How to Make Board Comply With the Rules
QUESTION: The board of directors of my homeowner association does not respond to letters from the owners. We have tried to obtain a financial statement for this year and the past year. The bylaws state that all owners are supposed to receive a copy of the audited financial statement at each annual meeting. However, the report has not been distributed for the last two years.
A lawsuit has been filed against one of the owners, but the board will not tell us how much money has been spent on the lawsuit.
Is the association accountable to any governmental agency? Does any agency monitor the association’s activities?
ANSWER: Though there are many laws contained in the Civil Code that dictate how community associations must operate, there is no state or local agency that has the authority to oversee them after the original sales are completed and the developer has departed.
Boards of directors are required to carry out certain duties on behalf of the association, but there is no enforcement other than peer pressure and sometimes legal action initiated by their fellow owners.
Community associations are supposed to operate as democracies, but unfortunately, the democratic process sometimes gets pushed aside or ignored by negligent, uninformed or power-focused board members. There are board members who say, “If you don’t like the way we’re running the association, sue me.” When that is the board’s philosophy, everyone’s investment suffers and democracy disappears.
Owners are often apathetic because they don’t want to make waves or they don’t want to take the time to correct a bad situation. They need to be reminded that their investment is threatened by a non-performing board. If one of the owners is selling a unit, a recent financial report must be provided to a potential buyer. The board could be held responsible if the proper financial reports are unavailable. The board’s negligence could cost the association members in legal fees or loss of value of their real property.
You have indicated that your letters requesting financial statements have been ignored. Have you contacted each board member? Does the association have a management company that might respond to your written request? Will the other owners join with you to pressure the board to fulfill their fiduciary duties?
If none of these alternatives is successful, seek the advice of an attorney who is well-versed in community association law.
Budget Information Must Be Supplied
Q: I live in a stock cooperative. Our fiscal year will end Dec. 31. Are the stockholders entitled to budget information if the monthly assessment is going to increase next year?
A: Yes, the California law that governs common-interest developments or community associations, Civil Code Sections 1350 through 1373, pertains to stock cooperatives and community apartment projects (“own your own” apartment complexes) as well as condominiums, homeowner associations and planned unit developments (PUDs). All community associations, large or small and incorporated or unincorporated, are governed by these sections of the Civil Code.
The annual budget, including the estimated expenses of both the operating fund and reserve funds, must be distributed to all owners between 45 and 60 days prior to the beginning of the fiscal year. The distribution of the annual budget is required even if the amount of the budget does not change.
Other disclosure requirements, which include the notice of the community association’s delinquency procedures for unpaid assessments, the association’s schedule of monetary penalties for violation of the governing documents and the summary of Civil Code Section 1354, can be distributed in the same mailing.
Is Association Liable for Handyman Injury?
Q: Our association employs a handyman who is probably an illegal immigrant without a green card. He is paid $7 per hour in cash at the end of each week. He sometimes pays his friends a small amount out of his own salary when he needs help.
If the handyman or his helper is injured while working for the association, could the association be required to pay the medical bills? The board president says that the worker is an independent contractor and, therefore, the association is not responsible. I cannot convince the other board members that we have any liability. What can you tell us?
A: The cheap labor that you are using could end up with a high price tag. Your association is violating a number of laws in addition to immigration law. First, it is doubtful that the worker would qualify as an independent contractor. Therefore, the association is responsible for payroll taxes, worker’s compensation, OSHA regulations and other employer requirements. If a complaint is filed, the association could be charged with heavy penalties for ignoring these laws.
Board members who ignore the law are not serving the best interests of the owners. Though I am not in favor of board recall in most situations, I recommend board recall in this case if the board refuses to obey the law. The owners should petition for a recall vote as soon as possible. It will take some effort on your part to get the support of the other owners and make the board recall successful.
Hickenbottom is a past president of the Greater Los Angeles chapter of the Community Associations Institute (CAI), a national nonprofit research and educational organization.
