There’s no doubt that in most parts of the country, winter weather is just around the corner. As a landlord, you may think of fall maintenance at your rental properties as raking leaves and tending to flower beds. However, fall is the best time to prepare your rental property for winter weather. The Farmer’s Almanac […]
QUESTION: I listened to your webinar last week on reserves and have a question. You said that directors must carry out their duties in “good faith.” What does that mean?
ANSWER: As fiduciaries, boards are held to a higher standard. To avoid personal liability for their decisions, the Business Judgment Rule requires directors to act in good faith, in the best interests of the association, and with reasonable inquiry. The good faith element is sometimes referred to as bad faith or lack of good faith when the requirement is violated by a director.
Common Area Repairs. An example of bad faith is for a board to knowingly cause a vendor to breach his contract so the association can cancel the agreement and enter into a less expensive one with another company. The board is arguably acting in the best interests of the association (saving money by reducing the cost of the construction project) but they are doing so in bad faith. One enterprising board did this following the Northridge Earthquake.
Scheming. Their association suffered significant earthquake damage and entered into an agreement with a contractor for extensive repairs. After work commenced, a new director was elected to the board. He convinced his fellow directors they could save a lot of money if they hired a different company to do the work. The problem was how to get rid of the existing contractor. They met in executive session and schemed how to disrupt the work and make it impossible for the contractor to meet his obligations so they could fire him. Being conscientious directors, they recorded their meetings.
Judgment. The board carried out their plan and fired the contractor. He sued. The board’s tape recordings became Exhibit “A” in the proceedings. The damage award against the association was substantial and drove it to the edge of bankruptcy. Not only did the directors breach the requirement of good faith and fair dealing with the contractor, they breached the good faith element of the Business Judgment Rule and exposed themselves to personal liability.
RECOMMENDATION: Boards should adopt an Ethics Policy and make sure their directors follow it. They should reprimand or formally censure directors who violate the policy. And, depending on the seriousness of the breach and if permitted by the bylaws, remove the misbehaving director.
QUESTION: Our CC&Rs say we can’t have a dog over 20 pounds. Does this violate Civil Code 4715?
ANSWER: Weight pound limitations on dogs are not uncommon in condominium projects, especially midrises and highrises.
Condo Limitations. In stacked condominiums with long elevator rides, a German Shepherd, Mastiff or Pitt Bull can be a scary proposition for passengers. Even if it’s friendly, a large dog can do a lot of damage if it is hyperactive and likes to jump onto people. Imposing a weight limitation resolves the safety problem for residents.
Pet Prohibitions. In my opinion, Civil Code §4715 does not apply to reasonable restrictions on size and breeds of dogs. Instead, it addresses blanket prohibitions.
No governing documents shall prohibit the owner of a separate interest within a common interest development from keeping at least one pet within the common interest development, subject to reasonable rules and regulations of the association.
Service Animals. Service animals are the exception to weight and breed restrictions. Such limitations do not apply to a service animal assisting a disabled person.
QUESTION: I am wondering if the board can exclude the manager (an employee of the management company hired by the HOA) from executive session meetings?
ANSWER: Yes, the board can exclude the manager. It’s the board’s meeting, not the manager’s. The only exception is if the board contractually obligated themselves to have their manager at every meeting or, in the reverse, never hold a meeting without the manager being present.
Save Money. If such a provision is in the contract, it tells me the agreement was not reviewed by legal counsel. Bypassing the association’s attorney allows the board to save a few dollars in the short term so they can pay a lot more later. It’s a business model used by many but not one I recommend.
Adrian Adams, Esq.
Adams Kessler PLC
“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or firstname.lastname@example.org.