By: Laurie F. Masotto, Esq. (originally published in Fall 1999)
Annual meetings can be full of surprises, some pleasant, some not so pleasant. Some unique issues which can catch Boards of Directors and managers off guard often cause delay and strife. These can often be anticipated and checked into prior to the meeting so as to not cause disruptions. Some of the pertinent issues are as follows:
A Developer typically has “Class B “ voting during the initial stages of the development, in which the Developer receives 3 votes for every home owned (versus 1 vote for each home owned by a homeowner). This arrangement allows the Developer to maintain control of the Board and Association decision-making while the Developer has a vested interest in the development. Generally, at least one home must have closed escrow and be subject to assessments before voting rights are triggered, or there may be other triggers for commencement of assessments set forth in the governing documents. Before the annual meeting, the number of lots/units owned by the developer and whether voting rights have commenced should be verified. This may be done with the assistance of legal counsel.
Also, many governing documents require a “special election” procedure, whereby the owners have the right to elect at least one position on the Board, without any vote or input by the Developer. A separate election is typically not needed, and can be handled, for example, by the developer voting for one less position than is being elected, and leaving voting for one position solely to the members.
Often, a home will be owned by several people or a corporation, and a proxy is returned signed by one of the owners or representatives. Generally, the vote by one of the owners may be accepted, unless another one of the owners attempts to vote inconsistently, upon which the votes for the home should be voided, due to the conflict.
It is often asked whether a wife or husband who is not listed on the title with his or her spouse can automatically exercise that owner’s right to vote (i.e. without a proxy being given to such person.) The answer will depend on whether the governing documents afford voting rights solely to the “record owner”, which would mean the spouse listed on title. If the governing documents allow “owners” to vote, due to the fact that the State of California is a community property law state, the vote of the other spouse may be accepted unless the property is clearly owned as the spouse’s sole and separate property, and title was taken as such after the couple was married.
The Corporations Code and many Bylaws provide for a record date (a firm date) by which voting rights are to be determined. After the notice of annual meeting is sent out, a new buyer will often close escrow and will come to the annual meeting requesting a ballot. Unless a different record date is set by the Board, Corporations Code Section 7611(b) provides that members on the date of the meeting are entitled to vote. Thus, it is appropriate to allow the new owner/member to vote as long as the new owner is able to verify that he/she is the owner and has closed escrow, and provided the old member has not already voted by proxy.
Members Who are Delinquent or in Violation of Governing Documents
Inevitably, owners who are delinquent in payment of assessments, and who are otherwise in violation of the governing documents, such as a parking or architectural violation, desire to be nominated from the floor or request to have their name placed on the proxy. Whether the Association can prevent this owner from running for election will depend on whether there is a restriction contained in the governing documents limiting qualifications of candidates to those in “good standing” or similar language. If the documents do not contain such qualification, the person cannot be prevented from running. The documents may, however, be amended to incorporate such a qualification.
If the person is delinquent or in violation, the association may suspend their voting rights (i.e. the ability to vote for themselves). To do so, the association must give at least 15 days notice of the intent to suspend to the owner, and provide an opportunity for a hearing before the board no less than 5 days before the effective date of suspension. Thus, if the Association desires, they should send out suspension notices a few months before the meeting, and plan on holding hearings if the owner(s) so requests at least several weeks before the annual meeting, so that such suspensions will be in effect by the time of the meeting.
Later Dated Proxies
Upon an owner signing multiple proxies on the same issues to be voted upon, the later dated proxy will control, and all earlier ones are considered void.
Cumulative voting allows an owner to group all of his or her votes together and cast them for one candidate. An example is where there are three positions open for election, the owner has three votes and may give any candidate more than one vote (i.e. give all three to one candidate, or two to one and one to another.) When cumulative voting is not in effect, the member may vote for up to three candidates, giving them only one vote each.
The governing documents must authorize cumulative voting in order for it to be used. Be careful, as some documents only authorize this when there are more than two positions to be elected. If you have staggered terms (two elected one year, three the next and so on), this means cumulative voting will only be in effect every other year. To avoid mass confusion and error, the documents should either be amended to provide for cumulative voting if there are two or more being elected, or eliminated altogether.
Many communities are made up of sub-associations, with one master association overseeing certain property and activities for the entire development. These master associations often operate by a “delegate system”, whereby each sub-association elects a delegate to represent their interests and to vote on those members’ behalf at master association meetings. Most associations find this is an efficient and preferable method to achieve the business of the master association, rather than trying to garner votes from the entire community If a master association does not already have such system in place, it may consider amending its documents to do so. We suggest you consult with legal counsel in formulating an appropriate amendment.
Having knowledge as to these issues should hopefully help to avoid errors and embarrassment, and to make for smooth sailing. If you have any questions, feel free to consult your legal counsel.