creating insurance problems for management companies). The FHA is dropping the requirement for those management companies named as additional insured on the association’s policy.

But, as with most governmental agencies, the right hand does not know what the left hand is doing. Fannie Mae continues to require that  management companies carry their own fidelity coverage. Complying with FHA and Fannie Mae’s shifting demands continues to be a drag on the housing industry.

RECOMMENDATION: Boards wanting to meet FHA and Fannie Mae requirements should talk to their association’s insurance broker.

Thank you to Scott Iden of US Approvals, LLC, a company specializing in FHA certifications, for this update.

-Adrian J. Adams, ADAMS KESSLER PLC

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Mar 19

QUESTION: If a board member is elected to an officer position (i.e. Vice-President or Treasurer) by the board, can the director refuse to accept the position without resigning from the board?

ANSWER: Yes. Just as a homeowner can refuse election to the board, a director can decline appointment to an office. Refusing an officer position does not mean you forfeit your seat on the board of directors.

Corp. Code Requirement
. Having said that, if everyone on the board refuses to serve as an officer, it puts the association in violation of the Corporations Code which requires the appointment of a President, Secretary and Treasurer. Sometimes directors need to share the pain so as not to overload one director with all responsibilities. If your fellow directors think you are the best person for a particular office, you should give it serious consideration.

DIRECTOR REVIEW
OF RECORDS

QUESTION: Are records, which are not available to a homeowner such as redacted legal invoices and Architectural Committee records, available to that same homeowner if they become a board member?

ANSWER: Although Corporations Code §8334 gives directors an “absolute” right to inspect all association records, California courts have limited that right. In situations where there are privacy concerns, a conflict of interest, or a potential violation of fiduciary duties, a director’s rights are limited.

Director Litigation. For example, in a case where a director who had sued the corporation and then tried to exercise his “absolute” right to view the corporation’s records, the court held that he had no right to access documents covered by the attorney-client privilege that were generated in defense of a suit the director had filed against the corporation. The court reasoned that a plaintiff director cannot take off his “shareholder’s hat” and swap it for his “director’s hat” and claim an absolute right to access all corporate documents. Doing so would advance the director’s personal interests against those of the corporation. Tritek Telecom v. Superior Court.

Architectural Records. Although directors have a right to review architectural records, the same privacy concerns apply. If a director wants to inspect and copy the plans of a neighbor’s home security system, the board should politely decline. I can’t think of a good reason why a director would need to inspect and copy his neighbor’s plans. Moreover, security systems are specifically protected from disclosure by the Davis-Stirling Act. Civ. Code §1365.2(d)(1)(E)(vi).


Azadeh Saghian, Esq.
Adams Kessler PLC

RECOMMENDATION: If a board believes that a director’s request for records is for an improper purpose, the board should consult legal counsel before releasing them. A director’s rights are not absolute and must be balanced against owner privacy rights.

LEGAL ADVISER


QUESTION: Our board recently appointed a former director as a “legal” consultant because of her prior service on the board. She now attends executive sessions and advises the board on legal matters. She has no legal background whatsoever and, to be honest, is somewhat of a busybody. Is it legal to let a homeowner be privy to privileged legal matters?

ANSWER: Disclosing privileged information to a homeowner is not “illegal.” In other words, directors cannot be prosecuted and sent to jail for making her a legal consultant. The arrangement is, however, incredibly risky and exhibits poor judgment that may expose the association to legal liability and put directors at personal risk. There are two serious problems with the arrangement.

Business Judgment Rule. The first problem is that seeking legal advice from a non-lawyer violates the Business Judgment Rule. The BJR protects directors from personal liability if they act (i) in good faith, (ii) in a manner which directors believe to be in the best interests of the association, and (iii) with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. Corp. Code §7231(c). It’s the third prong that gets the  board in trouble. Would an ordinarily prudent person seek legal advice from a non-lawyer? I don’t believe a judge or jury would think so. If the board relied on the “legal advice” of a homeowner that resulted in damage to a third party, directors could be personally liable.

Attorney-Client Privilege. The second problem involves the breach of the attorney-client privilege. Communications between the board and their attorney (the kind that went to law school and passed the Bar) are privileged and cannot be discovered in litigation unless a waiver has occurred. The purpose of the privilege is to encourage full and frank communications between the board and legal counsel. If the board is sharing their communications with a former director (busybody or not), the privilege could be waived and the association’s litigation strategy disclosed to the other side during discovery. I don’t think a court would consider that prudent behavior by directors.

RECOMMENDATION: Your board should thank the former director for her service and quietly dismiss her as “legal adviser” to the board. Your board should not invite former directors to executive sessions and not share privileged communications with them. It should be noted that inviting a managing agent to executive session and involving them in attorney-client communications is allowed.

TERM LIMITS

QUESTION: How long can a board member continue to serve?

ANSWER: Unless your bylaws provide otherwise, board members can serve until the end of time–if the membership keeps electing them and they live that long.

Term Limits. You can, however, amend your bylaws to impose term limits. If done properly, they can be useful. Term limits should be written to take effect only if there are people willing to run for the board. If not, incumbents should be allowed to serve additional terms until such time as others are willing to serve on the board.

-Adrian J. Adams, Esq.

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Mar 04

Last year the Legislature rushed through SB 209 and Governor Brown signed it knowing the bill had a number of serious flaws. The legislation allowed the taking of common areas for a homeowners private use in violation of California’s Constitution and the Davis-Stirling Act (which requires approval of 2/3 of the membership before an owner can exclusively use common areas).

Clean-Up Legislation. With the assistance of CAI-CLAC in the drafting of clean-up legislation, SB 880 addresses most of the problems created by SB 209. The bill went through the Legislature on a priority basis, was signed into law on February 29, and took effect immediately.

Utility Lines & Meters. The revised statute gives boards of directors authority to grant exclusive use of common areas to members who run utility lines and install meters in the common areas for charging stations in an owner’s garage or parking space. The bill resolves the “taking” of common areas by requiring associations to enter into a license agreements with owners who install charging stations in the common areas.

Common Area Station. The revised statute gives associations and owners authority to install a charging station in the common area for the use of all members. It gives authority to associations to develop rules for the use of “public” charging stations and allows associations to create new parking spaces where none previously existed to facilitate their installation.

Private Stations. The revised statute authorizes “private” charging stations in the common areas but only if installing it in an owner’s exclusive use common area is impossible or unreasonably expensive. The revised statutes can be viewed at Civil Code §1353.9 and Civil Code §1363.07.

RECOMMENDATION: Associations still face legal and practical problems when it comes to implementing the new requirements. Boards should work with legal counsel to establish policies, procedures and legal safeguards related to electric charging stations. If your association does not have legal counsel, contact us.

RECYCLING LAW


California disposes of more than 40 million tons of solid waste each year, 8% of which comes from multifamily residential housing (apartments and condos). To channel a portion of that 8% into recycling, AB 341 requires multifamily residential dwellings of 5 units or more to arrange for recycling services by July 1, 2012.


Budget Line Item. The bill requires local jurisdictions to oversee the recycling programs and to recover their costs from solid waste generators. Costs, like solid waste, roll downhill. As a result, condominium associations can expect higher waste collection fees.

Implementation. Implementing recycling will be quite challenging for many associations since they have little or no space available for setting up recycling collection points in their developments. How recycling will be implemented in those developments is a mystery.

RECOMMENDATION: Associations should check with their local waste haulers to find out if the new requirements indeed apply to them. If so, what costs, if any, will be associated with the recycling? Since this will occur mid-budget for most associations, let’s hope the costs are minimal.

SUSPEND RENTER
PRIVILEGES

QUESTION: If a homeowner has leased his unit on a long term lease and he is very delinquent on his dues, can the board prohibit the RENTER from using the common area facilities?

ANSWER: Yes, a renter/tenant’s common area privileges can be suspended. When owners lease out their units, they transfer their common area privileges to their tenants. If the owner’s privileges are suspended, the loss flows to the tenant. Before suspending a tenant’s privileges, the board needs to hold a hearing with the owner.

-Adrian J. Adams, Esq.

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