Reader Questions – Are HOA Board Term Limits Allowed?

Reader Questions – Are HOA Board Term Limits Allowed?

Mr. Richardson: I appreciate your column in the [paper]. Many of your topics are extremely helpful. According to our election rules and bylaws, no director shall serve more than two consecutive terms. The president now claims that SB323 has done away with term limits and she can run again and continue to serve on the Board for a third consecutive term. She also claims our attorney said there are no longer term limits, however, no board member has been allowed to see that correspondence. Please, would you help to clarify this? I’m hoping you can provide some direction. L.K., Westchester Dear Kelly: First I’d like to thank you for all the great articles I read in the [paper]. Our HOA does not have term limits for board members. There are plenty of us that would like to have term limits and I’m shocked that when the HOA was created that this was excluded. Thanks, A.T., Beaumont Dear L.K. and A.T.: Many HOAs find term limits useful to ensure a healthy turnover of the board and have bylaws which limit consecutive terms of service. On the other hand, HOAs having difficulty in filling their board seats may find term limits to be undesirable. The key is for each association to adopt a system which works for its community. However, a change in the law this year may take that option away from California common interest developments. The new law now in force from last year’s SB323 appears to have eliminated term limits from HOAs in California. Civil Code Section 5105(b) lists one mandatory disqualification for board candidacy – non-membership –...
Harassment and Handicapped Parking Questions

Harassment and Handicapped Parking Questions

Hi Kelly, Perhaps you have an answer to the following case. A homeowner in our HOA (he might have a form of mental illness) is said to have harassed a new homeowner couple based on his objection to their interracial marriage.Some homeowners are asking the board to take action against the harassment, they claim cases like this have been ruled to be a HOA responsibility. I am looking at it as a dispute between two homeowners, a case for the police to settle or by dispute resolution. K.N., Santa Barbara Dear K.N.: HOAs must do what they can to respond to harassment of residents because of their membership in a protected class. This has been part of the regulations issued by the U.S. Department of Housing and Urban Development since the Fall of 2016. As of January 2020, it is also a requirement under California’s Fair Housing Regulations. Associations, their boards, and their managers may not stand idly by as residents are harassed because of their having one of the many of the characteristics protected by law. The law requires associations to investigate the allegation, try to determine what happened, and to do what they have the power to do to try to stop the harassment. The failure to properly respond to discriminatory harassment could subject the HOA, its board and its manager to enforcement action as well as a civil lawsuit and request for damages by the aggrieved resident. All residents in homeowner associations deserve to live their lives free of the fear that someone may abuse them solely because of their skin, language, gender, or other characteristic...
Reader Questions – Board Contacts, Discussions, and Elections

Reader Questions – Board Contacts, Discussions, and Elections

Kelly: Is the HOA required to supply the state a current list of the board members? Is the list available for public view? I am not a member of the HOA. G.O., Agoura Hills Dear G.O.: If you are not a member of the HOA, the only public information available is on the Secretary of State’s website – www.businesssearch.sos.ca.gov. This site will give you the correct legal name of the corporation (if the HOA is a corporation) and is updated at least every 2 years. It will also provide you the names and contact information for the CEO/President, Secretary and CFO/Treasurer (but often the management company lists its own address for each of the officers). Thanks for your question, Kelly. Mr. Richardson, I read your column each week in the [paper] and have learned many great tips. I have a question about board members talking to each other about issues outside of the meeting sessions. I prefer to make sure the association is always protected and indemnified with all contracts and work orders. In order to do so, I want to develop an agreement that would protect the association but would like to get input from my other board members. Does the Davis-Stirling act preclude any conversation, or interaction prior to a meeting to develop documents and reviews that would be brought to the open session board meeting for discussion and or approvals? Thanks, D.G., Orange. Dear D.G.: If a quorum of the board is discussing an HOA topic at the same time or in email, it violates the Open Meeting Act. Civil Code 4090 says if a quorum...
Why Not Hire Our Neighbor?

Why Not Hire Our Neighbor?

A very common temptation in the HOA is to hire one of the members or a tenant to work for the association. The arguments often are that the resident or member is known to all, offering a discount, and knows the property well. Some HOAs even hire a resident to manage the association. Only the very smallest associations can operate without a professional manager, and they tend to operate more as partnerships than HOAs. Experienced managers are expected to be current on the governance and financial procedures required by law and the frequent changes in those procedures. A professional manager has knowledge of many vendors and good contracting practices, and usually has others in their company to whom they can turn for advice or information regarding challenges. Credentialled managers have continuing education requirements requiring them to keep current. When the HOA hires one of its own to do paid work for the association, a number of complications arise. Normally the primary argument for hiring the neighbor is that they will do it cheaper than the HOA’s current vendor. Sometimes the reason they can do it at lower cost is that they are not trained, do not have the necessary insurance or credentials, and frankly are happy to have the extra income. Is the board ready to question the neighbor about their qualifications, or will the board hesitate to be “rude”? Another problem with hiring a neighbor arises when things go poorly.  Who wants to tell the neighbor that their work is bad, or that they need to be terminated? What if the work is so bad that the person...
Can HOAs Exercise Leniency During Hard Times?

Can HOAs Exercise Leniency During Hard Times?

Amidst a state-wide shutdown of all non-essential businesses, many homeowners are already feeling the pinch of reduced employment or business income, and calls are already arising in many HOAs for the association to be lenient regarding delinquencies. While emotionally the immediate response is to not push assessment collection, the matter is not so simple for the association board of directors. Associations of course depend upon assessments from each member to pay the community’s common expenses. Those expenses benefit each homeowner and generally must be paid in bad times as well as in good times. If, for example, 10% of the members fail to pay their fair share of the expenses, the other 90% may wind up paying that extra shortfall – an 11% increase for them. The management fees, landscaping expense, utilities and insurance are examples of expenses which are relatively constant. The HOA cannot stop paying its utilities or insurance, just as the individual non-HOA homeowners still must pay their bills. Many other association obligations arise from binding contracts, so the board cannot just decide to stop paying. So, association boards are obligated to insist that all members pay their fair share of the HOA expenses and to diligently pursue such delinquencies. Should members who are having financial difficulties stop paying and request leniency? That may be a very bad idea, because it essentially asks the board to give some homeowners extra consideration and thereby violate its duty of acting in the best interests of the HOA as a whole. Furthermore, the HOA is duty bound to pursue the delinquency, which could add collection costs, late charges and...
How HOAs Can Cope With Pandemic

How HOAs Can Cope With Pandemic

In the past few weeks, as the COVID-19 aka “coronavirus” proliferated globally, local, state, and some national governments have taken strong measures to ban groups from congregating and ordering non-essential businesses to close. Here are some suggestions which may help associations through these unprecedented and difficult times. BOARD MEETINGS. Boards are not banned from holding meetings, because most boards are less then 10 members. However, because board meetings are open to attendance by members, how does the board restrict the group of attendees from becoming too large? Furthermore, if a board honors the “stay at home” directive, does that mean the board must halt meetings? Fortunately, Civil Code Sections 4090 and 4925 specifically allow for video or telephonic board meetings. The requirement is that all directors and any attendees be able to hear the director deliberations. Careful consideration should be given to the various web-based platforms supporting on-line audio or video meetings, because they allow the organizer of the meeting to selectively mute attendees. This allows open forum to proceed, with members able to speak to the board, and then after open forum the attendees can be muted so they can hear but not participate in the board’s deliberations. MEMBERSHIP MEETINGS. Although the Davis-Stirling Act does not provide for HOAs to conduct electronic membership meetings, membership meetings may be conducted electronically under Corporations Code 7510. However, HOAs are the only California corporations not permitted to use Corporations Code 20 and vote electronically (Civil Code 5115 still requires the double envelope secret paper ballot process) so the agenda could be pursued via conferencing services, but paper ballots would have to...
Misused Terms in the HOA World

Misused Terms in the HOA World

As a lawyer, I plead “guilty” to being persnickety (to use a Latin term) regarding the correct use of legal terms.  In the world of common interest developments there are several commonly used terms which are inaccurate and create misunderstanding. Here are four of the “all-stars”. Homeowner Association.  This very common term does not appear within the Davis Stirling Common Interest Development Act! The Act refers to “common interest developments” (CIDs).  Calling them “homeowners associations” excludes the many “mixed-use” projects including business or “live-work” units along with residential units. The term “homeowners association” can be found only in two places in the entire Civil Code – in Section 714, regarding installation of solar systems, and at Section 2924b(f)(1), regarding a CID’s request for notification of a foreclosure sale.  [This column is often called “HOA Homefront” because if I used the legally correct term, “CID,” nobody would know what it was!] Planned UNIT development.  The term “P.U.D.” is so widely used, I despair of ever stamping out the term, which exists in some other states but not in California.  The Davis-Stirling Act identifies four varieties of CID, one of which is the “planned development,” and nowhere does the Act insert the word “unit” in the middle.  A “unit” is the separate interest a condominium owner owns.  The owned interest of planned developments is called a “lot”. Amazingly, even though the term isn’t recognized as a type of CID in California, there are two different Civil Code laws using the term — the sections regulating “shared appreciation” loans (Civil Sections 1917.030-1917.334) and the “Mobile Home Residency Law” regarding mobile home parks...
Your Corporate Success Could Create Failure in the HOA

Your Corporate Success Could Create Failure in the HOA

Many talented successful people find themselves continually frustrated with volunteer service on their HOA board, and often are surprised to find themselves in conflict regarding their HOA service.  This can be rooted in the failure to understand that HOAs run very differently than businesses, and some of the practices which bring career success are not what the HOA needs. Governing the HOA is very different than running a business. One such difference is the “chain of command.” In one’s career, whether in business, government service, or elsewhere, the hierarchy is vertical – someone supervises you and you supervise others, and you are expected to personally exercise authority quickly and efficiently.  In the normal business setting, officers are expected to act, and the decisionmaker is typically a single person.  However, in the HOA, the decisionmaker is not one person, it is a group – the HOA’s board of directors. The HOA president has only one vote and needs to obtain the agreement of other directors before a decision is made. The association acts by vote of its board – corporate action is BOARD action. Another major difference is the president’s role. The business corporate president is empowered and expected to make important decisions about all major operational issues. On the other hand, the typical HOA president controls very little. The HOA president normally sets the agenda and chairs the meeting but is only one of the decisionmakers.  So, HOA presidents are coalition builders working to lead the board to a consensus. Some presidents misunderstand their lack of power by misinterpreting HOA bylaws, which often recite the president is to use...
Navigating Elections in 2020 (and Beyond??)

Navigating Elections in 2020 (and Beyond??)

Senate Bill 323 took effect in January 2020, creating new procedural requirements for HOAs and also unintentionally creating many problems and unanswered questions. Consequently, California HOAs have many struggles to consider in their elections in 2020 and beyond. One of the first issues with the law is that it did not create a grace period before it took effect. Since the election process under the new law takes more than 90 days to complete, what do associations do if their election is in the first four months of the year? Are their elections invalid, no matter what they do? Do they follow their bylaws and hold the election as scheduled, or delay their election several months in order to comply with the new timelines? Another question regards board eligibility. If the law’s single mandatory eligibility standard (membership) and four optional standards are the only standards allowed, then many longstanding eligibility standards in thousands of HOA bylaws across the state are now erased – standards such as candidates cannot be suing the HOA when they run, cannot have longstanding unresolved rule violations, must live in the HOA, or sign a pledge for good conduct and ethics. It is hard to comply with a law which is not clear. Another consequence of the vagueness of the law regards term limits. Many HOAs amend (through membership vote) term limits into their bylaws. However, that also is an eligibility standard, so if in fact there are only five permitted eligibility requirements, term limits are now outlawed in California HOAs. Under Corporations Code 7511(c), if 5% of the members petition for vote to recall...
Fiduciary Duty – What It Is, And Is NOT

Fiduciary Duty – What It Is, And Is NOT

The term “fiduciary duty” is often used, but with a misunderstanding of what it means. HOA Directors are considered “fiduciaries” because they care for the community’s property and finances and are therefore in a position of trust. The basic fiduciary duties are care, loyalty and good faith. A fiduciary is expected to exercise due care, to put the other’s interests ahead of their own, and to work in good faith for the other’s best interests. Much confusion exists regarding where the HOA director’s fiduciary duties are owed. Homeowners often contend directors personally owe them fiduciary duties, but those duties are owed to the association and not its individual members. The director controls association assets and funds, and therefore is a fiduciary to the association. The HOA director does not control an individual homeowner’s funds. HOA directors cannot be a fiduciary to each individual member because directors periodically must pursue homeowners for assessment delinquencies or rules violations. If the director were a fiduciary to the individual member, that pursuit of delinquency or violation would breach the duty of loyalty toward that member, but the loyalty is to the corporation. After being outvoted by the board majority, a director strongly believing the decision is in error can be tempted to believe their “fiduciary” duty requires them to continue arguing the issue after the decision, even taking the issue to the membership at large. However, the director’s loyalty is to the corporation, and the corporation has decided. Even though the director believes the decision is a poor one, the director’s loyalty to the corporation compels the director to support and not frustrate...