Reader Questions – The Reserve Fund – How Much Is Too Much?

Reader Questions – The Reserve Fund – How Much Is Too Much?

Mr. Richardson: Something has been bothering me for a while regarding the reserve funding level that is appropriate for a given association. Many associations strive (and set the dues) to achieve 100% funded. Do they really need to carry such high balances? Wouldn’t it be enough to carry only sufficient balances to meet the future projected reserve expenses (with a sufficient contingency cushion for uncertainties)? Why should we be paying dues to maintain an unnecessarily high reserve fund balance? Wouldn’t a lower percent funded objective of say 50% be more than adequate? Thanks. B.G., Huntington Beach Dear B.G.: Your question refers to comparing the amount of money in the HOA’s capital replacement reserve fund to the recommendation of the HOA’s most recent reserve study, and by “100% funded” you refer to the situation, also known as “fully funded,” in which the HOA has fully accumulated the recommended amount. I relayed your question to leading reserve study experts, and two well-known experts, each holding CAI’s “Reserve Specialist”(RS) designation, responded. Scott Clements RS, CEO of Reserve Studies Inc, said, “the questioner mentions two important points, ‘appropriate’ and ‘adequate’. However, there is another element to consider- equitable. Maintaining at or near 100% funded means that everyone owning a unit is paying their share of usage of all the common area components based on their period of ownership. It is unnecessary go above the 100% level, but anything below is a deferral to future owners”. Robert Nordlund RS, CEO of Association Reserves, Inc., said “the reserve fund provides for the predictable upcoming capital element replacement projects at the association. But life does not always occur...
Reader Questions – Can Non-Residents Run? Why Can’t Spouses of Directors?

Reader Questions – Can Non-Residents Run? Why Can’t Spouses of Directors?

Mr. Richardson: Can a non-resident owner be on the board? A board member moved but still stayed on the board while he rented his unit. Several homeowners opposed, but the manager said it’s a new law that just came in effect, however our bylaws state that board members need to be resident owners. What would be correct – bylaws, CC&Rs, or this new law? Is there a new law? Thank You, L.S., Anaheim Dear L.S.: Yes, there is a new law in effect this year. Civil Code section 5105 contains new board eligibility standards. HOAs can adopt four optional eligibility standards – candidates can be required to be owner for at least a year before running, to not have a co-owner already on the board, to not be delinquent in their assessments and to not have been convicted of a felony which could affect the HOA’s dishonesty insurance. It is unclear if these optional eligibility standards are the ONLY eligibility requirements HOAs can adopt. Most lawyers are taking the conservative interpretation, that these four are the only optional standards -and residency is not among that list. I think HOAs should be able to adopt their own eligibility standards, but this is now the law. Best regards, Kelly Dear Kelly: One of our directors has been on the board for a long time. A few years ago, a director resigned and the board voted the director’s wife as a board member. They have both been re-elected to the board. I have no objection to either of them being on the board as they are nice well-intentioned people. There is nothing...
Reader Questions – Our HOA Stopped Meeting – Is That OK?

Reader Questions – Our HOA Stopped Meeting – Is That OK?

Dear Mr. Richardson: Our board says that due to the pandemic they are suspending board meetings “until further notice.” Our bylaws state board meetings must be held at least every 3 months. They said if they do hold a meeting they will limit attendance to 10 members, but the Open Meeting Act says it must be open to all eligible members. The board refuses to hold a meeting outdoors because it’s “too much trouble.” Is Covid-19 a valid excuse for these restrictions?  Has the board overstepped its authority and what can we do about it? Thank you, G.B., Lakeside Dear Kelly: Is it legal for an association to not hold meetings for months because of the pandemic? There’s been no attempt by the board to hold a Zoom or any other kind of general session meeting in months. D.L., Mission Viejo Hi Kelly, Since the shelter in place orders, our HOA has had two monthly Zoom board meetings, but when members attempted to dial in they were denied access.  In my mind this is a serious violation of the Davis-Stirling act.  What action can homeowners take to rectify this matter? Sincerely, A.P., Irvine Dear G.B., D.L., and A.P.: Sorry, your concerns are currently typical of hundreds if not thousands of HOAs in California. The Davis-Stirling Act, and the Open Meeting Act contained within it has not been suspended by the pandemic. In fact, HOAs can quite easily adapt and hold board meetings (and most have) while still obeying the health department restrictions on groups of people meeting indoors. Civil Code Section 4090(b) specifically allows California HOAs to conduct board...
Embracing Virtual Meeting Function – Now and Later

Embracing Virtual Meeting Function – Now and Later

Many months now into the pandemic, some associations have stopped conducting board meetings. That is a mistake on many levels, but also completely unnecessary. Boards do not need to govern in secret, avoiding the Open Meeting Act. Many inexpensive platforms are widely available to help HOAs conduct open and virtual meetings. There are many platforms, and Zoom, Ringcentral, Webex, GoToMeeting, and TeamViewer are some which I have used. Most have a free limited service version and a reasonable monthly subscription with more and enhanced features. Here are some things to consider for HOA virtual board meetings: Don’t assume this is only useful during the pandemic. HOAs may find that the option of virtual attendance in the future may increase communication and member participation. Plan on keeping the technology after live meetings are okay again. Pay attention to the setup. I attended a meeting recently where the organizer forgot to give themself full control over attendees with the ability to mute or even disconnect someone when necessary. One homeowner was long-winded and habitually talked over others in meetings. Every time the organizer muted the attendee, the attendee unmuted themselves, repeatedly disrupting the meeting. Think about the sound. One problem with mixed live/virtual meetings is that multiple unmuted microphones at the same time will create feedback or very distracting echoes. Also, a single laptop, tablet, or smartphone may not have an adequate microphone to pick up all the board deliberations. A short-term solution is to make sure that the physically present directors cooperate to make sure only one microphone is on at a time. This will slow the pace of the...
Reader Questions – Can HOAs Ban Political, Patriotic or Religious Displays?

Reader Questions – Can HOAs Ban Political, Patriotic or Religious Displays?

Hi Kelly, We (along with our neighbors) put out candidate and ballot measure signs prior to our elections. We looked into this several years ago and it appears that California law allows all HOA residents to display political signs during elections. However, friends who live in other San Diego County HOAs have told me repeatedly that their HOAs do not allow political signs during elections. Can you provide an update on this? Can HOAs prohibit political signs during an election? Thank you. N.H., Encinitas Good morning Kelly: Are you allowed to fly a party flag (such as Trump/Pence 2020) if you reside in an HOA? I contacted our HOA management two times and they never returned my call. K.F., San Clemente Dear N.H. and K.F.: HOA residents have the right under Civil Code Section 4710 to display non-commercial signs, posters, flags, and banners in or on their property (“separate interests”), so long as the signs or posters are not larger than 9 square feet and flags or banners are not larger than 15 square feet. Signs or posters may not be made of lights, building materials, balloons or flowers, or be painted on a surface. In a planned development, the “separate interest” is normally the lot, and so putting a sign or flag on the front yard would be protected. However, in a condominium the front yard probably is an exclusive use common area – not part of the separate interest – so the location is significant. Thanks for your questions- Kelly Dear Kelly: I live in a gated community. I am a veteran and had an American pole...
Proposed Law Would Override HOA Self-Determination

Proposed Law Would Override HOA Self-Determination

Assembly Member Ting from San Francisco has authored Assembly Bill 3182. In its original form it was a horrible bill but later amendments improved it from horrible to just bad – a poorly drafted bill cutting back on private property ownership rights. AB 3182 would restrict the ability of homeowners in an HOA to vote to prohibit or limit rentals. The bill proposes to make several amendments to current Civil Code Section 4740 –the section which was enacted in 2012 to “grandfather,” or exempt, current owners from prohibitions on leasing of HOA residences. The bill would remove the current grandfathering and make several other changes regarding rentals in HOAs. Rental bans or limits are normally imposed by HOAs after they are voted upon by the homeowners within the community when they amend their CC&Rs, the contract binding them together. AB 3182 would make rental bans illegal, regardless of how the owners vote to operate their community. Associations choose to adopt rental restrictions for many reasons. The most common reason is to preserve a higher quality of resident, based upon the belief that owners will take more pride in their home and will behave better than tenants. Another common reason is availability of FHA and FNMA-backed mortgages as FHA and FNMA will not allow HOA rentals to exceed a certain maximum amount. AB 3182 would outlaw any restriction which prohibits, effectively prohibits, or unreasonably restricts HOA rentals. Short-term rentals (under 31 days) could still be banned, and HOAs are permitted to have a rental maximum of 25%. One of the bill’s oddities is that HOAs could have a HIGHER (more...
Reader Questions – Short Term Rentals

Reader Questions – Short Term Rentals

Dear Kelly: Our CC&Rs state that a rental must be at least 30 days.  We have recently found several (web-based short-term) rentals in our complex that are just day to day rentals.  I wrote to the internet company and they replied that they would not take any action.  How can they not take some responsibility for making sure the owners of the places they rent out are not illegal?  R.F., Orange Dear R.F.: Your HOA should enforce its CC&Rs. The internet company is happy to make money on short-term rentals, regardless of whether they are allowed. Many cities have zoning limiting short-term rentals, which are considered a nonresidential commercial use, so the city might take enforcement action. Most likely, your CC&Rs also declare the property to be dedicated to residential use. Your association may want to consider adopting a written rule banning such rentals or advertising short term rentals and including a fine for advertising or renting in an amount which outweighs much of the financial benefit of the rental. Best regards, Kelly Dear Mr. Richardson: Almost half of the units in my building are short-term vacation rentals. This results in increased wear and tear on the building. Can we impose a modest “facilities fee” on such rentals to help us maintain the building? If not, is there some other legal way to collect fees from rentals to compensate for the additional expense of maintaining the building? J.S., Pacific Beach Dear J.S.: If the association can create a reasonable but rough calculation of the cost imposed upon the association by a short-term tenant, the 2015 appellate case of Watts...
Reader Questions – Board Meetings

Reader Questions – Board Meetings

Our HOA board has consistently said that they are having meetings to do emergency actions. I know that they talk on the telephone, decide what to say and never send out meeting minutes. They have decided to keep our gym closed. Can they close an amenity and keep it closed long past state and local authorities on the basis of under-educated people without medical consultation or proof? We already have an open swimming pool. We have had no cases of Covid-19 in our building. R.C., San Diego Dear R.C.: Some HOA Boards are mistakenly applying the health emergency to override the Open Meeting Act. However, in the Open Meeting Act (part of the Davis-Stirling Act), the definition of “emergency” is found in Civil Code Section 4923. Per that statute, an “emergency board meeting” can be called “if there are circumstances that could not have been reasonably foreseen, which require immediate attention and possible action by the board” so that the normal 4-day notice to the members is “impracticable.” Many, if not most boards, have adapted their meetings to be all or partly virtual, using a variety of web-based software such as Zoom or Gotomeeting. Closing or reopening amenities may well be an emergency action, but should be disclosed in the next open board meeting. The decision to keep an amenity closed or reopen is correctly a board decision, which should consider the available health guidelines and the community’s desires. Best regards, Kelly Dear Kelly: Would you opine on ability of a renter-of-condo to show up at a noticed board meeting to observe? Does it make a difference if issue...
But I Disagree

But I Disagree

In our culture, disagreement is mishandled more than ever before. However, disagreement is to be expected between directors of common interest developments (aka “HOAs”), and the way it is understood and handled can either enhance or harm the association community and its governance. Voting “no” is not disloyal.  Volunteer directors are expected to think independently and use their best judgment on board decisions and not just rubber stamp their colleague’s opinions. With varying backgrounds and viewpoints, different votes can be expected, as everyone tries their best for the HOA. Unanimity is NOT required. Majority votes are as binding as unanimous votes. There are some decisions on which unanimity is important because of the importance of the decision, in which the membership needs to see a united board.  However, trying to attain unanimity on everything creates the impression that disagreement is bad and discourages directors from voting their personal views. Disagreement is not a rejection of you. Don’t take disagreement personally. Contrary to our current political and social climate, prove that you can take disagreement gracefully and without offense. Instead of declaring, ask. The moment one hears disagreement, the first impulse is to declare one’s rejection of that disagreement. However, consider asking one to explain their position further. It’s just possible you may learn something that causes you to question your position. Asking instead of declaring shows respect to your board colleague. To paraphrase John Lennon, give agreement a chance. Knowing when to say “when. Once everyone has said their opinion on a motion and explained why, call for the question. When the majority speaks, move on to the next...
Reopening HOA Amenities in the COVID-19 World

Reopening HOA Amenities in the COVID-19 World

As the seesaw battle of the COVID-19 pandemic continues, HOA boards and managers are torn between the fear of reopening amenities and the desire of residents to enjoy their use. Pools, gyms, and tennis courts are hot issues now as HOAs try to return toward normalcy. Most County Health Departments have specific guidance regarding reopening amenities such as pools, gyms, or tennis courts. In addition, the Center for Disease Control (CDC.gov) and the California Department of Public Health have helpful on-line information. The Community Associations Institute published a comprehensive ten-page document titled “Healthy Communities,” addressing HOAs and the COVID-19 pandemic. It can be found by visiting www.caionline.org or by an internet search for “CAI Healthy Communities.” Liability concerns regarding reopening involve at least two areas – alleged carelessness regarding reopening the amenity or guaranteeing the users’ safety. Most counties have established minimum guidelines of operation regarding reopening of amenities, and HOAs should meet those standards. That can be powerful evidence that can help the HOA in the event a user tried to cast blame for contracting the virus. Another problem is appearing to make a promise the HOA cannot keep. If the user follows all the usage rules, does that guarantee that the user will be safe from the virus? Of course not, so avoid making statements that promise that the rules are to keep the users safe from the virus. It is better to warn users that there is no guarantee the guidelines will prevent any virus transmission, that there is always a risk of other users failing to follow safe practices, and that users should decide upon...