WHO DON'T VOTE
QUESTION: I am Secretary of a 160-unit development that is less than 1/2 complete. Once the developer turns over control, I would like to restate our governing documents. Elections are costly and their success depends on member participation. What are your thoughts on fining people who don't vote?
ANSWER: There is nothing in the Davis-Stirling Act or the Corporations Code that would prevent you from fining people who don't vote. It might even be effective. However, I don't like penalizing people who choose not to exercise their rights. Rather than punish them, there are two approaches you should try first: (i) offer incentives for members to vote and (ii) eliminate quorum requirements for the election of directors.
Incentives to Vote. The board can raffle off gift cards, bottles of wine, a dinner at a local restaurant, etc. The ballot envelope with the person's name and address can be used as the raffle ticket for the drawing. Normally, any entity that uses a raffle to raise funds must register with the Office of the Attorney General. (Penal Code 320.5) However, raffles are exempt if they do not require any of the participants to pay for a chance to win.
Eliminate Quorum. The best solution is to amend your bylaws to eliminate quorum requirements for the election of directors. "A quorum shall be required only if so stated in the governing documents of the association or other provisions of law." (Civ. Code 5115(b).) Eliminating quorum makes board elections like all other elections at the municipal, state and federal levels. In other words, elections are determined by those who are interested enough to vote.
RECOMMENDATION: Try offering incentives in your next election. If that doesn't work, amend your bylaws. We routinely eliminate quorum requirements in documents we restate. It makes elections thereafter very easy to hold.
QUESTION: How do you handle a candidate withdrawing from an election, then 3 days later after being notified by the president that his withdrawal had been accepted, deciding to run again.
ANSWER: If the nominating period closed after he withdrew, your flip-flopper is out of luck. If nominations are still open, he gets to self-nominate and appear on the ballot.
RECOMMENDATION: If the person previously served on the board and was flip-flopping on issues like a fish out of water, someone should let the membership know he shouldn't be on the board. Sending a letter cannot be done at association expense (Civ. Code §5135), it must be done by an individual or group at their own expense.
A new case was published last week that should cause everyone to pick up their CC&Rs and carefully read the maintenance requirements.
Water Damage. A pipe on the roof broke causing water damage to the plaintiff's bedroom. The association repaired the pipe and roof but not the bedroom. Plaintiffs sued the association for breach of contract and negligence.
No Inspections or Maintenance. The trial court granted a nonsuit in favor of the association. The appellate court reversed. The court noted that the CC&Rs required the association to keep the project in a first-class condition. Witnesses testified the association failed to perform preventative maintenance and roof pipes had not been inspected or maintained in years.
First-Class Condition. I don't like such language in CC&Rs because "first-class" is hard to define. It's also at odds with reserving for replacement. If a roof has a 20-year life, is it no longer "first-class" when it's ten years old, thereby obligating the association to replace it? Whenever my office restates documents, we replace "first-class" with more appropriate language.
RECOMMENDATION: The primary purpose of an association is to maintain the common areas. Boards should not defer maintenance, especially if their CC&Rs require the project be kept in a first-class condition. Failure to do so could result in liability if persons or property are damaged as a result of common area component failures. (See "Sands v. Walnut Gardens.)
TELL SENATORS "NO"
ON SB 323
Senate Bill 323 (Wieckowski) passed the Senate Housing Committee and is now on the Senate floor. The bill will likely be heard and voted on this week.
It is critical we STOP this problematic bill and it’s negative impacts on community associations. If you recall, SB 323 prohibits an association from establishing qualifications for board members and adds a number of requirements which are unnecessary.
We need your help to STOP SB 323. We’ve updated our online advocacy letter to go directly to your senator asking them to Vote NO on SB 323. Simply send our pre-drafted letter to your legislator by clicking here.
You can read more about the troublesome impacts of SB 323 on our Legislative Session Hot Bills page. If you have any questions, you can contact us at [email protected].
Nathan McGuire, Esq.
Chair of CAI-CLAC
Earthquake Insurance. My last two newsletters had comments in the "Feedback" section from homeowners for and against earthquake insurance called "Motus." Following is a response from the President of Motus Insurance, describing the product:
"While Motus is in complete alignment with your firm's answer that the best insurance is a master earthquake policy that forces all members to participate in the foundational layer of recovery after an earthquake. In a perfect world, all HOAs should have a master policy with full coverage.
Roughly 32,000 condominium associations in California do not have a master earthquake policy. In addition, there are currently 2.5 to 2.8 million condo-like units in California. However, there are only 900,000 HO-6 policies in force. The California Earthquake Authority (CEA) and its competitors require an HO-6 policy in order to buy individual condo earthquake insurance. That means 1.6 to 1.9 million condominium owners cannot purchase earthquake insurance when there is no master policy in place.
The CEA cannot do the underwriting necessary for an individual living in an association without a master policy. They can only offer $100,000 and their rates are usually 3-5 times higher than their single-family home rate. Also, since the CEA is defined as a residential carrier they can't offer coverage for any common area foundations, structures, garages, utilities, etc.
Motus addresses these problems, which is why the Department of Insurance approved the product. It allows carriers to offer commercial rates and coverages to individuals for the first time, ever. With Motus, the association is an additional insured on the loss assessment and interior coverage.
With Motus, the association does not overwhelm its budget. This is for boards that want a master policy but can't afford it."
-Daniel Wallis, President, Motus Insurance Services. Attached is a PDF presentation describing the insurance.