Don’t Cut Board’s Liability Insurance to Save Expenses

QUESTION: We are part of a homeowner association with 14 single-family homes on a private street. The president of the board of directors wants to discontinue the directors’ and officers’ liability insurance to save money. I fear that no one will want to serve on the board if we have no insurance to protect the board from lawsuits. Is this legal? What do you advise?

ANSWER: Your board president’s idea of cutting insurance costs is unwise. The association needs the protection of the directors’ and officers’ insurance.

Many associations are required to have this type of insurance. Check your declaration (CC&Rs;) and bylaws to see if this coverage is mandatory.

I advise every association, regardless of size, to purchase directors’ and officers’ insurance, which may protect the association from errors and omissions claims and lawsuits. Consult your association’s insurance agent and attorney for further advise.

Are Realtors on Board a Conflict of Interest?

Q: In our condominium association, two of the five-member board of directors are real estate agents. One is a non-resident and rents her condo to tenants. She specializes in sales and rentals in our condominium complex.

Would this situation be considered a conflict of interest?

A: The two real estate agents may be responsible, conscientious board members. The fact that they are real estate agents does not mean that there is a conflict of interest.

However, I can think of several examples of board decisions that might bring up the appearance of a conflict of interest. If the board is voting on any issues affecting sales and rentals, both agents should refrain from voting.

Something must have triggered your concern about this. Are the agents wanting to keep the annual budget low so that buyers will be attracted by the low monthly assessment? Are the agents lax about rule enforcement against tenants? Are other decisions being made that lead you to believe that the agents are interested in their own income from resales and rentals rather than the well-being of the association?

Board members have the obligation to ask themselves, “What is best for the whole association?” They should then put their own interests aside when making decisions. Of course, some people can do this better than others.

If any board member is acting for their own financial gain or self interest, the other board members should question the actions and decisions of that board member and try to avoid the appearance of a conflict of interest. Homeowners have the right to review board meeting minutes to ascertain if conflict of interest appears to be clouding any board policies or decisions.

Laws on Homeowners’ Rights in Library

Q: In the Sept. 12 edition, your column discussed the California Civil Code Section 1363 regarding homeowners’ rights and the California Corporations Code Sections 8330 through 8338 regarding members’ access to records.

I am a condominium owner in the Coachella Valley. I would like to know how to obtain copies of these laws.

A: The cheapest way to obtain copies would be to visit your neighborhood library. Most libraries have a reference section where you could find the California statutes and they often have photocopy machines for readers’ use.

While you are there, I urge you to read all of the Davis-Stirling Common Interest Development Act, which runs from Section 1350 to 1373 of the Civil Code. These sections of the code pertain to operation and management of common-interest developments, including condominiums, community apartment (own-your-own) projects, planned developments (homeowner associations) and stock cooperatives.

Is Board Obligated to Update Bylaws?

Q: Our association’s legal documents have not been updated even though state laws have been adopted that are in conflict with our association documents.

I am concerned about new owners who may not be aware that the state laws supersede our association’s outdated declaration and bylaws. Does the board of directors have an obligation to inform the owners? Should the association’s legal documents be amended? Should a copy of the Davis-Stirling Act be attached to the declaration (CC&Rs;), bylaws and rules and regulations that are sent to new owners?

A: In a few instances the Civil Code defers to the association’s documents, but in most cases, the state law would supersede your association’s documents that are in conflict with the law.

Since the Civil Codes pertaining to community associations are being amended every year, it seems that it would be costly to amend the association’s documents every time a new law or amendment is passed.

In my opinion, the association does have an obligation to inform the current owners and prospective purchasers that state and federal laws take precedence over any provisions in the association’s documents that are in conflict with those laws. There have been frequent amendments to the Davis-Stirling Act in recent years. If you decide to provide copies to the owners, be sure to obtain an up-to-date version for distribution.

The board of directors should consult the association’s attorney regarding the association’s obligation to disclose the outdated provisions or amend the legal documents. Amending the legal documents would require a vote of the owners. Bylaw amendments usually require the approval of at least 50% of the owners. Amendments to the declaration (CC&Rs;) usually require the consent of at least 66% or 75% of the owners. In addition, lender approval is often required.