10 Things Community Association Boards Are Doing Right

 

By Pejman D. Kharrazian, Esq.

 

 

Community associations play a crucial role in maintaining and enhancing the quality of life within residential communities. In California, where community associations are prevalent, boards are implementing innovative and effective strategies to ensure their neighborhoods thrive.  Here are the top ten things community association boards are doing right:

  1. Promoting Sustainability

Many community association boards are prioritizing eco-friendly initiatives. This includes installing solar panels on common area buildings, installing electric vehicle charging stations, promoting water conservation through drought-resistant landscaping, and encouraging recycling and composting programs. These efforts help the environment and also reduce costs.

  1. Enhancing Communication

Effective communication is key to a well-functioning community. Good communication helps build trust and fosters a sense of community. But remember that some things can not be shared with the membership, such as private, confidential, or privileged information! Leveraging technology and digital tools can also enhance communications.

  1. Fostering Community Engagement

To create a vibrant and cohesive community, many community association boards organize regular social events, such as block parties, holiday celebrations, and community clean-up days. These activities provide residents with opportunities to connect with their neighbors and build relationships. Engagement also helps recruit volunteers, such as committee members, and create a volunteer pipline and succession plan for engaging future volunteer board members.

  1. Promoting Emergency Preparedness

Community association boards are developing comprehensive emergency preparedness plans, including drills, community workshops, and the distribution of emergency supply kits to residents, ensuring the community is ready for natural disasters like wildfires and earthquakes.

  1. Maintaining Property Values

Many boards are proactive in ensuring that common areas, landscaping, and facilities are well-maintained. Regular upkeep enhances the aesthetic appeal of the community and helps maintain property values. This includes having a reserve funding plan, and making difficult decisions about raising assessments or levying special assessments when necessary.

  1. Implementing Fair and Reasonable Policies

Boards are striving to create and enforce fair and reasonable policies. They work to ensure rules and regulations are clearly communicated and consistently applied, avoiding favoritism or arbitrary decisions, which helps maintain harmony and reduce conflicts in the community.

  1. Focusing on Inclusivity

Recognizing the diverse population of California, many community association boards are making efforts to be inclusive and considerate of all residents. This includes accommodating different cultural practices, ensuring accessibility for individuals with disabilities, and fostering an environment where everyone feels welcome and respected.

  1. Seeking the Advice of Professionals

Boards face a myriad of challenges, from legal compliance to financial management, and community relations. To navigate these complexities effectively, it is crucial for boards to seek professional guidance. Leveraging this expertise ensures the success and stability of the community. And doing so helps satisfy the due care requirement of the Business Judgment Rule (found in California Corporations Code section 7231) that provides certain legal protections to a board’s decisions.

  1. Embracing and Utilizing Technology

Community association boards are adopting software for managing community operations, from handling maintenance requests to managing payments. These digital solutions streamline processes, improve efficiency, and enhance the overall management of the community. Boards are partnering with their management companies, who are developing tailored technology solutions that fit the needs of community associations.

  1. Providing Education and Resources

Well-informed boards and residents make for a better community. Many boards promote educational resources and training. This includes board workshops and seminars as well as classes on topics like home maintenance and emergency preparedness for owners. Educated residents are more likely to comply with community guidelines and participate actively in the community. Two well know organizations that have educational opportunities and resources for owners are the Community Association Institute (CAI) and Educational Community for HOA Homeowners (ECHO). The California Association of Community Managers (CACM) also provides educational resources. Finally, Epsten, APC offers a wide variety of training opportunities to community managers and directors, contact us for more information.

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.

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.

2021 Legislative Update Webinars

Missed our Annual Legal Symposium? Have questions about recent updates to legislation? Don’t worry!

Epsten, APC Senior Attorney, Pejman Kharrazian is hosting complimentary 1-hour accredited webinars for local community management offices to discuss recent changes to the law.

Now scheduling for Tuesdays and Fridays
12:00 p.m. to 1:00 p.m.

Contact us to schedule a webinar for your office and managers!

Must We Sue This Owner?

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By Pejman D. Kharrazian, Esq.

A community association board is required to enforce its governing documents against owners. But must a board file a lawsuit if internal enforcement measures fail to gain a recalcitrant owner’s compliance? I often see boards grapple with this difficult decision. The following discussion of California case law explores how directors should decide whether to sue an owner or not and what legal protections are available once that choice is made.

The Business Judgment Rule as a guide and a defense.

In 1977, Beehan v. Lido Isle Community Assn. established that a board may exercise prudent business judgment (i.e., in good faith, in the best interests of the association, and after conducting due diligence) in deciding whether or not to sue over a violation of the governing documents.

But Beehan does not go as far as saying a board can indiscriminately decide not to sue an owner who has violated the governing documents. Instead, it says a decision about whether to sue should be made using the business judgment rule as a guide. The business judgment rule, codified in California Corporations Code section 7231, applies to nonprofit corporations and says:

“A director shall perform the duties of a director . . . in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.”

In following the business judgment rule, a board should, for example: examine the underlying facts, consult with independent legal counsel and other experts to analyze the merits of the potential case, review and follow the governing documents, weigh the costs and benefits of filing a lawsuit versus the nature and magnitude of the owner’s violations, discuss the matter in executive session and memorialize in minutes. A board should also keep in mind the prevailing party attorneys’ fee provisions found in the Davis-Stirling Common Interest Development Act and many CC&Rs—that essentially say, if an association loses the case it could be paying its own attorney and the owner’s attorney!

At the end of the day, if a board’s decision about whether to sue is challenged, the primary defense will likely be the business judgment rule.

Will a court give the board’s decision judicial deference under Lamden?

In 1999, Lamden v. La Jola Shores Clubdominium Homeowners Assn., the California Supreme Court established that when a “duly constituted association board, upon reasonable investigation, in good faith and with regard for the best interests community association and its members, exercises its discretion within the scope of its authority” on how to maintain the common areas, “courts should defer to the board’s authority” (a.k.a., “judicial deference” or the “Lamden rule”). The Lamden rule is analogous to the business judgment rule and is another legal doctrine that affords protection—even if an association is unincorporated.

The court in Haley v. Casa Del Rey Homeowners Assn. recognized Lamden applied to ordinary maintenance decisions. But nonetheless went on to say that Lamden “reasonably stands for the proposition that the Association had discretion to select among means for remedying violations of the CC&R’s without resorting to expensive and time-consuming litigation, and the courts should defer to that discretion.” Haley comes very close and possibly even crosses the line of extending Lamden’s judicial deference standard to a board’s decision about whether to sue.

Haley is not alone in expanding Lamden beyond ordinary maintenance decisions. For example, Dolan-King v. Rancho Santa Fe Assn. granted judicial deference to a board’s architectural decisions; Harvey v. The Landing Homeowners Assn granted judicial deference to a board’s interpretation of the CC&Rs; Watts v. Oak Shores Community Assn. granted judicial deference to a board’s adoption of rules. In taking their broader view of Lamden, Haley, Dolan-King, Harvey, and Watts each quote the seminal California Supreme Court case of Nahrstedt v. Lakeside Village Condominium Association, Inc.:

“Generally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with public policy.”

But other cases have tried to limit Lamden: Ritter and Ritter v. Churchill states the Lamden rule protects individual directors from liability, but seems to suggest Lamden will not protect the association (as an entity) from liability for an improper decision.[1] But in Lamden the directors were not parties to the action when the Supreme Court made its decision (only the association was). By that logic, it seems Lamden did apply its judicial deference rule to the association. It therefore, appears Ritter may have gone too far in this regard.

Ritter also reads Lamden narrowly by saying it did not apply to extraordinary (versus ordinary) maintenance decisions by a board, whereas, Haley, Watts, Harvey, and Dolan-King indicate Lamden can apply beyond ordinary maintenance decisions. Ritter seems to be an outlier in this regard.

Further, Affan v. Portofino Cove Homeowners Assn illustrates that Lamden does not apply to decisions of association managers and does not generally apply in situations where no decision is made by the board (inaction versus action).

If future courts are inclined to expand Lamden’s judicial deference rule, then the decision of an association board about whether to sue may be given judicial deference by a court, in addition to the protections provided by the business judgment rule.

 

[1]  Other cases have held an association can remain liable for injury to third parties that flows from improper decisions. (See e.g., Frances T. v. Village Green Owners Assn.; White v. Cox)

Q&A: Our minutes have minimal information on motions, topics and little depth. Are we at risk of having inadequate documentation to show our due diligence? What is the optimum content of our minutes?

Q.  Our minutes have minimal information on motions, topics and little depth. Are we at risk of having inadequate documentation to show our due diligence? What is the optimum content of our minutes?
A.  For minutes, less is more. For each item of business, we recommend the following information be included: the topic, the Board’s resolution with sufficient detail to understand the Board’s rationale and decision, who moved/seconded, and the director vote tally (e.g., “passed unanimously”). The minutes should not include comments, discussion, dicta, or minutiae. Minutes should not be a transcript of the meeting. Including superfluous language in minutes can come back to bite, especially in litigation where minutes are discoverable and can be used as evidence against the Association or Board.  Pejman D. Kharrazian, Esq.

Email Policies for Community Associations

By: Pejman Kharrazian, Esq.

Martin Lomansey, an early twentieth century political boss from Boston, is credited with giving the following warning to young politicians — “Never write if you can speak; never speak if you can nod; never nod if you can wink”

When emailing, it is not often we consider what consequences putting our thoughts into writing and pressing “send” will have down the road.  The same traits that make email so appealing – the speed and ease of communication – can also expose pitfalls.  These potential issues can be even more important when you serve as a volunteer in your association.

As a general rule for email, save discussions for board meetings (less is more) and email as if your mom is watching over your shoulder (watch what you say).  Beyond these common sense warnings regarding brevity and discretion, the following discussion highlights a few issues surrounding email communications in community associations.  These issues should be considered when creating or revising an email policy for your association, which is considered good practice.

Emails can be Discoverable

Emails can be discoverable in a litigation context, meaning if the association is involved in litigation, emails sent by directors, officers, committee members, and other volunteers can be sought out by the opposing side.  Even outside of litigation, certain emails may be subject to a request for production under Civil Code section 5205, which allows members of the association to make document requests for association books and records.[1] In either scenario, the contents of your email communications, as an association volunteer, could essentially become public.

Separate Email Account for Association Communications

If you serve as a volunteer in your association, then you should have a separate email account for your volunteer role (i.e., [email protected]).  Such an account is quite easy to set up and it’s free.  Many providers offer free cloud-based email accounts that include storage on the cloud for your emails and the ability to sync the email account to your tablet or smartphone so you don’t have to log into a computer separately to gain access (gmail, yahoo and ymail are a few such providers).

Having a separate account helps keep a bright line separation between your communications as an association volunteer and your work or personal communications.  This separation is important because if your emails become the subject of a discovery request, it will prevent you from having to sift through and separate association communications from other communications.  The separation also helps you realize which hat you are wearing when communicating, which helps keep your association communications thoughtful, brief and professional and lets the recipient know the capacity in which you write them.

Further, litigants have the ability to subpoena an employer for access to your work email if they suspect you were using a work account to conduct association business.  This can be problematic because an employer may not take the time to separate out association only emails and may simply produce all emails sent by you on your work account.  Not to mention, your employer will likely not be thrilled to receive the subpoena and find you were using a work account for non-work communications!

Cloud-Based Services

One caveat to the cloud-based services, such as gmail, is that they too can be subpoenaed and often are for production of emails during litigation.  Therefore, if you do set up a separate association volunteer email address through a free cloud-based provider, you must still keep in mind that what you say in an email can be shown to the membership, broadcast to the public or published to a jury down the road.

Shared Email Accounts and Shared Communications

It is also not a good practice to have a shared email account with a spouse or significant other (i.e., [email protected]).  Certain privileges that may prevent the discovery of an email communication can be waived or defeated because of the joint nature of an email account.  In a scenario where one spouse is a board officer and the other is not, a confidential communication meant for the board officer could become discoverable where it otherwise would not.  For the same reason it is not wise to forward or share association emails with third parties.

Use of Email for Association Communications

Finally, when you are communicating over email in your capacity as an association volunteer, everything you say can be construed as being on behalf of the board as a whole.  If asked a specific question by a member, use caution when answering and in most cases it is best to direct the member to discuss their issue at the open forum of the next board meeting. Also, as discussed in other articles (See Email Do’s and Don’ts for Community Associations), except for some very narrow exceptions, email meetings are not allowed.

Conclusion

Next time you are about to press “send,” consider the potential impact of your email communication. Remember that when it comes to email, less is more and watch what you say.  It is a best practice for your association to have an approved email policy for the board and volunteers setting forth guidelines for procedural items such as the establishment of separate email accounts and for the use of email for association communications such as communications by an individual board member to a member.

[1]  Document requests under Civil Code section 5205 have tight deadlines (as little as 10 days).  If you receive one, contact your association’s legal counsel immediately.