‘Ratification’ Is Fraught With Peril
Question: There are 50 units in our planned community development encumbered with deed restrictions. The board pre-plans each annual homeowner association meeting so members are unable to fully participate. Board members enlist friends to make predetermined motions and seconds from the floor. To create a rushed environment, meetings are held in a public place with time restrictions.
At last year’s annual meeting, a friend of the board made a motion from the floor to ratify all the actions of the board for their two-year term, and another friend of the board immediately seconded it. In my 30 years of attending annual meetings, this was the first and only time a motion to ratify was made. Most of us did not know or understand the meaning of “ratification,” and the board did not explain.
The board’s goal was to hurry a ratification vote because of unscrupulous actions taken throughout their two terms. The vote ratified those actions.
Members asked questions about the management company, our bank records and the various contractual agreements that were made and were matter-of-factly told, “We are the board, and the law says homeowners don’t have a right to know, so we don’t have to tell you.” Some voted against it, but the majority were pressured into voting for ratification, even though they had no clue what it meant or what they were voting for. The management company was present and documented each vote. I kept my own tally.
At this year’s annual meeting, a motion was made to amend last year’s minutes to include the ratification vote breakdown. The board refused and said it don’t know what the last annual meeting votes were and that no one kept a tally.
I find its actions suspicious. What is ratification, and did I do the right thing in voting against it? How does this ratification vote affect the homeowners who voted for or against it?
Answer: “Ratification” is arguably the most dangerous word associated with deed-restricted property located within a common interest development or planned community setting.
In the corporate and legal sense, ratification means approval of all board actions, even if those acts were unauthorized, fraudulent or incur liability to the association and all its homeowners.
After the vote for board elections, a ratification vote is probably the most important vote homeowners can make, and it has far-reaching implications for all homeowners. Merely asking that the board’s acts be ratified is not enough to warrant voting in favor of ratification.
Should a lawsuit against the board result from a breach of that contract, the entire association may be liable, because it has ratified the board’s actions.
Acts that might be illegal and result in liability only for an offending board member can lead to liability for every homeowner if those acts are ratified.
Among the legal requirements for ratification is a full explanation of what act is being ratified. California courts have said that regardless of the capacity to understand transactions, one must have notice of those transactions before he or she can be held to assent to them. Notice means the board has the duty to describe in detail every act for which ratification is being sought and deliver that description to each homeowner who is being asked to ratify.
Although there is no specific wording in the Davis-Stirling Act requiring that board acts be ratified or requiring this type of notice, the cases interpreting ratification votes make that notice requirement mandatory. The board’s failure to include in the minutes a record of the vote on ratification may be indicative of its efforts to hide actions that could conceivably result in homeowner liability.
Although no law requires the board to maintain voting records for any time period--and the California Senate recently rejected such legislation after near unanimous passage by the Assembly--your board’s admission that it did not keep the votes could establish that the parameters for approval or ratification were not met.
If the homeowner does not understand the actions being ratified or the board fails to explain them satisfactorily so that homeowners are confident voting for ratification, then rejection is the homeowner’s safest option.
A legal parallel is when one co-signs for a loan and the borrower defaults. It is the co-signer who has to pay. The same applies to homeowners when a board member signs a contract without authority, then later asks for ratification. When homeowners ratify that act, they have figuratively become “cosigners,” making them liable.
Though there are exceptions, if you don’t know what you are ratifying, because your association has not identified each of the acts for which they were seeking ratification, the vote could be invalid.
*
Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian is a writer and arbitrator and manages commercial property. Both live in common interest developments and have served on various association boards. Please send questions to Common Interest Living, P.O. Box 451278, Los Angeles, CA 90045 or e-mail CIDCommonSense@aol.com.
