Why Governing Documents Matter

Why Governing Documents Matter

Governing documents are critical for HOA communities and are literally the legal glue which holds the association together. Civil Code Section 4150 defines “governing documents” as articles of incorporation, CC&Rs, bylaws, and operating rules, but I think subdivision maps and condominium plans also should be regarded as governing documents. Each has a distinct purpose and function, and every HOA member should have copies. Subdivision map and condominium plan This document breaks up land into separate pieces of land or airspace sold to homeowners in planned development (“lots”) or condominium (“units”) projects. This document is recorded (i.e. filed) with the County Recorder, is easily retrieved, and defines the “common area” as well as the “separate interest” (i.e., the lot or unit). Sometimes it also delineates exclusive use common areas or maintenance easement areas. It establishes the real estate interests owned, so any amendment requires agreement of 100% of association members and their mortgage holders, and consequently amendment is highly unlikely. Articles of incorporation Articles of Incorporation establish the legal “person” of the association. Filed with the Secretary of State, this document can be retrieved from that office. Older Articles sometimes contain important information about limits on the association or board’s powers. The Articles list the association’s legal name and can be amended by membership vote, although amending is rarely necessary. Check the association’s corporate status at https://businesssearch.sos.ca.gov. CC&Rs The CC&Rs document is recorded (amendments also must be recorded), and therefore is also a public document. Associations often use unrecorded, unofficial copies, but official copies can be retrieved from the County Recorder. CC&Rs are a long contract automatically binding all owners,...
Make a Target! Goals for 2019

Make a Target! Goals for 2019

The late and legendary coach John Wooden said “The most important key to achieving great success is to decide upon your goal and launch, get started, take action, move.” Your association might benefit from setting a few goals, and then moving to achieve them. Here are some ideas for goals in the coming year: Increase the association’s reserve funds by 15%. The closer the association is to a fully funded reserve account, the more financially secure it is. Reduce assessment delinquencies by 20%. Make sure the association has all the Annual Budget Report (Civil 5300) and Annual Policy Statement (Civil 5310) items and annually provides them to owners. Improve member communication and save money by encouraging members to accept communications by email. The law now allows such a consent to be sent by electronic mail. Update the association CC&Rs and bylaws if they are the original documents or are at least 15 years old. Make sure the documents use the current Civil Code references which have been in effect since 2014. Updating the statutory references can be accomplished by board motion (in an open meeting) under Civil 4235. Review and update the rules. Remove rules discriminating against children or which are outdated and no longer enforced. Make sure the HOA has all the legally required rules. Hire an independent consultant to provide a comprehensive assessment of association maintenance and repair needs, to discover any overlooked problems before they become more expensive later. The consultant should NOT be a candidate for the work, so there is no mixed motive in their recommendations. Re-evaluate and update the association web site (or...
Giving Our Board a (Financial) Break

Giving Our Board a (Financial) Break

Dear Mr. Richardson, We just received a set of amended bylaws and CC&Rs presented to us for a vote. One section concerns us, it says that the board can vote itself a waiver of monthly assessments if the HOA is self-managed. The board states that the documents have been approved by an attorney they hired to help them with updating these documents. You wrote previously that if an association has no professional manager, it is probably innocently violating many laws. Your column is awesome! Sincerely, D.W., Goleta Dear D.W., The Davis-Stirling Common Interest Development Act has become so complicated and changes so often that it is quite difficult for associations to operate without a qualified and competent professional manager (either general managers on-site or portfolio managers working through a company). To operate completely in compliance with the law and its extensive disclosures and procedures, a volunteer in a self-managed association will normally work so many hours that it seems unfair. Indeed, when I see associations having great difficulty filling seats on their board, it is usually because one or two directors work 20 or more hours a week on HOA business and potential board candidates are unable or unwilling to commit to that amount of time. One idea which comes up occasionally is to give the directors a financial break since they are working for free for the community. Nothing in the Davis-Stirling Act specifically says the HOA cannot compensate volunteers. So, paying volunteers is not illegal. Most HOA bylaws have a provision banning HOAs from compensating a director for board service but allowing it to reimburse the director...
Removed Presidents, The PUD Myth

Removed Presidents, The PUD Myth

Dear Mr. Richardson, The president of our HOA was recently removed as president (with no explanation and at an unposted meeting) but she is still on the board, referred to as director at large, with no duties. Someone said she is not eligible to vote in that capacity. Is that true? J.K., Murrieta Dear J.K., The president, as with any officer position within the board of directors, normally serves at the pleasure of the board, under Corporations Code 7213(b). Check your HOA bylaws to be sure. Usually there is one section for “board of directors” and a different section for “officers.” You probably will find that officers are appointed from within the board. So, one could be removed by the board from one’s officer position – but being removed from an officer position is different than being removed from the board. Normally after losing one’s officer position one is still a board member. The board does not need to state a reason for changing officers, because no “cause” is needed. However, changing officers should be accomplished during an open meeting with the minimum 4 days agenda notice. Some boards mistakenly consider this a “personnel” matter and so handle the decision in closed session. However, in this context, “personnel” means employees of the association. Thanks for your question,Kelly Kelly, I live in a PUD as I was told. Why do you say there is no such thing, and California has planned developments? B.K., Sun City  Good morning, In an earlier article you stated that California has only planned developments not PUDs. Our manager swears that we are a PUD. Is...
Should Our Assessments Increase?

Should Our Assessments Increase?

Hello Mr. Richardson, Our board is against raising our fees which have been the same for at least 10 years! Obviously we are not keeping up with inflation. According to our reserve study we are over $1000 per unit underfunded. We have [decades old] buildings. My concerns are falling on deaf ears despite the encouragement of our management company to raise fees. I would deeply appreciate your opinion. J.E., Irvine Dear J.E., Association boards are responsible to budget and spend association funds wisely. If a board decides in advance that it will not increase the budget, it is quite likely such a board has placed as its first priority the artificial preservation of assessments and that the upkeep of the property (and the association’s long-term financial health) is a lower priority. Properly caring for the common property and keeping vendor expenses flat for over ten years is unbelievable (and not in a good way). Because of the fact of inflation, cost increases should be factored into the healthy HOA budget. Otherwise, the association is probably deferring maintenance, hiring cheap (instead of the most competent and appropriate) vendors, and is not properly funding its reserve account. Such association are not financially healthy and are akin to people who live on credit cards. Such an association eventually has to face a day of unhappy reckoning when the deferred bills all come due and the association is forced to borrow. Qualified and certified managers are trained to prepare budgets and should be heeded in this regard. Maintaining property, keeping up with inflation, and depositing faithfully in reserves are all actions preserving the...