Spouses & Co-Owners on Boards
There is nothing in the law prohibiting a husband and wife from serving on the board. If an association's bylaws are silent regarding director qualifications, then spouses can serve together on the board. Small associations, in particular, have difficulty persuading people to serve on the board. It is not uncommon in small self-managed associations for a retired couple to be on the board. Joint owners on boards, whether partners who own a unit or husband/wife ownership, create a potential conflict because the joint owners may act as a voting block on all issues rather than acting independently. There is nothing illegal with joint owners on boards. Even so, many associations are uncomfortable with the arrangement and amend their bylaws or election rules to prevent this from occurring. The Davis-Stirling Act allows associations to adopt a restriction prohibiting a member from serving on the board at the same time as another person who holds an ownership interest in the same unit or lot. (Civ. Code § 5105(c)(2).)
One Vote Rule. If an association allows co-owners to serve on the board, the "one vote per household" restriction found in governing documents does not apply to directors elected to boards. Even though co-owners have only one vote between them when it comes to matters placed before the membership for a vote, each has a vote when it comes to matters voted on by the board.
Realtors on Boards
QUESTION: Can associations restrict Realtors from serving on the board? We had a board president who was a real estate agent who fought to keep dues low so sales would be easier. As a result, the HOA was underfunded for the four years he was president, and subsequent boards were forced to make major dues increases to catch up.
ANSWER: No, you cannot prohibit Realtors from serving on HOA boards. A "Realtor" on the board does not automatically create a conflict of interest. Real estate professionals can offer great insight into many aspects of the development. Potential conflicts of interest emerge when a real estate agent serves on the board and actively lists and sells property in the association. Some Realtors are careful to avoid conflicts and make excellent board members. Others are not so careful and the following conflicts sometimes emerge:
1. Aesthetics Over Maintenance. Some (not all) will exert pressure to shift limited funds away from needed repairs to discretionary cosmetics. For example, they might push the board to plant flowers and paint buildings when money should be spent on plumbing repairs and a new roof. Low dues and pretty flowers make it easier for Realtor/directors to sell units and earn commissions. This is in the director's best interest but not the association's best interest.
2. Exclusivity. A less scrupulous Realtor/director may pressure management and staff to make themselves the exclusive Realtor in the development. They may their business cards on bulletin boards and at security stations to the exclusion of others. Or, they may expect Staff members to recommend the Realtor/director to anyone looking to list or buy in the development. This is contrary to the best interest of members who should have the freedom to engage Realtors of their own choosing and benefit from open competition.
3. Confidential Information. Board members are privy to a great deal of confidential and attorney-client privileged information through their executive session meetings, such as potential litigation, deferred maintenance, construction defects, delinquencies, etc. As real estate agents, they are required by law to disclose anything of significance that may impact the value or desirability of a property. This creates a breach of their fiduciary duties if they disclose confidential information and a breach of their Realtor statutory duties if they don't.
Recommendation. So, to avoid potential conflicts of interest, associations should consider adopting an ethics policy.
Lawyers on Boards
QUESTION: Is there a conflict of interest when one board member is a practicing attorney & makes pronouncements on all issues that come before the board? He often twists the law to suit his own personal wishes, and intimidates the other two members who are not lawyers.
ANSWER: There is no conflict of interest unless the lawyer or his/her firm has been hired by the association. If that happens, the lawyer should step off the board so as to avoid any conflicts of interest. If he/she refuses, the board should immediately get new legal counsel. When it comes to lawyers on boards, there are three types:
Good Lawyers. A lawyer on an HOA board of directors can be a valuable asset to an association. Legal training brings unique analytical skills to problems faced by boards and a good lawyer can be invaluable at spotting potential liability issues.
Problem Lawyers. Where lawyers on boards get themselves and everyone else into trouble is when they freely offer legal advice. The problem is that they often have no experience with community association law. They mean well but their advice is sometimes dead wrong. Associations should hire good corporate counsel and follow their advice. Seasoned lawyers on boards understand the need to defer to corporate counsel.
Nightmare Lawyers. The nightmare lawyers are the ones with the giant egos--the bullies. They constantly remind everyone that they are the smartest person in the room, and they regularly threaten and intimidate fellow directors to get their way. They are an embarrassment to the profession. The membership should replace them as quickly as possible--either through a recall petition or by electing someone else to the seat at the next annual meeting.
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