Jan 27

QUESTION: We have a board member who refuses to sign a rather benign ethics pledge. All the other board members signed it. This person voted to authorize the pledge but now refuses to sign it. What actions can the board or the membership take short of recalling this fool?

ANSWER: Adopting an ethics policy is something all boards should do. Even though directors cannot be forced to sign a pledge adopted by the board, the membership has a legitimate interest in knowing that a director refused to sign it. That means an article can be placed in the association’s newsletter listing which directors signed the pledge and which ones did not. Knowing which directors are ethically-challenged could affect members’ votes when it comes to recalls and reelections.

Bylaw Amendment. If you want to make ethics pledge mandatory, you need to amend your bylaws to make it a qualification for serving on the board. Then if nominees refuses to sign it, they cannot run for the board. Even if they mount a write-in campaign, they can be barred from serving regardless of the number of votes they might receive.

RECOMMENDATION: Boards should talk to legal counsel about drafting an ethics policy and appropriate language for a bylaw amendment.

HANDLING BALLOTS

QUESTION: A homeowner is under the impression that ballots cannot be handled by anyone other than the inspector of elections. We have them sent to the office but no one opens them until the day of the annual meeting. Is this okay or do all ballots have to be sent to the inspector at her home?

ANSWER: It is not uncommon to have the association’s management company or its onsite management office receive ballot envelopes on behalf of the inspector of elections. Some inspectors provide a locked ballot box which is placed in the management office. That way owners who want to hand deliver their ballots (in sealed envelopes), they can do so.

Designated Location. Because many inspectors operate with low overhead, they do not have an office outside of their home. For safety and security reasons, they do not want homeowners (who can get a little crazy at election time) showing up on their doorstep. Hence, they designate an alternative address as allowed by the Davis-Stirling Act:

The [ballot] envelope may be mailed or delivered by hand to a location specified by the inspector… (Civ. Code §1363.03(e)(2).)

Kept Unopened. If the ballots are mailed or delivered to the association’s management office, no person, including directors, employees or vendors, may open ballots prior to the time and place at which the ballots are counted and tabulated. That function is reserved to the inspector of elections who opens and counts them in public at a properly noticed open meeting of the board of directors or members. (Civ. Code §1363.03(f).)

COACHELLA VALLEY
BOARD MEMBER EVENT

On Wednesday, January 30, 2013, Adrian Adams will participate in Desert Resort Management’s annual “Board Member Event” at the Agua Caliente Casino Resort in Rancho Mirage. Speakers will include Larry Pothast, a nationally recognized expert in CID management, Esmael Adibi, a widely respected economic analyst and adviser, and County Supervisor John Benoit. See more about the speakers.

This is a great opportunity to learn about matters affecting homeowner associations in Coachella Valley. To attend, contact Jackie White at (760) 610-7708 or email her at RSVP@drminternet.com.

FEEDBACK

Tenants #1. I’m not sure I agree with your statement regarding whether or not a board has to allow a tenant to attend a hearing for a fine assessed against the owner, even though the fine is based on the tenant’s actions. -Greg M.

RESPONSE: An owner who is subject to disciplinary action has a right to defend himself. Since he was not present when the violation occurred, he has a right to bring a witness who was present—his tenant. Tenant’s are not automatically guilty just because they’re a tenant. In my opinion, refusing to allow the evidence would violate the owner’s procedural and substantive due process. I suspect a judge would agree.

Tenants #2. Only an owner (a “member”) has the right to attend board meetings. While it may be a good idea to allow a tenant to speak at a meeting, no one other than an owner has the right to attend. If an owner is to be fined for the actions of his tenant, it is appropriate for the board to present its evidence to the owner. The owner may then do his own investigation of his tenant’s actions. The board has no right to take any action against a tenant, only the owner may do that. -Robert B.

RESPONSE: It is true that only members have a “right” to attend disciplinary hearings but they also have a right to defend themselves. If they are restricted to repeating what their renter told them about the incident, the information is second-hand (called “hearsay”) and not as reliable as hearing it from the horse’s mouth. Allowing the tenant to attend gives the board an opportunity to ask questions and evaluate the truthfulness of the tenant’s testimony. Moreover, the mere process of going through a disciplinary hearing may be sufficient to cause a wayward tenant to follow the rules.

Abstentions #1
. Can you address the proper use of abstentions? Members of our board abstain when they don’t want to be on record as voting no. -Sandra S.

RESPONSE: All directors should cast votes on all issues put before them (including the president). That is why they are elected to the board. Failure to do so could be deemed a breach of their fiduciary duties. The only time they should not vote is when they have a conflict of interest, at which point they should recuse themselves from the discussion and from the vote.

Abstentions #2. I did not understand your comment that an abstention could be deemed a “no” vote. -Aaron C.

RESPONSE: “To abstain means not to vote at all.” (Robert’s Rules, 11th ed., p 45.) An abstention is a meaningless vote except that it can have the practical effect of a “no” vote since a motion may fail for lack of sufficient “yes” votes. Unless a greater number is called for in the articles or bylaws, a matter is deemed approved by the board if at any meeting at which a quorum is present at least a majority of the required quorum of directors votes in favor of the action. (Corp. Code §7211(a)8.) If five out of five directors attend a properly noticed meeting and two vote for a motion and the other three abstain, the motion fails (the same as if the three abstentions had voted no).


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

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Jan 20

QUESTION: If an owner is called into a hearing for the actions of a tenant, can the tenant join him at the hearing? Can the board refuse the tenant since the owner is the one being fined, not the tenant?

ANSWER: The board cannot prohibit the tenant from appearing with the owner. Even though the board will be fining the owner, the fines are because of the tenant’s behavior. Due process requires that the owner and tenant have a right to defend themselves. How can the tenant dispute evidence at the hearing if he is barred from attending?

DIRECTOR ABSTENTIONS

QUESTION: I have a question concerning abstentions at board meetings. We have seven board members. With six directors present at a recent meeting, three members voted yes, one voted no, one was absent and two abstained. Is the motion approved?

ANSWER: No, the motion is not approved. With six directors present, you needed a majority (four) to approve the motion. The two abstentions essentially acted as “no” votes since they were not “yes” votes. Because three is not a majority of six, the motion failed.

MORE ABSTENTIONS

QUESTION: We are a five member board with one vacancy. We are scheduled for a meeting when one of the four members will be out of the country, leaving three directors for the meeting. What happens if one of the directors abstains from voting on a issue–will the vote of just two directors carry the motion?

ANSWER: Yes the motion will carry. For a five-member board, a quorum is three. If three directors attend a properly noticed meeting, they can conduct business. To pass a motion they need a majority of quorum, i.e., two “yes” votes. It does not matter if the remaining vote is a “no” or an abstention; the motion carries two-to-one. This allows an association to function even when two directors are on vacation, sick or otherwise unavailable. This, of course, can lead to shenanigans. To avoid mischief, directors should attend all meetings even if only by telephone.

ORANGE COUNTY OFFICE

To better serve our growing Orange County client base, I am pleased to announce the opening of our new Irvine office.

     ADAMS KESSLER PLC
     18101 Von Karman Avenue
     Suite 330
     Irvine, CA 92612

For a list of all of our California offices, see offices. If your association needs legal assistance, you can call us toll free at (800) 464-2817 or e-mail us at info@adamskessler.com. We’re friendly, give us a call.

FEEDBACK

Squatters #1. We recently changed the key to our pool. To get a key you had to show ID that matched our owner list or a signed letter with picture ID of the owner. No ID, no key. Could you not change the building lock and require the same? -David A.

RESPONSE: Squatters, tenants and others can be denied keys to common area facilities as you described but not ingress and egress to their units. If they reside in a unit, you cannot block access. The trick is knowing who resides in a unit and who does not. If a person cannot show that he/she is a resident, you can deny them a key. That may lead to a legal confrontation but it will resolve occupancy issues.

Squatters #2. Your section on squatter’s rights was extremely helpful because we have a granddaughter and her boyfriend squatting in a deceased owner’s home. They live like animals and ignore requests to clean up their patio, etc.Attempts to contact other relatives have not been successful. It looks like we’ll have to wait until the lender forecloses and boots out the squatters. It’s too bad HOAs don’t have more rights and remedies in matters like this. -John A.

RESPONSE: Even though you can’t block access to the unit, you can suspend the granddaughter’s privileges (and her boyfriend’s). That may or may not be helpful depending on your association’s amenities.

Dogs #1. We prohibit dogs in all landscaping areas. We have had no challenge to this and those few who repeatedly violate the rules are called to a hearing and in some cases fined. -Joseph L.

Dogs #2. Are you seriously suggesting the use of tasers on owners and dogs??? SHAME SHAME SHAME! And no, I wouldn’t believe it was an attempt at humor. -Bryan S.

Dogs #3. Ha ha! I hope you mean tasering the owner and not the dog… The dog’s just doing its business. The owner had the choice to take the dog to the common area grass or not. -Kelly M.

RESPONSE: I agree with you, it’s not the poor creature’s fault. The dog doesnt know he can’t use the grass to do his business. The owner on the other hand…

Dogs #4. With all the talk about the distinction between hunting rifles and assault rifles it occurs to me that there is a difference between a dog as a companion and an assault dog. My next door neighbor has a dog that snarls viciously from a 2nd floor balcony at passing dogs on the sidewalk. Almost every night I can hear a growling confrontation in front of my building. An attack dog seems unnecessary and out of place in a condo. -D.H.

RESPONSE: Ditto your sentiments. Attack dogs and condos dont mix.

Religious Experience. Just wanted to wish you a happy new year and say that I read your column religiously. Thanks for all you do!! -Toni W.

Wonderful Person. You do a fabulous job of educating real estate agents in California. You are a wonderful person, keep up the good work!!! -Mary B.

RESPONSE: That’s what I keep telling my wife but she’s skeptical.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

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Jan 13

QUESTION: A longtime owner in her 80s recently died. Her son, a now and again resident and ne’er-do-well, is living in the unit. No maintenance fees have been paid since her death almost 6 months ago. The son is not on the deed and no probate has been filed. We are about to re-key the building. We will be giving keys to each owner of record. Our manager said we must give this squatter a key even though he has provided us with no documentation whatsoever because he is a “resident.” Do we have to give him a key?

ANSWER: Your manager is right. Both under the Davis-Stirling Act and landlord-tenant laws, an association cannot block access to the unit. As provided in the Davis-Stirling Act:

Except as otherwise provided in law, an order of the court…, an association may not deny an owner or occupant physical access to his or her separate interest, either by restricting access through the common areas to the owner’s separate interest, or by restricting access solely to the owner’s separate interest.(Civ. Code §1361.5.)

Landlord-Tenant. A similar provision can be found in landlord-tenant laws (Civ. Code 789.3(b)(1)) which includes penalties up to $100 per day if a landlord locks out a tenant. Even though your association does not own the unit, California courts have analogized associations to landlords and held them to the same standards. (Frances T v. Village Green.) If you re-key the building and refuse to provide a key to the ne’er-do-well, you would be locking him out of his mother’s unit. Whether or not he has a legal right to occupy the s unit is something for the courts to decide, not the board of directors.

Police & Courts. Calling the police to escort the son off the property is not an option since it is a civil matter not criminal and the police will refuse to get involved. Going to court to evict the son via an “unlawful detainer” action will also fail since the association is not the owner of the unit. In short, your HOA has all the liabilities of a landlord but none of the rights.

RECOMMENDATION: Your best bet is to lien the unit for delinquent assessments and foreclose. However, giving proper notice to the mother will be problematic (unless you know where she is buried). You will need to work with legal counsel to pursue the foreclosure.

NO DOGS ALLOWED!

QUESTION: Can the board make a rule not allowing dogs on common area grass?

ANSWER: I suppose they could but that would likely provoke a recall petition the next day. If someone were to challenge the rule in court, the board will have the burden to convince a judge the rule is reasonable. I would not bet the farm on that one. If the board is concerned about dogs relieving themselves on the grass, there are better ways to deal with the problem–fines, suspending privileges and tasers come to mind.

COST OF HOA
REMODEL PROJECTS

QUESTION: Are members of an association entitled to know the costs of a remodeling project or is this confidential?

ANSWER: If you mean your neighbor’s remodel project, no. If you mean the common areas, you have a right to review (i) contracts approved by the board for the remodel project, (ii) monthly financial statements that would reflect HOA expenditures, and (iii) financial records such as invoices and checks. (Civ. Code §1365.2(a)(2))

WHO CAN
CHANGE THE RULES?

QUESTION: Some owners insist that if we do not enact a rule they want, they will force the board to send a ballot to the membership for a vote. Can they force the board to place a rule change on a ballot or does it stop at the board level?

ANSWER: It stops at the board level. Only the board has the authority to adopt and amend rules. (Civ. Code §1357.130.) Members can, however, veto a rule if they follow the steps described in Civil Code §1357.140 but that is the extent of membership authority (unless the governing documents state otherwise). Although members can petition for a special meeting for any lawful purpose (Corp. Code §7510(e)), forcing a ballot to add or change rules is not within their authority. Indirectly, members can change the rules by electing board members who agree with their position.

MEMBERSHIP MEETING
MOTIONS

QUESTION: A ballot requesting a bylaw amendment is mailed to the membership prior to the annual meeting. At the annual meeting, ballots are counted and it is announced that the proposal failed. Can an amendment to the original proposal be offered at that time if a quorum is present?

ANSWER: If you mean revise the failed amendment and put it to a vote on the spot? No. The only thing you can do is have a show of hands on a recommendation to the board to send a revised amendment to the membership. If the board agrees, they can mail out a new amendment together with a ballot for approval. The reason the failed amendment cannot be revised and approved on the spot is that voting must be by secret ballot with a minimum 30-day voting period. (Civ. Code §1363.03(b)&(e))


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

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Dec 16

This was a busy year for legislation and case law. The most significant was the rewrite of the Davis-Stirling Act. To review all the new laws, see 2012 Summary with links to bills, code sections and cases.

I would like to say that no more regulations will be imposed on common interest developments next year but legislators are like drug addicts–they can’t help themselves. A number of new bills have already been introduced and are being tracked by Skip Daum on behalf of the Community Associations Institute. In addition, the CLRC is proposing clean-up legislation for the Davis-Stirling rewrite. I will report on all of the good, bad and ugly bills in future newsletters.

RENT RESTRICTION
ON INHERITED PROPERTY?

QUESTION: Our board will discuss rent restrictions at our next meeting. One restriction would be a 2-year restriction on leasing after purchase. The other, inherited property cannot be rented for two years. Does 1360.2(c) protect inherited property so my son could rent my home since he is not 55+ and cannot live in the community at this time (should I die today)?

ANSWER: A two-year restriction on buyers renting their units is a good restriction. I’ve been using one for almost twenty years which has been very effective in keeping rentals low. This particular form of restriction offers the same benefits of a rental cap without the problems associated with strict rental ceilings.

Benefits. The chief benefit is that it discourages investors from buying units since they would have to wait two years before they could turn the unit into a rental. As a result, your association gets buyers who want to make your community their home. Owner-occupants are more inclined to take care of their property, follow the rules and volunteer to serve on committees and boards. Investors and tenants, on the other hand, are not predisposed to take care of their property, follow the rules or volunteer their time to improve the community.

Noncontroversial. By restricting buyers rather than existing owners, the restriction satisfies Civil Code §1360.2 which prohibits the implementation of new rent restrictions against current members. Buyer restrictions give present owners the flexibility to rent their units should they need to. It has been my experience over the past twenty years that a two-year restriction on new owner leasing stabilizes the community and protects property values. It allows rentals to reach a natural level in the 5% to 7% range–a more than acceptable level for a community.

55+ Community. Your son’s ability to install tenants after you die (may that be in the distant future), will depend on how the restriction is written. I’ve drafted restrictions for associations where they made no exception for inherited properties. In those cases, the person inheriting the property would have to sell the property (or leave it empty for two years if he wanted to lease it out). I’ve had other associations adopt language that allowed inheritees to rent out the property. Most of my clients have opted for language that discourages the conversion of inherited property into rentals. Your membership will have to decide which of those options is best for your community.

RECOMMENDATION: Associations who want to keep renter populations low should consider adopting restrictions described above. Associations can contact us for more information.

NO BOARD,
NO ASSOCIATION?

QUESTION: If all quit, there is no board. It would appear there is no association. Nothing to ask permission for. Nothing more to do. We are no longer.

OBSERVATION: You wouldn’t stand a chance as a contestant on the Jeopardy game show–you’re supposed to put things in the form of a question. Let me restate what you said, “If everyone on the board resigns, does the association cease to exist?”

ANSWER: No, the association does not cease to exist. All of the association’s statutory and governing document duties remain. All that happened by your board’s mass resignation is that your association’s liabilities are now on an upward trajectory. Somebody better notify the association’s insurance carrier and then quickly sell and get out before unpleasant things hits the fan.

CAN BOARDS REMOVE COMPONENTS
FROM THE
RESERVE STUDY?

QUESTION: I’m on our board and we just completed reviewing our reserve study. There are items on the list with a life that equals or exceeds the estimated life of the buildings. We wanted them removed, but the analyst refused. Doesn’t our board have the authority to remove components?

ANSWER: Not really. That’s like asking an attorney to change his legal opinion because the board disagrees with it. Or telling a CPA to change his audit report because directors don’t like what he found. A reserve specialist is a professional who prepares a report based on his own observations and calculations–it’s his report to the board.

Adjustments. Accordingly, boards have no “right” to dictate changes to an independent professional’s report. However, adjustments can be made to draft opinions/reports by attorneys, CPAs and reserve specialists if the adjustments are reasonable and the professional agrees. For example if something is unclear or is missing and needs to be addressed by the professional, it can be included in the final report.

Funding. Although reserve specialists establish the list of major components, the board can choose not to fund particular items if it complies with Davis-Stirling disclosure requirements, i.e., the report must disclose:

Whether the board of directors of the association has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement. (Civil Code §1365(a)(3)(A))

Accordingly, a reserve study could list components in the inventory and then eliminate them from funding calculations with a note that funding was removed at the board’s request.

30-Year Plus Life. Including components in the Study with useful life of over 30 years with no funding creates a “marker” for future inclusion in the funding plan when the life expectancy falls below 30 years. This is especially important when it comes to plumbing systems since they are hidden in walls and frequently overlooked by boards–until they fail and large special assessments are needed.

Thank you to Scott Clements, RS, PRA, CMI of Reserve Studies Inc. and Robert M. Nordlund, PE, RS of Association Reserves, Inc. for their input on this question.

FEEDBACK

HOA Owned Unit. Regarding reserves on a unit owned by the association, the questioner in last week’s newsletter wanted to know if the value of the owned unit could be counted in the percent funded calculation. Civil Code section 1365.2.5(a)(6) says that only cash may be used to make the percent funded calculation. Not only is the association-owned unit not part of the percent funded calculation but it also is not part of the funding model. Any anticipated rental income from that unit, though, could be included as part of the reserve funding if it is the board’s decision to do this (and not to use the money to offset operating expenses).

As to the income tax issue upon sale of the unit, there are differences of opinion here. There are two different positions: if the association is going to file Form 1120H, then the gain on the sale of the association-owned unit is going to be subject to tax. However, if the association is going to file Form 1120 then, I believe, the gain is from a membership transaction and not subject to tax. -William Erlanger, CPA, Levy, Erlanger & Company, CPAs.

As the year draws to a close, our thoughts are filled with gratitude towards all of our clients who make our law firm possible. We want to take a moment and let you know how much we appreciate your business and look forward to working with you in 2013.

May you and your families have a beautiful holiday season and the new year be filled with peace, prosperity and happiness. Happy Holidays from all of us at Adams Kessler PLC: Aide Ontiveros, Karen Jacobs, Jasmine Fisher, Larry Stirling, Adrian Adams, Gary Kessler, Tina Chu and Azadeh Saghian.

Merry Christmas and
Happy New Year!


Adrian J. Adams, Esq.
Adams Kessler PLC

“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

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Dec 09

QUESTION: The board wants to tent our entire building for termites. Is this a capital improvement that requires the entire association’s vote? If the cost is under 5% of the annual budget, is membership approval required since this is common area?

ANSWER: Termite tenting is not a capital improvement. It is a maintenance/pest control issue. The form of treatment,spot or tenting, is a business decision for the board to make, not the membership or the courts. Lamden v. La Jolla Shores. Regardless of whether the repairs are related to the common areas, the board can approve a special assessment on its own authority for up to 5% of the current year’s budgeted gross expenses. Civil Code §1366(b). If the cost is more than 5%, the board can impose a special assessment if the termite treatment is an emergency.

RESERVES FOR
HOA OWNED UNIT?

QUESTION: Our association has done a reserve study and now is taking the necessary steps to increase the reserves. The association owns one of the units free and clear and rents it out. The unit is worth over $500,000. Shouldn’t this count toward the reserve account?

ANSWER: The $500,000 estimated value of the unit can be included in the HOA’s balance sheet but not in its reserve funding calculations. Assuming the unit is a condominium, there is very little that needs to be reserved for inside the unit–carpet, cabinets and maybe painting. Depending on the size of your budget, most items in the unit will be addressed through routine annual maintenance.

Property Taxes & Insurance. Non-reserve items that are sometimes overlooked are the need to insure the unit and pay property taxes.

Separate Interest. If the unit was acquired through foreclosure, it will have a parcel number. In that case, property taxes must be paid and a separate general liability and property insurance policy purchased for the unit.

Common Area Unit. If the unit is part of the common areas, then property taxes are not an issue. That happens most often when a “manager’s unit” is created by the developer and included in the common areas. Accordingly, the unit is covered by the association’s insurance. However, boards should not assume it’s covered–they need to verify it.

Taxable Income. Rent money collected from the unit is subject to taxation as non-dues income. In addition, when the unit is sold the association will incur transaction costs and pay taxes on any gain on the sale. The gain on this asset sale produces “non exempt function” income, which is taxed at ordinary corporate rates. These rates go up to 35% for federal and 11% for California. There is also a “basis” for gain or loss issue to resolve when the unit is sold. Therefore, the net realizable value may be substantially less than $500,000.

Thank you to Donald Haney, CPA, MBA, MS(Tax) of haneyinc and Scott Clements, RS, PRA, CMI of Reserve Studies, Inc. for their input on this question.

NO QUORUM
FOR PAST FOUR YEARS

QUESTION: I have been a board member three times. The last four years our annual election was held by mail. We never had a quorum. Do we need a new election or can we count the original ballots at the next meeting?

ANSWER: Sorry, you cannot carry over ballots from year to year until you get enough to hold a meeting. Ballots count for the election for which they were noticed (and any adjournments of that year’s meeting). Consequently, you need to issue a new notice and new ballots for each annual election.

ELECTRONIC
CONSENT FORMS

QUESTION: I know that owners must sign a “consent form” before the association can electronically send documents. If we make these documents available on a website and only send owners an email notice that they are available, do we still need a signed consent form?

ANSWER: Documents can and should be posted on your website so owners can download them as-needed. However, whenever documents are required by statute to be distributed to the membership (budgets, year-end disclosures, annual financial statements, etc.) you will need an unrevoked consent on file if you want to either distribute them electronically or post them on the website in lieu of distributing them.

RELEASE OF
ASSOCIATION RECORDS

QUESTION: Our Reserve Study Committee needs to look at old records, especially ones our old management company turned over to the current one some 7 years ago. The current management rep told our board president he can’t let those out of the office. Don’t HOA records belong to the HOA and doesn’t the HOA have the power to say where and when the records are kept?

ANSWER: I’m not sure why you need 7-year old records to prepare a reserve study. What you need is a reserve specialist to (i) visually inspect your development’s major components, (ii) establish an estimated remaining useful life for each component the association is required to maintain, (iii) set a replacement cost for each component, (iv) calculate interest and inflationary offsets, (v) sprinkle a little pixie dust on it and produce a reserve study/funding plan that can be used by the board as a guide to properly fund the reserves. (See Reserves Menu.)

Records Oversight. When a managing agent is entrusted with the association’s records, industry practice is to NOT allow them out of the management office because they can be lost, damaged, destroyed or altered. Accordingly, neither board members nor committee members have the right to remove records from the management office. Only the board as a whole has the power to authorize the “borrowing” of original records. Even so, letting originals out of the office is a bad practice. The better practice is to allow records to be reviewed in the management office or to make copies. An exception is during litigation when original records need to be sent to the association’s legal counsel for review and possible production to opposing counsel.

FEEDBACK

Fines #1. In response to “Fine on Fines,” our HOA has wording in the fine schedule that all fines will continue monthly until the member is in compliance. Not another fine on top of a fine, but a way to keep homeowners accountable. -Kaye

RESPONSE: I agree. A daily, weekly or monthly fine imposed for a continuing violation is not a fine on a fine. Ongoing fines can be effective when used in a “carrot and stick” approach to the violation. In other words, fines accumulate daily but will be waived if the violation is cured in an appropriate time period set by the board. If the violation is not timely cured, the fines are not waived and the association then takes legal action to bring the person into compliance.

Conversion Charts. THANK YOU for your and your staff’s hard work! The double cross reference to the “new” to “old” Davis-Stirling Act is a godsend. I only hope our association board and property manager appreciate it as much as I. Thank you, again. -Bruce S.


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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Dec 02

QUESTION: Is it legal to fine someone twice on the same violation if they refuse to pay the first fine and have remedied what the fine was for in the first place?

ANSWER: The imposition of monetary penalties requires due process, which must be done in accordance with the association’s published fine policy. I’ve never seen language in any governing document that allows a board to levy fines on unpaid fines or two fines on a single violationIf your board had a written, published policy that allowed for fines on fines, I suspect a court would find it unreasonable.

Board Options. If an owner refuses to pay a fine, boards have two options. The first is to take the person to small claims court for a judgment in the amount of the fine. This approach is not always successful–small claims judges are a bit unpredictable. The second option is to hold a hearing and find the person “not in good standing” and suspend their privileges and voting rights until the fines are paid.

RECOMMENDATION: Boards should have their association’s legal counsel review their governing documents and advise them on how best to levy and pursue monetary penalties.

DAVIS-STIRLING REWRITE
FULLY INDEXED

Thanks to my Office Administrator Laura Whipple, the rewritten Davis-Stirling Act has been divided into individual pages, reformatted and fully indexed with titles for easy reference.

In addition, page-to-page links have been added so you can easily move between “next” and “previous” sections in the new Act.

Laura is also adding internal statutory links to each page as well as cross-links between the old and new. The cross-linking should be completed in the next week or two. You can find the Rewrite Index on our website at Davis-Stirling Rewrite.

RESIGNATIONS
AND APPOINTMENTS

QUESTION: Our board president resigned because he sold his home and moved. He had more than one year remaining on his term. Our treasurer, who is up for election this year, resigned his seat and was appointed by fellow directors to fill the seat vacated by the president and assume the remaining year of his term. Is this allowed?

ANSWER: Yes, it’s allowed. The Corporations Code and most bylaws authorize the appointment of replacement directors whenever there is a vacancy on the board. There is nothing illegal or improper when a board appoints an existing director to fill the longer term of a resigning director. Term limits might preclude the appointment depending on how the restriction is worded.

FEEDBACK

Borrowed Reserves #1. Can a board use reserve funds designated for a particular line item in the reserve study for another reserve item if it needs attention immediately? If so, do funds have to be paid back?-Linda D.

RESPONSE: Monies can shift between line items in a reserve account. It is normal to make adjustments from year to year to reallocate funds to cover items that fail prematurely or cost less to repair than was anticipated. For example, if a boiler fails in year eight instead year ten as projected by the reserve study, funds can be shifted from other line items to cover the unexpected early expense. Or, if a pool heater replacement ends up costing half the projected cost, the left-over funds can be assigned to other reserve line items. Such reallocations are not unusual.

Major Expense. In the example I gave last week, the reserves were wiped out by a large unexpected, unreserved for item. The $400,000 expense I gave was not a minor adjustment–it was a complete depletion of the reserves. The unexpected and unreserved major expense is better addressed through an emergency special assessment. Or, in the alternative, “borrowing” from the reserves and using a combination of regular and special assessments to accelerate replenishment of the funds.

Consequences. An unplanned emptying of the reserve account will clearly have consequences. Per statute, the association will have published a reserve summary that showed $400,000 allocated for plumbing, painting and paving expenses–those expenses do not go away just because a roof emergency intervened. They will hit at some point with no monies to pay for them. Accordingly, the prudent course of action is to replenish the reserve funds. Some reserve specialists have weighed-in on this topic. See their responses below.

Borrowed Reserves #2. We keep track of the major repair and replacement components at the individual component level as part of estimating the overall obligation. But the investment portfolio is handled as a pool of money. There is no “roof” money or “painting” money. It would be like having a bank account for every line item of revenue and expense. What is really going on here is that associations levy assessments sufficient to perform its duties. The annual assessment level is designed to handle the year’s estimated routine operating expenses and to charge current owners a sufficient amount that covers the “annual wearing out cost” of common area major components that the association is contractually (CC&Rs) and legally (California law) obligated to maintain at an known and ascertainable standard. Acquiring and managing the investments is a mutually exclusive process from estimating what money you need to meet current and future cash flow requirements and deciding who pays for what when. It is a more technical conversation, but that is the essence of the matter. -Donald Haney, CPA, MBA, MS(Tax), haneyinc

Borrowed Reserves #3. Assuming monies are set aside for the items you mentioned, however, for some reason, the roof is not included in the reserve study, and therefore no monies had been set aside for their replacement, the monies in the reserve fund can still be used for replacement of the roof. It’s all one bucket of money and it can be used to replace components the association is obligated to repair, replace, maintain or restore. My rational is:

1.  Is the component the responsibility of the association?
2.  Is the component in need of replacement?

Assuming yes to each, why would an HOA have to borrow its own money to replace a component it is responsible to replace? The fact that the component was excluded from the reserve study [error by the preparer or believed to be 30+ remaining life] is irrelevant to the responsibility and needs of the association. The monies are set aside to maintain the facility, the reserve study is simply a tool to help identify and estimate the costs to do so. There will inevitably be costs to maintain a facility that are unforeseen, limiting the HOA’s available resources to the items specifically identified in a reserve study seems imprudent. -Scott Clements, RS, PRA, CMI, Reserve Studies Inc.

Borrowed Reserves #4. On the subject of reserves and borrowing, we define an appropriate reserve project as meeting the National Reserve Study Standards four-part test, meaning the component/project is:

1.  A common area maintenance responsibility,
2.  Life limited (expected to realistically occur in the future),
3.  Predictable (not randomly occurring), and
4.  Above a minimum threshold cost (often in the .5% to 1% of annual budget range).

There are three primary reasons why an association may be in a situation to overspend from reserves: the expense is higher than expected, the expense is earlier than expected, or the expense wasn’t anticipated. All three demonstrate the need to update the reserve study regularly, learning from experience to make the reserve component list better and more accurate each year, and helping board/management know the reserve contribution needs of the association.

Realistically, those reserve contribution needs of the association will likely increase the year after reserves have been overspent as the reserve strength of the association needs to be rebuilt! In those cases I believe a special assessment may be necessary due to cash flow issues, but I don’t believe a special assessment or “repay within 12 months” is automatically triggered. -Robert Nordlund, PE, RS, Association Reserves, Inc.

Alligators #1. How far do you go with the visual blight that an excess of signage creates? Do you warn against all wild mammals that could carry rabies – squirrels, raccoons, feral cats, bobcats, mountain lions, coyotes, etc? Do you warn of stray dogs that might be off lead? How about black widows, brown recluse, and bedbugs? This list goes on ad infinitum and ad nauseam. Someone needs to come up with a sign at the gate that says, “WARNING: There are things in life that can hurt you.” -Jim S.

RESPONSE: Don’t forget to include rabid lawyers.

Alligators #2. Regarding the article about the unfortunate episode of the alligator eating a human and a subsequent lawsuit: We don’t have any alligators but we have members of our HOA who have engaged in 2 verbal assaults and one physical assault on other members. Do we need to let the membership know about this pattern of behavior, both for the protection of individuals and the protection of the board? -Lolly S.

RESPONSE: Human alligators? Warnings should be plastered all over the common areas. But you better check with legal counsel on this one, he/she might not agree. (Problem residents are particularly difficult to deal with and your options are limited. You should get your association’s attorney involved. Personally, I would rather deal with real alligators than the two-legged kind–it’s a lot easier.)

Commercial Signage #1. Your November 18 Newsletter stated, “A homeowners association is not a governmental entity–it is a private organization with private restrictions, which means the First Amendment does not apply.” I thought federal law would always apply, even within the confines of a private organization. -Richard A.

RESPONSE: Not so. The First Amendment states that “Congress shall make no law….” Accordingly, the Bill of Rights protects citizens from governmental restrictions, not private ones. Thus, businesses and owners of private property can restrict the activities of others in their employ or on their property. That’s why an employer can fire someone for giving political speeches or handing out fliers in the workplace or posting racist or homophobic slurs on Facebook. When it comes to homeowners associations, they can adopt restrictions on signage in their developments and restrict speech in their meetings.

Commercial Signage #3 Our association of 647 detached homes does not allow any commercial signage except for real estate sale signs which are controlled. Our rules also state that “commercial vehicles” owned by residents or their guests may not be parked overnight in private driveways or in guest parking spots. -Tom M.


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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Nov 18

QUESTION: Can an association restrict piles of smelly shoes in front of an owner’s front door? It has been suggested that if this is a cultural belief the HOA could be faulted for making them remove their shoes.

ANSWER: Smelly/unsightly footwear can be restricted under the nuisance provision of your CC&Rs. In a condominium developmentwhere other owners and their guests must walk by the unsightly shoes in a common area hallway, the restriction is reasonable. Cultural sensitivity is a two-way street. Residents should be respectful of their neighbors and keep their shoes inside their units.

SPENDING AND REPLACING
RESERVES

QUESTION: Our board insists that if funds from the reserves are used in year one to repair a reserve item then the association must replace the reserves in year two by the amount used in year one. Is this correct?

ANSWER: That is not what the law requires. Reserves are built up over time. If a 20-year roof has reached the end of its life and $400,000 is spent from reserves to replace it, the association is not required to replace the money the following year. Instead, $20,000 per year is put into the account for the next 20 years (the life of the roof). At that point you have enough money to replace the roof again.

Variables. The amount actually transferred into reserves annually will vary over time as your reserve specialist factors in variables such as inflation, interest earned on the funds, projected lifespan of the roof (which depends on how well the roofs are maintained in the intervening 20 years), etc.

Borrowed Money. If your board borrowed money from your reserves, then it needs to be replaced the following year. Using the roof example, if you had $400,000 in your reserve account but it was allocated to other items (painting, street paving and plumbing) with none set aside for roofs, the board would have to borrow the entire reserve fund to replace the roofs. In that case, the board is correct that the funds would need to be replaced the following year.

COMMERCIAL SIGNS

QUESTION: We have some board members who want to regulate commercial signage on cars, such as a real estate sign or a business sign for an offsite business under a CC&R restriction that does not allow signs on lots. Is this legal? Someone said it is a violation of free speech. Could they then regulate car colors, etc.?

ANSWER: Some car colors should be regulated–if you see a lime green car, call the police. When it comes to commercial signage, most associations prohibit yard signs, business signs in windows, etc. “Commercial” signage advertises products or services the advertiser hopes you will purchase. When it comes to the Davis-Stirling Act, there is no protection of commercial signage. As for the First Amendment, it primarily protects political speech, and to a lesser extent commercial speech, from governmental interference. A homeowners association is not a governmental entity–it is a private organization with private restrictions, which means the First Amendment does not apply.

Since homeowner associations are residential, it is more than reasonable that they restrict the display of commercial signage. No one wants their neighbor putting a sign in their yard that they’re selling medical marijuana or providing palm reading services. Or parking a trailer in front of their house with a sign advertising cigarettes. Homeowners would be up in arms. Does that mean associations can regulate signage on vehicles? Yes it does. As a practical matter, the explosion of advertising that is painted, printed or tattood on everything that moves, including people, makes it difficult to regulate.

RECOMMENDATION. Some CC&Rs are silent on signage issues while others are explicit. Your board should work with legal counsel to review the authorizing language in your CC&Rs and then draft reasonable restrictions on vehicle signage.

ALLIGATOR EATS GUEST
HOA SUED

There is a case out of Georgia that addresses the issue of whether a homeowners association is responsible for protecting its members from attacks by dangerous wildlife.

The Landings HOA is a gated community near Savannah, Georgia in an area where alligators are indigenous. The Association warned residents in newsletters and on its website that alligators lived in its lagoons and were dangerous. It did not, however, post signs near the lagoons.

Ms. Williams was house-sitting for her daughter who was vacationing in Italy. Behind her daughter’s house was a common area park adjacent to a lagoon. Ms. Williams went for a walk sometime after 6:00 p.m. At about that time, several boys reported hearing a woman crying for help. The next day Ms. Williams was found floating in the lagoon. An eight-foot alligator was found with her body parts in its stomach. The heirs sued the association for wrongful death.

The Georgia Supreme Court found for the association because testimony showed that Ms. Williams had knowledge that dangerous alligators occupied the lagoons. Knowing that, she still chose to walk at night near a lagoon where alligators were present. The Court reasoned that Ms. Williams either assumed the risk of walking where she knew alligators were present or failed to exercise ordinary care by doing so.


RECOMMENDATION: The case might have gone against the Association if testimony had shown that the association had done nothing to warn residents. I suspect the board has since added signage around the lagoons. To read the court’s decision, see The Landings HOA v. Williams. California HOAs in areas where residents are exposed to dangerous wildlife should talk to legal counsel about how best to protect against potential liability.

NO NEWSLETTER

Sorry, no newsletter next week. My wife and I will be spending Thanksgiving with family. I hope all of you do the same.

FEEDBACK

Conversion Charts #1. Thank you, thank you, thank you, Adrian, and again thank you, for the two conversion charts on the old and new D-S Act. We will now be able to digest the differences before 1-1-2014. -Sam D.

Conversion Charts #2. Kudos to you for being ahead of the curve once again and providing a conversion chart we can access until we get used to the DS rewrite. -Cassie T.

Conversion Charts #3. Wow, thanks for taking time to do the conversion charts! Now I have more stuff to read. -Lorna L.

Conversion Charts #4. I understand management companies are considering including the Davis-Stirling conversion chart in resale disclosure packages. Considering the changes go into effect January 2014, I’m concerned it may be premature to refer to the re-numbered DS Act as it may confuse or mislead recipients. What are your thoughts? -Sheri C.

RESPONSE: It is a little premature but I don’t see any harm if the chart is clearly marked that the new statutes don’t go into effect until January 1, 2014.

Smoking Ban. You asked readers to share whether they had a ban on smoking in their governing documents. We first banned smoking in the common areas back in 2009. In 2010 members adopted a complete ban ANYWHERE within the four corners of the parcel (common area, inside the units and sidewalk). We extended the ban to members, residents, guests and vendors. -Sandy O, San Francisco.


Adrian J. Adams, Esq.
Adams Kessler PLC

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Nov 04

The Davis-Stirling Act is currently found in Civil Code sections 1350 to 1378. The DS Rewrite uses all new Civil Code sections that start at 4000 and go to 6150. Because the Act’s content was completely restructured, there is no straight across correlation of section numbers between the old and the new.

As a result, trying to find and compare changes in the language between the two Acts can be daunting. To make the task easier, I’ve added two Conversion Charts to the website. The first takes the current Civil Code numbering and shows where all the sections and subsections are located in the Rewrite. The second chart takes the new Civil Code numbering and shows where the corresponding provisions are found in the existing Code. Links and cross-links will be added as time permits.

REMOVE MEMBERSHIP
FROM DELINQUENT OWNER?

QUESTION: We have a property owner who is in arrears. Can we remove him from membership in the HOA? Our bylaws state that we can suspend voting privileges, which we have done, but we would like to remove him completely from the membership.

ANSWER: Sorry, you can’t remove his membership. Membership is automatically conferred by ownership of a lot or condominium. Civil Code §1358. The only way you can take away a delinquent owner’s membership is to foreclose on his property.

REMINDER ABOUT
LENDER FORECLOSURES

All associations should record a blanket “Request for Notice of Sale” to receive notice of lender foreclosure sales. Otherwise, boards will not know who to bill for assessments after the sale occurs.

Recording the Request is important if associations want to benefit from AB 2273 which goes into effect January 1, 2013. This bill requires lenders to record foreclosure sales within 30 days of the sale. It makes banks accountable for the properties they acquire, i.e., once the sale is recorded, the lender must start paying HOA dues and special assessments. Contact us if you need assistance.

INVESTORS HAVE
EQUAL VOTES


QUESTION: Our board allows owners of more than one property (rentals) to have equal voting rights for each property. Is this legal?

ANSWER: Your board is not the culprit. Voting rights are established by your governing documents, which ties them to ownership. As a result, owners of a separate interest in a common interest development have the right to cast votes for each property they own–that includes investors.

Problems. Allowing investors to own multiple properties can create problems for associations. The first is the higher rental population they bring to the development and the second is the voting power the investors wield. If an association has cumulative voting, the investor’s influence is magnified even further.

Solutions. To contain the problem, associations can amend their CC&Rs to limit ownership to one or two properties per person or entity. At the same time, HOAs should consider adding a requirement that no buyer can rent his property until he has resided in the residence for at least one year (some associations make it two years). This will deter investors from buying units and immediately turning them into rentals. It will bring owner-occupants into associations, which is what you want.

HARDWOOD FLOORS

QUESTION: An owner on the 2nd floor wants to install hardwood flooring. I can’t find anything that says that the owner installing the floors must seek approval from the owner below, just the HOA board. Is this correct? I was always under the assumption that the owner that lives below would need to approve the floors.

ANSWER: Unless your governing documents provide otherwise, the architectural committee (or the board, depending on your documents) reviews and approves, modifies or disapproves the remodel application. Some associations (especially PUDs) require notification of surrounding neighbors when remodel applications are submitted so neighbors can attend the architectural meeting to observe the review process. Neighbors can voice their concerns but they cannot veto the proposed project. If the owner meets the association’s architectural guidelines, he/she should receive approval for the proposed work.

RECOMMENDATION: When it comes to hardwood floors you need to have objective standards that fit your building’s particular construction. Some buildings, especial condo conversions, are so poorly constructed that there is no practical or cost effective way to install hardwood floors that would not create a nuisance to unit owners living below them. Your board should adopt strong architectural guidelines and then enforce them in a consistent and evenhanded manner.

FEEDBACK

Adrian’s Angels. Kudos to Adams Kessler for their team of amazing lawyers! I have had personal experience with Karen Jacobs whom I found to be thoroughly knowledgeable. She listened to me instead of acting as if I was an intrusion in her day. I had great success with her in our dealings. If the rest of the team is as personable and competent, I offer that the women of AK are more than angels–dare I say it, they are GODDESSES. -Anita H.

Free Riders #1. I loved your answer to “FREE RIDERS”! Very well said! -Ken H.

Free Riders #2. Kudos on your response regarding suspension of common area privileges. I find this practice to be one of the most successful in collecting debt on behalf of my clients. Last month alone, I was able to secure over $30K between two associations either through payment in full or a one year payment plan. I find it funny that revocation of parking transponders, parking tags and pool use is more persuasive than legal action. This process is especially useful when there are tenants in a unit; as soon as tenants are copied on the hearing letter, they put pressure on the unit owner. -Vicki M.

Free Riders #3. Please tell Adrian that I send a HUGE thank you for his comment in yesterday’s column that pertained to “giving people a free ride.” Amen!!! -Phyllis H.

Free Riders #4. “Giving people a free ride at others’ expense is a poor business practice we reserve for our federal government.” Bravo! And Amen!! -David C.

NOTE: I had two readers who took offense at the comment because they thought it had political connotations. In our current overwrought political season? Perish the thought! -Adrian

DRE Warning. Regarding the DRE “Consumer Warning,” I noticed on page 3 under the second bullet that the DRE implies that an owner is entitled to the “Delinquent Report” from the association. Is that true or am I misunderstanding the intent? -Bob F.

RESPONSE: Yes, owners are entitled to financial information, including a delinquency report. Boards should already be receiving them in their monthly financial reports. However,
if names are in the report they need to be redacted before giving copies to owners.

No Smoking #1. We are a 36-unit condo association that recently adopted a no smoking policy both inside the units and in any part of the common area EXCEPT for a designated smoking area in the common owners parking lot. We adopted the policy based on the nuisance clause in our CC&Rs. -Rick H., Canyon Lake, CA

No Smoking #2. Our association has the following restriction: “No owner, family member, tenant, resident, guest, business invitee or visitor shall smoke cigarettes, cigars, or any other tobacco product anywhere within the boundaries of BTH. This prohibition shall include the outside common area, enclosed common area, exclusive common area (balconies and patios) and all units within the project.” -Jonathan P., Berkeley, CA

No Smoking #3. I have one association in Tiburon that doesn’t allow smoking anywhere on the property, including inside units. “No Smoking Property” signs are at each property entry. -Trudy M.

NO NEWSLETTER. Sorry, no newsletter next week. I am working on a couple of litigation matters that need my attention. I think we could eliminate litigation altogether if we got rid of all the people. But, since we can’t, HOAs will always be unruly and litigious. We can’t put unrelated people in close quarters, give them joint ownership of property, tell them to govern themselves and expect otherwise.


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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Oct 28

QUESTION:While checking your website on suspension of common area privileges, I was shocked when I read, “If there are multiple owners of a unit/lot, the suspension of rights/privileges for one owner suspends the rights/privileges of all residents of that unit/lot. The suspension also extends to renters.” With all due respect, an HOA is not a military organization where group discipline is used to demand compliance with an order.

ANSWER: If the owner of a unit is delinquent and his privileges are suspended, the people residing in his unit are also suspended, whether family members, guests or tenants. Otherwise, the suspension is meaningless. If residents were not included in the suspension, they would continue to enjoy the association’s amenities without paying for them. Giving people a free ride at others’ expense is a poor business practice we reserve for our federal government.

BOARD MEMBERS AS
CC&R EXPERTS?

QUESTION: As a board member, am I expected to be an expert on our CC&Rs? I wish I were but, for example, when a homeowner asks who is responsible for repairing damage caused by a water leak in a common wall, I don’t feel qualified to give a definitive answer.

ANSWER: I know that some homeowners expect every board member to read and understand every line of their CC&Rs. That is an unrealistic expectation. Volunteer directors are not experts and can get themselves in trouble if they try to be. As a practical matter, boards should have a general understanding of how things work but should defer to an HOA attorney to interpret their CC&Rs.

Maintenance Chart. When it comes to maintenance duties, boards should have legal counsel prepare a maintenance chart that lays out all common maintenance issues and who is responsible for each–the association or owners. That requires a thorough review of your governing documents in conjunction with the Davis-Stirling Act and applicable case law. The chart is then published to the membership. Making everyone aware of their respective duties can minimize or avoid expensive litigation.

RECORDING MOTIONS
IN MINUTES

QUESTION: Is there an established doctrine that the individual making a motion and the individual seconding the motion be identified by name in the minutes? I have seen this done by a professional minutes taker, however, my colleague disagrees. What is the accepted rule?

ANSWER: There is no law that requires the name of the person making the motion and the one seconding the motion. While some associations do, many associations simply state that a motion was made and seconded. Over the years, I have seen both practices and both are acceptable. Even though boards of directors are not required to use parliamentary procedures for their board meetings, Robert’s Rules of Order serve as a useful guideline for taking minutes. According to Robert’s Rules,

The name of the maker of a main motion should be entered in the minutes, but the name of the seconder should not be entered unless ordered by the assembly. (Robert’s Rules, 11th ed. p. 470.)

For those associations that can afford it, a professional minute taker provides greater consistency and a quicker turn-around for minutes.

BOYFRIEND
CONFLICT OF INTEREST


QUESTION
: We have a board member whose live-in boyfriend is a licensed contractor. She gives him copies of the bids we get on various projects so he can submit a lower bid. Is this legal or ethical? Can board relatives even bid on projects?

ANSWER: It is clearly inappropriate for your ethically-challenged director to provide insider information to her boyfriend.

Problems. It is not illegal for a director’s relative to bid on projects if done properly but doing so is fraught with peril. Most boards wisely disallow the practice because of the inherent problems when directors benefit from contracts awarded to themselves or relatives.

Censure. Your self-servingdirector should resign from the board if she wants her boyfriend to bid on HOA projects. If she refuses to resign and continues to leak information, she can be censured by the board and an executive committee created to review bids. In addition, your board should adopt an ethics policy.

UNDERFUNDED HOAs

As boards everywhere already know, the recession has created significant funding problems for their HOA budgets. That has led to deferred maintenance and underfunded reserves.

The problem is serious enough that California’s Department of Real Estate issued a “Consumer Warning.”

SANTA MONICA BANS
SMOKING

In addition to San Rafael’s no smoking ordinance I reported on last week, the city of Santa Monica banned smoking for new tenants of apartments and condos. The ordinance was approved on October 2 and included language giving neighbors the right to take smokers to court if they violate the ban.

Last week I asked if any condominium associations had banned smoking inside units. At least three have done so:

No Smoking #1. Our association prohibits smoking in all areas with the exception of a single location on the roof deck. Because we have a passive ventilation system that is constantly introducing fresh air into the units, smoking inside the units would quickly cause cigarette smoke to propagate between units and is therefore prohibited. In addition to our CC&R restriction, we have a separate smoking restriction policy. -Brian H., San Francisco

No Smoking #2. We amended our documents in 2010 to become a non-smoking facility both within individual units and in the common area. We made an exception for two older residents to continue smoking on their balconies only. These two have now passed away, so we are a smoke-free complex. -Angela D., Los Gatos

No Smoking #3. We successfully amended our CC&Rs to ban smoking throughout our seniors 112-unit condo (including inside units). -Steve R., Torrance

If other associations have banned smoking in their developments, (including inside units), let me know. Thanks, Adrian

FEEDBACK

Term Limits #1. The 10 & 25 years without pay as a volunteer BOD is something of a wonderment. Good job Esme and Barbara, from one who appreciates people who really care and are willing to serve. -Jack S.

Term Limits #2. Regarding term limits, my husband and I served for 13 years. No one else would step up so two years ago we just refused to run again and “rescue” the other members. It was a little bumpy for a year, but has now settled down with a good board. My advice: cut the cord! -O.T.

BBQ Notice. We live in Hawaii and have different condo laws, however your newsletter is one of our only informative (not legal for us) sources and we thank you for the timely information. Last week’s newsletter discussed email notice of BBQs. Would the board need unrevoked consent to email a newsletter? -Bob A.

RESPONSE: Aloha. I don’t know about Hawaii but in California I don’t believe associations need an unrevoked consent to send newsletters via email. The statutory consent is for notifications and disclosures mandated by law and the delivery of documents required by statute. If you want, I can fly out and meet you on a beach and spend a few days reviewing Hawaii’s laws.

Adrian’s Angels. Just wanted to say that I applaud the addition of quite a few females to the team….(Adrian’s Angels?….lol). -Ingrid K.

RESPONSE: I have a fabulous team of women lawyers. They are angels but they have a tough streak. As a result, I only talk to them over a speaker phone.


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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Oct 21

QUESTION: Board members can’t discuss HOA business outside a meeting unless it’s among less than a majority. Our board meets monthly and it is not enough time to discuss everything in our board packet. We have five board members, can I speak to one or two directors one day and the other one or two another day?

ANSWER
: Not really. What you describe is known as a “hub & spokes” board meeting with you at the hub. This type of meeting is not directly addressed by the Davis-Stirling Act. Because it is a gray area, we can turn to the Brown Act for guidance. The Brown Act regulates the meetings of public legislative bodies and local public agencies and was used as a model for the Davis-Stirling Open Meeting Act.

Chain Meetings. The Brown Act prohibits such communications, whether direct, by intermediaries or electronically. Gov. Code §54952.2(b). In a chain meeting, also called a serial meeting, “A” talks to “B” who talks to “C” who, in turn, talks to “D.” In a wheel hub, directors are spokes with “A” at the center–the directors never talk to each other, they all talk individually to A. When deliberations and decisions are made through chain communications or via wheel hubs, they deprive members of their right to see how board decisions are made. If a board were sued under the Davis-Stirling Act for a wheel hub or chain meeting, I suspect the courts would interpret Davis-Stirling using the same principles found in the Brown Act.

RECOMMENDATION. Directors should not discuss board business outside of noticed meetings. I know it puts a significant burden on directors who already have busy home and work schedules. To compensate for the restriction, many boards rely more heavily on their managers to handle day-to-day operations and they schedule more “quickie” board meetings between regular meetings, i.e., short meetings to address one or two issues (following proper notice to the membership).

SPECIAL ASSESSMENT
CONFLICT

QUESTION: To approve special assessments, our CC&Rs require a majority of homeowners. Our bylaws require 75% to approve same. Does one supersede the other?

ANSWER: Both are superseded by the Davis-Stirling Act. The Act states that a majority of a quorum is sufficient to approve a special assessment. If the law had not addressed special assessments, then your CC&Rs would have trumped your bylaws. This hierarchy of authority was not previously spelled out anywhere. However the Davis-Stirling rewrite (effective January 1, 2014), states that any inconsistencies between governing documents and the law or between governing documents are resolved in the following order of authority: the law, the CC&Rs, articles of incorporation, bylaws and operating rules. (New Civil Code §4205.)

ADJOURNED
ANNUAL MEETING

QUESTION: In the event an annual meeting must be postponed on the day of the meeting, what is the procedure to postpone the meeting? And are mailed-in ballots still valid?

ANSWER: The meeting is simply adjourned to a later date by those in attendance at the meeting. Language to that effect is often found in most bylaws. In addition, it is covered by Robert’s Rules of Order:

… in the absence of a quorum, the assembly may fix the time to which to adjourn, adjourn, recess, or take measures to obtain a quorum.

… If there is important business that should not be delayed until the next regular meeting, the assembly should fix the time for an adjourned meeting and then adjourn.

… the chair calls the meeting to order, announces the absence of a quorum, and entertains a motion to adjourn [to a later date]. (Robert’s Rules, 11th ed., pp. 347-349.)

If a date was not selected and announced when the meeting adjourned to a later date, the board sets the date (which usually requires coordination with the Inspector of Elections) and gives notice to the membership. As long as the ballots were not opened, they remain valid and are brought to the adjourned meeting by the Inspector. Once quorum has been achieved, the ballots are opened and counted.

RECOMMENDATION: If your governing documents are silent, you may want to amend them to address this and other election issues.

SMOKING BANNED
INSIDE CONDOMINIUMS

The City of San Rafael, a suburb of San Francisco, passed an ordinance this week banning smoking in condominiums. They become the ninth city to ban smoking in multi-unit housing (which includes condominiums).

I believe this trend is irreversible and may accelerate. In addition, we will likely see associations amending their CC&Rs to ban smoking throughout their developments (including inside units). If readers are aware of condo associations that have already done so, please let me know. I would like to monitor the trend. -Adrian Adams

EMAIL NOTICE OF BBQ

QUESTION: Does the Davis-Stirling Act preclude our association from using member email addresses to invite members to an association organized neighborhood BBQ?

ANSWER:Yes, you can use emails to send invitations. Limitations on electronic notifications are on official notices and disclosures, i.e., those mandated by statute. The most common official notifications are notice of board meetings. Such notices cannot be given electronically unless members execute an “unrevoked consent” giving the association permission to give notice by email.

FEEDBACK


Relevant
. Excellent newsletter. Hit some very relevant points. -Donald A.

Term Limits #1. Thank you for your newsletter. I continue to pass it along to my entire condo association so they can stay abreast of things. Meanwhile, the question about term limits is a good one. I’ve been president most of the last 25+ years. I would love term limits. I tried to resign but no one else wants the job. -Esme G.

Term Limits #2. Thank you for the article. I’ve been been on the board now for over 10 years. Every year elections come up and no one ever sends back their ballots, so the board remains the same. No one wants to take the extra time and energy to take care of problems and resolve issues that arise in the complex. It takes a lot of time and energy to do walk-thrus, get bids, watch the finances, etc. The homeowners never come to monthly meetings either, it’s always just the board. -Barbara K.


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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