October 2006

FYI - October 1, 2006

Solving Problems Not Covered By the New Elections Laws

There are some problems that may come up in the coming months and years - and the new elections law kind of complicates them. Maybe we can brainstorm some solutions for you before it happens. This is a real question sent to me recently: I am on the Board of Directors for ***. We have just had our elections for Board of directors (3 openings). We have voted in 2 board of directors and had a tie for the third one. We took another vote with only the two names on the ballot, and again we had another tie. What is the procedure for having a tie breaker? I cannot find anything written regarding tie votes on elections. Please help.... Tie votes have happened in the past so they are not new. However, when there was a tie in past elections and the association was using proxies, an association could have a runoff election the same night as the meeting. In fact, the Association could have two runoff elections the same night. Now, under the new laws, in order to have a runoff election it appears to me that the Association needs to close the meeting, prepare new ballot packages (of the double envelope secret mail variety) and mail them out to the members, appoint inspector(s) to receive and count the ballots, hold the counting at another meeting (board or membership) and hope for the best. Sometimes there might be another tie, and another, etc. etc.

So when there is a tie, what is the procedure for a tie-breaker? These are possibilities that come to mind:

Vote again. Ask the volunteers subject to the tie to agree to flip a coin. Ask either to step down. Ask another board member to voluntarily step down so the two candidates in the tie can both serve. Go to court and ask for a determination. Take the next best vote getter for the Board.

If the Board does anything other than a runoff election, or go to court (an expensive endeavor), it seems to me that the candidate not getting the position because of the tie can cry foul and challenge the Board and the election. Sometimes the volunteers in the tie might be willing to step down, why not ask? Sometimes another board member might step aside to let new blood in. Why not ask? Sometimes the "contestants" might be willing to agree to a coin toss to settle as a tiebreaker, especially if they want to prevent protraction of the problems.

Here is another one: We have never had a real election because as far back as I can remember, we have not had enough volunteers to need a vote. The same board members have been serving for about 15 years.

So the question arises as to whether an Association needs to go to the expense of sending out a ballot under the new law if there are no nominees, or not enough for a "contest". It's a tough call. If the Board does not send out a ballot, any member of the association can challenge the election. It only takes one. Of course, if that one (and all others) are given a fair chance to step up, and the Board can prove by showing it sent communications to all owners asking for candidates, maybe the challenge will fail. Sending a ballot out before an annual meeting with write-in blanks seems a reasonable solution, because even if there are not enough candidates for a contested election listed, the Board tried in good faith to comply with the law. On the other hand, it may make more sense to give members notice that the Board is considering sending the ballot out after the annual meeting, and plans to use the meeting to generate interest in serving. Then, the Board can try to pump up the interest to get candidates and do the ballot thing after. Which process is more likely to win over a hearing officer if there is a challenge? If one or the other leads to a real election, the Board wins. If one or the other or both lead to deeming board seats filled by acclamation, it's hard to tell what a hearing officer would do. The same applies to the situation where a board tries and tries to get a quorum of ballots for the election of directors. Can they appoint? I would say that's a reasonable response to a difficult problem. I believe the key is "good faith" because staying "legal" is not always an option. But only time will tell if I am right.


September, 2006

FYI - SEPTEMBER 1, 2006 -

USE OF PROXIES AND MEETINGS UNDER NEW ELECTIONS LAW

Another month is gone by. Summer is gone. Where did it go? This is but another FYI on the new elections law. I hope this is the last! I know you all are tired of hearing about it. I am too. By this time, the association and managers that keep up on the news have no doubt either considered having election rules written, have had them written, or have decided to forgo election rules because of the complexity or cost, or based on lack of human participation in their association. Those that have been in the dark (the vast majority) will remain in the dark indefinitely, until one owner in the Association ends up educating themselves and then knows more than any board member does. The new California statute says that associations shall adopt election rules and require certain subject matter be included. That's the only part of the statute that is fairly easy to comprehend. From thereon, it's all downhill.

I last sent out in an FYI a sample envelope process with proxies. However, SB 1560 which is now in the Governor's desk and should be signed soon basically does away with the need for proxies at least as it relates to counting the ballot packages, as the new law provides that ballots that are returned under the new system can be counted toward the quorum requirements. Thus, that helps with the quorum requirements. And, if done only by mail that helps with the election quorum. However, don't rest too easy. If measures are voted in a meeting that are not on the ballot (such as approval of the prior years meeting minutes) and you have the election for directors by mail and the ballot and meeting are not tied together, there is no way to establish a quorum at the meeting without proxies. And the other thing is that if the Board eliminates proxies and it fails to have any discussion about proxies and someone comes to a meeting with proxies, the Board and the Inspector of Elections will need to know what to do about that. Many documents say that a person may vote in person or by proxy, and so therein is a lurking challenge to the election that does not provide for proxies. Maybe the quorum issue is taken care of for your association because SB 1560 also says that no meeting is required for the election unless the governing documents require a meeting. Many documents do require an annual meeting for election of directors but most documents to not require a meeting for the other elections subjects. If your documents require a meeting or require that the board election be held at the meeting, then members can be told to bring their voting packages to the meeting and turn them in at the meeting or, instead of using proxies, to validate their packages and give them to another to fill out the ballot. But if an owner brings proxies to a meeting, the Board must know how to handle that. There are ways to accommodate that, and ways to prepare if the Board is not going to accept proxies, but you probably need help with that.

The other question is whether nominations from the floor should be allowed. If the documents say any owner has the right to nominate a candidate from the floor, and the Board does not allow it, that could be challenged. However, in some documents the language is that nominations from the floor may be taken (hence, that is not a mandatory order to take nominations from the floor). I would like to uncomplicated things and do my best to do that in the rules and procedures I write. By uncomplicating the election rules, I do not mean shorten them; what I mean is to provide explanations of how to handle some of the things that are not explained in the statutes, like dealing with apathy in candidates or apathy in voting, or how to protect the association from challenges based on the old way vs the new way.

I see some potential pitfalls to disregarding proxies altogether, as described above, and in elections processes. So I believe Board is better off to have good election rules that explain how to cope and provide procedures. And I believe that Inspectors need to know what to do if indeed someone brings proxies to a meeting or makes a challenge based on presumed entitlement to nominate from the floor. But, associations have choices as to whether to try to prepare ahead of time for the usual pitfalls that beset the Board, or to wade through an election and emphasize (and argue) the shortcomings and difficulties of dealing with the new statute at a hearing on the elections process. Of course, there will only ever be a hearing if an owner objects to the process, and if everyone in your association appears brain dead for lack of participation, you may be ok without professionally drafted rules.


August, 2006

FYI - August 1, 2006

A LITTLE MORE HELP WITH ELECTIONS - SAMPLE PACKAGE WITH PROXY

The enclosed is part of my package of election rules that combines a proxy with the ballot package and some envelope instructions. My process simplifies use of proxies if you want to use them. (Note, this was written before SB 1560 was signed into law. Please see the next FYI and also the link to "Proxies -What's the Scoop" for more proxy explanation on the first page related to elections. You may or may not want to distribute proxies. ) If you do not have a rules package yet, you need to get one. See proposal on the website above, or email and ask for one.

INSTRUCTIONS FOR THE VOTING PACKAGE ENVELOPES:

SMALLER OF THE TWO IN THE PACKAGE:

The following statement is to be placed on the smaller blank envelope that the ballot goes into (no other markings).

PLEASE PLACE YOUR BALLOT IN THIS ENVELOPE AND SEAL IT. THEN, PLACE THIS ENVELOPE INTO THE LARGER ENVELOPE ADDRESSED TO THE INSPECTOR OF ELECTION AND SEAL THAT ENVELOPE....

If using a ballot box, the statement would include: "[or] PUT IT IN THE BALLOT BOX THAT IS LOCATED at___________________________________________".

OUTER ENVELOPE FOR INSPECTOR

ON FRONT SIDE, PUT THE ADDRESS OF THE INSPECTOR, OR WHERE THE BALLOT PACKAGE SHOULD BE SENT OR DELIVERED.

ON THE FRONT SIDE, UPPER LEFT CORNER: either affix a label or have the area printed with the following, in the area where the return address would normally go:

OWNER NAME_______________________________
PRINT PLEASE

OWNER MAILING ADDRESS

ADDRESS:____________________________________________________________

______________________________________________________________________

IDENTIFIER OF PROPERTY - LOT/UNIT NUMBER:__________________________

OWNER SIGNATURE:___________________________________________________

ON THE BACK OF THE ENVELOPE ADDRESSED TO THE INSPECTOR - you might have the proxy (if you want to include a proxy) printed on it with the envelope flap down or below the flap. AS FOLLOWS:

________________________OWNER'S ASSOCIATION PROXY

The undersigned, a Member of the above HOA, hereby appoints ____________________ as my/our proxy. If no name is filled in, the Inspector(s) of Election shall serve as proxy. My proxy, if other than the Inspector(s) shall vote on my behalf according to my instructions given separately. If my proxy is the Inspector(s), the instructions are to count/tabulate the secret ballot enclosed as cast by me. In any event including if the ballot is blank when it is turned in to be counted, and no choices may be made, this proxy is to be counted toward the quorum. I understand the ballot once provided to the Inspector(s) is not revocable.

__________________________________

Printed Name:____________________________
Signature

__________________________________________________________
Lot/Unit Number and/or Street Address

Date:_________________

_______________________________________________________


July, 2006

FYI - July 1, 2006

A LITTLE MORE HELP WITH ELECTIONS

Many of you have your elections rules done or in the works. Some are waiting until the law is settled. SB 1560 which is the cleanup for the elections bill was amended again June 20, 2006. It is anticipated that it will be signed into law as an URGENCY BILL and take effect along with the Elections law on July 1, 2006. It is important that you are aware of these things.

This is what the bill does (with commentary on the benefits of the changes):

  • requires rules to state qualifications for directors that are consistent with the governing documents (meaning essentially that you cannot add qualifications that are not already in your documents - the italics are added language, non italicized language is current status);
  • allows an election to be conducted entirely by mail (without a meeting involved except for the counting of ballots) unless otherwise specified in the governing documents.
  • allows inspectors of election to appoint or oversee additional persons to help count ballots (must be "independent" of board members and/or candidates in a board election) - this is new;
  • authorizes a secret ballot to be distributed and voted upon by the membership without a meeting;
  • makes proxies discretionary (up to the Board) and says they shall not constitute a ballot;
  • provides that a secret ballot is not revocable after received by Inspector(s) of election (clarifying what was already believed to be true);
  • clarifies that a quorum is required for an election under the statute if stated in the bylaws or other governing documents or other provision of law, and permits a ballot received by the inspector of elections to be counted toward the quorum requirement. (The italicized language is new and is very important to establishing a quorum.)
  • says cumulative voting should be used with the secret ballot process, if cumulative voting is provided for in the governing documents - my recommendation is that it be noted in the election rules for director elections);
  • provides that owners shall in the upper left hand corner of the second envelope, sign his or her name, indicate his or her name, and indicate the address or separate interest identifier that entitles him or her to vote (which is intended to clarify owner instructions) - you can put a label on the return envelopes with blanks to help;
  • allows the Inspector to verify envelope information and signature prior to the election (which is important in a large association - but does not allow the envelopes to be opened prior to counting),
  • eliminates the requirements of the secret ballot for delegate voting (important to associations that use delegate voting); and
  • tries to resolve conflicts with Corp Code by stating 1363.03 controls if there is a conflict (helpful in arguing what controls, but not a complete fix since the new law uses some Corp Codes and not others).

What it does not do:

1. Resolve issues related to apathy and a lack of candidates for elections.

2. Resolve the question of how an Association is supposed to deal with candidates who have nominated themselves but do not qualify.

3. Provide any guidance as to how an association could combine the mail system with the association meeting process.

You will need to look to your legal counsel to help with these 3 items. The election rules drafted by me allow various options for Boards that cannot get enough candidates to run for the board or enough votes to get a quorum. Different Associations will approach this in different ways. Some will keep calling meetings or go door to door until they get a quorum for any of the actions or elections and some will simply use other options such as acclamation or appointment if it is too difficult to get enough interest from the members to have a valid election. The unresolved question is how much effort is required before an Association can use acclamation or appointment instead of continuing to attempt to get the members to volunteer, or vote. Only the test of time will tell what success some owner might have in challenging an election process that is hindered by serious apathy.


MAY - 2006

FYI - May 1, 2006

Copper Pipes - Pinhole Leaks - A Look Into the Future

I recently attended a National CAI (Community Associations Institute) Conference in Palm Springs and also an APRA (Association of Professional Reserve Analysts) Conference which conveniently enough, were scheduled back to back. Presence at these functions lead to, among other things, some new information (for me at least) related to copper pipes and pinhole leaks. Why should I care about that? Because I often get called upon to assist associations that need to get loans or get approval for assessments to replace copper pipes that are leaking. I learned about a new method for dealing with pinhole leaks that is much less invasive than pipe replacement and thought this might be interesting news for readers.

I learned about companies that provide the service of coating copper pipes with epoxy as an alternative to replacing copper pipes. Why is this important? As I understand it, after talking with 3 vendors (two of which spoke at one of the two conferences), water quality statutes are requiring more chlorinates (is this the right word?) in the water. And the higher chemical requirements wreak havoc with copper pipes. The various vendors pointed out what their processes involved and (what appeared to be) miraculous results with a process that does not require replacement of pipes. The process from a "lay" perspective is that they check the pipes, and if it is determined that there are pinhole leaks, drain, dry and sand the inside of the pipes, and then shoot epoxy into them with a process that causes the epoxy to coat the inside of the pipes. If they find larger leaks, they use more traditional methods of repair.

The idea that there could be a fix without the disruption of homes, lives and systems was quite encouraging. And some of the vendors claim that doing the project in phases allows for a turn around within a day - in other words, turn the water off in the am, and have it back on at night. Given the disruption, arguments over move out costs, and arguments over build back, this process seems to me to be a gift from ... well, ... the pipe gods. The companies with whom I spoke had some very favorable references. The "fix" has been done in some very notable historic buildings which could not have used the traditional fix of pipe replacement.

One of the vendors compared the costs to this process to pipe replacement when the contract calls for build back. It is the build back that escalates the cost of the pipe replacement, apparently, and it was my impression that if build back is not required, the pipe replacement might be less expensive. Whoa now, though, don't assume that requiring the owners to do their own build back is the solution to any cost issues. The legal fees fighting that battle may pay for the pipe replacement or epoxy fix.

Pipe leaks are a nagging problem and the costs are high when they are prevalent, not just in the repairs, but in the fights over who pays for the hardwood floor replacements, the carpets, couches, furniture, fixtures and mold remediation when a slab leak leads to other issues. AND when they lead to a negative claims history and difficulty in procuring coverage. At one of the seminars, I heard that Associations all over the country are getting letters that the insurer is going to a "one leak" rule - meaning if there is one slab or other leak claim, the coverage will cease as to water leaks. Many policies in California already exclude water leaks and mold.

And apparently, the existence of copper pipes in either older or newer developments will subject the owners to leaks equally because of the changes in water running through the pipes, the makeup of which is changing to satisfy EPA requirements. Some of the vendors had been contacted for pipe leak issues that erupted in pipes less than two years old. Apparently, what I was told (but who am I, just another lawyer - maybe a gullible one) that it takes longer for the older pipes to suffer from the new water, because of the years of buildup of something called "bettina". So new pipes may be even more vulnerable.

Perhaps this new and what seems innovative practice will take off; perhaps people will continue to feel safer with a traditional fix. I am just a purveyor of information that I think might be helpful. If you are interested in doing the research, check out google for copper pipes alternatives, epoxy coating, etc. Do the homework, go to trade shows and talk to vendors, whatever it takes, if you are interested in exploring this technology.


FYI - MAY 2006
RECORDS RETENTION CHART

I trust that you are all aware that new records inspection requirements go into effect on July 1, 2006. You can get the full scoop on my website (above). There is a link on the front page to "Records Inspection After AB 1098. There is even a sample policy for you to consider, with some blanks. Many people ask about how long records need to be retained. The following chart should help.

TABLE FOR [SUGGESTED] RETENTION OF RECORDS*
copyright 2006, Beth A. Grimm, P.L.C.

Item IRS CPA (WG) ATTORNEY (BG)
Minutes Of Meetings NA NA Permanent
General Ledger Permanent Permanent Permanent
Financial Statements Permanent Permanent Permanent
Fixed Asset Purchases Permanent Permanent Permanent
Loan Payment Schedules 7 Years 5 Years After Payoff
Tax - Related Records 7 Years 7 Years At Least 7 Years
Retirement Plan Reports - IRAs Permanent Permanent Permanent
Developer Disclosures Permanent Permanent
Deeds Permanent Permanent
Title Insurance Policies Permanent Permanent Permanent
Real Property Records Permanent Permanent
Lease Records Life + 4 Permanent Life + 4
Construction Records Permanent Permanent Permanent
Maintenance Records On Property And Common Area Permanent Permanent Permanent
Insurance Policies Life + 3 Years Life + 3 Years
Insurance Claims History 4 Years 4 Years
Loans Term + 7 Years Term + 7 Years
Bank Records, Statements And Deposit Slips 7 Years 4 Years 4 Years
Brokerage Statements, Mutual Fund Reports, Investment Documents Ownership + 7 Years 0 + 7
Documents Related To Architectural Changes Permanent Permanent
Building Drawings And Blueprints Permanent Permanent
Home Improvement Receipts And Cancelled Checks Ownership + 7 Years 0 + 7
Governing Documents Permanent Permanent Permanent
Inventory And Expense Records 7 Years 4 Years 7 Years
Contracts Retain Until Superseded Life (Incl Warranty Period) + 3 Years, And Perhaps Longer If A Possibility Of Litigation Ensues
Disciplinary Action Letters-Owner Files At Least 5 Years From Date Of Incident (Perhaps Longer For Chronic Offenders)
Billing And Collection Documents 4 Years 7 years
Membership Meeting Notices And Agendas, Check In Sheets 4 Years One Year, Since That Is The Period For Challenge To An Election
Ballots From Any Election 4 Years One Year, Since That Is The Period For Challenge To An Election
Association Meeting Minutes - Open And Closed (Executive Session) Meetings Indefinitely, And In A Separate Minute Book As Well As In The Corporate Records For The Board, CPA And Other Uses
Minutes Of Committee Meetings Life Of Commit-Tee + 5 Except That ACC Meetings, At Least 10
Corporate Tax Returns And Other Tax - Related Communications At Least 7 Years
Operations (Items Like Blue Prints, Building Drawings And Details Of Additions Or Modifications, Major Component List) Life of Project

*This Chart Is Compiled From A Comparison Of IRS Guidelines, Those Provided By Walt Grady, A Local CPA Knowledgeable About CID Accounting Issues, And Beth A. Grimm, From A Legal Perspective. It Is Merely Meant As A Point Of Discussion, Each And Every Person Who Uses It Should Do It Only With The Advice Of Individual Or The Association's Legal Counsel.

WATCH THE WEBSITE FOR CLASSES FOR BOARD MEMBERS ON THESE AND OTHER STICKY ISSUES.

By Beth A. Grimm, Attorney. A "service oriented" attorney and member of ECHO and CAI and various other industry organizations in California and nationally, host of the website www.californiacondoguru.com; two Blogs: California Condominium & HOA Law Blog, and Condolawguru.com Blog, and author of many helpful community association publications which can be found in the webstore on her site.