Q: I have been a member of a small condo for over two years. There are no board members and the HOA doesn’t meet either in person or virtually. All communication is via email for voting. One owner acts as an accountant, quasi-treasurer, just paying bills and preparing quarterly statements. People have given her more authority than sometimes I think is warranted. If there are no directors, what does that mean when it comes to the Davis-Stirling Common Interest Developments Act requirements? — H.S., Los Angeles
A: Let me start with your last comment: HOAs act through their boards. That is the governing body normally vested with the power to make decisions for the HOA. How can there be decisions or actions without a governing body?
The legal requirements applicable to California HOAs come from the Davis-Stirling Act, other applicable statutes including Civil, Corporations, Government, and Vehicle Codes, and the HOA governing documents. Some small HOAs and even sometimes larger ones ignore these requirements, thinking that so long as they all agree everything will be fine. However, all it takes is one person to dispute with the HOA and then everything crumbles. Here are some issues to consider:
The proper exercises of corporate formalities including Open Meeting Act compliance, keeping minutes, and having proper elections (among other things) are critical to ensure the volunteers’ acts are considered acts of the HOA instead of the volunteers. If the HOA does not follow the process, a plaintiff attacking the HOA could argue that the liabilities are personal to the homeowner signing the contract instead of the HOA.
Insurance could also be affected by an HOA’s failure to follow the requirements of the law and governing documents. Could the HOA volunteer be argued to be acting “willfully” or outside their officer role and therefore not covered by the directors and officers insurance or, worse yet, outside the immunity provided by Civil Code Section 5800?
Persons taking unilateral action without board authority are the most exposed to personal legal risk. Before a volunteer signs a contract or approves work for the HOA, they should make sure they have documentation that they are authorized to do so- but if the board doesn’t meet, then it cannot authorize the contract.
Another risk regards elections. If the HOA ignores the law regarding board elections, a single homeowner could file a lawsuit and possibly invalidate the board as well as major decisions made by the improperly seated directors. If the board is properly elected but HOA decisions are not properly conducted under the law, any homeowner could sue and possibly set aside any such HOA decision, throwing the HOA into chaos.
Another byproduct of ignoring the law and governing document legal requirements is that the HOA quite likely could find it very difficult to enforce the documents when necessary.
H.S., some of the required procedures are cumbersome, and often seem to be more designed for larger HOAs staffed with professional managers and with access to lawyers and consultants. They can seem unreasonable for small HOAs. However, it’s important that all HOAs do their best to comply with their documents and applicable law- because the truism that “ignorance of the law is no excuse” applies to HOAs as well.
Kelly G. Richardson, Esq. is a Fellow of the College of Community Association Lawyers and Partner of Richardson Ober LLP, a California law firm known for community association advice. Submit potential column questions to [email protected].