No HOA Board? Big Problem

 

PROBLEM

Managers are often faced with unusual situations, perhaps none more perplexing than when all seats on the association board are empty and no one wants to serve. In our demanding society, owners are some­times too busy working and raising families to devote the time required. Other times they want to avoid the stress. There are also an increasing num­ber of laws that must be followed by associations and board members, mak­ing them feel vulnerable. As rare as it may be, a vacated board can happen. Yes, board terms are supposed to be staggered to prevent the situation and usually someone can be found to fill a spot. However, what happens when, due to resignations and appointments, all seats are up at the same time and no owner is willing to serve?

No HOA Board is a Big Problem in a Community. There are ways to avoid this.

SOLUTION

Without a board, an asso­ciation cannot conduct business. Boards are required by the governing docu­ments and bylaws. For example, Cal­ifornia’s Corpora­tions Code, section 7210 states:  bbb

“Each corpora­tion shall have a board of directors. … the activities and affairs of a corpora­tion shall be conducted and all corporate powers shall be exercised by or under the direction of the board.”

Management companies have no independent authority to oversee their associations. Without board authority, bills cannot be paid, which means insur­ance coverage will lapse, repairs cannot be made, rules enforcement ends, the associa­tion’s corporate status lapses and lawsuits cannot be answered. This creates signifi­cant potential liability for all owners, both corporately and individually.

Managers can try to persuade owners to volunteer, but they have no authority to appoint directors. Without a board, the management company should immediately resign the account or face liability itself. If necessary, courts can appoint a third party (a receiver or custodian) to oversee properties.

This is a costly solu­tion and results in higher dues for all members.

Creating incentives for owners to serve on the board is prob­lematic. Associations cannot penalize owners for refusing to serve. Nor can they reward owners for serving,  such as waiving their homeowner dues, since this makes them paid directors.

If bylaws call for five directors but only one is willing to serve, that one director may not have any authority  (by law and the association’s bylaws) to conduct business, except to appoint additional directors. Once a quorum is reached, the board may conduct business.

Unfortunately, there is no ideal solution. The best a manager can do is encourage owners to be active in their community. Stress the importance of the job and the impact that an individual can have on a community. If an owner complains about an issue, take the opportunity to suggest that he or she participate in community governance.

Always have an idea of who might make a good board member and make sure terms are always staggered.

Eliminate hurdles to being a board member. Schedule board meetings so they are convenient for as many owners and residents as possible. Better atten­dance will likely mean more people willing to serve on the board.

States continue to enact laws that increase the burdens on directors and every association seems to have its allotment of stress-inducing antago­nists. Even so, most owners realize they have an investment to protect and owners can be found, sometimes reluc­tantly, to volunteer their service.

Keeping your community informed is always important; it’s especially critical here. Ensure there’s no dis­connect between management, the board and homeowners. Managers should communicate regularly with residents through email, newslet­ter, telephone, etc. Send a monthly schedule of events, rule reminders, updates on board decisions, news on any maintenance or construction and other community information. By keeping an open line of commu­nication, residents should be more inclined to pursue an active role.

By Adrian Adams, ESQ.

Adrian Adams is managing director of Adams Kessler PLC, a California-based law firm that spe­cializes in the community association industry.

March I April 2008 COMMUNITY MANAGER

 

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