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...
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...
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...
Reader Questions – They Aren’t Enforcing The Rules!

Reader Questions – They Aren’t Enforcing The Rules!

Kelly: Residents in our HOA are encouraged to report rule violations. I and others have reported violations directly to the manager, primarily because the phone numbers and email addresses for any of the board members are not public for the residents.  How do we follow up on reports of violations and/or obtain statuses? Some of these reported violations have not been taken care of in over a year.  When I asked our manager and our president, they each said they could not divulge this information.  What can we do? E.R., Chula Vista Dear Kelly: I live in a small HOA and each homeowner is responsible for home exterior maintenance.  The current board will not enforce any of the community rules because they do not want to offend any of the residents with violation letters. What are my options since our neighborhood is beginning to look shabby? Thank you, J.M., Newport Beach Dear Mr. Richardson: Our board members do not adhere, follow, or enforce any of the HOA policies.  What can we do about them not fulfilling their obligation? J.D., Yorba Linda Dear E.R., J.M., and J.D.: Enforcement of association operating rules is a basic function of the board. Per Civil Code Section 5975(b), only the association can enforce rules. Homeowners can enforce CC&Rs against their neighbors, but not rules. It can be frustrating when it appears the association is not acting against violators. Associations should keep their disciplinary actions confidential. So, once a complaint is received of a CC&R or rule violation, the complaining party needs to trust that the HOA is handling it appropriately. Typically, if there is...
Reader Questions – Meetings During A Pandemic

Reader Questions – Meetings During A Pandemic

Dear Kelly: Our association cancelled the March meeting and then April’s meeting was held by a teleconference with just the board members. Is this legal? We have not received any information about what was discussed in this meeting. Thank you, S.V., Portola Hill Dear S.V.: Associations are finding that virtual web-based platforms work well for board meetings. Civil Code Section 4090 allows for telephone or video meetings so long as all persons can hear and/or see the open session deliberations. The problem is that the statute also requires a physical location to be established where members can physically attend. During the “stay at home” orders, HOAs are unable to accommodate a meeting of many persons in one place, so under unprecedented circumstances that requirement cannot be met. Boards should learn to conduct proper virtual or telephonic board meetings. Also, minutes of that April meeting should have been made available within 30 days of the meeting, per Civil Code 4950. The Open Meeting Act is still in effect, even during the pandemic. Sincerely, Kelly Good Evening Kelly: I read in a recent column that an officer can be replaced without reason at any time by a board majority. Can a board also fire, by majority vote, a board member without cause?  Our governing documents are silent on this and we have a divided and feuding board split on every decision. Thanks for the public service you perform. Best, J.W., Huntington Beach Dear J.W.: Normally, HOA bylaws provide that officers serve at the pleasure of the board and can be replaced in an open meeting (after agenda notice) for any reason....
Reader Questions – Are Our Reserves Being Handled Properly?

Reader Questions – Are Our Reserves Being Handled Properly?

Mr. Richardson, hello: Is there a formula for the reserve funds that are necessary, or at least advisable, for a HOA? Also, can an assessment be collected from each homeowner and put in reserve and then returned to them after a reasonable time if it’s not needed? Respectfully, B.K., San Diego Dear B.K.: HOAs in California are required by Civil Code Section 5550 to obtain a reserve study every three years and to review it annually. That reserve study informs the HOA as to how much money needs to be set aside each year to offset the ongoing deterioration of the common area elements included in the reserve study. There are many fine companies specializing in preparing reserve studies for HOAs. Without a good reserve study, the HOA has no roadmap for its financial security. As to assessing for money beyond that prescribed by the budget and reserve study, Civil Code Section 6600 requires that associations only assess for actual anticipated expenses. Assessing for a “rainy day fund” is not allowed. Best regards, Kelly Dear Kelly, Our board has not raised assessments for four years. The reserve budget is less than 7%. If the board raised assessments as recommended by the reserve study and the management company, it ought to be higher this year. Can I pursue the board for failing in their fiduciary capacity? E.Y., Pacoima Dear E.Y.: Budgets should follow the HOA’s projected actual expenses and the reserve fund contribution prescribed by the HOA’s reserve study. Budgets should reflect reality, not wishes. Some boards err by refusing to adopt realistic budgets which allow for the normal increases...
Reader Questions – Pandemic Questions Continue

Reader Questions – Pandemic Questions Continue

Kelly, I am on the board and we are having our first HOA virtual meeting next week because of Covid-19. Do we need to have a quorum for that meeting? I appreciate your help and enjoy your HOA Homefront each week. R.S., Garden Grove Dear R.S.: The declared state of emergency in California does not mean the Open Meeting Act or your bylaws have been suspended. Many HOA boards are mistakenly thinking that everything now is an emergency, and thereby dispense with the required transparency under the law. Quorum, notice to members, and openness are still the requirements, even during this emergency. Civil Code Section 4923 defines “emergency” as “circumstances that could not have been reasonably foreseen” requiring immediate action. There are few topics which cannot wait four days for proper notice to members. Also, meetings can still be in the open. Telephonic or electronic meetings are permitted by Civil Code 4090(b) and 4925(a) – so there is no reason to hold improper closed or emergency meetings. Even in times such as these, proper association governance is not suspended – there is no “HOA martial law” in effect. Best regards, Kelly Dear Mr. Richardson: Our residents are concerned about cases of Covid-19 in our HOA. Our manager told us that legal counsel said because of HIPAA rules they are not obligated to report if there are or have been any active Covid-19 cases. We are not asking for names, just a knowledge of whether there are or have been Covid-19 cases. What is our HOA responsibility in this matter? E.K., Oceanside Dear. E.K.: I have had many association clients...