It’s Budget Time!

By David A. Kline, Esq.

Civil Code sections 5300 and 5310 require common interest developments to distribute their annual budget reports and annual policy statements 30 to 90 days before the end of their fiscal year.  For most community associations, that deadline is fast approaching.

So, let’s take this opportunity to consider some of the issues that community managers and boards of directors sometimes overlook when racing to complete their annual disclosures.

Start Early

To begin, in an ideal world, we would not race to complete the annual disclosures.  It’s a good idea for management to provide the board with a draft budget for its consideration well in advance of the deadline.  It’s particularly important for directors to review that draft budget in advance of the open board meeting where the budget will be discussed.  That way, they will be prepared to approve the budget or propose amendments to the draft budget at the meeting.  The budget meeting should be scheduled sufficiently in advance of the deadline so that the board can adjourn the meeting if necessary to resolve any issues that may arise during the budget meeting or in case the meeting needs to be adjourned for lack of quorum.

Don’t Forget Balcony Inspections

Civil Code section 5551 requires condominium communities to complete their first visual inspection of exterior elevated elements by January 1, 2025.  That means, if your condominium community has not already completed this task, it must budget for it in this next fiscal year.  Also, the law requires the report prepared by the architect or structural engineer to be incorporated into the association’s reserve study, which should be completed before the budget meeting so that the board can properly budget for reserve contributions.

Make Sure Your Disclosures Are Well-Reasoned

It’s also important for community managers and boards of directors to carefully review the disclosures required by Civil Code sections 5300(b)(3) through (6).  Generally, the law requires an association to share its reserve funding plan, and statements as to whether the board has determined to defer maintenance, whether it anticipates any special assessments, and a description of the mechanisms by which the board plans to fund reserves.  Occasionally, we find annual budget reports that proudly report no increase in regular assessments, but disclose severely underfunded reserves, no intention to defer maintenance, no plan for future special assessments, and no realistic explanation as to how future maintenance needs will be addressed.  Of course, boards of directors have an obligation to levy regular and special assessments sufficient for their association to perform its obligations under the governing documents and Davis-Stirling Act.  (See Civil Code section 5600(a).)  It’s important for the annual budget report to provide evidence to the members that the board has complied with that obligation and explain the board’s reasoning.

Insurance Premiums Are Skyrocketing

Finally, it’s generally a good idea to plan for small budget increases every year due to inflation and increases in the cost of living.  This year though, as you may have heard, many associations are facing significant increases in their insurance premiums.  In some cases, insurance premiums have skyrocketed to multiple times an association’s previous premiums.  We recommend reaching out to your association’s insurance broker at budget time to discuss anticipated increases in premiums.  It’s better to find out the bad news now, so you can plan ahead, rather than wait until the policy is set to renew later in the fiscal year.

Conclusion

If you need help preparing your annual disclosures, contact your association’s legal counsel for assistance.  But, do so well in advance of your deadline so that the board has sufficient time to address any issues that may arise.  As they say, the early bird catches the worm!  Following these recommendations will help avoid a mad scramble at the end of the fiscal year, and help set up your association for a productive new year.

 

Check It Off Your List

By Jon H. Epsten, Esq., CCAL

There is nothing simple about managing a common interest development (“CIDs”). The statutory duties (e.g., annual disclosures) and annual administrative duties (e.g. insurance) would be burdensome for any corporation; most CIDs are ill-equipped to handle this task without having a structure in place. Unlike most large business organizations, rarely do CIDs have a corporate compliance officer to monitor compliance with the laws and administrative obligations. To assist CID management and boards of directors, boards and management should consider developing checklists to use as tools for fulfilling fiscal and administrative duties thereby reducing legal exposures.

Recently, I was selected to participate as a contributing author for CAI’s ’Best Practices for Community Association Maintenance‘ (available on our website or through the CAI Research Foundation, at no cost). In this publication, the contributors developed checklists as a tool for maintenance and repair obligations. The development of that publication further confirmed my belief that checklists are essential for the proper operation of any CID. Checklists are nothing new. While not directly equivalent to what I am suggesting, airline pilot’s pre-flight and landing checklists have been proven to reduce airplane accidents, as well as pre and post-surgery checklists have proven to reduce surgical complications – like leaving surgical instruments in body cavities and infection prevention.  (reference: The Checklist Manifesto).

Checklists should be tailored specifically for your CID to cover such things as fiscal responsibilities (e.g., timing of the budget, audit, reserve study, annual financial disclosures) and administrative responsibilities (e.g., insurance reviews and renewals, yearly contract reviews, property inspections, performance reviews, policies and procedure review, board education). Tasks on the checklist should be assigned to a specific person or position. Additionally, each checklist should include calendar dates for task deadlines, which will help not only the CID running efficiently, but help prevent financial losses.

If you do not know where to start regarding the types of checklists needed or what to include on those checklists, do not fret! We have done much of the work for you! Click here to access a compilation of checklists tailored for boards and managers with the most significant statutory duties imposed on community associations. Check the box and get it done!

Court Rules Email Exchanges Without Board Action Are Not Board Meetings

 

LNSU #1, LLC v. Alta Del Mar Coastal Collection Community Association, 2023 Cal. App. LEXIS 646.

The Court of Appeals for the Fourth Appellate District just held that an email discussion among board members regarding items of association business did not violate the Open Meeting Act, because such email exchanges are not considered “board meetings” as that term is defined in Civil Code section 4090(a).

Two homeowners sued their homeowners association Alta Del Mar Coastal Collection Community Association arguing, among other things, that the board violated the Open Meeting Act by conducting board meetings through a series of emails. The trial court found in favor of Alta Del Mar. The homeowners appealed and the Court of Appeals upheld the trial court’s decision.

The Court of Appeals explained that the definition of “board meeting” in Civil Code section 4090(a) refers to “a gathering of a quorum of the directors … at the same time and in the same physical location….” Consequently, the appellate court reasoned that emails sent by board members at different times from different physical locations did not constitute a “board meeting” within the meaning of Section 4090(a).

The Court of Appeals went on to explain that “[b]y discussing items of Association business in e-mails …, the directors did nothing contrary to the purpose of the [Open Meeting Act], because they took no action on those items in the e-mails. Although the [Open Meeting Act] prohibits the board from acting on items of Association business outside a board meeting…, it does not prohibit the board from discussing the items outside a meeting.” (Emphasis in original.)

Therefore, the appellate court concluded that the phrase, “board meeting,” as defined by Civil Code section 4090(a), refers to “an in-person gathering of a quorum of the directors of a homeowners association at the same time and in the same physical location for the purpose of talking about and taking action on items of association business. E-mail exchanges among directors on those items that occur before a board meeting and in which no action is taken on the items…do not constitute board meetings within the meaning of that provision.”

As momentous as this case is, caution must be exercised for the moment because it is possible that this decision may yet be altered, withdrawn from publication, or further appealed. Once the time to take any of these actions has expired, we will immediately issue an update. Please consult with your own legal counsel, if you have questions concerning the interpretation of this case.

Codes of Conduct for Association Volunteers

By Emily A. Long, Esq.

 

Generally, board members of common interest developments are volunteers dedicating their time, skills and energy to serve the communities within which they live. Indeed, without these director volunteers, community associations would be unable to properly function. Similarly, committee members are volunteers who work on specific projects within a community. Often, committee work is a valuable first experience which can entice a member to become more involved and to eventually run for the board. However, there is a steep learning curve upon entering the world of association governance.

In order to help board and committee members understand the association’s expectations for service, codes of conduct can be particularly helpful.  Not only do codes of conduct codify association expectations, they can also serve to educate board and committee members and help minimize association liability.  Boards might therefore consider adopting codes of conduct that cover the following topics, among others:

  • Prohibiting the acceptance of any gift, gratuity, favor, entertainment, loan, or any other item of monetary value by a board or committee member from a person who is seeking to obtain a contractual or other business or financial relationship with the association.
  • Clarifying that board and committee members may not engage in any writing, publishing, or speech that defames any other member of the board, committee, employee, or resident of the community.
  • Establishing that board and committee members may not knowingly misrepresent facts to the residents for the sole purpose of advancing a personal cause or influencing the residents.
  • Prohibiting board members from discussing sensitive and confidential matters discussed in executive session, outside of executive session, or with anyone who is not on the board (with the exception of management and association counsel).
  • Prohibiting board or committee members from seeking to have a contract implemented that has not been duly approved by the board.
  • Prohibiting board or committee member interference with an association contractor performing work.
  • Clarifying that board and committee members may not harass, threaten, or attempt through any means to control, instill fear or discriminate against any member of the Association, management company, service provider, or community resident.
  • Preventing interference by board and committee members with the system of management established by the board as a whole and the management company.
  • Reminding board members that they must operate as a board and do not have any individual authority unless it is specifically granted to them in writing by the board or the Association’s governing documents.

Often, codes of conduct may be adopted as rules of procedure by way of approval by the board at an open session meeting, rather than by following the rulemaking procedures spelled out in Civil Code section 4360. However, we encourage you to first speak with your association’s legal counsel to review your association’s governing documents and discuss your community’s particular needs prior to adopting such rules.

Enforceability of these codes of conduct is another important issue to consider when preparing draft rules. It is recommended that any code of conduct specifically list the consequences for a violation of the code of conduct.  Reasonable penalties for violation might include: public or private censure by the board, removal of an officer title, and/or removal from committee service by the board.  It is unlikely that violation of a code of conduct may result in unilateral removal of a board member by the board, but speak with your association counsel on this issue.

To Pickleball or Not to Pickleball? That is the Question

By Rhonda R. Goldblatt, Esq.

Pickleball is one of America’s fastest-growing sports.[1] This surge has in turn generated professional tournaments, corporate sponsors, and professional players. Many homeowners, eager for a new amenity and a new hobby, have asked their community associations to create pickleball courts. Pickleball courts are relatively easy and cheap to create, especially if an association has an existing tennis court.[2] But while many boards may leap at the chance to buy in to the pickleball craze and give residents a new way to exercise, associations should be wary of potential issues that can accompany the new game. Below are a few issues to consider.

 

  1. Insurance. Pickleball related injuries are projected to cost Americans up to $500 million this year alone.[3] Given the potential for injuries related to the sport, associations should consider consulting with a qualified insurance expert to confirm they have adequate coverage in the event of any pickleball-related incidents.
  2. Noise. Pickleball can be noisy, and can in turn generate complaints from nearby residents. Therefore, associations may want to consider establishing rules limiting play to certain hours of the day, and consulting with qualified experts regarding sound-mitigating measures.
  3. Authority under the Governing Documents. Depending on the cost of the project, the exact changes to be made, and the terms of the association’s governing documents, creating a pickleball court may constitute a capital improvement requiring membership approval. Boards should confirm they have authority under their governing documents before altering the common area. When in doubt, consult with a qualified community association attorney.
  4. Consider a Trial Run. Associations can consider adopting a rule allowing pickleball play at existing facilities for a set amount of time with a sunset provision – for example, for thirty days – as a trial run, to see how pickleball fits into the community. The board can then review any member feedback received, and decide how to proceed.

 

 


 

[1] https://www.npr.org/2022/02/19/1081257674/americas-fastest-growing-sport-pickleball

[2] https://usapickleball.org/what-is-pickleball/court-diagram/do-it-yourself-guidelines/

[3] https://nbc-2.com/news/sports/2023/07/19/pickleball-injuries-costing-400m-nationally-the-alarming-toll-on-players-health/#:~:text=The%20most%20common%20types%20of,alongside%20the%20game’s%20unprecedented%20growth.

Continuing Duties and Obligations of Former Board of Directors

By Dea C. Franck, Esq. for CAI-CV HOA Living Magazine (August 2023 – Page 16-17)

Serving as a director on the board of a common interest development whether it be residential, commercial or mixed use (hereinafter referred to collectively as “association”) can be both rewarding and, at times, thankless.  But as the saying goes, “all good things must come to an end.”  Once your tenure on the board of directors ends, you will have some free time on your hands because you will no longer need to review board packets, attend community walk-throughs, attend board meetings, or generally be an official representative of the association.  However, be aware that you will continue to have duties and obligations to your association even though you will no longer be a board member.  This article briefly examines your continuing duties and obligations once your time on your association board ends.

Continue to Observe Duty of Confidentiality

All board directors owe a fiduciary duty of loyalty to the association they serve.  This duty of loyalty includes keeping certain information confidential.  While you soon will no longer serve as a board director, the duty of confidentiality you owe to the association will continue on past the date your service to your association as a board director or officer ends.  What does this mean exactly?  In short, any information that you obtained during your tenure on the board of directors including, any information related to matters discussed in executive session, any attorney-client privileged communications, and any confidential information concerning other directors, members, residents, or agents of the common interest development to which you were privy because you were a director must be kept confidential.  Should you disclose information deemed privileged or confidential under the law without prior board authorization that causes harm to the community association you served, you could expose yourself to personal liability.

Return Corporate Assets

Assets belonging to your association that you have received because you are serving on the association’s board of directors (such as laptops, tablets, keys to common area amenities that are not otherwise provided to members, log-in information to corporate email addresses, webmaster information for association’s website, etc.) will need to be promptly returned to the association once your time serving on the board ends. Corporate documents you would not have otherwise received if you were not serving on the board, such as information in executive session board meeting packets, may need to be promptly returned to the association when your tenure on the board ends depending on your association’s record retention policy.

Preserve Electronically Stored Information

During your time on the board you may have opened a separate email account in order to separate your personal emails from the emails you received as a board director.  Alternatively, you may be using your own personal email account to receive board emails.  You also have likely received text messages or voicemails on your personal phone regarding community association business.  Maybe you work on and have saved documents and spreadsheets on your personal computer regarding community association business.  Do not delete this information!  Why?  Because California’s Electronic Discovery Act (Code of Civ. Pro. § 2016.010 et seq.) allows litigants to obtain electronically stored information (“ESI”) during the discovery process in a pending lawsuit.  Therefore, when a community association reasonably anticipates that it will be involved in litigation (whether the association files a lawsuit or the association is sued) there is a duty to preserve all ESI that may be discoverable.  This duty also extends to former directors and the penalties for failing to preserve ESI can be significant and intentionally deleting or destroying can subject one to even greater penalties.

When can a community association reasonably anticipate litigation?  Unfortunately, there is no bright-line rule, so ESI should be preserved any time a dispute arises whether a lawsuit has been threatened or not.  You may be thinking to yourself, but as a board we deal with disputes at virtually every board meeting in the form of homeowner disciplinary hearings or architectural application appeals for example.  Exactly!  Regarding the preservation of ESI, it is better to be safe than sorry.  As such, any and all ESI that may be in your possession should be saved pursuant to your association’s electronic records retention policy.

Continue to Set a Good Example

While not a legal obligation, you should continue to set a good example for the other association members in your community even when it comes time that you are no longer on the board.  Strive to be a considerate neighbor; obtain the association’s approval before undertaking improvements to your separate interest if prior approval is required; pay your assessments on time; and follow the restrictions in your governing documents.  Former directors should do their share as individual homeowners to help their association be the best community it can be.

10 Things Community Associations Get Wrong!

By Pejman D. Kharrazian, Esq.

 

 

These are the top ten things I see landing community associations in hot water:

  1. Conditional Approvals for Architectural Applications

Don’t give conditional approval. Either approve or deny an owner’s architectural application. If there are “conditions” that would make an application approvable, deny the application, but welcome the owner to resubmit with the conditions addressed. Conditional approvals create ambiguity that can later cause problems for the association.

  1. Emailing Too Much

Cut back on emails? Sounds great!  There are (at least) two good reasons to cut down on emails:

First, under the Open Meetings Act (found in Sections 4900 et seq. of the Davis-Stirling Act), association business must generally be conducted at a duly noticed meeting. Emails amongst directors and management can easily run afoul of the Act and cross the line to an impermissible and illegal board meeting.

Second, most emails are discoverable in litigation. The less emails there are, the less there is to be discovered by a would-be plaintiff. In short, try to save most discussions for board meetings.

  1. Spilling the Beans

Many boards believe transparency is the touchstone of good governance. But that is not entirely true. The board, first and foremost, owes a duty to the association (the corporate entity). One of those duties is the duty of confidentiality. Certain information cannot and should not be shared with the membership. For example, confidential information discussed during executive session, attorney-client privileged information, information that compromises the privacy of owners (such as information related to assessments or member discipline), or information that can subject the association to liability should not be shared.

  1. Not Reading/Following Governing Documents

You mean I have to read all those governing documents? Yes! As a director, your decisions must be made with reasonable diligence, and that includes being familiar with the association’s governing documents (e.g., the CC&Rs, Bylaws, Condominium Plan, and Rules and Regulations). If the board cannot understand the provisions (yes, sometimes they can be confusing or poorly drafted) it should consult with legal counsel to help interpret.

  1. Overstepping Power/Authority

Powers and duties of the board can be found in the Davis-Stirling Act, other applicable laws, or the association’s governing documents. Boards are limited in the scope of their power and authority and need to ensure they stay within those boundaries. When in doubt, seek the advice of legal counsel, to determine whether the board has the authority to do what it is seeking to do.

  1. Inconsistent Enforcement

“Well, we let those owners do it because we like them” is not a good answer! The association’s governing documents need to be enforced uniformly and consistently. If the board gets heartburn when enforcing a rule or it is difficult to enforce, the underlying rule probably needs to be amended or repealed.

  1. Missing the Mark on Civil Rights or Fair Housing Issues

Discrimination and disability issues are major pitfalls for associations. Federal and state laws are quite onerous and technical in this area. Consult with legal counsel early and often on these issues, even just allegations, because a false step can be very costly for an association.

  1. Keeping Assessments Too Low

Often a director is heard saying:  “I was voted to the board to keep assessments low.” Keeping assessments low is important to the membership, for sure, but too often this notion is taken too far such that the association’s operating and reserve funds are not adequately funded. This can lead to deferred maintenance, large special assessments, and other problems.

  1. Responding to Online Posts

As a director, responding to online posts on social media is rarely, if ever, fruitful. A director or manager responding to social media posts can result in liability (defamation for example), be construed as speaking with the board’s authority, enflame the situation, or worse. So often, ignoring an online post or comment is the better move.

  1. Acting Without Legal Advice

The list of laws and cases that govern associations is large, and ever growing and evolving. Add in the provisions and requirements of your governing documents, and it quickly can become overwhelming, even for seasoned community managers. A bit of timely legal advice can make all the difference in staying on the right track and avoiding pitfalls and liabilities.

When the Votes Aren’t There, Don’t Despair

When the Votes Aren’t There, Don’t Despair

An Overview of The Court Petition to Amend Process for CC&Rs

 

By Pejman D. Kharrazian, Esq.

It can be challenging to amend your CC&Rs, especially when owner approval requirements are high. Some documents can require approval of up to 75% of all members before the CC&Rs can be amended. Absentee owners and voter apathy can further compound the challenge of getting enough owners to vote.

If your association has tried to amend your CC&Rs but has not been able to obtain the requisite approval, fret not, as there may be a way forward. Under California Civil Code section 4275, associations can file a petition with the state superior court to seek relief when the votes aren’t there. There are few statutory prerequisites to keep in mind:

  1. The association must have held a proper vote, meaning the vote was conducted in accordance with the association’s governing documents and applicable laws;

 

  1. At least a majority (over 50%) of all owners must have voted “yes” on the amendment; and

 

  1. The association must have made a “reasonably diligent effort” to solicit votes from owners and be able to make a showing to the court that it has.

If these threshold requirements are met, the association can move forward with petitioning the court to approve the amendment based on the affirmative votes actually received. The petition papers filed with the court require a large amount of information and supporting documents and should be prepared by the association’s legal counsel to ensure all statutory requirements are met. For example, the petition must demonstrate to the court’s satisfaction that the amendment is reasonable and that all owners (and any other parties entitled to notice under the CC&Rs) were provided sufficient notice of the court proceedings.

During the petition process, owners have an opportunity file opposition papers with the court. But granting the petition is ultimately within the judge’s discretion, and even in the face of owner opposition, judges are generally quite willing to grant such petitions if the statutory requirements are met.

The petition process can take anywhere from three to six months, or longer, depending on the court’s schedule.

PRACTICE TIP:  Since the petition to amend is essentially a lawsuit, the association should involve its legal counsel in the discussion as early as possible.

Assuming the court grants the petition, then the association can proceed with recording the CC&R amendment.

Finally, the court petition process can also be used for other governing documents, such as bylaws or articles of incorporations, under California Corporations Code Section 7515, and a request to amend CC&Rs and other governing documents can be filed together with the court in one streamlined petition.

Balcony Inspections

Balcony Inspections

(SB 326: The Balcony Bill)

Updated by: Kieran J. Purcell, Esq., CCAL

By now most of you are aware that in August, 2019, Governor Newsom signed Senate Bill No. 326 (“SB 326”) into law, adding Civil Code section 5551 to the Davis-Stirling Act.  This statute requires associations to perform inspections of balconies and other exterior elevated elements that the association has an obligation to maintain and/or repair by the end of 2024.

Below is an overview of the important points associations should be aware of as they prepare to conduct their first round of inspections under this new law.

Q&A

Which Associations are Impacted?

Associations with buildings having three or more multifamily dwellings.  Single family home communities are not affected.

 

What Needs to be Inspected?

Any “Exterior Elevated Elements” (“EEEs”) the association has a responsibility to repair or maintain.  Generally, this will be any load bearing components that extend beyond the exterior walls of the building to deliver structural loads to the building.  Primarily this includes balconies, decks, stairways, walkways, and railings that are supported by wood or wood-based products and are more than six feet above the ground.

 

Who Can Perform Inspections?

Inspections must be performed by a licensed structural engineer or architect.  Larger associations may also need to use a statistician, as the statute requires a statistically relevant sample size be inspected (95% confidence level, with a 5% margin of error).

 

When do Inspections Need to be Performed?

Inspections must be completed every nine years.  The first inspection must be completed by the end of 2024.  Buildings completing construction after this law went into effect, on January 1, 2020, will need to complete their first inspection within six years of issuance of a certificate of occupancy.

 

What Must the Inspection Look For?

Visual inspections must confirm EEEs are in a “generally safe condition” and “performing in accordance with applicable standards.”  If the inspector sees signs that the waterproofing system has been compromised, or that there is risk of damage to the load bearing components of the building, they are to use their best judgment to recommend further inspections.  If there are any threats to safety of residents, the inspector must notify the association immediately and governmental inspection agencies within 15 days of issuing their report.  The association must act immediately to prevent access to dangerous areas and take other appropriate preventive measures necessary to protect the safety of the residents.

 

What Reports Must be Generated from the Inspection? 

The inspector must issue a written report that includes:

  • Identification of the applicable building components subject to inspection;
  • Current physical condition of the components and whether there is a present threat

to health or safety of residents;

  • Expected future performance of the components and remaining useful life; and
  • Recommendations for any repairs.

The initial five-year window to complete the first inspection is intended to allow associations to coordinate their first balcony inspections to take place with an upcoming reserve study inspection.  The subsequent nine-year balcony inspection cycles will then align with every third reserve study inspection going forward.

Prior to moving forward with inspections, an association should also confirm there are no more stringent inspection requirements in its governing documents or required by local government or enforcement agencies, as Civil Code section 5551 allows for more stringent requirements to be adopted locally.

 

What Does an Association Do with the Report?

The inspector’s report must be stamped or signed, and included in the association’s reserve study.  The reports generated must be preserved in the association’s records for a period of at least two inspection cycles (or six years).

Spotlight on Elections

Spotlight on Elections

A Brief Summary of Two Recent California Court of Appeal Decisions

By Mary M. Howell Esq.,CCAL, & Pejman D. Kharrazian, Esq.

Two recent California cases, Takiguchi v. Venetian Condo. Maintenance Corp. and Lake Lindero HOA v. Barone, focus on the ever popular issue of achieving quorum.

Takiguchi v. Venetian Condo. Maintenance Corp.

In Takiguchi v. Venetian Condo. Maintenance Corp. (2023) 90 Cal.App.5th 880, a small group of owners held multiple units and had controlled the board with its nominees for many years.  In January 2021, as the association moved toward its annual meeting to elect directors, there were opposition candidates lined up to change the complexion of the board.  The existing board sent out statutorily-prescribed notices of meeting and ballots, and engaged a professional inspector of elections.

Then the fun began.  The governing documents prescribed a quorum of 51% of the voting power, with a provision for a lower quorum for an adjourned meeting should the association fail to meet quorum at the initial meeting.  The notice of meeting anticipated a failure to achieve quorum, and actually noticed a follow-up meeting to take advantage of the lower quorum requirement for an adjourned meeting. The notice stated that members could participate by mail in ballot, or by attending the meeting virtually, since COVID-19 restrictions were in effect. Ballots were duly mailed to homeowners by the inspector of elections, and the inspector of elections kept a log of which owners had returned their ballots.  Ostensibly, to save money and given a long history of failures to achieve quorum, the inspector did not attend the first meeting.

On the date of the first meeting, there was confusion as to whether quorum had been achieved; in determining that quorum had not been met, management relied strictly on the number of written ballots which had been received by the inspector, and did not include persons who attended online.

The failure to count for purposes of quorum those who had not actually cast a written ballot but who appeared via internet did not sit well with the opposition.  One homeowner took pictures of the participants who were only appearing virtually.  Despite some of those images being identified only by screen names, the opposition was able to persuade the court of the identities of those participating virtually, and counting those as well as the received ballots, it was clear quorum had been achieved at the first meeting.

To compound its problems, the holdover board next voted against holding the (already noticed) subsequent meeting with its lower quorum.

The opposition filed a suit pursuant to Corporations Code Section 7510, which allows a court to order a meeting be held if the corporation’s board had failed or refused to do so.  In granting relief to the owners, the court noted that, despite no minutes having been kept, there was sufficient evidence quorum had been achieved at the first meeting.  The court accepted the identification of owners who had not submitted a written ballot but participated virtually, and counted those participants toward the quorum. In fashioning its remedy, the court ordered that a new meeting be held for the purpose of counting the ballots which had been received at that first meeting.

A dissenting opinion questioned whether the statute actually supported this type of relief, or whether instead the court should have ordered a new meeting to be held.  While the dissent is well reasoned, the remedy prescribed by the court saved the association the not insignificant costs of conducting a second election.

Lake Lindero HOA v. Barone

The second case, Lake Lindero HOA v. Barone (2023) 89 Cal.App.5th 834, concerned a recall vote.  Defendant was a former director of the association, who had resigned his position in order to take a paid position as the chief executive officer of the association.

Homeowners sought to recall the entire board pursuant to a petition by 5% of the members.  Corporations Code Section 7511 requires an association, within 20 days of receipt of such a petition, to notice a member meeting to vote on the issue of recall.  The board failed to do so, so the petitioning members sent out their own notice of meeting, and duly conducted the meeting.  When this meeting failed to achieve quorum, as prescribed by the association’s bylaws, an adjourned meeting was convened by the same homeowners, resulting in a diminished quorum.  The recall was successful, and a new board elected.

Unfortunately, the recalled board refused to leave, contesting the right of the new board to govern, including instructing management to disregard instructions from the new board.  The new board and association then filed this suit, asking the court to declare the validity of the recall, and to validate the new board’s termination of Defendant’s contract.

Held: new board 1, old board 0.  The trial court’s decision was affirmed on appeal.

The old board made the following arguments: (1) the bylaws required a majority of owners to vote for removal, despite a statute that allowed removal by a majority of a quorum,

(2) the statutes do not permit a reduced quorum, even if the bylaws do, and (3) the Corporations Code only allows a court to determine the validity of “elections”, not “recalls.”  The court properly rejected all of these arguments.  First, the statute which discusses the percentage vote required for recall (§ 7222) specifically states that it will override any contrary language in bylaws.  Second, even though the recall statute doesn’t specifically authorize a lower quorum for adjourned meeting, another statute (§ 7512) specifically provides that bylaws may set a lower quorum for meetings.   As to the third point, the court found that Corporations Code Section 7616, which allows a court to validate election results, should be read broadly to permit a court to review recall votes as well.

Takeaways from the two cases:

  1. Achieving a quorum at annual meetings is always difficult. Keeping an accurate list of ballots cast is essential, and if a virtual meeting is going to play a part in the proceedings, protocols to establish the identity of participants is essential.
  2. Minutes need to be kept. While the focus is often on board meeting minutes, annual meeting minutes are critical in determining quorum issues, notice issues, motions of adjournment, and the like.
  3. Any communication between the board, management, and inspectors of election on quorum issues needs to be memorialized in a writing, such as an email.
  4. Statutes and bylaws need to be read together. In some cases, statutes override contrary language in the bylaws.  In other cases, statutes provide that bylaws may differ from the code.  A firm knowledge of both the relevant statutes and the association’s specific bylaws (and election rules, though neither case referred to them) is essential in any election, whether the annual election of directors or a recall vote.
  5. You can’t stop your analysis with the Davis-Stirling Act. Despite the increasingly complex election protections written into the Act, neither of these cases referenced the Davis-Stirling Act.  Both were decided entirely by reference to the Corporations Code.