WITHOUT A MEMBERSHIP VOTE
QUESTION: Our association has 100 mailboxes, which are about 40 years old. Most owners agree they need a facelift. The board voted to replace the steel and plastic mailboxes with a stacked stone mailboxes at a cost of $3,500 each and take the $350,000 cost out of the reserve fund. It would reduce our reserves to about 42% funded. The board says this is maintenance. I say it is an upgrade. Our CC&Rs limit capital expenses to 5% of our budget without a vote of the membership. It seems that if a board can call it maintenance, they could spend all the reserves without a vote by the members. –Dick G.
ANSWER: Because your mailboxes are a common area component which is now 40 years old, replacing them is an expenditure that can be paid out of reserves without a vote of the membership. From what you described, the materials contemplated qualify as an upgrade. There are no clear guidelines on whether this requires membership approval.
Boards should take advantage of improved building materials and technologies whenever possible. In general, the use of upgraded materials does not require membership approval, especially when they result in a component's longer useful life and/or provide more benefits than the materials they are replacing.
Since reserve funds are available, your board does not need to impose a special assessment. At issue may be the sufficiency of remaining reserves for future major repairs. If the expenditure on your mailboxes will result in a special assessment for the next major repair, the membership should be notified of the significant change in reserve funding and the potential special assessment.
If the expenditure for new mailboxes does not put the association at risk, the upgrade in materials falls within the board's discretion. So long as the board acts upon reasonable investigation, in good faith, and in a manner the board reasonably believes to be in the best interests of the association and its members, the courts will defer to the board's maintenance decisions.
If the membership is unhappy with the board's decision, they should show up en masse at board meetings and express their opinions. If the board does not take their concerns into account, the membership can replace directors at the next election and, depending on whether contracts have been executed and monies expended, reverse or modify the prior board's decision.
This is our last newsletter of the year.
We wish everyone holiday greetings and a heartfelt thank you to those who selected us for their association's legal representation, and to our readers for their kudos, questions, and newsletter feedback.
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Can of Worms. Regarding reversing prior board actions, you failed to mention that agreements and contracts entered into by previous boards can be amended by a new board. I am not referring to construction contracts, but management and service provider agreements/contracts in particular. -Carol A.
RESPONSE: Yes, depending on the particular action the new board seeks to reverse, and depending on the terms in the vendor's contract, it could be amended rather than canceled. The board will need legal counsel to review the contract and advise them on the best course of action.
Credit Cards. Business lunches with vendors and colleagues can be a great source of information, candid problem solving activities, and relationship developing. Relatively speaking, while the optics might be of concern, such activities can be incredibly cost effective. -D.H.
RESPONSE: I can understand why small self-managed associations might need to use a credit card, but I don’t see the need in associations with professional management. Board members should be involved in governing the association, not running errands, buying materials, and taking vendors to lunch. Not only are the optics bad, it opens the door to temptations that are best avoided.
Debit Cards. I appreciated the article on credit cards. What about HOA debit cards? Who should have them, if anyone? –Steven R
RESPONSE: I can't think of a good reason for anyone to have a debit card. It allows the holder to remove cash directly from the association's account. If there is a need for cash, associations should maintain a locked petty cash box with a limited amount of money in it. Any time cash is withdrawn, receipts should account for every penny. One association I worked with kept $1,000 in its petty cash box (which is too much money) and replenished it whenever the money ran out. It did so without a single receipt to account for where the money went. That is clearly the wrong way for an association to handle its money.
Parliamentarian. I’m a professional parliamentarian, certified by the American Institute of Parliamentarians. Your response regarding reversing actions of prior boards requires further clarification. Many boards identify a parliamentary authority, e.g. Robert’s Rules of Order. As such, they are obligated to adhere to the rules and processes articulated therein. Robert’s requires a 2/3 majority vote to amend an action previously adopted or to rescind such action. –Bruce B.
RESPONSE: The Davis-Stirling Act requires associations to adopt a recognized system of parliamentary procedure for its membership meetings (Civ. Code § 5000) but not for their board meetings. Even so, most boards follow a loose approximation of Robert's Rules of Order. I may be mistaken, but I thought a motion to rescind or to amend something previously adopted could be done with a majority vote if proper notice is given. Maybe our parliamentarian readers could provide additional feedback on this issue.
Kudos. Beautiful and meaningful newsletters. Keep up the great work and best regards always. -David C.
|DISCLAIMER. Our newsletter provides commentary, not legal advice. Boards need to retain an attorney to review all the facts and give a legal opinion on the issues they face. We serve as corporate counsel to California associations only. Request a proposal to represent your association.
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