Executive Session Without the Manager

Source: Adrian J. Adams Esq. 

QUESTION: Can our board meet independently, without the manager present, and without advertising the meetings to discuss, interview, and hire a new management company?

ANSWER: It’s the board’s meeting not the manager’s. So, yes, directors can meet without the manager. However, the board still needs to give notice of the meeting. It may be a little awkward since the manager may suspect or know the purpose of the meeting. Even so, the Davis-Stirling Act does not provide an exemption for awkwardness–only for emergencies.

Interviews. In most instances, the board can simply tell the management company they are unhappy with their performance and plan to interview other companies. If the board is paranoid their manager will sabotage things, it can appoint less than a quorum of directors to interview other companies. The committee can then meet without notice and make a recommendation to the full board for action once it finds the right company.

RECOMMENDATION: Before interviewing other companies, the board should first have legal counsel review the management contract and advise on how best to proceed. Otherwise, the association may find itself in breach of contract and liable for damages.

Unplanned Reserve Component

Source: Adrian J. Adams Esq. 

QUESTION: Should an improvement not listed on the reserve study be paid out ofthe operating account? We had to modify the drains on a deck above the garage.

ANSWER: Whether you pay from operations, use reserve funds, or special assess depends on the cost.

Small Cost. Some components are left out intentionally because, relative to the association’s annual budget, the cost to replace is too small to include in the study. In that case, you pay out of operations.

Moderate Cost. Sometimes components are left out by mistake. If the cost is moderate and the reserve account healthy, reserve funds can be shifted between components and the missing item added to the study.

Significant Cost. If, however, the impact on the reserve account is significant because the cost to repair is high or the reserves are underfunded, the board may need to borrow from reserves and levy a special assessment to repay the account.

RECOMMENDATION: If you use reserve funds previously allocated to other components, make sure you notify your reserve specialist so he can make appropriate adjustments to the study.

Thank you to Les Weinberg of Reserve Studies Incorporated for his assistance with this question.

Scandalous Dues Increase

Source: Adrian J. Adams Esq.

QUESTION: What takes precedence in our governing documents? Our bylaws clearly state our yearly dues CANNOT exceed $36.00 a year, yet the CC&Rs say the board can raise them up to 20% each year. Last year the board raised our dues by 20% and again this year they raised them another 20% so they are now $51 per year. Can they do that?

ANSWER: Asking you to pay 98 cents a week for association services is scandalous. It took my breath away. But then I remembered that boards have a fiduciary as well as a statutory duty to levy regular and special assessments sufficient to perform their obligations under the governing documents and the Davis-Stirling Act. (Civ. Code §5600.) Before you break out the torches and pitchforks, you should review your association’s budget. I suspect the board was forced to raise your assessments to such outrageous levels to deal with deferred maintenance and higher insurance costs.

Hierarchy. You mentioned a conflict between your CC&Rs and bylaws. The $36 annual cap in your bylaws is trumped by the 20% dues increase in your CC&Rs. New Civil Code §4205 states that any conflict between the governing documents sets the priority as follows: CC&Rs, articles of incorporation, bylaws, and then rules. In addition, the “Notwithstanding” language in Civil Code §5605(b) voids the $36 cap, i.e., the statute trumps your bylaws. Either way, the $36 cap is dead. 

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Elections In Small Associations

Source: Adrian J. Adams Esq.

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.