Tag: Board Actions

The ABC’s of IDR & ADR

ADRDisputes between owners and associations can easily spin out of control. When those disputes result in a lawsuit, the costs, both in terms of time and money, can be significant. That is why attorneys often encourage parties to first meet and try to resolve those issues through some form of dispute resolution process before a lawsuit is filed. In fact, the law often requires that parties at least offer to meet in some form of alternative dispute resolution setting before they file a lawsuit, or they may lose the right to recover attorney’s fees even if they win the suit.

California’s Davis-Stirling Act contains several sections that address, and sometimes require, the use of the dispute resolution process before litigation can be filed. The statutory process includes (1) Internal Dispute Resolution and (2) Alternative Dispute Resolution.

Internal Dispute Resolution or “IDR” is an informal process where one or two representatives of the association (typically a board member and the association’s community manager) meet with the owner of the property at issue and try to resolve the issue informally. Civil Code section 5905 requires that associations provide a “fair, reasonable, and expeditious procedure for resolving a dispute” with members.

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“YAY! I’m on the Board!” or, “OMG, What Did I Get Myself Into?”

Boards serve a necessary function in any corporation, and especially within a homeowners association. It would be impossible for an association to function without one. In an association, the buck ultimately stops with the board. The board is elected by the members of the association to accomplish the tasks required of an association by the governing documents. Volunteer board members are accountable to the association itself, as well as to the owners within the community. While the board can, and should, rely on opinions of experts and information presented by committees, decisions affecting the community are the ultimate responsibility of the board, and the board members will be held accountable for these decisions. While the position is voluntary, board members should take their fiduciary responsibility to the association and its members seriously.

Despite the important role the board plays in the association, board members must keep in mind that they have been elected by the members of the association to conduct the business and affairs of the association. Board members should not become power hungry or otherwise harass owners. Likewise, owners must respect the authority of the board to conduct the association’s business and enforce its documents.

Board members must remember that the owners must be kept informed of the board’s activities and make sure that proper communication with the other owners is maintained. In deciding what to communicate to members, board members should consider what they would like to know and how they would like to be treated as a non-board member owner, and strive to act in that manner as a board member.

Fiduciary Duty & Business Judgment Rule  

In addition to the duties set forth in the CC&Rs, Bylaws and Articles of Incorporation, board members have additional duties imposed by law. While all of the duties and obligations of a board member cannot reasonably be set forth in a short article, we will highlight some of the most important duties and obligations a new board member must understand: that of their fiduciary duty to the association and its members, the business judgment rule, and the duty to keep communications with the association’s attorney confidential.

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Running an Effective Board Meeting

What can a board do to conduct meetings in an efficient manner that allows all the appropriate discussion to take place and allow the board to consider its work in an orderly fashion? The first step in effectively running a board meeting is to adopt and utilize procedures that assist the board to efficiently run and control its meeting. A board meeting which is organized will run smoothly and conduct the business of the association and yet effectively communicate the position of the association on various matters to the membership.

A challenging aspect of community association board meetings is how to actually conduct the meeting. Generally speaking, there is little statutory guidance or document-specific provisions explaining how a board should run a meeting. As a result some boards struggle with this aspect of association management, either not meeting frequently enough, or allowing too much discussion (by both board members and homeowners) so that a meeting, convened to allow the board to conduct the business of the association, effectively turns into a town hall meeting which lasts far too long into the evening.

So what can a board do to conduct meetings in an efficient manner that allows all the appropriate discussion to take place and allow the board to consider its work in an orderly fashion? The first step in effectively running a board meeting is to adopt and utilize procedures that assist the board to efficiently run and control its meeting. A board meeting which is organized will run smoothly and conduct the business of the association and yet effectively communicate the position of the association on various matters to the membership. Here are some tips and suggestions to make board meetings run more smoothly and efficiently:

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Having an Election? Know Who is Entitled to Vote.

In any HOA election there are two record dates that need to be idenitified. The Record Date for determining the members entitled to notice, and the Record Date for determining members entitled to vote.

A question came up on the discussion forum of hoaleader.com, and my friends over there asked me to respond. A homeowner was concerned that his Association had improperly set the record date for an upcoming director election. The question was:

Can anyone confirm that in California, regarding a CID director election via an absentee ballot, that the Davis-Stirling Act requires the board to set a “record date for good standing” which is between 60 days in advance of the election and the mailing date of absentee ballots? I am concerned that our board has declared that ballots are to be mailed to association members in good standing on May 31, 2010, but they have declared a “record date for good standing” for June 15, 2010, two weeks after mailing, an obvious conflict which I believe is a D-S violation. This may deprive some members of their vote, even after receiving ballots, and open a door to election fraud. Am I correct in my legal understanding and concern? We have an election on July 3, 2010, and time is short to correct this error.

In any HOA election there are two record dates that need to be identified:  The Record Date for determining the members entitled to notice, and the Record Date for determining members entitled to vote. The Davis-Stirling act does not have any requirements for determination of a record date. The record date is determined by the Association’s bylaws and by California Corporations Code section 7611. If the bylaws are silent, the Board may set a record date consistent with section 7611.

Section 7611(a) provides the time frame for the Record Date to receive notice of a meeting of members, which “shall not be more than 90 nor less than 10 days before the date of the meeting.” In the absence of a record date defined in the bylaws or by the Board, members at the close of business on the business day preceding the day on which notice is given are entitled to receive notice of a members meeting.  For the purpose of determining a record date for members entitled to vote at a meeting of members, the record date shall not be more than 60 days before the day of the meeting. If no record date is fixed by either the bylaws or the Board, members on the day of the meeting who are otherwise eligible to vote are entitled to vote.

In responding to the question above, we do not know if the Association’s bylaws contain any instructions for establishing the relevant “record dates” for the upcoming election. However, it appears that May 31 was selected as the record date for notice of the meeting, and June 15 was selected as the record date for determination of voter eligibility. Assuming the bylaws are silent on the issue, the dates selected by the Board comply with the requirements of section 7611 for a July 3rd election date. In addition, by mailing out ballots on May 31st, the Association complies with the Davis-Stirling Act, which requires that written ballots be mailed out at least 30 days prior to the election (Civil Code section 1363.03).

While the owner raising the question is concerned that some owners may lose their right to vote after receiving their ballots, it is just as likely that owners who are not in good standing will have the opportunity to rectify the situation between the time they receive their ballots and the later date being used to determine voter eligibility. In addition, in order to deem an owner not to be in good standing, the Association will have had to call the owner in for a hearing. Given the time frame identified, it is likely that any owner who loses their right to vote between the time the ballots are mailed and the record date for voter eligibility will have been in violation of the CC&Rs prior to the ballots having been mailed.

Governator Terminates HOA Bill Allowing Boards to Enter into Long Term Conservation Contracts

Gov. Schwarzenegger recently vetoed California’s AB 1328. AB 1328 would have provided that a homeowners association could enter into a contract for a water or energy efficiency program, for a term of up to five years, if the board of directors reasonably anticipated that the contract would result in verifiable savings to the association.

vetoGov. Schwarzenegger recently vetoed California’s AB 1328. AB 1328 would have provided that a homeowners association could enter into a contract for a water or energy efficiency program, for a term of up to five years without owner approval, if the board of directors reasonably anticipated that the contract would result in verifiable savings to the association. This would have allowed HOAs to take advantage of long term savings and actively engage in energy conversation which is essentially mandated by California’s AB 32.  However, the Governator vetoed the bill claiming that it was unnecessary and would override the requirement that most contracts which are longer than one year obtain homeowner approval.

AB 1328 would have allowed HOAs, and by extension homeowners, the ability to obtain long term savings if they were able to locate vendors to provide extended water and energy conservation programs for their community. Boards are required to use sound business judgment and protect the assets of an Association.  Further, under the bill homeowners were to be notified of the terms of the contracts and provided an opportunity to be heard at an open meeting prior to the Board’s execution of any such contracts. It seems that there were sufficient protections in place to allow Boards to explore and enter into these types of long term contracts. Remember, Boards would not be required to enter into such contracts. The bill just would have given Boards the flexibility to enter into longer term contracts if sufficient savings could be found.

It is disappointing that while California’s State government continues to impose regulations on local entities such as HOAs, it also deprives them of tools which would allow them to meet the requirements at a reduced cost.

The California Association of Community Managers (CACM) and the California Association of Realtors (CAR) both supported the bill. The Executive Council of Homeowners (ECHO) was neutral.