QUESTION: Our board is doing a rewrite of our bylaws and CC&Rs. My problem is that they are offering $5 gift cards to those who return their ballots. Is it legal to use HOA funds in this way?
ANSWER: Yes it is legal. Doing so is not the same as buying votes. Instead, it is an incentive to vote and can be used for both annual meetings and amendment approvals.
Annual Meetings. Association elections are different from municipal elections in that HOAs must meet quorum requirements and cities don’t. For example, in the May 2013 mayoral election in Los Angeles, only 19% of eligible voters cast ballots. The dismal turnout did not derail the election as it would in a homeowners association since no quorum was required. Can you imagine the problems and enormous expense if city, state and federal elections needed 50% of the population to vote before they could count ballots? Because associations are not normal, i.e., they are burdened with quorum requirements, boards must nag and cajole members to vote, and sometimes offer incentives.
Amendments. Achieving quorum at membership meetings is difficult enough but reaching supermajority votes for amendments and restatements is nearly impossible. Because of that, the Legislature created the “1356 Petition” as a mechanism for realistically amending documents. If an association can obtain at least 50% membership approval, it can ask the court to approve amended or restated CC&Rs. By statute, the association must demonstrate to the court that they made extraordinary efforts to obtain voter participation. Offering $5 gift cards to voters would be one of those efforts (along with extended voting periods, repeated requests to vote, etc.).
RECOMMENDATION: To make board elections more manageable, your association should amend its bylaws to eliminate quorum requirements and cumulative voting for the election of directors. In addition, it should lower CC&R amendment requirements from a supermajority to 50%. Once that is done, future elections will be much more manageable.
QUESTION: We have a homeowner who owns a mobile dog grooming business. While she parks her customized van off-site, we believe she is using HOA water to fill her dog bath tanks almost every day. Can we prevent her from doing this or charge her for the water?
ANSWER: Yes, it would be reasonable for associations that are master-metered, i.e., the association pays for the water, to adopt rules prohibiting members from using water for commercial purposes. Accordingly, you could impose a fine and charge a reimbursement assessment if you could determine they were using the association’s water.
Wayne Louvier, Esq.
Adams Kessler PLC
Practical Considerations. Determining the amount of water used would be very difficult absent an eyewitness to the violation. Ditto for imposing fines. Any reimbursement assessment or fine must be preceded by a notice and a hearing (due process).
Christina #1. I look forward every week to your news email. We need a great organization like yours in Cleveland, Ohio. Send Christina Ciceron here now!!! -Merle D.
RESPONSE: I talked to Christina about moving to Cleveland but she prefers San Diego. Sorry… I tried.
Christina #2. I honestly feel like I know a celebrity!!! I have subscribed to this e-newsletter for as long as I can remember and to now have Christina as the subject line and as the leading article – impressive!!! -Any F.
Christina #3. Congratulations. You are getting the greatest lawyer in town! -Lynn R.
Christina #4. GREAT resume … that Adrian is one smart cookie for hiring you. The best to you both. HOAs in California NEED people like you! Thanks for joining the firm that hosts one of my favorite web sites. -Bruce S.
Belligerent Resident. Years ago, we had a resident come to our board meeting (sans lawyer) and demand that the board pay to replace all of his wood flooring on the pretext that the board was negligent in not taking care of an irrigation leak. He claimed to have a letter from a previous landscaping service supporting his claim but never produced the letter. After several meetings, he became belligerent and even threatened physical harm to the board. We asked management to search the records to determine if he was on title on the property. Turned out he wasn’t. He was told in no uncertain terms at the next board meeting to leave and after an exchange of words, he did. Frankly, boards are no place for the faint of heart. -John A.
Adrian Adams, Esq.
Adams Kessler PLC
“Legal solutions through knowledge, insight and experience.” We’re friendly lawyers; you can contact us at (800) 464-2817 or firstname.lastname@example.org.
I am pleased to announce that attorney Christina Ciceron has joined Adams Kessler. Christina is a seasoned association attorney who is a rising star in our industry.
HOA Counsel. Prior to joining our firm, Christina was a partner in a firm specializing in both homeowner association general counsel work and construction defect litigation. In addition to drafting legal opinions, she attended board meetings and hearings, handled architectural control violations, oversaw assessment collections and managed client relations and client development for the firm. Additionally, Christina ran board member training sessions. Her work was such that Christina was recognized as a “Top Attorney for Community Association Law” by San Diego Magazine (March 2013). Christina is rated AV Preeminent 5 out of 5 by Martindale Hubbell.
Litigation. Christina began her legal career in litigation handling landlord/tenant proceedings and family law in high asset dissolution cases. She was heavily involved in drafting pleadings, attending hearings, preparing depositions, negotiating settlements and preparing for trial when cases did not settle.
Professional Activities. In addition to being a member of and participating in the California Association of Community Managers (CACM), Christina serves as a member of the organization’s teaching faculty. She is also a member of the Community Associations Institute (CAI) where she participates in various committees. Finally, Christina is active as a lecturer on common interest development law for management companies and board member events.
Education. Christina received her undergraduate degree in Communication at La Salle University where she was on the Dean’s List for academic excellence. She then earned her Juris Doctorate from California Western School of Law where she was an Associate Editor of the Law Review, active on the trial team, and served on the Board of Representatives for the Student Bar Association. Christina received several American Jurisprudence Awards and was the Commencement Speaker at her class’s graduation ceremony.
To send Christina a note or to request legal services, you can contact her at email@example.com.
QUESTION: We are a small 8-unit condo association with less than $75,000 in dues and taxable income per year. Last year we had a special assessment to build a retaining wall. Are special assessments included in the $75,000 for audit purposes?
ANSWER: Yes they are. California Civil Code §1365(c) states the following:
A review of the financial statements of the association shall be prepared… by a [Certified Public Accountant]… for any fiscal year in which the gross income… exceeds… $75,000. A copy of the review… shall be distributed within 120 days after the close of each fiscal year. (emphasis added)
Therefore, if an association normally has a gross income of $75,000 or less each year (this includes assessments, late fees, bank interest, etc.) and then charges members a special assessment causing their gross income to exceed $75,000, the association is required to have their financial statements reviewed by a CPA for that year only. There is no statutory requirement for an audit regardless of the amount of gross income.
Thank you to Jim Ernst of James Ernst Accounting for his assistance with this question.
No Lawyers. Our HOA had the unpleasant experience of a hostile member bringing his low-life attorney to a board meeting. The attorney, rather than address the merits of her client’s case, browbeat and bullied board members. She demanded the board “give my client what he wants or else.” This unscrupulous attorney spent over half the meeting threatening board members with litigation. Nothing seemed to stop her because, as she explained, “I’m a lawyer; you guys aren’t. . . deal with it.” My advice when dealing with attorneys who throw their weight around to strike fear is simple: (1) don’t say anything to them, (2) don’t say anything, (3) don’t say anything. They will misstate everything you say to prejudice you in a lawsuit. -Karl A.
RESPONSE: Such lawyers are an embarrassment to the profession. In addition to your good advice about not saying anything, I recommend not letting an adverse lawyer in the meeting to begin with… or immediately booting him/her out of the meeting. If they refuse to leave, adjourn the meeting and call your association’s lawyer. If they leave voluntarily, still call your lawyer.
Moving. Adrian, I am selling my condo & moving–goodness knows where. Thanks for all the great info… and helping our association with our huge lawsuit. Go forth and prosper!!! -Rose C.
RESPONSE: I’m sorry to see you go. Safe travels.
Manager-Treasurer #1. I would be very leery of a management company that even suggested that they should be the treasurer of a complex. They should have the right to sign a check in case of an emergency or something that needs immediate attention. Other than that, the treasurer should sign off on absolutely all checks and should be notified immediately if management needs to send a check. More eyes are better! -Gloria F.
Manager-Treasurer #2. I read with interest about the management company whose contract appointed the manager as treasurer of the association. I know you cautioned the association not to do so, but I would also recommend that the board terminate the management agreement and go with a firm that does not practice such an unprofessional practice. Talk about the fox guarding the henhouse! -Kerry L.
Adrian Adams, Esq.
Adams Kessler PLC
“Legal solutions through knowledge, insight and experience.” We are friendly; you can contact us at (800) 464-2817 or firstname.lastname@example.org.
- Robin Smith Westcott, Florida's Insurance Consumer Advocate
- Alexander Dopazo, President of the Latin American Association of Insurance Agents
- Carlos Lacasa, former chairman of the Board of Governors of Citizens Property Insurance
- Bill Newton, Executive Director of the Florida Consumer Action Network
- Jay Neal, President and CEO of the Florida Association of Insurance Reform (FAIR)
- How much coverage do we need?
- Can we afford it?
- Do we really understand what our out-of-pocket costs will be if our community does sustain a loss?
- What can we do if our claim is denied or underpaid?
- Has our board purchased sufficient insurance coverage for the items for which they are responsible? Incredibly, one Hallandale community was unaware that the condominium president had failed to renew the building's property insurance policy and the building was subsequently devastated by a fire.
- Has our board comparison shopped for our agent, our insurance company and our coverage?
- Does our board understand how to properly file and diligently pursue a claim should we suffer a loss?
- Assuming our board is not comprised of insurance experts, have they reached out to the proper professionals to guide them with the foregoing decisions?
- How much could I be forced to pay via special assessment for our deductible, uninsured losses, etc.?
A recent case sheds light on whether members can bring their lawyers to board meetings.
The Isla Verde Association is located in Solana Beach, just north of San Diego. Gregg and Janet Short moved into the Association and wanted to remodel their home. The Association disapproved their scope of construction. So they hired a lawyer.
Short on Ethics. The lawyer gave notice that he planned to attend a board meeting. The Association’s lawyer denied the request stating that doing so would violate the Rules of Professional Conduct which prohibit communication with a party without the consent of the other lawyer (Rule 2-100). Short’s lawyer tried to attend anyway and was denied access.
Skullduggery. The Shorts then transferred their property into a limited liability company (SB Liberty) and executed a power of attorney appointing their attorney as their agent so he could attend board meetings and present requests to the board. He was again turned away.
Litigation. Via their newly formed company, the Shorts sued the Association to stop it from “interfering” with their lawyer’s participation in the board’s meetings. They lost. A sharp judge told the Short lawyer that boards have the authority to determine how to conduct their own meetings–including the exclusion of nonmembers. Being short on common sense, the Shorts appealed.
Member Defined. The Court of Appeals agreed with the trial court. It found that the Association’s CC&Rs defined “member” as the owner on title for the property and the Shorts’ lawyer was not on title. Therefore, he was not a member and not entitled to attend meetings.
KUDOS: Kudos to the law firm of Epsten Grinnell & Howell on their defense of the Association. To read this case, see SB Liberty v. Isla Verde Association.
QUESTION: We recently signed a contract with a management company. The manager informed us that we only need a president and a secretary since the manager would be acting as treasurer. I thought board members were required to fill all three positions and the management company should not be an officer.
ANSWER: Most but not all bylaws require that officers also be directors. But I’ve seen bylaws where no such requirement existed. In that case, the board can appoint anyone it chooses to be the association’s president, secretary and treasurer. Accordingly, you need to read your bylaws. If they require that your treasurer be a director, then it does not matter what your management company wants, the manager cannot be the treasurer. If, on the other hand, your bylaws are open-ended, the board could make the manager the treasurer. However, doing so would not be prudent.
RECOMMENDATION: For proper internal controls there needs to be a segregation of duties so as to protect the association. You want a board member to be the treasurer so he/she can look over management’s shoulder when it comes to handling the association’s finances. If your bylaws are open-ended, it may be time to amend them.
QUESTION: I cannot find anywhere in our bylaws or the Davis-Stirling Act that requires the board to approve the association’s unaudited monthly financial statements. Is the board required to approve monthly financial statements?
ANSWER: You can’t find it because it’s not there. Under the Davis-Stirling Act boards have a duty to review the association’s finances. There is nothing in the Act about approving unaudited monthly financials.
Unaudited Financials. Although boards could approve monthly financial statements, doing so carries some risk. As was pointed out in last week’s newsletter by William Erlanger, CPA, interim financials are a work in progress and the board could be approving inaccurate numbers.
Industry Practice. Industry practice is to have minutes reflect that “A monthly financial report was submitted to the Board.” or “The Treasurer’s report was given.” or “An interim financial statement was received by the Board along with the Treasurer’s report.” When the Treasurer’s report is given, no action is required by the board, i.e., there is no need to make a motion. (Robert’s Rules, 11th ed., p. 473, 477, 479.) The same is true for committee reports. The board does not approve a committee’s report, it “receives” it. Moreover, committee reports (and interim financials) are not made part of the minutes unless there is an important reason to do so. (Robert’s Rules, 11th ed., p. 473.)
More Diarrhea #1. Allow me to point out that an unenforceable law has the benefit of education. I was upset and grossed out when I saw the sign regarding diarrhea but I never would have thought, before I saw the sign, that having a bad flu LAST WEEK would preclude me from using my HOA pool. Now I know. But one sign with the rest of the pool rules would be plenty. If the law says a sign must be posted at each pool, how would that mean at each entrance? I disagree with you on that one. I enjoy your letters, do continue the political sarcasm. It is appreciated, I see you are on both “sides” most of the time and that is refreshing. -Christine H.
RESPONSE: I got hate mail when I poked fun at Bush. Now it’s the lefties after me when I poke fun. Think how calm HOAs would be if everyone without a sense of humor moved out. But then lawyers wouldn’t have any work.
More Diarrhea #2. Congratulations on Smart HOA. It should be an excellent resource for self-managed associations. I just finished reading the REAL POOP ON POOL DIARRHEA segment. Having gone through 6 weeks+ of hell when my husband came home from the hospital with C-Diff, I applaud your recommendation on posting notices. C-Diff is so insidious and so contagious that many people could be infected by this terrible dysentery. -Marilyn B.
More Diarrhea #3. Many years ago I went to the HOA pool only to find a “floater” in the shallow end of the pool. A mother and three small children, according to the person reporting it, had been the only occupants. When I questioned the mother about the “floater” she bristled saying NOT OURS!. Later at a board meeting as privileges were being suspended, she threatened to sue all board members and me as the manager. I informed her that DNA tests would prove it indeed came from her child and she would not only have the suspension but also pay the several thousand dollars for the DNA tests as well as our attorney fees. She backed off. Later the HOA president complimented me on “my bluff” at which time I showed him the frozen “floater” wrapped neatly in plastic and tinfoil in the office freezer. The refrigerator has since been replaced. -Bill B.
Adrian Adams, Esq.
Adams Kessler PLC
“Legal solutions through knowledge, insight and experience.” Call us at (800) 464-2817 or email@example.com.
- The community’s clubhouse: this one is a logical choice. However, please be sure the lights and air conditioning work. Believe it or not, I once attended a meeting in a clubhouse with no electricity.
- Director’s home or unit: this one is more problematic as the size of the residence could pose a problem depending on how large the potential turnout. Some people would also not feel comfortable attending a meeting in a director’s home if they happen to be feuding with that particular director.
- Management company: this location is usually selected when the board fears a meeting might get out of hand. Boards contemplating using this venue should consider the costs, if any, involved to do so and the inconvenience factor depending on the office location.
- Attorney’s office: See above.
- House of worship: this choice can be uncomfortable for those association members who are of a different faith.
- Library: usually a good choice so long as it is close to the community.
- Denny’s: yes, I once attended a board meeting at a Denny’s. It was neither convenient nor tasty.
- Pool deck: this could be a delightful choice during our gorgeous winter months in Florida but being outside in our steamy summer months could very well mean fewer folks showing up. The reverse is true for our northern neighbors selecting meeting venues.
- Under a tree: yes, in one HOA, the board selected a large oak tree in one of the community’s parks as the place where meetings should be held. While it had a certain amount of charm, there were weather, seating and bug issues.
- Rooftop: one of our cooperative clients routinely held meetings on their roof which was beautifully finished in a garden-like setting. However, a couple in the building was afraid of the height and complained relentlessly about the meeting location until it was changed.
QUESTION: Our board is considering renting our common area for film shoots. We have done this twice in the past with disastrous results of massive intrusion and abuse of our lovely pools and clubhouse, and cars and trucks and food preparation and consumption. We own 1/240th of the common areas. We are nonprofit also! Does the board have the right to rent it out without a majority vote?
ANSWER: Just because an association is nonprofit does not mean it is prohibited from receiving income from sources other than assessments. The most common non-assessment income for HOAs is from interest on reserves, clubhouse rentals, laundry machines, etc. That means an association can derive income from filming in the common areas.
Board Decision. Although you own a portion of the common areas, the membership’s authority over the common area is quite limited. Your duly elected representatives (your board of directors) oversee the common areas. As such they have authority to rent them out if they believe doing so benefits the association. The challenge is balancing the net after-tax income against the inconvenience of a film shoot.
Film Agreement. I’ve learned from past film projects involving movies, TV shows and commercials that they take longer than the company claims and the film crews (and their hoards of support staff) trample everything in sight. As a result, I prepare “Film Agreements” to protect my clients from the negligence that seems to surround some (but not all) production companies.
RECOMMENDATION: Associations that allow filming should have legal counsel prepare an agreement to address filming dates and times, protection of the association’s name and image, potential damage and injuries, hold harmless and indemnity provisions, and insurance. If done properly, filming can produce significant income for the association with only moderate inconvenience. If done improperly, filming can be a major headache.
JOINS ADAMS KESSLER
I am pleased to announce that an experienced corporate attorney and litigator, attorney Matthew Deenihan, has joined Adams Kessler PLC.
Corporate Experience. Matt began his career in a 600-lawyer firm where he specialized in business law including finance and corporate transactions, lender- and borrower-side commercial loans, UCC Article 9 secured transactions, asset and stock purchases, restructurings and mergers. He then served as in-house counsel for the State of California in a wide variety of matters, including eminent domain proceedings and dangerous conditions on public property.
Litigation. This was followed by extensive litigation and trial experience with the largest in-house insurance defense firm in Southern California where he defended clients in cases involving toxic mold personal injury claims, businesses disputes and homeowner association matters. In addition to his high trial success rate, Matt brought hundreds of other cases to a favorable resolution short of trial.
Education. Matt is a graduate of the University of California, Berkeley where he earned a Bachelor of Arts in Political Science. He received his Juris Doctorate degree from Georgetown University Law Center in Washington, D.C.
If your association would like a proposal for legal services, contact us at firstname.lastname@example.org or 800-464-2817.
Pool Diarrhea #1. I love laws that have no way of being enforced. How on earth could you prove someone had diarrhea in the last 14 days? -Klos P.
Pool Diarrhea #2 So there’s a new rule on “not allowing” people with diarrhea in the previous 14 days from entering the pool…. any clues as to how to enforce this bit of Sacramento knee-jerk silly-ism? Do we require a doctor’s report? And who is to enforce this new regulation–the County Sheriff or, since this a Building Code requirement, perhaps Building and Safety Department? -Hank J.
RESPONSE: Not to worry. As part of the government’s economic recovery plan, Obamacare will supply every association with a full-time doctor to give swimmers physicals before they enter the water.
Pool Diarrhea #3. I agree…it’s gross to have to mention. But, I actually have an HOA that has a pool rule: No poo in the pool. It was an unfortunate addition to the rules, but the issue necessitating this rule has since been resolved. No, folks, the pool is not your potty!! -Kerri H.
Pool Diarrhea #4. The latest newsletter says “signs at all public pools.” Since we have 2 to 3 entrances to most of our pools, I just want to get it correct. Do the signs need to go on every entrance or just posted at each pool in one place? -Terry D.
RESPONSE: I interpret the statute to mean every entrance. -Wayne Louvier
Diarrhea #5. Your information is partially correct. New pools built after September 2012 are required but older pools are not necessarily. Each county is enforcing it differently. Orange County does not require the signs. LA does. -Matt G.
RESPONSE: Our information is correct. The requirement applies to all “public” pools regardless of when they were constructed–there is no grandfathering provision (see CBC section). Also, it doesn’t matter that Orange County is not yet enforcing the requirement, the pool requirement is a state code. That means it is only a matter of time before OC gets on the bandwagon. -Wayne Louvier
Buying a Condo. Your article on buying a condo, and the feedback, are all very relevant. However, the most disturbing trend that I have noticed in my 20-plus years as a board member/officer is elected officials acting (and voting) as if they know more about how to run an HOA than a board of directors. This is not surprising, given the clout of the National Association of Realtors with their sizeable campaign contributions. As a former elected state official, I would encourage ALL HOAs to become active in their local Community Association Institute (CAI) chapter, usually through their management company, and to support CAI’s “buck a door” campaign. Make no mistake, money talks when dealing with elected officials and it’s time for HOAs to join the conversation on an equal footing. -Wayne W.
Interim Financials. The downside of giving monthly financials that a CPA has not been engaged to prepare and report upon are that the reader has no assurance that the financials have been prepared under any recognized method of accounting (accrual, cash or modified cash) and, also, there is no independent CPA opinion or statement that accompanies those financials. While this might seem a bit self-serving, it is only to protect the board from member questions about the financials or, worse, a potential unit sale is delayed or cancelled because the potential unit buyer did not understand or was scared off by these financial statements. -William S. Erlanger, CPA
Adrian Adams, Esq.
Adams Kessler PLC
We are friendly lawyers. Call us for your association’s legal needs at (800) 464-2817 or email@example.com.