HUSBAND AND WIFE
ON THE BOARD
QUESTION: Is it legal to have a husband and wife (who own one house in the HOA) BOTH be on the board of directors?
ANSWER: Yes, it's legal. There is no law prohibiting a husband and wife from serving on the board at the same time. However, your bylaws might. Check the section that deals with the election of directors and their qualifications. When we restate an association's governing documents, we routinely include a provision that co-owners cannot both serve on the board at the same time.
Small Associations. However, not all associations want the provision. 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. It's because they have the time to manage the association's affairs. Sometimes, small associations also elect tenants to their boards. It is not uncommon for a renter who is a retired CPA to be on the board serving as treasurer to help manage the finances.
CCHAL Bill. Unfortunately, the legislation pushed by the Center for California Homeowner Association Law (CCHAL) takes away the right of homeowners to decide for themselves how to structure their boards. If their legislation (SB 323) passes, it will prohibit homeowners from electing a tenant to their board. Worse, it prevents homeowners from disqualifying felons convicted of violent crimes, sex offenders, owners delinquent in the payment of special assessments,and owners suing their association from serving on their boards. Finally, as a condition of casting a ballot, homeowners must give up their right to keep their signatures private.
RECOMMENDATION: CCHAL's legislation is bad for homeowners and needs to be stopped. If you have not already done so, sign up for CLAC's email alerts. When possible, donate time and money to CLAC to support their mission to protect homeowners. The California Legislative Action Committee (CLAC) is a volunteer organization consisting of homeowners and professionals serving homeowner associations by monitoring legislation, educating lawmakers, and protecting the interests of those living in community associations.
EMPLOYEE AND PRESIDENT
QUESTION: Our board president is married to the maintenance supervisor employed by our community. Is this a conflict of interest?
ANSWER: No, it is not automatically a conflict of interest. It is a potential conflict. Conflicts of interest arise when the board makes decisions regarding the maintenance supervisor, such as pay raises or disciplinary action.
Recusal. Whenever matters involving the supervisor are brought before the board, the president must recuse herself from any discussion or vote involving her husband.
Employee Classification. On a related note, boards need to be aware that a resident handyman man will need to be classified as an employee and put on the payroll (either the association's or the management company's). With last year's decision in Dynamex Operations West vs. Superior Court, all workers are considered employees and may only be classified as independent contractors if the worker (i) is free from the control and direction of the association in the performance of work, (ii) performs work outside the usual course of the association's business, and (iii) is customarily engaged in an independently established trade, occupation, or business.
RECOMMENDATION: Associations that use the services of a handyman who is paid as an independent contractor should have it reviewed by legal counsel. If he does not meet the Dynamex test, he needs to be reclassified. Otherwise, the association could be subject to fines, unpaid withholdings, and unpaid overtime.
QUESTION: Our complex is a single-family attached, planned development. Unfortunately, over the years, a few of our amendments and rules have inserted the word "condo" to the changes. When property is sold as a condominium, buyers are under the assumption they are only responsible for walls-in insurance instead of the entire unit. Our CC&Rs state on the first page that we are a planned development. Is there anything that can be done to fix this situation?
ANSWER: From your description, it sounds like you have townhouse style development. Townhouses can be legally structured as condominiums or single-family attached homes. As a planned development, each owner owns the structure and the lot upon which it sits. Even though the association has not ownership interest, it is often assigned the duty of exterior maintenance.
Condominiums. If the townhouses are condominiums, the owners own air space from the unfinished interior surfaces of perimeter walls, ceilings and floors inward. The homeowner also owns any improvements to their airspace such as paint on the walls, carpets, hardwood floors, cabinets, countertops, electrical fixtures, etc. The structure surrounding their airspace is owned in common with other members.
Unusual Condominium. I know of one development with standalone single-family homes on lots. It looks like a planned development but it's not. The governing documents clearly define the houses as condominiums. It did so by defining ownership from the finished exterior perimeter surfaces inward. In other words, homeowners own the structure surrounding the airspace--the house. This is highly unusual and I know of only one development with this legal structure.
RECOMMENDATION: I would have to see your governing documents to know for certain whether your development is legally structured as condominiums or a planned development. If your governing documents are sending mixed signals, you need to restate them to get rid of any errors. Otherwise, you will continue to have problems with insurance as well as potential problems with title.
In last week's newsletter, a reader believed his board had a duty to tell members that eliminating short-term rentals would cause property values to drop by 30%.
Vacation Rentals #1. I disagree that there is a decrease in value due to the elimination of short-term rentals. Allowing transient housing causes a drop in value, not an increase in value. In addition, upon removing transient housing, the HOA can receive FHA and VA financing, which also has been determined to increase value. That is why the State of California demands that unit owners receive a statement on HOA budgets that give FHA and VA status. In the required language, the state mandates that unit owners are made aware that with FHA or VA approval, an individual unit will have an increased pool of buyers which enjoy FHA or VA approval. -Jon E.
Vacation Rentals #2. I question the 30% drop in property values with short term rental restrictions. Many don’t even notice that a lot of CC&Rs have no rentals less than 30 days already. Allowing short-term rentals means keys, codes, and rules given out on a weekly basis which would be unmanageable in my opinion. -Lissa M.
Vacation Rentals #3. Was the Davis-Stirling Act enacted to allow a volunteer board with little or no experience in managing property to enact a regulation that might significantly affect the value of an owner's property? When has an HOA board had the authority to pass a ruling [regarding short-term rentals] that might potentially destroy the association or seriously affect the value of a property? They have a fiduciary responsibility to the owners NOT to affect their property values. I disagree strongly, this is a matter that better be submitted for a community vote or this board is courting disaster. -Walter D.
RESPONSE: Members already have a say when it comes to short-term rentals. If the proposed regulation is added to the CC&Rs, the membership must vote to approve it. If it is added to the rules only, it must be circulated to the membership for review and comment before it can be approved by the board. If the board approves the rule and the membership is unhappy, they can veto it.
Vacation Rentals #4. Excellent Q&A about vacation rentals and property values. And glad to know that the association can make determinations about allowing them. You rightly pointed out security issues, trash, rules enforcement problems, nuisance noise from parties, parking problems, higher maintenance costs and increased administrative expenses. This issue also consumes unnecessary time at board meetings that could be otherwise spent on making the community better rather than on damage control. Investors who buy in our community for the purpose if income property typically make no investment in the actual community and our board meetings often get sidetracked dealing with these items. Most of our long-term renters are decent neighbors but it’s good to know that we can place a restriction on short-term vacation rentals. -Robert C.
Smoke Detectors. Regarding missing smoke detectors, if the CC&Rs state that owners must comply with state and local ordinances, doesn't that make it a violation that becomes the association's responsibility to pursue? -Paul C.
RESPONSE: You make a good point, which is why we don't include such language when we restate governing documents. If any violation of a state law or local ordinance is a violation of the CC&Rs, it means boards (1) need to know all laws and ordinances and (2) enforce them. That creates too much exposure for my taste. If an association wants to enforce a particular ordinance, such as no smoking in multi-family structures, it should craft a rule similar to the ordinance. If, at a later date, the association wants to get out of the business of enforcing the ordinance, it can drop the rule. This gives an association a lot more flexibility.