QUESTION: Our bylaws have only one qualification for serving on the board–that directors be members. By a rule change, the board added a new requirement that a director’s primary residence must be in the development. The change eliminates 40% of the membership from holding office. Some believe the president took this action because of disagreements with individuals who do not live in the complex who may run against her. Doesn’t a change like this need a vote of the membership?
ANSWER: Because of a recent court decision, it appears that boards can unilaterally add new director qualifications without input by the membership.
Friars Village. Friars Village HOA had only one qualification for serving on the board, the nominee had to be a member of the association. The board adopted a rule that no one could serve on the board with another director related by blood or marriage. It’s a good requirement but it was done without membership approval. A homeowner sued in small claims to invalidate the rule since it was inconsistent with the bylaws. The board moved the dispute to superior court and the case ultimately ended up in the court of appeals.
Reasonableness Requirement. The court of appeals concluded that boards have the authority to adopt additional director qualifications without the need to amend the bylaws, provided the qualifications are “reasonably related to the performance of the Board and will serve to protect its overall mission — protecting the best interests of the Association.” (Friars Village Association v. Hansing.) I’m not comfortable with the court’s decision but it’s now the law.
Residency Rationale. Is the residency requirement adopted by your board reasonable? Probably. The argument in favor of residency is that board members who live in your development will have a stake in the community and will be more inclined to act in the best interests of the membership.
RECOMMENDATION: Despite the arguments for a board-imposed residency requirement, a judge could easily decide that disqualifying 40% of the membership from serving on the board is not reasonable. Therefore, the safer course of action is to seek membership support for new director qualifications and then amend the bylaws. Doing so reduces the risk of a legal challenge and an adverse ruling.
QUESTION: Thanks to cumulative voting, an attorney whose home was heading into foreclosure got herself elected to the board. She then sued the board for failure to enforce the CC&Rs. She then demanded the association’s insurance represent her as she was doing this “for the good of the community.” Our insurance company declined with the explanation that “We don’t pay for people to sue us.” It makes one wish there was some kind of entrance exam before becoming an HOA owner.
ANSWER: As someone once noted, “Common sense is like deodorant–the people who need it most never use it.” The scenario you describe is exactly why associations should amend their bylaws to eliminate cumulative voting. It helps to keep some of the more ethically challenged owners off the board. Or, if they happen to get elected, they can more easily be removed by the membership.
Damaged Driveway #1. Could it be that the money charged the member for the damaged common driveway will be applied to the road update expenditures when the driveway is repaired along with the rest of the road maintenance for the year? That would be a logical board decision, if safety were not a factor. I would question whether the member was charged the full cost for bringing in the necessary equipment to do a road repair to a driveway. I’ve found that boards tend to be misjudged by members lacking the full story. -Jim G.
RESPONSE: I agree, if it’s not a safety issue and if larger-scale driveway maintenance is already planned, it makes sense to put a hold on an individual repair. Sometimes, even safety issues can have a temporary or “band aid” fix while the board puts together a larger program of repairs. As long as boards use good business judgment, some repairs can be delayed.
Damaged Driveway #2. I wish you would have been more careful how you framed your argument. Lawsuits do not hurt the board of directors. THEY HURT THE ASSOCIATION. So, while you might get results with a lawsuit, you should also point out that this should be a course of last resort. Unless you enjoy shooting yourself in the foot. Penalizing “for profit” General Motors is not the same as penalizing a “not-for-profit” board. People need to remember that money for legal fees and settlements come out of owners pockets even if D&O insurance covers some or all of it. Even when insurance pays, you pay later in premium hikes. In the end the association is the loser. -Jeffrey S.
RESPONSE: Take another look at last week’s answer. The point of mentioning lawsuits and fines was to highlight the danger of not making repairs. Plaintiff’s attorneys are often too aggressive and make overblown claims, which associations must spend precious time and money refuting. Because litigation is almost always too expensive and too unpredictable, boards should take care to avoid it whenever possible.
Paid Directors. Wonderful responses! Our secretary/treasurer has collected a “stipend” of $4,000 a year for 25 years and claims to not be a member of the board and that this stipend isn’t a salary (although it shows as such on tax returns). Thanks again for your very informative newsletters! -Julia C.
NO NEWSLETTER. There will be no newsletters for the next week or two. While everyone else is taking vacations, I will be working on a case preparing for trial. Okay, I’m done whining.
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 email@example.com.