Quick-change artists may need to cool their heels

Question: I live in a Torrance-area cooperative populated mostly by elderly shareholders on fixed incomes. Our association board is controlled by younger, power-hungry members. They hired an attorney to amend governing documents and then circulated fliers and newsletters saying the cooperative needed these changes to the governing documents to “protect the association.”

I believe the attorney and the board misrepresented the importance of such changes to shareholders. What does “protect the association” mean, and what about protecting the shareholders?

Answer: The association is a legal entity that is supposed to represent all the property owners in a common interest development.

Although the shareholders generate the money with which the association operates, the board of directors has a fiduciary duty to the “association” and not directly to the shareholder-owners. There may be instances when what may at first seem good for that enterprise may not be good for its members.

Amendments to governing documents must be presented to the owners in writing at least 30 days before any vote taken on proposed changes. However, without thoroughly reviewing the governing documents, it is impossible to discuss the effect or meaning of the changes as they relate to your project.

Changes made to “protect the association” are difficult to define because what may arguably protect one segment of the association may also cause problems for the shareholders, members or owners.

Boards and lawyers who make representations that changes are made to “protect the association” must first itemize each change in the proposed documents and compare them with the old documents. The reasons for the changes must be clearly spelled out so every titleholder or shareholder-owner understands why the change is being proposed and what “protection” the board claims it will provide. Any unsupported claims should be rejected and voted against until the rationale for each change is acceptable to the members.

Titleholders and shareholders should be given enough time to enlist legal advice to make their own determinations whether those changes benefit them and whether the importance of the changes has been misrepresented. Until that has been done, shareholders should categorically reject proposals that do not meet this minimal time and review standard.

Depending on your governing documents, it usually takes no more than 25% of the shareholders or titleholders to call for a special election to remove the board. Shareholders who blindly accept the legal ramifications of signing documents they do not understand get exactly what they’ve signed for -- including the consequences.

For those on a fixed income the consequences can be dire. But when owners fail to participate in the governing process and fail to challenge board actions as egregious as these, the message is one of approval.

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Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring .com.