– By Mark T. Guithues, Esq. (originally published in Spring 2002)
For those of you who are new to serving on a board of directors of a homeowners association and, yes, even those of you who have served for many years, it is important to review and understand the basics of conducting association business. The laws governing the mechanics of conducting homeowner association business (holding meetings, taking minutes of those meetings and maintaining association records) is contained within the California Civil and Corporations Codes and sometimes can be rather confusing. The following is a general guide of the pertinent governing laws, as well as the mechanics behind conducting association business.
Meetings Don’t Just Happen.
According to the Common Interest Development Open Meeting Act (“Open Meeting Act”, California Civil Code Section 1363.05), you may be having a meeting right now. If you are reading this to a friend who also serves on a three member board, while discussing association business, you probably should have provided notice of the meeting and be taking minutes. Moreover your decisions, brushed off during a future, properly noticed, meeting as having been made “in executive session” or “a past meeting” may not be valid . . . or legal . . . or defendable. The point here is not to scare board members, but to emphasize that association boards, no matter how small or large, have an obligation to properly notice meetings, keep minutes reflecting their decisions and make these records available to those who seek understanding of what is happening within the association.
Necessity, Notice. The necessity for board meetings largely arises out of California Corporations Code Section 7210. This section mandates that the “activities and affairs” of a corporation shall be conducted and exercised “under the direction of the Board.” This precludes decisions made at the direction of an individual board member. Notice for regular board meetings, unless otherwise indicated in the documents, is unnecessary if the time and place are fixed by the bylaws or the board (e.g., “every third Thursday”). Nonetheless, we advise posting notice a week ahead of time. Special meetings “shall” receive at least four days notice by mail, or 48 hours by personal notice, despite alternative language in the bylaws. (Corporations Code Section 7211(a)(2)). Emergency meetings (a creature of Civil Code Section 1363), do not require prior notice, but are limited to those meetings which are called to authorize action on matters which “could not have been reasonably foreseen.”
Board Members’ Participation in Meetings. Under California Corporations Code Section 7211(a)(6), board members may participate in a meeting in person, by conference telephone, video conference, or any other equipment which allows each board member to freely communicate with “all of the other members concurrently.” This includes the capacity to propose motions, interpose objections and vote. If appearances are to be made in this manner, the corporation has an obligation, until January 2003, to “adopt and implement” a means to verify the person participating is the director and that the director (not a third party) is the one voting.
Members’ Attendance at Board Meetings. The Open Meeting Act sets forth requirements regarding members’ attendance at board meetings. Subsection (b) requires a board to allow any “member” to attend a board meeting, (but not executive session). We do not believe this requires a board to accept tenants or counsel in lieu of the member. Subsection (i) requires that the board allow a member to speak – but with a “reasonable time limit. Please note: this does not require the board to endure lengthy character assassinations or diatribes loaded with profanity. This also does not require that members be given an opportunity to participate in the board’s deliberation on pending motions.
Executive Sessions. Executive sessions are strictly limited to situations when the board wants “to consider litigation, matters relating to the formation of contracts with third parties, member discipline, or personnel matters.” Care should be taken to verify that matters which are more appropriately addressed in regular, special or emergency meetings are not discussed in executive session. That said, most association business arguably can be made to fall into one of these four categories. There is a split of opinion as to whether motions may be made in executive session. Those against argue that the board is simply adjourning from the regular meeting “to consider” the matters listed above. Those supporting executive session motions argue that these types of motions are not specifically precluded in the Open Meeting Act, and, furthermore, the statute does not limit the time, place or manner of making such motions. An easy solution is to reach consensus in executive session, then make or affirm the motion in regular session.
California Civil Code Section 1363(d) requires member meetings be conducted in accordance with a “recognized system” of parliamentary procedure. We advise boards to resort to same on any contentious topic.
There is no doubt that homeowners associations are required to keep written minutes of the proceedings of its members, the board of directors, and its committees (Corporations Code Section 8320). Largely unaddressed by statute is what should be included in the minutes.
What to Include. The purpose of minutes is to record association business taking place at membership, board and committee meetings. Minutes should reflect, and in our opinion, be limited to: the type of meeting (member/ board/ committee); the place held and time started; the people present (membership collectively at members’ meetings; board members and other consultants/managers present); general nature of reports given (e.g., financial, landscape committee); motions proposed, including who moved and seconded or abstained from the motion and whether the motion carried; a general description of any items tabled for the next meeting; the general nature of comments made by members during open forum; and, finally, the time the meeting adjourned.
Less Really is More. Remember, in any potential future litigation involving the association, minutes can and will be used by opposing counsel against the association. Since homeowners and board members are not experts, it is improper and often problematic to include opinions regarding certain issues. For example, when reporting a problem with a component of the project, such as a roof leak, the general type of problem should be noted, but not a homeowner’s or board member’s opinion of the cause of the problem. Additionally, minutes should not be used to “punish” those members who are in the midst of disciplinary action, or who are delinquent in payment of assessments. Rather, if any action is required to be taken with respect to an account, only the account number should be referred to. (An example is: “Management was directed to start violation proceedings against account #123 in connection with parking of a vehicle.”). If a homeowner requests that his or her statement be included in the minutes, the chairperson of the meeting should respond that while the comments are appreciated, the board cannot accept requests for inserts in the minutes, as this is not the purpose of the minutes.
Executive Minutes. There are two schools of thought on executive minutes, somewhat divided along the line of the aforementioned dispute regarding the propriety of motions in executive session. The language of Civil Code Section 1363.05 (c) provides that “any matter discussed in executive session shall be generally noted in the minutes of the board of directors”. Thus, separate executive session minutes are usually inappropriate. On the other hand, some practitioners want a record created regarding motions which are made, discussed and carried in executive session. To the extent that a board member desires to abstain or oppose such a motion, such results may be recorded. Otherwise, explicit notations reflecting discussion held in executive session are potentially a liability.
Finally, if the executive session is not held in connection with a regular meeting, the general nature of the executive session and any motions made should be referenced in the next meetings minutes or contained in short written notation and kept with the association’s regular minutes in a sealed envelope.
An association’s obligation to release corporate records is primarily guided by California Civil Code Section 1363(f) which provides that the general membership is entitled access to association records in accordance with pertinent California Corporations Code sections commencing with Section 8330.
Member Lists. Corporations Code Section 8330 allows members to ‘inspect and copy’ or ‘upon written demand and tender of a reasonable charge” obtain from the secretary of the corporation a list of names, addresses and voting rights of those members entitled to vote. The demand must state the “purpose” for requesting such a list, which purpose must be consistent with the members interest as a member and may not be used for purposes set forth in Corporations Code Section 8338 (e.g., used to solicit money or property , commercial purposes, etc.). The association may avoid release of the list by provision of a “reasonable alternative” which generally means offering to mail whatever document the member wants to mail to the members, at the requesting member’s cost.
Books, Records, Minutes. Corporations Code Section 8333 provides members access to the “accounting books and records and minutes” of board and committee meetings. This should be not be confused with the director’s right of inspection contained within Corporations Code Section 8334, which includes “books, records and documents of every kind.” The issue is the breadth of accounting books and records and how that differs from “documents of every kind”.
One issue that is often raised when responding to a member’s request for association records is whether the association can charge the member for fees incurred in producing those records, other than photocopying costs (e.g., charge for having to research the minutes to find which set the member is requesting.) In 2001, a California Appellate Court discussed this issue, in Moran v. Oso Valley Greenbelt Assn. In the Appellate Court’s opinion, this association was unable to charge the member for fees incurred in producing board meeting minutes, other than photocopying costs. The court was influenced by testimony of an expert witness who stated that management companies keep minutes readily available in order to provide the prompt review required by the Civil Code and Corporations Code, and it would be improper to charge members for the costs of storing and retrieving the minutes. The expert further stated that the Association’s record keeping practices were aberrant and outside industry norms. The association failed to provide any expert witness testimony to contradict these claims. Therefore, in responding to a request for association minutes, if the records are poorly kept so as to cause additional fees in preparing the documents for inspection, associations may not be able to charge those costs back to the requesting homeowner. All associations should have a policy setting forth the procedure and costs regarding the inspection and copying of association documents to provide to its members.
In Conclusion: Association business does not just happen. No matter how small or large your association may be, board members have an obligation to properly notice meetings, keep minutes reflecting their decisions and make these records available to those who seek understanding of what’s happening within the association.