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...
Fair Housing Regulations Are Here, and a New Protected Class

Fair Housing Regulations Are Here, and a New Protected Class

After five years of work and hearings, the California Fair Employment and Housing Council has completed what appear to be the first state Fair Housing regulations in the country. While in the short space of this column a thorough summary of the regulations is impossible, here are some highlights for associations and their managers to consider. HOAs are “Housing Providers” under the regulations, as are HOA boards and their managers. Managers can also be subject to enforcement or civil liability if they discriminate or fail to respond appropriately to discrimination. The regulations do not cover all fair housing issues but provide helpful guidance regarding the housing provider’s obligation to make reasonable accommodations upon request of the disabled. The regulations describe how disabilities are documented and who can attest to the need for an accommodation. One such reasonable accommodation is allowing assistance animals. Under the regulations, a mere internet certificate or labeled vest is not acceptable to document the animal as an accommodation – a person attesting to a disability must be familiar with the resident’s needs. The regulations do not permit species or breed limitation for assistive animals. The test of “reasonableness” is whether the animal causes damage or danger to persons or property, and the mere fear or suspicion of problems is insufficient reason to deny the animal. A person needing an assistance animal cannot be required to obtain extra insurance or pay a fee or deposit for the assistance animal. The regulations also ban harassment based upon membership in a protected class, meaning a resident may not be harassed because of their race, gender, religion, familial status,...
Is the Handyman An Employee? AB5 May Increase HOA Payrolls in 2020

Is the Handyman An Employee? AB5 May Increase HOA Payrolls in 2020

Traditionally, many businesses often hire part-time or occasional workers and characterized them as “independent contractors.” The IRS and State Franchise Tax Board had guidelines to help determine who was an employee and who could fairly be called an independent contractor. There were many factors which played a role in that characterization. HOAs often hire persons they considered “independent contractors” to perform specific maintenance, repair, or other routine tasks. This avoided payroll tax withholding and other legal obligations. All that began to change in 2018 with a California Supreme Court case called Dynamex v. Superior Court, in which the traditional test of employment vs. independent contractor was replaced with a simple 3-part test, often called the “ABC” test. That ruling was incorporated in Assembly Bill (AB) 5, which was quickly signed by the Governor after passing the Legislature. AB 5 creates a new Labor Code Section 2750.3 and affects any hirer, including HOAs, using “independent contractors” which might be reclassified as “employees.” This new statute adopts the “ABC” test, which determines a worker as an independent contractor if: A) The hirer actually and contractually does not control or direct the person in the course of their work; B) The work performed is outside the hirer’s normal business; and C) The worker also normally and independently performs that work for others. If the hired person meets all of those three requirements, they can be treated as an independent contractor. As before, the element of control over how the person performs their work is key. Some HOA service providers are expressly exempted from the law, such as attorneys, architects, engineers, and accountants....
HOA Election Processes Much More Difficult in 2020 – SB323

HOA Election Processes Much More Difficult in 2020 – SB323

An extensive overhaul of HOA election procedures takes effect in 2020 after passage of the controversial SB 323. Here is a recap of the many changes: The law at Civil Code 5100(g) will finally allow votes by acclamation when, at the close of nominations, there are not more candidates than open seats. Unfortunately it only applies to HOAs of over 6,000 members. Associations will be required by a new Civil Code 5100(a)(2) to hold board elections at least every four years. This will affect few HOAs, since most have board terms which are one or two years in length. In the past, many HOAs have held hearings to suspend the voting rights of members delinquent in their assessments, and others have bylaws barring such homeowners from voting. The new Civil 5105(g)(1), however, requires HOAs to give ballots to all association members. So, delinquent members may vote on HOA matters, even though they are not paying their share of the HOA expenses. Although some HOAs allowed managers to serve as the Inspector of Election, under the new Civil Code 5110(b) this is prohibited. Some HOA Bylaws do not require directors to be an association member, but the new Civil 5105(b) disqualifies non-members from serving. The new Civil 5105(c) allows associations in bylaws or election rules to disqualify candidates if the member: Is delinquent in assessments (without a payment plan in place); Has not been a member for at least a year; Is co-owner with another director; or Has a felony conviction which would harm the HOA’s ability to obtain fidelity (dishonesty) insurance. The law does not specifically state that these...
Protection for ADUs and Doorway Icons Coming in 2020

Protection for ADUs and Doorway Icons Coming in 2020

Two new laws are coming in 2020, which provide protection for HOA owners in regard to accessory dwelling units and religious decorations on doorways. One of the most basic elements of residential CC&Rs is the requirement that residences are limited to “single-family” use. However, at least in California planned developments, that requirement is partially overridden through Assembly Bill 670. That bill, recently approved by the governor, creates a new Civil Code 4751 taking effect on Jan. 1, 2020. Under this law, a planned development lot owner can add a second smaller residence attached to the primary residence, so long as applicable building and zoning codes are satisfied. Accessory dwelling units have been increasing in priority with the state Legislature in recent years. In 2016 SB 1069 passed, creating a requirement that local building departments allow construction of ADU’s that meet minimal standards (Government Code Section 65852.2(e)). This year AB 670 passed, adding a new Civil Code Section 4751 to the Davis-Stirling Act. Starting in 2020, planned developments may not have an outright prohibition against ADUs, but may impose “reasonable” restrictions so long as they do not unreasonably increase the cost or effectively make ADU’s impossible. The law only applies to planned developments and does not apply to condominiums, stock cooperatives, or community apartments. Homeowners should check their CC&Rs before seeking an ADU on their property. Some detached home communities actually are not planned developments but are condominiums. Even if the condominium has a “yard,” it is not covered by this law. Planned developments often involve “townhouse” construction, in which homes are attached side by side but still are wholly...