HOA Governance

BREAKING NEWS! Federal Court Issues Nationwide Halt on the Corporate Transparency Act

Published on: December 4, 2024 | by Matthew Plaxton, Esq. and Steven Tinnelly, Esq.

The Corporate Transparency Act (“CTA”), enacted in December 2020, aims to increase corporate ownership transparency to combat money laundering, terrorism financing, and other illegal activities. The CTA requires many small businesses, classified as “reporting companies,” to submit beneficial ownership information (“BOI”) reports to the Financial Crimes Enforcement Network (“FinCEN”). This requirement extends to certain homeowners associations (“HOAs”) and involves disclosing personal details—such as names, addresses, and copies of driver’s licenses or passports—about individuals with “significant control” over the HOA (i.e., members of the HOA’s Board of Directors).

Not surprisingly, many reporting companies objected to the reporting requirements, citing government overreach and privacy concerns as the primary reasons for opposing the reporting requirements. These objections led the U.S. District Court for the Northern District of Alabama to grant the National Small Business Association’s request for a preliminary injunction, temporarily blocking enforcement of the Act. However, the court’s order was limited to the plaintiffs in that case and did not extend its protections to HOAs.

Encouraged by the District Court’s decision, the Community Associations Institute (“CAI”) filed a lawsuit in the U.S. District Court for the Eastern District of Virginia seeking a similar result for its member-HOAs. Such result would not be forthcoming, however, as the Judge in that case denied CAI’s motion for preliminary injunction. CAI has appealed that decision to the United States Court of Appeals for the Fourth Circuit.

Thinking all hope was lost, many HOAs started the process of filing BOI reports with FinCEN. But, in the eleventh hour, the United States District Court for the Eastern District of Texas issued a nationwide injunction blocking the enforcement of the CTA and its reporting requirements. (Texas Top Cop Shop, Inc. v. Garland (4:24-cv-00478-ALM).) This ruling applies to all entities previously required to submit BOI reports, including HOAs within the State of California.

Since this injunction was just issued on December 3, 2024, it is unclear whether the Government will appeal the Court’s decision. More information on this is to come…

HOAs should monitor developments in this case and consult with their HOA legal counsel to stay informed of their CTA compliance and reporting obligations.

Email Discussions Between HOA Board Members are not “Meetings”

Published on: September 18, 2023 | by Steven J. Tinnelly, Esq. and Ellie Ghahari

*New Case Law

The Open Meeting Act (“OMA”) contains various provisions regulating how the board of directors of a homeowners association (“HOA”) may meet and conduct business. One of the most common questions we receive pertains to whether email exchanges between board members on items of HOA business constitute a “board meeting” under the OMA, even if those emails are merely for discussion purposes without any vote (or “action”) being taken on the item.

Fortunately, we finally have an answer to this question from the California Court of Appeals via its ruling in LSNU #1, LLC v. Alta Del Mar Coastal Collection Community Association (“Alta Del Mar”) that will have a significant, immediate and beneficial impact on HOA governance throughout California. That answer is no. Email exchanges/communications between HOA board members that merely discuss items of HOA business are not within the statutory definition of a “board meeting” under the OMA and are therefore lawful.

In Alta Del Mar, the HOA board was discussing, over email, two items of business that are relatively routine for HOAs: whether to approve a homeowner’s landscaping plans and whether to fine another homeowner. The plaintiff homeowner in Alta Del Mar claimed that this email discussion was considered a board meeting and thus violated the OMA by not affording the homeowner notice and an opportunity to be heard.

The Court rejected this argument with reference to two central provisions of the OMA upon which the homeowner relied in making their argument: Civil Code section 4090 (defining what constitutes a “board meeting”) and Civil Code section 4910 (prohibiting a board from “acting” on items of business outside of a board meeting). The Court’s interpretation of these provisions is summarized below:

Email exchanges between board members are not a “gathering” of the board, and therefore do not constitute a “board meeting”.

“By sending e-mails to one another through cyberspace, often hours or days apart and from different homes and offices, the Association’s directors did not simultaneously gather in one location to transact board business, and therefore they did not conduct a “board meeting” within the meaning of [the OMA].”

The OMA prohibits the board from “acting on” items of business outside of a board meeting, not from “discussing” those items via email outside of a meeting.

“By discussing items of Association business in e-mails… the directors did nothing contrary to the purpose of the OMA, because they took no action on those items in the e-mails. Although the OMA prohibits the board from acting on items of Association business outside a board meeting…it does not prohibit the board from discussing the items outside a meeting.”

Many HOA boards find it difficult to reserve all discussion on items of HOA business solely for the board’s regularly scheduled meetings. This is due to a variety of common factors, such as the large amount of business that must be discussed/acted upon at any given meeting, the intervals at which regularly scheduled Board meetings typically take place (monthly), and the need to share information regarding unforeseen or exigent issues that may arise between Board meetings. The Court’s holding in Alta Del Mar now confirms the ability of an HOA’s board members to freely email with one another to discuss items of business facing their community. This will allow for HOA boards to be in a better position to take appropriate and timely action on those items during their actual meetings.

New ‘Community Association Update Newsletter’ – Issue 57

Published on: March 3, 2023 | by Steven J. Tinnelly, Esq.

Newsletter-Issue-57-300x167 In case you missed it, Issue # 57 of our ‘Community Association Update’ newsletter is available now!

Topics covered in this issue include:

AB 1410 – Speech on Social Media; Room Rentals; Enforcement During Emergencies
AB 1738 – EV Charging Stations in Existing Multi-Family Developments
SB 897 – Accessory Dwelling Units
Artus v. Gramercy Towers
Fowler v. Golden Pacific Bancorp, Inc.

A link to the newsletter is here.

Need to be added to our mailing list? Click here to sign up. Links to previous editions of our newsletter can be found here.

The Benefits of Board Education

Published on: December 28, 2022 | by Carrie Heieck, Esq.

bigstock-Businesswoman-Raising-Hand-Up-230281444-scaled-1-e1668125240647 In the State of California, most HOA’s are non-profit corporations managed by a board of directors composed of volunteer homeowners elected by the membership. Boards derive their authority from the governing documents including the Articles of Incorporation, Bylaws, and Covenants, Conditions, and Restrictions (CC&Rs) that impose rules and restrictions on the use of property within the development. The board of directors, acting on behalf of the HOA, is responsible for the maintenance of the common areas of the property, enforcing the governing documents, and collecting assessments. While most boards delegate duties to management companies and rely on experts such as attorneys and CPA’s to aid in decision-making, the board is ultimately responsible for decisions and actions taken by the HOA.

HOA board members are not compensated for their services and are typically not experts or even very familiar with the strict requirements for HOA management. While new directors typically run with an altruistic motive to help their communities and “get things done,” it is important that they understand the structure of a community association, the association’s authority over the development and its owners, and the unique way an association is governed. Board education is a great way to familiarize new members with an overview of their duties and responsibilities and to provide a refresher for existing Board members so that the HOA runs smoothly, efficiently, and with minimal exposure to liability. Board education can also help protect directors for incurring personal liability for decisions made in the scope of their duties.

Board education is offered by management companies, law firms, CAI chapters, and others with expertise and knowledge in HOA governance. There is no one-size-fits-all educational program as the issues faced by HOA’s are often unique to each association. Some general topics for Board education include but are not limited to:

General Duties and Responsibilities of Directors
Laws Applicable to Common Interest Developments
Types and Hierarchy of Governing Documents
Business Judgment Rule
Conducting Meetings
Enforcement and Disciplinary Matters
Financial Responsibilities
Maintenance Responsibilities
Assessments & Collection
Director Conduct
Contracts

An educated board oftentimes results in a better-functioning HOA with less legal fees, less special assessments, less contentiousness, and higher property values. Board members who are willing to put personal differences and agendas aside, are open to considering expert advice and differing viewpoints, and who work collaboratively with other directors and in the best interests of the Association as a whole, are the directors who best serve their communities. While directors will always be subject to criticism since it is impossible to please everyone, with proper education, those directors’ actions will better withstand such scrutiny.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

Evidence of Violations is Necessary

Published on: November 16, 2022 | by Vivian Tran, Esq.

pexels-photo-2179205 There will come a time when a homeowner violates an association’s governing documents (i.e., CC&Rs, Rules & Regulations, Architectural Guidelines…etc). If there is a possibility those violations will be litigated, the association must have a proper trail of evidence to bolster their claims.

Q: What are some types of violations that would need evidence?

A: Unapproved architectural improvements (i.e., walls, patio covers), failing to maintain property exterior in planned developments (i.e., shutters, paint, landscaping), inappropriate parking…etc.

Q: What should the association or its community manager do when there is this type of violation?

A: For these violations, the association’s community manager should clearly document in their written records: what the violation was, which governing documents provision was violated, who committed the violation, if known (e.g., an owner, guest, tenant), when the violation occurred (i.e., date and time), where the violation occurred, and anything else that might be relevant. Additionally, a photo of the violation should be taken on the date it occurred and reoccurred.

Q: How should the photo be taken?

A: The photo should be taken directly in front of the violation. There should be plenty of natural light to clearly see what type of violation it is. Flash should be utilized if it improves the picture quality. The photo should not be taken from within a vehicle because there will be light and color distortion; furthermore, the violation photo should not include portions of the vehicle. If there is a parking violation that occurs in the evening, any photos submitted by the association patrol vendor should be taken from the outside of a vehicle.

It is important that the photo be taken with a high-definition camera, if possible, so as to not be grainy or blurry. There should be no objects distracting from the violation (e.g., people, pets, vehicles).

Q: Why so particular about the violation photo and written evidence?

A: If the matter goes to litigation, the association will need to prove that a homeowner has committed the violation(s) alleged by the association. A judge will want to see actual physical photo evidence and clear documentation of the homeowner’s violation history. Without proper evidence, the association might have a hard time winning its case. If there is a clear violation history and evidence, the judge will be able to order the homeowner to correct the violations.

Even if the matter does not go to litigation, a proper trail of evidence will assist the association’s general counsel in dealing with the matter.

The association should request that management take a photo of every violation if they wish to properly retain evidence and enforce their governing documents. Without a photo, no matter how big or small the violation, the homeowner can always argue that the association was mistaken, and the violation never occurred. It would be a case of “he said, she said” argument that would go nowhere—it would definitely not hold up in court.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

What the Cluck? Addressing Backyard Chickens in HOA’s

Published on: May 11, 2022 | by Carrie Heieck, Esq.

what-to-expect-when-youre-expecting-backyard-chickens-feature It is becoming increasingly popular to raise chickens in suburban and even in urban areas. Chickens offer a continuous source of fresh eggs and arguably help with pest control. Conversely, chickens can be loud, messy, attract coyotes, and arguably are best suited for rural, country life. Because many municipalities have legalized raising chickens in residential zones, HOAs are more frequently encountering owners maintaining chickens in their communities, some even allowing their chickens to roam the common area alongside the family dog.

If the HOA’s governing documents prohibit chickens (also referred to as poultry or livestock), the HOA may require residents to remove their feathered friends from the community. It is important to note that while municipalities may allow a limited number of domesticated chickens in residential zones, it is well-established that an HOA’s governing documents may be more restrictive than local ordinances. So, if the county or city allows chickens, but the more restrictive governing documents do not, the governing documents control.

Chickens may also be prohibited by nuisance restrictions contained in the governing documents. The aforementioned noise produced by roosters along with frequent, malodorous, and non-solid waste arguably constitute an ongoing violation of nuisance restrictions sufficient to require the chickens’ removal.

Oftentimes, when an HOA requires the removal of a prohibited animal, requests to allow the animal to remain on the premises as an emotional support animal (“ESA”) arise. Under the federal Fair Housing Act, which applies to homeowners associations, a housing provider is required to make reasonable accommodations for assistance animals including ESA’s even though they are not trained to do work or perform tasks. Allowing an emotional support animal which would otherwise be prohibited under the Association’s governing documents is a recognized type of reasonable accommodation for a disability under California’s Fair Employment and Housing Act. (Auburn Woods HOA v. FEH Commission (2004) 121 Cal App. 4^th 1578).

Chickens are not typical ESA’s like dogs or cats, but the creativity of Americans is without bounds as evidenced by the wide variety of alleged ESA’s seen on commercial flights including peacocks, turkeys, pigs, monkeys, and hamsters. Due to the complex legal issues and potential exposure to liability associated with reasonable accommodation requests, it is recommended to contact legal counsel immediately if a resident requests to keep a chicken or any other otherwise-prohibited animal due to a disability or medical condition.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

How to Handle Potential Conflicts of Interest

Published on: March 9, 2022 | by Vivian Tran, Esq.

download Conflicts of interest present possible liabilities that homeowners associations (“HOAs”) should do their utmost to avoid. There are issues that need to be deliberated and decided upon by the Board of Directors; however, in some situations, not all Directors should take part in the decision-making. A common scenario includes a situation where the Director might have a material financial interest in the outcome; or, the Director is violating the governing documents and should not decide on their own disciplinary consequences. Therefore, to keep all lines of communication and responsibilities clear, the Board should watch out for potential conflicts of interest and take the necessary steps to insulate the HOA and the Director from actual conflicts of interest. Some further examples of both potential and actual conflicts of interest could include:

Property damage to common areas abutting a Director’s property.
HOA litigation matters that could directly implicate a Director.
Capital improvements to common areas that would be advantageous to Directors.
The HOA contracting with vendors who have prior relationships with Directors without properly being vetted by neutral parties and/or management.
Using HOA funds to involve legal counsel to aid in a personal vendetta between a Director and HOA member.

What Should the Board Do If There Is A Potential Or Actual Conflict Of Interest?

Pursuant to Corporations Code section 7212, the Board may, by resolution adopted by a majority of the number of Directors then in office, provided that a quorum is present, create an executive committee consisting of two or more Directors, to serve at the pleasure of the Board. The Board has complete control over all committees. This means that the Board will decide who may serve in the committees and what authority they will have, subject only to the restrictions in the governing documents.

Accordingly, if there were any potential or actual conflicts as mentioned above, legal counsel for the association should broach the idea of the Board creating an executive committee around the conflicted Director. While Directors are well-meaning, if their financial interests, property, or personal self are implicated in any way, it would be difficult for the respective Directors to act as a Director (i.e., in good faith and in the best interest of the HOA) and not as a homeowner. This could be quite detrimental for the HOA and possibly even for the Director themselves because if there is an actual conflict of interest, that Director would be exposing themselves to personal liability; and the HOA’s Directors and Officers insurance might not be applicable if the Director acted outside the scope of their duties and decided on matters in such a way that would not benefit the HOA.

Therefore, it would be prudent to resolve any potential conflicts of interest by removing the Director from any decision they might be personally involved in and forming an executive committee around that respective Director. Should the Board have difficulty with this task, it might be best to enlist legal counsel’s help in explaining liabilities and conflicts of interest to all parties involved.

Note that if an executive committee is comprised of enough Directors so as to establish a quorum of the Board, any meeting of that committee could constitute a Board meeting that is subject to the Open Meeting Act’s requirements. Additionally, executive committees must maintain minutes pursuant to Civil Code section 5210 and make them available for inspection by the members within fifteen (15) days following approval.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

Unmasking Your HOA’s Common Area Facilities

Published on: February 17, 2022 | by Matthew Plaxton, Esq.

hoa-masks-covid-300x200

California has lifted its indoor mask mandate for vaccinated individuals. While most HOA industry professionals took the position that the mask mandate did not apply to common interest developments and the HOAs that govern them because such facilities are not “places of public accommodation” (see Carolyn v. Orange Park Community Ass’n (2009) 177 Cal.App.4th 1090), for those imposing such a requirement, starting February 16th, they no longer need to require the use of masks for vaccinated individuals while inside common area facilities (e.g., HOA clubhouses, gyms, etc.).

This does not mean that HOAs are necessarily required to obtain proof of vaccination; rather, HOAs can simply post signage requiring residents to wear mask if unvaccinated. Moreover, some local mask mandates remain in place despite the State easing their restrictions. It is therefore important for each association to check with local authorities to determine what restrictions remain in place.

HOA Boards of Directors and management professionals that have questions regarding what common area facility policies must be in place to satisfy State and local requirements with respect to COVID-related issues should contact their HOA lawyer for guidance.

-Blog post authored by TLG Partner, Matt Plaxton, Esq.

What is the Proper Procedure to Adjourn the Annual Meeting?

Published on: January 12, 2022 | by Matthew Plaxton, Esq.

*Asked and Answered

Asked – We recently concluded our Annual Meeting of the Membership. As always, we failed to achieve quorum. Rather than successively adjourn and reconvene the meeting, the Board concluded the meeting. Now we have several owners complaining, saying that the proper procedure was not followed when the Board concluded the meeting. What is the proper procedure?

Answered – It is not uncommon for an association to suffer from “member apathy.” Such apathy is most commonly apparent when it comes time to hold the association’s annual membership meeting (“Annual Meeting”). In order to hold an Annual Meeting (or a special meeting of the members (“Special Meeting”)), a quorum of the membership must be present in person, by written ballot, or, if allowed by the association’s Bylaws, by proxy. Quorum requirements vary.

If a quorum is present, the members may convene the Annual or Special Meeting and conduct the business at hand. If a quorum is not present, the members present at the Annual or Special Meeting have two options: (1) adjourn the meeting, or (2) adjourn the meeting to a later date. The word “members” is emphasized in the preceding sentence to highlight the fact that an Annual or Special Meeting is a meeting of the members. Thus, while the Board president may preside over the meeting, and other Board members may be present, the decisions made thereat are made by the members, not the Board.

The appropriate procedure for adjourning an Annual or Special Meeting is usually set forth in the association’s Bylaws. Nevertheless, California Corporations Code section 7512(d) states that, “[i]n the absence of a quorum, any meeting of members may be adjourned…by the vote of a majority of the votes represented either in person or by proxy….” (Emphasis added.) Thus, the following procedure should be employed:

The “chair” of the Annual or Special Meeting (again, typically the Board president) calls the meeting to order.
An announcement is made that quorum was not reached and therefore the association is unable to hold the meeting.
The chair of the Annual or Special Meeting then entertains motions made by members present at the meeting.

If no motion is made and everyone simply leaves, the matter is concluded; no further action may be taken on the item or items of business for which the meeting was called (unless a Special Meeting is called for that purpose). If a member makes a motion to adjourn, and the motion carries (i.e., a majority of the members present approve the motion), the matter is concluded. The meeting will not be adjourned to a later date. This is because the motion did not specially call for the meeting to be reconvened at a later date. Thus, in order to reconvene the meeting at a later date, a majority of the members present must move to adjourn the meeting to a later date.

It is important to point out that neither the Board nor the managing agent has the authority to unilaterally adjourn the meeting to a later date. For example, when quorum is not achieved, the Board cannot simply establish a date for a reconvened meeting; the decision must be made by the members through a proper motion. Moreover, it is not uncommon for the association’s managing agent and Inspector of Election to be the only persons present at the meeting. Again, neither the managing agent nor the Inspector of Election has the authority to adjourn the meeting to a later date (that is unless the managing agent or Inspector of Election is also a member of the association). It is for this reason that we always recommend that at least one Board member be present at the meeting so that the proper motion can be made. Reconvening the meeting without a proper motion will make any decisions made at said meeting subject to legal challenge.

It is also important to point out that the association cannot correct this deficiency by distributing notice to the membership of the new meeting date. That is because the motion to adjourn to a later date is a procedural prerequisite; meaning, the motion must occur in order to the hold the meeting in the future. Thus, if the association desires to move forward with the Annual or Special Meeting, and the motion was not properly made (or made at all) it will need to restart the process.

Conducting Annual and Special Meetings is important to the effective operation of the association. However, it is equally important that the proper procedure is followed, especially when adjourning meetings. Failure to do so increases the potential for costly disputes.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

Can the Board Reconsider an Approved Motion?

Published on: December 22, 2021 | by Matthew Plaxton, Esq.

*Asked and Answered

Asked – Can the Board reconsider a motion that was previously passed by a majority vote? One of the directors that voted in opposition to the motion would like the Board to reconsider.

Answered – One of the Board’s primary responsibilities is to make decisions on behalf of the association. Because the Board is comprised of volunteers with different backgrounds and varying expectations, it is common for Board members to disagree from time-to-time. The directors on the “losing side” of a motion may have concerns over the decision made, feeling that the decision was rushed and made without proper inquiry or consideration of all relevant facts. Those who are on the “winning side” of a motion may learn additional facts which calls into question the decision made. Either way, the question then becomes whether the Board is “stuck” with the decision made.

Although an association is not required to adopt and employ parliamentary procedures to govern Board meetings (unless otherwise required by the association’s governing documents), the Robert’s Rules of Order provides a procedure the association can adopt and use in addressing situations where a Board member requests reconsideration of a previously decided matter. Because it is considered an “unusual” motion, and to prevent abuse from the “losing side,” the motion should be limited to those directors that voted on the prevailing side. So, in the question posed, the director voting in opposition to the motion is unable to make a motion to reconsider. The director must then convince one or more of the directors on the prevailing side to bring the motion. The motion must be made at the Board meeting following the meeting in which the decision was made.

Once the motion is made by a Board member on the prevailing side (the moving party should be required to indicate that they voted on the prevailing side), it must be seconded. However, the second can be made by any Board member, regardless of how they voted on the matter to be reconsidered. Once a motion is made and seconded, the matter is “up for debate.” In order for the motion to carry, a majority of the Board must vote in favor of the motion to reconsider. Note, this motion does not overturn the previous decision. Rather, it simply allows for the previous decision to be reconsidered by the Board (i.e., a new vote to be made on the previous decision). Thus, if the motion passes, the original motion is placed before the Board as if it never happened.

The following is a sample script on the motion to reconsider:

Prevailing Vote Board Member: I move to reconsider the vote on the motion to grant Owner’s reimbursement request. I voted on the prevailing side.

Board Member: I second that motion.

Board President: It is moved and seconded to reconsider the vote on the motion to grant Owner’s reimbursement request. Is there any discussion on reconsidering the vote?

After discussion has occurred the Board President calls for a vote. If, as noted above, the motion passes, the original motion is placed before the Board for discussion and a vote. If the motion fails, the decision made on the original motion stands.

Parliamentary procedure is complex and often confusing. Such rules seem archaic and draconian. Nevertheless, it is important for the Board to adopt and adhere to such procedures to avoid wasting time discussing matters that have already been decided.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.