Reprinted from Davis-Stirling.com by ADAMS | STIRLING PLC
We received so many questions related to elections that I'm dedicating this newsletter entirely to answering them. I have a backlog of questions on other issues and will cover them in future newsletters. -Adrian
Costly Bill: SB 323 is a disaster for associations. The mess created by Marjorie Murray's SB 323 is making attorneys rich & causing extra costs we can ill afford. It needs to be repealed ASAP. The cost of rewriting bylaws, going to a vote which will never pass and must be resent several times at a high cost plus attorney's fees, is a waste. How could such a measure ever be approved and why?? -Louise W., horrified property owner.
RESPONSE: Even though SB 323 is a dumpster fire, it's unlikely this burdensome bill will be repealed. At best, we can fix some of the more serious flaws and internal inconsistencies. CAI's California Legislative Action Committee (CLAC) is working on legislation to clean up the mess.
CAI-CLAC. Recognition should be given to CLAC's Executive Committee--they fought hard last year to stop SB 323 and came within one vote of defeating it. The Committee is currently working to undo some of the damage. Recognition should be given to:
Chair: Nathan McGuire, Adams|Stirling PLC Vice Chair: Jeff Beaumont, Beaumont Tashjian Treasurer: Julia Souza, The Management Trust Secretary: Darren Bevan, Baydaline & Jacobsen Co-Chair: Kieran Purcell, Epsten Grinnell & Howell Co-Chair: Thomas Ware, Kulik Gottesman Siegel & Ware PR: Natalie Stewart, FHA Review Past Chair: John MacDowell, Fiore Racobs & Powers
In addition to our legislative advocate Louie Brown, there are delegates from around the state working on your behalf, you can see them here: CAI-CLAC Delegates.
CACM Advocacy. I understand the California Association of Community Managers (CACM) also worked to oppose SB 323. I'm not as familiar with their legislative activities but urge support of their efforts.
When the time is right, we will ask for readers' help to put out the dumpster fire created by the Center for California Homeowner Association Law (CCHAL).
Quorum of Voters. In our small association, we have a problem reaching quorum. We retain our existing board when that happens. Is this still allowed under SB 323? If it is and the only candidates for open board positions are members of the current board, do we still have to have the full-blown election process? -Sandy M.
RESPONSE: Sadly, yes. SB 323 does not make allowances for small associations, or for the inability to make quorum, or for uncontested elections. Until good legislation can be passed, the best way to address these problems is to amend your bylaws to eliminate quorum requirements for the election of directors and address elections by acclamation. We have done this for many associations and it has greatly simplified their elections. Not only does it reduce the cost and complication of elections, it alleviates some of the problems created by SB 323.
Delegate Qualifications. My association uses district delegates to elect the board of directors. Our management company advises that election requirements only apply to member votes and not delegates. Thus, additional qualifications for delegates are still permissible. One of the qualifications our HOA has for delegate candidates is that they attend a minimum of three general session meetings within six months preceding the distribution of the candidate interest form. Is this acceptable? -Jim K. RESPONSE: Unfortunately, no. SB 323 impacts the election of delegates as well as directors. By statute, election rules must "specify the qualifications for candidates for the board and any other elected position." (Civ. Code §5105(a)(3).) That means mandatory and permissive qualifications for candidates and the procedures for electing them apply to delegates. You should talk to your legal counsel about amending your election rules.
Email Addresses. SB 323 added email addresses to the membership list information. Civil Code 5225 requires requests for membership list information be reasonably related to the requester's interest as a member. Is that still a requirement or can a member request membership information without giving a reason or for any reason whatsoever? Also, can an association's website list membership information without the member's explicit permission? -Lee B. RESPONSE: Association's can still restrict how membership lists are used. For example, a member cannot request the list so he/she can solicit real estate listings. The request for a membership list must be reasonably related to a member's interest as a member--not for business purposes.
Websites. Member information should never be posted on public accessible websites. It exposes members to unnecessary solicitation and loss of privacy. Even with restricted website postings, members should be given an opportunity to opt-out before their information is posted. Which Rules Apply? Our annual homeowner meeting is scheduled for February. Should we follow the new election rules or do they not apply until our 2021 election? -Leslie S. RESPONSE: New election rules apply--they went into effect January 1. Cumulative Voting. We received notice that cumulative voting will be used in our election even though our governing documents do not specify cumulative voting anywhere. Should we be using cumulative voting if our governing documents do not provide for it? -Angela S.
RESPONSE: No, cumulative voting should not be used. The Corporations Code states that "If the articles or bylaws authorize cumulative voting, but not otherwise, every member entitled to vote at any election of directors may cumulate the member's votes..." (Corp. Code §7615(a).)
Recall Elections. With SB 323, can a new board be elected at the same meeting if the recall vote is successful? Or, is the rigorous SB 323 nomination process required to elect a full new board after a successful recall vote? -Gail R. RESPONSE: This is another problem created by SB 323. The timeline for electing directors is now much longer than the timeline for recalling directors. That means the two cannot be done simultaneously. As a result, the recall election must be conducted first. If successful, recalled directors remain in place until the election of replacement directors has occurred--a process that now takes up to 4 months thanks to requirements imposed by the Center for California Homeowner Association Law. This is really problematic and will need to be addressed by the legislature.
Election by Acclamation. By my reading of SB 754, it mandates acclamation for HOAs of 6,000 or more units, but does not deny it for smaller associations. The “shall” vs. “may” plays a role in this. What would be the purpose of wasting money on sending and counting ballots that are irrelevant? -Barb D. RESPONSE: It would be wonderful if your interpretation of the statute were the case. Unfortunately, acclamation only applies to associations with 6,000 or more units--and only if they follow the requirements imposed by SB 323. See Civil Code §5100(g). With luck, the legislature will extend acclamation to all associations. Email Addresses. Can the board "opt out" all homeowners from the membership email list and request that anybody who wants to "opt in" to make their e-mail addresses available to other residents, can do so. We worry that some folks do not want their e-mail disclosed, but failed to opt out. -Tom W.
RESPONSE: With the steady increase in junk email, identity theft, malware and hacking, most owners do not want their email addresses made public without their permission. Unfortunately, SB 323 exposed email addresses unless members specifically opt-out. Hopefully the legislature will undo this provision.
QUESTION: A current board member who is re-running for election owns nine units. Is it legal for her to vote for herself nine times on the ballot? -Raghda Z. RESPONSE: Yes. If she owns nine units, she has nine votes. Worse, if your bylaws allow for cumulative voting and there are three open seats, she has 3 x 9 = 27 votes she can cast for herself. I recommend your association amend your bylaws to eliminate cumulative voting. QUESTION: If a board member resigns term and the board fills the vacancy, does that person remain for full remainder of the person's term or just to the next election? -Raghda Z. RESPONSE: Normally, anyone appointed to fill a vacant seat serves for the remainder of the term assigned to that seat. You should check your bylaws to see if they require something different. QUESTION: Our association paid our attorney to update our outdated CC&Rs and bylaws. With the passage of SB 323, we had to pay for additional updates. We understand the law has major flaws. Is the “clean-up” going to cause us to make more changes to our CC&Rs and bylaws? –Becky D. RESPONSE: Yes, that's a possibility. SB 323 is the gift that keeps on giving. If the major flaws in the bill can be corrected, your election rules may need to be updated again. QUESTION: We are a small association. SB 323 is written in legalese so that any normal person cannot understand the new code. It requires hiring a lawyer to interpret the contents and that poses a financial problem for small associations. Why is there not a version for layman to understand? Of course we want to comply with the new law but there should be a simple version explaining the new requirements. -Daniel G. RESPONSE: SB 323 is so badly drafted that law firms around the state put in overtime untangling the impact of the bill. To help boards and managers interpret this dreadful legislation, many firms published summaries. You can find ours at Election Timeline and Candidate Qualifications. For a complete outline of the election process, go to the Election Menu.
QUESTION: Can candidates running for the board mail information about themselves to offsite owners?
RESPONSE: Yes, they can. They can request a copy of the membership list and then send letters, postcards and flyers to members.
RESPONSE: Yes, you are correct. Signing an ethics policy is not a vendor contract with a one-year limit. It's a commitment by a director to abide by the association's ethics policy. Your carry-over director's commitment to abide by your ethics policy remains in effect until he repudiates it. It does not expire after 12 months and leave him free to engage in unethical behavior.Ethics Policy: At our board meeting, the agenda included new directors signing an ethics policy adopted by the board in 2019. One carry-over director who signed it in 2019 claims the policy expired after twelve months because our governing documents don't permit contracts with a term longer than twelve months. I believe policies adopted by the board are in effect until modified or eliminated by the same or subsequent boards. They do not automatically expire at the end of twelve months. Is this correct?
Inspectors of Election. If we appoint a homeowner to act as our inspector of elections, will they be covered by our insurance? -Fred M.
RESPONSE: That is a really good question. In a recent article published by Ryan Gesell and Timothy Cline of the Cline Insurance Agency, the authors pointed out that protection of volunteer inspectors depends on whether the association's D&O policy covers volunteers for non-monetary claims and the person was specifically identified in the minutes as a volunteer.
They also raised the problem of whether a volunteer could comply with the extensive duties now imposed by SB 323. To minimize exposure to liability, Gesell and Cline recommend that professional inspectors of election be hired by associations. I agree.
Hiring a professional should shift liability away from the association. Unfortunately, professional inspectors also recognize the inherent problems in conducting HOA elections. As a result, many include language in their contracts requiring the association indemnify them from potential liability.
As Gesell and Cline noted, since D&O policies extend coverage to volunteers, not professional inspectors, associations could find themselves paying to defend election results, should a claim arise. The authors pointed out that insurance policies are available for professional inspectors of election. Some offer the option of adding associations as additionally insured. Accordingly, boards should ask about insurance when hiring professional inspectors of election.