. Dissolving an association is significant and requires approvals on multiple levels.
Board Approval. The board of directors must adopt a resolution to dissolve the
corporation. If less than a quorum, the resolution must be unanimous.
It would be necessary to elect or appoint directors to the board so
that this resolution can be adopted. (Corp. Code §§7911(a)(1) and 8610(c).)
Membership Approval. As provided for in Corporations Code §8724,
any owners association for a planned development, condominium, stock cooperative or community apartment project of five or more units that is responsible for managing, maintaining, preserving or controlling any lot, unit or other area cannot be dissolved unless 100% of the members consent.
Governmental Approval. The governing documents of many associations also require the approval of local governmental entities before an association can be dissolved.
Lender Approval. The governing documents of most associations also require the approval of first trust deed holders.
. If all necessary approvals could theoretically be obtained, directors need to include the following process considerations
An accountant knowledgeable about associations will need to provide advice about the tax consequences of the dissolution.
It will be necessary to give formal notice of the dissolution to the IRS.
Corporate assets will need to be sold, and can be sold without a
vote of the membership. (Corp. Code §8710(g).)
All of the debts and liabilities of the association will need to be paid. (Corp. Code §§8713-8714.)
Creditors of the association must receive notice of the dissolution. (Corp. Code §8618.)
A receiver can be appointed by the court to assist the dissolution.
(Code Civ. Proc. §§566-567 and Corp. Code §8513.)
As a practical matter, it may be
impossible to dissolve an association if no entity can be found to take
over their maintenance responsibilities.
Who will control the common area?
How will the buildings be maintained, repaired, painted
and re-roofed without assessment funding and contracts issued through
Will lenders fund loans to purchasers and refinance loans if there is no association?
Will more litigation ensue if neighbors enforce the CC&Rs rather than the association.
If an unincorporated association is set up to replace the
former corporation, won't the same costs of operation and problems of
apathy and dissension exist?
One association that attempted dissolution received a response from the County
. Of interest is the letter's paragraph on taxes.
Alternative to Dissolution
. An alternative to dissolution is the appointment of a receiver by the
superior court. (Code Civ.Proc. §564
.) The receiver would need to be paid from assessments and
may have the power to increase assessments without a vote of the
membership. In addition to the fees and costs of the receiver, the
association would incur the expense of accounting and legal fees
incurred by the receiver. These charges could be substantial.
. Thank you to Jeffrey A. Barnett, Esq. of Jeffrey A. Barnett, APC for his legal research and input on this issue.
Any association considering dissolution should first seek the advice of legal counsel and a tax specialist.