Runoff Election

Source: Adrian J. Adams Esq.

QUESTION: In the event of a runoff between a sitting director and a non-director, is the latter required to attend the board meeting at which ballots of the runoff election are counted? If the outside director wins the election when does his term start? 

ANSWER: Unless your bylaws require that a candidate be present when the results are announced (which I’ve never seen), he does not need to be present. If he wins, his term starts immediately unless your bylaws state otherwise.

ELECTIONS IN
SMALL ASSOCIATIONS

QUESTION: We are a small 6-unit condominium project. Each owner is a board member. Can we waive the secret ballot requirements for assessments and modifications to the governing documents? 

ANSWER: The Davis-Stirling election requirements are particularly burdensome on small associations. There have been discussions in Sacramento about exempting small HOAs but, to date, that has not happened. 

Informal Elections. Some small associations have taken matters in their own hands and unilaterally dispensed with the voting requirements. They get together each year in the living room of one of their units and, by consensus, declare all the owners elected to their respective seats. They do the same thing for assessments and amendments, i.e., decide such matters via voice votes. If someone wants secret ballots, they circulate slips of paper, write down their votes, fold the slips and pass them to the Secretary (or a spouse) to tally the results. 

RECOMMENDATION: I can’t recommend the practice since it violates the Act. I’m simply reporting how some associations handle the problem.

EXECUTIVE MINUTES

QUESTION: Can a member appointed by the board act as recording secretary in executive session meetings?

ANSWER: There is nothing that would legally prohibit it. But as a practical matter, it would be more prudent to hire someone who does not live in the development. They would be less likely to gossip about what happens in executive session. 

FEEDBACK

Escrow Documents #1. Our association posts its governing documents on its website. This is available publicly to Realtors or anyone else who wishes to view or download a copy. If requested, printed copies are provided by the manager for a fee based on costs. Since the documents are posted, Realtors seem satisfied with downloading. -Gordon C.

Escrow Documents #2. Escrow document charges are a scam! Our property manager created a very simple website. All governing documents (CC&Rs, amendments, condo plan, articles of incorporation, bylaws, rules and operating policies) are accessible online. When a property is listed, we give access to the listing agent and leave the responsibility of downloading and transmitting the documents to the agent and new buyer. There is absolutely no reason in this day and age for there to be a charge for this. If the lender wants another document filled out about occupancy, litigation and other stuff, our manager does this for $125. -Mike G

Escrow Documents #3. My management company averages 260 disclosure document requests a month asking for almost 1,200 documents. It takes time and money to process those requests. Using a third party allows us to reduce the cost about 25% from what it would otherwise cost to replace documents homeowners have misplaced. The average sales commission on a $750,000 home is $45,000 but realtors complain because the management company charges a few hundred dollars for the effort it takes to accommodate their request because they don’t “trust” the seller. If I were a homeowner and my realtor asked me to pay for something I already had and could provide for free, I would suggest they take it out of their commission. -Roy H.

Escrow #4. I noticed the feedback for escrow documents and wanted to chime in with my experience. Not only was I charged for email pdf copies (around $150-175) I was informed a printed physical copy was another $100!!! They didn’t even have copies of the prior full year of board meeting minutes! I contacted the property manager who kept insisting the 3rd party company had it all so I went back and had to complain twice to the 3rd party company because the property manager kept throwing it back at them. With this 3rd party BS everyone points the fingers at everyone else. That disconnection is a huge liability and disappointment considering what these “professional property management” companies charge. -Margot B.

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Trustees #1. I agree 100% with your response on trustees. The real problem is when, for example, the home is in the name of a spouse or a trust for the spouse and the other spouse wants to run for the board. He is clearly not an owner and most covenants only allow for an owner to run for the board. Our association amended its bylaws to alleviate this problem, however, no one thinks about this issue until it happens. -Paul M.

Trustees #2. In my trust where I am currently listed as sole trustee, I have my partner listed as successor trustee. In addition, I have a provision in the trust that states he is part owner (I list the percentage) of the condo unit that is recorded in the name of the trust. The HOA’s attorney stated that only I can act for the trust per the public documents. He said the association does not recognize ownership interests that are not part of the public record. Is that legal?

RESPONSE: The HOA has a smart attorney. I agree with him.

Trustee #3. It’s ironic that some people who are very vocal lack the legal knowledge in the specific area they are griping about. I always respond by asking them where they obtained their law degree. -John A.

Trustees #4. “Trustees are owners and have the right to vote and serve on the board.” How about a trustee who has a parent living in the unit but had an attorney write a letter stating the trustee authorizes the parent to vote for the trustee? Since the parent is not the owner of record, is this legal? -Phyllis J.

RESPONSE: Since the parent is not an owner, any attempt at proxy voting by the parent is void. By statute, a member can give their proxy only to another member. (Civ. Code §5130(a)(1).)

Weeds & Dead Lawns

Source: Adrian J. Adams, Esq.

QUESTION: I know we are in a drought but what can we do when owners let their lawns die and weeds grow?

ANSWER: Normally, you would hold hearings and fine members. But with the current drought emergency, your options are limited.

Weeds. You still have the power to require the removal of dead plants and weeds. This is consistent with another statute, Civil Code §4750(e), which allows an association to require the removal of dead plant material and weeds from personal gardens.

Dead Lawns. Dead lawns are another matter. Because of the drought emergency, boards cannot fine owners for reducing or eliminating the watering of lawns during any period for which the governor or local government has declared a drought emergency. (Civ. Code §4735.) 

Lawn Replacement. Can HOAs force the removal of dead turf and require its replacement with different landscaping? Probably not. Even when a lawn turns brown and looks dead, most will bounce back when watered. If an association were to order the removal of turf and the installation of new landscaping (under penalty of fines), a judge could deem it contrary to the anti-fining statute and rule against the association.

RECOMMENDATION: Associations should adopt landscape standards that describe the types of low-water plants allowed as well as permissible alternatives, such as hardscapes, wood chips, crushed rock, etc. Doing so establishes new aesthetic standards for the community. As more people remove their lawns and install drought tolerant landscaping, members with dead lawns may be more inclined to remove dead turf and re-landscape. Once the drought is over, associations can take a more direct approach to the problem.

Thank you to attorney Wayne Louvier in our Orange County office for his assistance with this question.

Multiple Ballots

Source: Adrian J. Adams, Esq.

QUESTION: Some people own three units and they sometimes combine all their ballots in one envelope and provide all three addresses on the outer envelope. Does this count as one toward quorum or can I count it as three toward quorum?

ANSWER: All three ballots count toward quorum.

If your records show that a particular member owns three units, he is entitled to three ballots. If he puts all three in one envelope, he is simply being efficient with his use of paper and postage. He doesn’t realize it creates an administrative hiccup on your end.

The tricky part comes when you open the envelopes. When you open his outer envelope, you must write “three ballots” on the inner envelope or immediately open the inner envelope to make sure there are only three ballots inside. If he has more than three, all of them are void.

On the other hand, if there is only one ballot in the inner envelope, you need to see if he cast all his votes on the one ballot. Then, as the Inspector of Elections, you must make a decision. Do you count the votes or void the ballot because it has multiple votes on a single ballot?  By statute, Inspectors have the authority to make a judgment call. Inspectors can:

Perform any acts as may be proper to conduct the election with fairness to all members in accordance with this Davis-Stirling Act, the Corporations Code, and all applicable rules of the association regarding the conduct of the election that are not in conflict with this article. (Civ. Code §5110(c)(8).)

I favor counting votes whenever it is clear what the voter intended. But that is a decision for the Inspector to make, not the attorney.

FAIR HOUSING ACT
vs ARCHITECTURAL STANDARDS

In a recent fair housing case, a federal court found that an association’s enforcement of its architectural standards involving handicapped children was reasonable.

The Hollises have five children, two of whom are disabled. They submitted a request to their association’s Architectural Control Committee (ARC) to add a nonconforming sunroom to their house. The metal frame design they submitted did not meet architectural standards and was rejected by the ARC. 

The Hollises responded that the sunroom was for their disabled children and asked for reasonable accommodation under the Federal Fair Housing Act. Even though the ARC compromised some of their standards, the Hollises were not satisfied and sued the association for discrimination. 

The court ruled that the ARC’s actions were not discriminatory as the record was replete with evidence demonstrating the ARC’s sole focus was on the aesthetic design of the addition, the materials to be used, and the design’s potential impact on the value and architectural standards of neighboring homes. 

COMMENTS: The ruling shows that being disabled does not give a member a blank check to do whatever they want. (See Hollis v. Chestnut Bend HOA.) Discrimination claims can be defeated when an association carefully documents the non-discriminatory process they followed to reach a reasonable decision. Whenever a request for reasonable accommodation is made, boards should work closely with legal counsel to address the request.

FEEDBACK

Voting Combined Units. We have a member who owns two units. Although she pays dues on both, she only gets a single vote because our CC&Rs were amended so that owners of multiple units are limited to one vote. This was done to prevent a single owner from controlling election results. Is this legal? -David M.

RESPONSE: Last week’s article did not address the scenario where an association amends its CC&Rs to restrict voting rights. Because there is nothing in the law directly addressing this point, I polled more than a dozen HOA law firms around the state to get their opinion on whether associations can eliminate voting rights by amending their documents. With one exception, the consensus was that documents cannot be amended to remove voting rights. The following analysis supports that opinion:

Multiple Memberships. The Corporations Code provides that no person may hold more than one membership. However, a specific exception is made for associations so owners of more than one lot or unit can hold multiple memberships. (Corp. Code §7312.) With membership attaches voting rights. 

Voting Rights. “Except as provided in a corporation’s articles or bylaws or Section 7615 [cumulative voting], each member shall be entitled to one vote on each matter submitted to a vote of the members.” (Corp. Code §7610.) While the language is permissive, it appears to be aimed at allowing cumulative voting rather than eliminating voting rights. This is supported by another Code provision. 

No Removal of Voting Rights. Section 7813 of the Corporations Code  states that documents cannot be amended to adversely affect the voting rights of a class without their permission nor can a new class cannot be created without their permission. Removing the voting rights of members who own multiple units would create a new class of members. Doing so would require their permission.

FINAL NOTE: If an association could vote to remove someone’s voting rights, they could also vote to allocate all expenses to that person. From an equity (fairness) perspective, I doubt the courts would uphold amendments removing voting rights.

Many thanks to attorney Jay Hansen of Epsten Grinell & Howell for his analysis on this issue and to the law firms from around the state who responded to this issue.

Does The Davis Stirling Act Deal With AirBNB Rentals

Source: Adrian J. Adams Esq

QUESTION: Wondering if Davis-Stirling addresses Airbnb and how associations can deal with problems created by short-term rentals.

ANSWER: No it’s not addressed by the Act and yes you can do something about the problem.

Growing Problem. For those unfamiliar with Airbnb, it is a website for people to rent out their homes or even rooms on a short-term basis, whether it be a night, a weekend or a week. The service has become popular with tourists seeking lodging outside of hotels. Airbnb was founded in 2008 and in seven short years has grown to a $20 billion company with over 800,000 listings.

The problem with Airbnb short-term rentals was recently the subject of a front page article by the Los Angeles Times, “Homes as Inns Put New Pinch on Housing.” The reporter observed that landlords have discovered they can make more money renting their houses a few days at a time rather than months at a time. This has led to “a whole cottage industry” that cities are struggling to regulate because of the negative impact it’s had on the rental market. Long-term, stable renters have been pushed out by transient renters. Many municipalities now require short-term rentals obtain a license and pay a transient occupancy tax the same as hotels.

Impact on HOAs. Homeowner associations also suffer problems related to transient renters such as security issues, rules enforcement problems, higher maintenance costs, and increased administrative expenses because they require greater supervision. To meet the challenge, one association restricted short-term rentals and imposed a fee on landlords to offset the expenses they created.

Lawsuit. An unhappy landlord promptly sued the association over the restrictions and fees and lost. (Watts v. Oak Shores.) He appealed, and again lost. Thanks to his aggressive litigation, we now have favorable case law on the subject and he has a bill for $1.2 million in legal fees.

Published. We reported on the case three weeks ago. This past week, the court reclassified the case from unpublished to published, which means it can now be cited as case law. The court’s three major rulings are significant: (i) association’s have the right to restrict short-term rentals, (ii) boards can impose a reasonable fee to offset expenses associated with renters, and (iii) courts should defer to boards on decisions related to the maintenance, control and management of common areas.

Prohibiting Short-Term Rentals. If associations want to prohibit short-term rentals, they should be able to do so without the necessity of amending their CC&Rs. Most already have provisions in their CC&Rs that give them the authority they need. The first, found in many documents, prohibits owners from using their units for hotel-like operations. The second prohibits owners from running a business in the development. The third is the nuisance provision found in all governing documents. And, finally, most documents give boards broad powers to adopt rules and regulations for the benefit of the membership.

RECOMMENDATION: Associations wanting to restrict short-term rentals and/or impose fees on landlords should have legal counsel review their documents and make recommendations. To read the court’s decision, see Watts v. Oak Shores.

**This article was first published on the Davis Stirling Law Blog in March 2015.