Epsten, APC

Reserves are intended to fund the maintenance, repair, restoration and replacement of the major components an association is responsible for under its governing documents. Civil Code section 5515 authorizes an association to borrow money from a reserve account for up to one year to cover a short-term cash-flow deficit provided certain requirements are met.

One of the most fundamental duties of an association is the preparation and creation of a budget for the association. The pro forma operating budget must be distributed annually, pursuant to Civil Code section 5300, not less than 30 days nor more than 90 days prior to the beginning of the association’s fiscal year.

Questions about building boundaries typically arise most often in a condominium context where boundary lines between common area and units, between units and exclusive use areas and between exclusive use areas are relevant to maintenance. In non-condominiums, building boundaries may be relevant to encroachment onto an adjoining owner’s property, onto an easement or onto a setback required by the governing documents or local law. Making such determinations requires an examination of a condominium plan, tract map or parcel map. It may also require some type of inspection in the field using a licensed land surveyor or engineer.

The business judgment rule mandates a director to perform his/her duties 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 similar position would in similar circumstances. (Corp. Code § 7231(a)) In following this rule, a director will avoid personal liability for poor decisions. See also Civil Code section 5800.

“Bylaws” refers to the document regulating the administration of the association (such as voting rights, notice and convening of board and member meetings, number of directors, offices, proxies, appointment of committees, etc.) Both incorporated and unincorporated associations have bylaws. Many older sets of bylaws contain provisions appropriate under the Corporations Code, however, changes to the Davis-Stirling Act have frequently overridden different provisions in the Corporations Code (particularly in the area of elections), so care must be exercised in determining whether a particular bylaw provision continues to be valid.

Every analysis of maintenance and repairs responsibilities for balconies should begin with consideration of Civil Code section 4775(a). Pursuant to Section 4775(a), an association must maintain and repair the common areas and the individual owner must maintain and repair their separate interest and exclusive use areas. In a condominium association, everything in the community is either common area or part of a unit. Therefore, it is important to know the dividing line between the two. This question is generally answered in the CC&Rs and the condominium plan for your community. In general, the structural elements of a balcony are almost always the responsibility of the association to maintain.

Ballots must contain the quorum requirement and (except for the election of directors), the percentage of approvals necessary to pass an action item. Ballots must be distributed to the members by the association. Owners cannot create and submit their own ballot. Depending on the type of election, ballots may be secret or not secret. Secret ballots cannot be revoked once received by the inspector of election.

Pursuant to Civil Code section 5500, board members have a fiscal duty to review the latest account statements prepared by the financial institutions where the association has its operating and reserve accounts. In addition to other duties set forth in this section, this particular duty aims to prevent embezzlement, theft and misappropriation of association funds.

Members or former members who are in financial straits may file for bankruptcy protection. If you learn of a bankruptcy, immediately cease collection efforts and contact the association’s counsel. Debts to associations are sometimes paid through bankruptcy, or, the debt may be discharged. If the association is to be paid, there are short timeframes for filing claims.