By Brittany A. Ketchum, Esq.
It seems as though the laws change as frequently as the tides. Some years see more legal changes than others – changes that greatly affect the way boards manage the association’s affairs. The laws governing community associations have experienced so much change within the past three to four years alone that it may make your community’s governing documents unreliable, especially as they relate to homeowner rights and the functions of the board, officers, and management. It only makes sense to have governing documents that are updated and reflect modern law. Moreover, relying on outdated, antiquated governing documents may expose associations, board members and even management to liability.
Step #1: Evaluate the Existing Governing Documents
The first step in amending or restating governing documents, whether the CC&Rs or Bylaws, is to review and evaluate the documents to determine whether any provisions are inconsistent with laws. To the extent there is any conflict or inconsistency between the law and the CC&Rs, the law will prevail. To the extent there is any conflict or inconsistency between the CC&Rs and Bylaws, the CC&Rs will prevail. This became California law on January 1, 2014 when Civil Code Section 4205 was adopted to establish a hierarchy amongst governing documents. Reliance on a provision of the CC&Rs or Bylaws that is inconsistent with the law exposes the association to liability.
Governing documents should also be evaluated for clarity and to ensure same meet the needs of the community. The most effective governing documents are those written in simple English. Let’s face it, what good are the governing documents if no one can understand them? One useful tool for clarifying maintenance responsibilities, a typical source of confusion, frustration and even dispute between associations and its members, is a maintenance responsibility matrix or checklist. The purpose of a responsibility matrix or checklist is to clearly set forth components within the community and allocate which party, the association or a homeowner, is responsible for maintaining same. Clear governing documents may help reduce future, unbudgeted expenses (i.e., attorney’s fees for legal opinions and even lawsuits).
Effective January 1, 2017, Civil Code Section 4775 now provides that associations are responsible for maintaining, repairing, and replacing the common areas and repairing and replacing the exclusive use common areas while the owners of each unit are responsible for maintaining, repairing, and replacing their units and merely maintaining the exclusive use common areas, unless the community’s CC&Rs provide otherwise. This recent change in the law may affect your community’s obligations pertaining to exclusive use common areas.
Reviewing your community’s governing documents with legal counsel is strongly recommended to ensure that the new Civil Code language does not change how your association assigns and budgets for maintenance duties. As many community’s governing documents do not clearly establish responsibilities for the repair and replacement of exclusive use common areas, associations may now be responsible for them, which could significantly impact your community’s budget.
Step #2: Understand Approval Requirements
In order to amend or restate CC&Rs, they must be approved by the percentage of members required by the CC&Rs and “any other person whose approval is required” by the CC&Rs. (Civil Code §4270.) In addition to a formal vote of the owners by secret ballot, many CC&Rs may also require approval of lenders, the city or county, or some other governmental entity. Generally, the method of obtaining lender or government approval is set forth in the governing documents. Otherwise, lender voting protocols are simpler than member voting: secret ballot procedures are typically not required, and lenders who do not respond within thirty days can typically be deemed to consent, provided the lender has been notified by certified mail (return receipt requested). (Fourth La Costa Condominium Owners Ass’n v. Seith, 159 Cal. App. 4th 563 (2008).) Most lenders simply do not concern themselves with the content of CC&Rs, so long as the CC&Rs do not affect their lien priority (which is provided by California law anyway).
Step #3: Be Proactive: Educate Members and Combat Voter Apathy
From the first distribution of documents to the owners for their review, until the ultimate meeting to tabulate the votes, the board may consider encouraging owners to vote in favor of an amendment or restatement by including reminders in newsletters, flyers, mailings or other forms of association media. That said, be aware that the law treats amendment votes like any other election, and issues like “campaign statements,” equal access to association media for opposing positions, and similar rights apply. (Wittenberg v. Beachwalk Homeowners Ass’n, 217 Cal.App.4th 654 (2013).) So, if the Board encourages a “yes” vote, rather than simply submitting the documents without particular encouragement, the board must be prepared to extend owners equal access to mailings and the like, even if they decide to campaign against the proposed documents.
If the board, from past experience, anticipates that voter apathy will be a problem, some boards find it beneficial to offer incentives during the voting campaign to encourage owners to submit ballots. For example, many boards have offered raffle tickets to those who return ballots, and after the meeting to tabulate the votes conduct a drawing for door prizes, such as gift cards. Tickets and prizes can be donated by local business establishments. (Of course, the raffle cannot be tied to “yes” votes – only to submitting ballots.) Another tool, if the board expects that quorum will be very hard to meet, is to include a “quorum only” option on the secret ballot, which can help obtain ballots from undecided voters. This will not help to pass the documents immediately, because it naturally dilutes the “yes” votes, but this at least allows you to count the votes to determine whether the project is generally approved by members or if additional revision or meetings are needed.
Perhaps the most useful tool is a “town hall meeting” of the members, where members have the opportunity to ask questions and voice concerns regarding the proposed amendments to the governing documents. Best practice is to schedule a town hall meeting at least thirty days after the members have been provided with the text of the amendments to ensure they have ample opportunity to review and formulate questions prior to the meeting. The board should also consider having legal counsel attend the meeting to explain the amendment process, the purpose of the amendment and to answer any questions.
Our experience has shown that the more educated members are about an amendment or restatement, and its purpose, the more likely they are to support it. The board members, as the elected representatives for the community, are in the best position to know what approach may resonate best with the membership.
Step #4: Don’t Give Up!
Recall that elections to amend governing documents must be held by secret ballot in accordance with the procedures set forth in Civil Code Sections 5100 et seq. The board may, in its discretion, extend the deadline to return secret ballots and reschedule the meeting to open secret ballots, count and tabulate the votes, provided the secret ballot reserves this right. The secret ballot itself should include language reserving the board’s right to extend the deadline, such as: “Any secret ballot not received on or before these deadlines cannot be counted, however, the board reserves the right to extend the deadline for return of secret ballots.” If quorum is not met, and the board determines to extend the deadline, timely notice should be provided to the membership.
The board should listen to the member’s concerns and evaluate the likelihood of a successful vote if the member’s requested (feasible) changes are made. If the vote fails, the board may decide to make viable changes based on member comments or concerns and attempt a second vote.
Should the vote(s) fail, pursuant to California Civil Code Section 4275, the Association may petition the superior court of the county in which the common interest development is located for an order reducing the percentage of the affirmative votes necessary for such an amendment, provided, among other things, more than fifty percent (50%) of the members voted in favor of the proposed amendment or restatement and the existing CC&Rs require approval by a supermajority of members. Before the Court may grant the petition, the association must also demonstrate, among other things:
(1) Balloting was conducted in accordance with the governing documents and applicable law; and
(2) A reasonably diligent effort was made to permit all eligible members to vote. The petition must include copies of any notice and solicitation materials utilized in the solicitation of member approvals.
At the end of the day, governing documents that clearly and effectively set forth the rights, duties and responsibilities of the association and its members, address the community’s unique and specific needs, and are consistent with the law will surely serve as a necessary vehicle to lead the association down the road to success. Comprehensive and clear governing documents are critical to the successful operation of a community association. Take the first step down the road to success today!
Brittany A. Ketchum is an associate attorney with Beaumont Gitlin Tashjian, where she counsels the firm’s clients on all areas of community association law. Ms. Ketchum works closely with managers and board members to evaluate risk to the association at all steps with the objective of avoiding and reducing liability, including internal conflict and liability claims. For more information, please visit their website at www.bgtlawyers.com.
