Sep 30

QUESTION: Can a committee member attend a meeting via phone, vote on a measure, then disconnect?

ANSWER: Board members and committee members alike can attend their respective meetings by telephone, make motions, participate in discussions and vote, provided it’s a conference phone or speaker phone where participants can all hear each other. Corp. Code §7211(a)(6); Civil Code §1363.05(k)(2)(B). The statutes address director meetings but the same would apply to committee meetings. So, can a committee member (or director) call in to vote on one measure and then hangup? It may be poor form but there is nothing prohibiting it.

BALCONY TILE

I read with great interest the court’s decision in the Cathedral Hill case about tiling balconies.

PLEASE oh please stop telling people not to tile their balconies…you’ll take away a significant portion of my business fixing their dry rotted decks.

Regardless of what membrane is placed on a deck, unless the deck has been DESIGNED to have tile placed on it, the framing and substrate in 99% of condo decks are NOT suited for tile. I see plenty of well meaning folks who put tile on their decks (or had some dolt do it) and in 3-7 years they have major leaks, dry rot and mold issues. The picture above shows a dry rotted 8×14 beam. The job started at $3,800 for repairs to edge flashings and quickly went north of $40,000 after we exposed the damage. If owners are allowed to tile their decks, there are minimum standards that must be met. -Bill Leys, The Deck Expert.

TAXES ON FEES

QUESTION: When a condo association charges visitors to park in the common area, how is income treated? Is it subject to tax? Does the money go into reserves?

ANSWER: Your question is a little unusual; very few associations charge visitors to park in the common areas. Fortunately, I knew who to call about your question–CPAs who specialize in common interest developments. Last week I was one of the speakers at their annual conference so your question was timely. 

Non-Dues Income. First, as a reminder, nonprofit associations are required to file tax returns and, if necessary, pay taxes. Failing to do so can result in a suspension of your association’s corporate status. Parking fees would be considered non-member or non-function income, depending on whether your association is filing tax returns pursuant to IRC Sec 277 or 528. In either case the fees would be subject to income tax. That said, a portion of parking maintenance expenses could be allocated to non-membership (non-function) expenses and used to reduce the taxable income.

Operating Budget
. As income, the fees are included in the association’s annual pro forma budget. The extra income is used to offset expenses in the budget, whether operational or reserves, which reduces membership dues needed for the year.

RECOMMENDATION: There are variables that could affect how parking fees would be treated for tax purposes. For example, are the fees paid by homeowners as part of their assessment or as rent, or by visitors as fees? Make sure your board talks to your association’s tax preparer on how best to handle this issue.

Thank you to Gary Vogel, CPA who specializes in accounting and taxes for homeowners associations and Ronald Stone, PhD, CPA who teaches at the College of Business and Economics at Cal. State Northridge, for their assistance with this question.

FEEDBACK

Kudos. Adrian, another great piece of work from you. Keep it up as it’s being passed on to all our board members and the presidents of other associations who really appreciate reading your fine work. It keeps us on our toes and more knowledgeable of what is happening. -Al

Manager Contract #1. (Regarding comments last week by Kimberly P.) Just this morning I was bemoaning having a board member who merely ‘warms the chair’–when she’s there at all. I’m ‘thanking my lucky stars’ that we don’t have someone who’s ignorant and vocal. -Nancy H.

RESPONSE: As Abraham Lincoln once remarked, for some board members it is “Better to remain silent and be thought a fool than to speak and remove all doubt.”

Manager Contract #2. Our association has a 30-day notice of termination clause in the contract with our management company. A reason for termination is not required. The same holds true for the management company; they may also terminate the contract by giving 30 days notice and are not required to give a reason. -Dennis D.

RESPONSE: Termination of contracts are controlled by the provisions contained in the contract. It sounds like you have a good termination provision.

Management Contract #3. The discussion last week about manager contracts was a little confusing. -Len R.

RESPONSE: I think that’s because associations can retain managers in different ways–each with a different mechanism for termination. Managers can be employees of an association (either under contract or at-will) or they can be employees of a management company who are assigned to the association.

Management Company. If the manager is an employee of the management company and the board is unhappy with the manager, the board can demand from the company that a new manager be assigned to the account. The process is fairly painless.

No Contract Employee. If the manager is an employee of the association without a written contract, the board could still be in a position where they need cause to fire the manager. Employment law in California is quite protective of employees and “at-will” has many, many exceptions.

Employee With A Contract
. If the employee has a 3-year contract (as described in the original question from a reader), termination of employment normally requires “cause” per the terms of the agreement. If employment under a written agreement were at-will, what is the point of the contract? Most contracts provide stability for their employee manager by requiring good cause for termination so the manager can’t be fired at the whim of an incoming board.

RECOMMENDATION: What all this means is that boards better talk to a lawyer before they start firing managers as advocated by Kimberly P.

5-Year Contract
. Let’s hypothetically say the CC&Rs limit contracts to one year. What is the validity of an agreement if the association enters into a 5-year contract with an elevator company? The board did not review the fine print on the back when they signed it and now they want out. -Warren D.

RESPONSE: A fair number of boards stumble into this problem. That’s why contracts should always be reviewed by legal counsel before the board signs them. CC&Rs typically limit vendor contracts to 1-year. However, bulk cable TV agreements, elevator contracts and laundry machine contracts are frequently in the 5-year range. The companies will either refuse to enter into 1-year contracts with an association or they will offer significant discounts for 3- or 5-year contracts. That’s why many associations change the 1-year limitation when they amend or restate their CC&Rs.

Enforceable Contract. Is a 5-year contract valid when the CC&Rs limit them to one year? Probably. Venders have a right to rely on contracts negotiated and entered into by boards of directors. If the association breaches the contract by improperly firing the elevator company, the association can be sued for money damages. If the association can convince a court that the elevator company knew the board did not have the authority to enter into such an agreement, they may be able to avoid liability. That can be a risky venture–there are no guarantees in litigation except that it will be expensive and unpredictable.

FHA Loans #1. Because of FHA loans, I’ve seen our foreclosures and delinquencies along with investor purchases go up significantly. I am not in favor of FHA loans. The foreclosure rate in our neighborhood is proof. When I purchased 21 years ago I had a 30-year loan at 9.9% and had to put 20% down. The turnover rate and investor owned properties brought on by FHA loans has turned me off to ever owning in a condominium development. -Maureen C.

FHA Loans #2. The problematic loan questions are always those the lenders themselves add to their certificates. While having the FHA clarify their needs it will help us to explain to owners that the lenders are asking questions far in excess of what FHA requires, it remains to be seen if the lenders themselves back down to FHA requirements. If they don’t, I would suggest the problem is not going to go away. -Roy Helsing, The Helsing Group, Inc.

Free Speech #1. Free speech indeed is misunderstood. The First Amendment was designed to protect people from punishment for speaking against the government. It has morphed into any speech against anyone. With everyone being offended about everything, with no coping skills, a lack of empathy, a child not permitted to slug the bully on the playground to put him in his place, and the internet providing an easy forum, we are simultaneously seeing people mouthing off incessantly and people cowering in silence. Both camps are miserable, wretched, unhappy people. -Stephany Y.

Free Speech #2. Some of our directors are so unnerved by the new restrictions that they fear that even talking to another director outside of a formal meeting could be viewed as a violation of the law. In my opinion, two directors standing on the sidewalk and discussing if the grass needs more water is not a meeting or a violation of the open meeting law. Please correct me if I am wrong. -Dennis D.

RESPONSE: You’re right. Not everything qualifies as board business. Moreover, directors can talk to each other about board business as long as it is not a majority of directors. I cover this in detail on my website under “Board Meetings.”


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” When your association needs legal assistance, contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 23

The Federal Housing Administration’s policies have been a significant drag on the housing market which, in turn, has slowed our nation’s economic recovery. The Community Associations Institute has been in discussions with the Administration over the past few years asking for more sensible regulations. Last week the FHA finally removed some of the onerous requirements they had imposed on condominium developments.

Delinquencies. Previously no more than 15% of of the units in a condominium development could be more than 30 days delinquent. That meant that owners who were a few days late in paying their assessments could disqualify the entire development from eligibility for FHA insured loans. The Administration revised their requirement from 30 days to a more reasonable 60 days.

Fidelity Bond.
In prior newsletters I had reported on the problems with Administration requiring management companies to carry employee dishonesty insurance covering the associations they manage. The FHA now recognizes the problem and modified their requirements. The new  standards now require condo developments with more than 20 units to carry employee dishonesty insurance as follows:

  1. The policy must cover all officers, directors and employees of the association and all other persons handling HOA funds;
  2. The coverage must be no less than three months assessments plus reserve funds;
  3. Their management company, if any, must (i) have its own fidelity coverage that meets FHA requirements; or (ii) the association’s policy names the company as an insured; or (iii) the association’s policy covers management company employees.

Project Certification. Previously, certification created such significant risks for boards of directors that most law firms advised against signing FHA documents. The FHA has seen the light and scaled back on their requirements. Now, an HOA representative need only attest to the following:

  1. To the best of their knowledge, the information is true and accurate;
  2. They reviewed the application and upon advice of counsel it meets all state and local condo laws;
  3. They reviewed the application and it meets all FHA condo approval requirements, and
  4. They have no knowledge of circumstances or conditions that might have an adverse impact on the project (such as construction defects, substantial operational issues, or litigation, mediation or arbitration issues).

COMMENTS: With the above changes, I withdraw my objections to directors signing FHA certification applications. Kudos to the Community Associations Institute for their work on this issue. As Neil Armstrong once said, “One small step for man, one giant leap for the housing industry.” See Mortgagee Letter 2012-18 for more detail about the changes.

RENOVATIONS VIOLATE CC&RS
In an unpublished decision, the court of appeals upheld the enforcement of CC&Rs related to tile on balconies and encroachments into the common area.

Remodeling. Larisa Garbar bought a unit in a highrise in San Francisco. She raised the ceilings in her unit, tiled her balcony and installed hardwood floors without submitting plans. The board issued a stop work order and requested that she immediately submit plans. When it learned of the raised ceiling, the board put her on notice of her encroachment into the common areas. As part of a major waterproofing project, the association removed the tile from her balcony. A dispute arose because Garbar sought to re-tile her balcony despite prohibitions in the CC&Rs and warnings that doing so would void the manufacturer’s warranties related to the waterproofing.

Lawsuits Fly. The association filed suit. Garbar denied that her new ceiling encroached upon the common area. She claimed her unit’s boundary extended to a concrete slab that separated the unit from the floor above. She also claimed that balcony tile would actually protect the waterproofing (note: industry evidence shows otherwise).

Ruling. The court found in favor of the association. The CC&Rs were clear and explicit when it came to tile on balconies. The court also concluded that the space above Garbar’s ceiling was common area.

RECOMMENDATION: Even though the case is unpublished and cannot be cited as precedent, it shows that courts will defer to recorded restrictions and reasonable enforcement decisions by boards of directors. See Cathedral Hill Tower v. Garbar.

FEEDBACK

Manager Contract #1. Please correct your newsletter, you said something wrong. You are saying that a board needs a reason to change management. That is absurd. No reason is needed and no documentation is necessary UNLESS the board wants to sue for any illegal activities against them. Please do not put out wrong impressions, I’m on a board and I don’t need to argue your wrong points when we have HOA stuff to discuss. -Kimberly P.

RESPONSE: Hilarious! Thank you for the comic relief. When you have a manager under contract, they are no longer at-will. You need cause to fire them. If you fire employees willy-nilly, you better have good Employment Practices Liability insurance in place.

Manager Contract #2-#9. I received a number of thoughtful responses asking about the 1-year contract limitation commonly found in CC&Rs. 

RESPONSE: The ability of a board to enter into a multi-year employment contract with a manager will depend on the language in an association’s governing documents. Following is language found in some old documents that presents no impediment to 3-year agreements. It limits the original developer but not subsequent HOA boards:

Neither Grantor, nor any of its agents, shall enter any contract which would bind the Association or the Board for a period in excess of one (1) year.

Following is more typical language in most of the documents I work with. It limits contracts with vendors, i.e., third parties who provide goods or services to an association. It does not limit employment agreements:

The Association may not take any of the following actions unless approved by a majority of the voting power of Association Members (other than Declarant): (a) Enter into a contract for a term longer than one (1) year with a third person who furnishes goods or services for the Common Area(s) of the Association…

Following is a broader restriction I run into from time to time. It clearly limits manager contracts to one year.

The Board of Directors, on behalf of the Association, may contract with a Manager for the performance of maintenance and repair and for conducting other activities on behalf of the Association, as may be determined by the Board. The maximum term of any such contract (“Management Contract”) shall be one (1) year…

I sometimes run into conflicting language on this issue between an association’s CC&Rs and its bylaws. When that happens, the CC&Rs prevail. The order of documentary control is explicitly described in the Davis-Stirling rewrite which takes effect January 1, 2014. It states that in the event of inconsistencies, the following hierarchy determines the outcome: the law, the CC&Rs, articles of incorporation, the bylaws, and lastly the rules. See Civil Code §4205.

Budget Tie. It’s clear that the vote to break the tie on the budget should not be in executive session. But how is it justified to have the tie-breaking occur at an emergency open meeting? Shouldn’t it be a a special meeting of the board with four-day notice? Or, can time-sensitive matters (if that was the case) be considered “emergencies”? -Carol R.

RESPONSE: Passing a budget is a time-sensitive matter. If not approved and distributed within a 30-90 day window prior to the start of the association’s fiscal year, penalties are imposed. Accordingly, an emergency meeting would be justified if the board were up against that deadline.

DS Rewrite. Isn’t the Davis-Stirling Act restriction on what board members may discuss via e-mail or what they can talk about in person outside of board meetings unconstitutional due to our First Amendment right to free speech? It seems to me that the Act can only restrict decisions made outside of a board meeting but cannot restrict people from discussing things because of our First Amendment rights. -Steve S.

RESPONSE: There is wide misconception about First Amendment Rights. Too many people believe that “free speech” gives them the unlimited right to say whatever they want whenever they want. That is not the case. The courts have imposed time, place and manner restrictions on speech (such as shouting fire in a crowded theater, disrupting city council meetings, protesting on private property, etc.). In addition, the courts make a distinction between political speech and commercial speech. Commercial speech is heavily regulated. As a member of your association, you can talk about board business pretty much whenever, wherever and to whomever you want. Once you are elected to the board, time, place and manner restrictions are imposed. You must reserve discussions about board business with other directors to noticed meetings of the board as described in the Davis-Stirling Act. See speech limitations.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” When your association needs legal assistance, contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 16

QUESTION: Can a current board obligate future boards to a contract for our general manager? Our board, three of whom are up for reelection this month, gave our general manager a new 3-year contract.

ANSWER: Yes they can. Just as the lame duck administrations of U.S. Presidents continue to function until their term is over, boards can operate until their terms end.  While it drives some people crazy and makes others giddy (it depends on whose ox is gored), it’s perfectly legal.

Good Managers. In the situation you described, the manager may be doing an excellent job. Unfortunately, perfectly good managers are swept away when homeowners unfairly lump them together with the old board. More often than not, they throw out the baby with the bathwater when they clean house by getting rid of accountants, managers, lawyers, landscapers and anyone else associated with the old board. The newly negotiated contract you describe will slow down the incoming board and force it to evaluate the manager. They may discover the manager isn’t so bad after all.

Bad Managers. If the manager truly is incompetent or corrupt (or both) and needs to be fired, he will undoubtedly give the new board cause to terminate his services. Before doing taking action, the board must properly document bad behavior and give appropriate warnings. It cannot create a pretext for termination–that will only backfire. If the board is patient, a bad manager will eventually fire himself.

RECOMMENDATION: Employment litigation is quite costly and can be avoided if disciplinary actions and termination are handled properly. Accordingly, boards should work closely with legal counsel when dealing with personnel issues.

HUD NEGLECTS
HOA PROPERTIES

When HUD forecloses on owners who default on FHA insured loans, HUD takes ownership of the property. Unfortunately for associations, the properties go into HUD’s REO Department and are promptly neglected. Properties are left unoccupied and unmaintained. Squatters sometimes take over, windows are broken, weeds grow knee-high and graffiti proliferates.

When an association makes demands on HUD to maintain the property, they are ignored. Hearings and fines are meaningless because associations have no jurisdiction over the federal government. A form letter is the standard response to association demands. As noted in the letter, HUD has adopted a policy of selling their properties “as-is” with no repairs, improvements or warranties. Since federal bureaucracies move at a snail‘s pace (if they move at all), the properties fall into ruin. The City of St. Paul sued HUD to stop this practice and lost. United States v. City of St. Paul.

PENALTY FOR
REPEAT VIOLATION

QUESTION: Can an HOA apply fines when an owner receives a second warning of a violation, even though the first violation warning occurred three years ago?

ANSWER: Yes, the association can fine for the violation. Even though three years lapsed between violations, boards can take into account the severity and frequency of all violations involving the owner (is he a chronic violator of HOA rules?), the circumstances surrounding the particular violation (accidental or intentional), and the attitude of the homeowner toward the hearing process. If the owner is hostile toward the association’s rules, directors and the hearing process, the board will be more inclined to fine the owner than someone who apologies for the violation and gives assurances that it will not happen again.

TIE VOTE
OVER BUDGET

QUESTION: Our board tied 2-2 when voting on a new budget with a dues increase. One board member was out of town. An emergency meeting has been called when all five directors can attend. The president is calling this an executive session since it is just to vote–no discussion, really–but other board members believe this is an emergency open session. Who is correct?

ANSWER: The open session directors win. Voting on the budget does not fall into the six allowable reasons for holding an executive session meeting.

FEEDBACK

Davis-Stirling Rewrite #1. It’s “sneak peek not sneak peak–unless you’re being stalked by a mountain. Is your website going to be updated to reflect the rewrite of Davis-Stirling any time soon (what a headache that will be!). -Nancy H.

RESPONSE: Must have been all those peaks I peeked at on my way to the Yukon. The website will be updated but it will be a slow, time-intensive process. I have 2,000-3,000 pages on the website that need to be updated or completely rewritten with about 15,000 internal links to update.

Davis-Stirling Rewrite #3. Thanks for all your information. Is there anything in the rewrite that would make it easier for board members to communicate via email? -Dave K.

RESPONSE: Sorry, no. There are lots of other changes but not when it comes to email communications between directors. I will address all the changes next year as we get closer to the change-over date.

Davis-Stirling Rewrite #4. I was disappointed to not find clear definitions of funds and accounts in the Act. “Reserve Fund” is undefined and used interchangeably with “Reserve Account.” Also, it doesn’t address assessments receivable. These amounts are on the balance sheet and should be proportioned between reserves and operations. The problem is they are a non-cash asset that generally overstates the equity of the association. If you have significant A/R you are in effect borrowing from Reserves just to maintain cash for operations. By not providing for fund groups as part of the financial reporting system, associations impacted by the real estate crises will either be in violation of the statute or spend significant time and energy trying to comply with the statute.

AB 2273 #1. OMG, good news for sure that the governor signed AB 2273. We don’t currently have the problem in our complex but I sent a letter every time you asked us to. After 16+ years of involvement with our association, I fully understand the problem at issue and that we could easily be the victim in the future. Thanks for your hard work and for letting us know about these things so we can help. Three cheers that we beat the lenders lobby. -Jan B.

AB 2273 #2. It’s too bad that a provision wasn’t added to the bill to require banks to pay back assessments as soon as the deed is recorded. This would have gone a long ways towards solving our budget problems. Granted, the lending industry would have vigorously opposed the requirement and it would have to be a “cram down.” As a retired bank executive I’m disgusted with the current crop of bankers. -John A.

CalCPA Conference. I would really like to attend the conference in Burbank on September 20. I cannot, however, register because I do not have an “account” and cannot create one as I am not an attorney or a CPA. I am on the board of a condo association and would really like to get the information that will be presented at this conference. How do I go about signing up? -DeAnn M.

RESPONSE: I checked with the conference coordinator and she said to call 800-922-5272 for assistance signing up.


Adrian J. Adams, Esq.
Adams Kessler PLC

Adams Kessler PLC
“Legal solutions through knowledge, insight and experience.” When your association needs legal assistance, contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 09

On Friday, August 17th, Governor Brown signed into law the long-anticipated rewrite of the Davis-Stirling Act. The bill reorganizes and renumbers the Act to make it more user-friendly. In addition, the rewrite made substantive changes which I will cover in future newsletters.

Current CC&R Restatements. Associations that are currently restating their CC&Rs and Bylaws do not need to wait for the rewrite to take effect. One of the provisions in the bill allows boards to update their governing documents by replacing old statutory references with new ones without the need for a membership vote:

Civil Code §4235(a) Notwithstanding any other provision of law or provision of the governing documents, if the governing documents include a reference to a provision of the Davis-Stirling Common Interest Development Act that was repealed and continued in a new provision by the act that added this section, the board may amend the governing documents, solely to correct the cross-reference, by adopting a board resolution that shows the correction. Member approval is not required in order to adopt a resolution pursuant to this section.

Sneak Peak. Although signed a few weeks ago, the rewrite does not go into effect until January 1, 2014 so as to give everyone a chance to familiarize themselves with the new Act. To get a peak at the new Davis-Stirling Act, see Assembly Bill 805. I will be speaking about the rewrite to the annual conference of CPAs later this month. See next article.


Adrian Adams
and Kelly Richardson will be speaking to the “Common Interest Realty Associations Conference” put on by the CalCPA Education Foundation. The event will be held September 20, 2012 at the Burbank Airport Marriott. The conference will highlight:

  • State of the Common Interest Industry
  • Davis-Stirling Rewrite
  • Foreclosure Issues
  • CID Fraud
  • Financial Statement Disclosure Issues
  • Insurance
  • Taxes

The program is designed for CPAs, attorneys, association managers and other professionals interested in homeowner association management, taxation and auditing. Other speakers include Ron Stone, John Elhai, Thomas Noce, Patrick Prendiville, Cheryl Martin, and Ron Maddox. If you want to attend, sign up at www.calcpa.org.

DEVELOPER ARBITRATION


On August 16, developers won a major victory in the Pinnacle Museum Tower case. The California Supreme Court reversed direction from prior decisions and held that homeowner associations are bound by arbitration provisions in their CC&Rs, even though those provisions were written and recorded by the developers. In other words, associations lose their right to go to court for a trial before a judge and a jury.

The expected benefit to developers is the elimination of large jury verdicts by removing juries from the process. Historically, monetary awards by judges and arbitrators are smaller than those given by juries. As a result of the Pinnacle decision, developers may offer smaller settlements for construction defects. If their offers are rejected, HOAs will be forced to prove their cases in binding arbitration. Even so, the arbitration process is streamlined and less expensive than litigation and could produce good results if the association can prove its case to the arbitrator. Only time will tell what effect it will have on the industry.

The bulk of existing associations in California will not be affected by the Pinnacle decision. Only those developments less than 10 years old that have construction defects and an arbitration provision will be affected (unless they are already in litigation).

RECOMMENDATION: If your development is less than ten years old various statutes of limitations are running on any defect claims you may have. To avoid losing your rights, you should contact legal counsel to determine your best course of action. To read the case in its entirety, see Pinnacle Museum Tower Assn v. Pinnacle Market Development.

ASSEMBLY BILL 2273

Good news! On Friday, September 7, Governor Brown signed AB 2273.

The bill requires lenders to record foreclosure sales within 30 days of the foreclosure. It makes banks accountable for the properties they acquire, i.e., once the sale is recorded, the lender must pay HOA dues and assessments.

As expected, lenders strenuously opposed the bill. Thanks to the thousands of letters you sent to legislators and the efforts of CAI’s legislative advocate Skip Daum and others the bill overcame lender opposition.

JASMINE FISHER
IRONMAN ATTORNEY


Ironman. How did Jasmine do in her Ironman race? -Paige B.

RESPONSE: Jasmine not only survived the grueling race (a 2.4 mile swim, followed by 112 mile bike race, followed by a 26.2 mile marathon), she received a medal. I think she had an unfair advantage, she speaks Canadian.

YUKON TRIP

Comment. As always, a great newsletter. I hope you get rich panning for gold. -Wendy M

RESPONSE: I had so much gold it set off the screening equipment at the airport. They made me empty my pockets and now I have nothing. Such is life.

Comment. Bring a mosquito net for your head, and lots of bug repellant – I’m not kidding. -Mark D.

RESPONSE: At one campsite I fed so many mosquitoes they made me an honorary environmentalist. Other than that, the trip was fabulous. We canoed, fished, camped along the river, explored the remains of log cabins and paddle wheel boats from the early 1900s, admired bald eagles and watched for bears. At night around the campfire Judge Stirling read humorous tales of the Yukon such as “The Cremation of Sam McGee” and “The Shooting of Dan McGrew” by celebrated author and poet Robert Service.

FEEDBACK

Budget. In your August 12th newsletter under the topic of “Distributing the Budget” the person’s bylaws stated “no less than 45 days prior to the start of the new fiscal year” and D-S states “not less than 30 days nor more than 90.” Your reply stated that these two are in conflict. In reality, they are not as the 45-day requirement of their bylaws easily falls within the 30-90 day requirement of D-S. They merely need to send their budget out at least 45-days, but no more than 90-days, to be in full compliance with both. -Bruce F.

RESPONSE: If the budget is sent out out 30 days before the start of the fiscal year, it violates the CC&Rs. Which prevails? The statute. The Davis-Stirling Act gives associations more flexibility when it comes to distributing the budget and controls over any provisions to the contrary in the governing documents. Civil Code §1365(a)4.

Association v. Membership. The feedback from “Diana S.” is way off base, at least in the discussion of incorporated associations. There is definitely a specific “entity separate” from the membership. Such corporations, defined in Corporations Code §7110 et seq clearly defines these entities. Corporate officers and directors of thecorporation owe their fiduciary duties and responsibilities to that entity, NOT the members. Officers and directors are responsible to maintain the operational and physical assets of the corporation such that it is capable of delivering to the members those goods and services appurtenant to membership in that association. The benefits derived from membership in the association come from the corporate entity, not from the members themselves. Misunderstanding that concept causes many members to expect or demand from boards more than is appropriate. -Ted L.


Adrian J. Adams, Esq.
Adams Kessler PLC

Adams Kessler PLC
“Legal solutions through knowledge, insight and experience.” When your association needs legal assistance, contact us at (800) 464-2817 or info@adamskessler.com.

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