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Adams | Stirling Newsletter – Regulating Bicycles

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  California’s Leader in Community Association Law October 28, 2018
REGULATING BICYCLES
ON BALCONIES

QUESTIONCan an HOA prohibit keeping your bicycle on your own balcony?

ANSWER: It is common for associations to regulate what can be kept on balconies, including bicycles.

Nuisance. Without rules, people would hang laundry over balcony railings and store refrigerators, weight lifting equipment, boxes, etc. on their balconies. Some put chicken wire around the balcony to turn it into an aviary. Others turn their balconies into mini-rain forests with hundreds of hanging and potted plants. They aggravate neighbors and damage balconies.

Reasonable Rules. The key to rulemaking is making them reasonable. Some associations allow bicycles on balconies while others do not. As a rule, bicycles should be encouraged. Your association must decide how best to handle where to store them. To accommodate bicyclists, some associations provide secure storage, such as chain-link enclosures in the parking structure.

RECOMMENDATION: Talk to your board about forming a committee of homeowners to study the issue and recommend a solution. 

UNRELIABLE DIRECTOR
RUNNING FOR THE BOARD

QUESTIONWe have a board member who resigned twice from his first term position and then asked to be reinstated. The board granted his request.

He was then elected for a second term and made president. Within months he resigned again. He is thinking about running again in the fall election. Can a person be on the ballot when he keeps resigning?

ANSWER: Unless your bylaws provide otherwise, he can keep running, getting elected, and resigning indefinitely. It’s up to the membership to elect someone more reliable. To that end, it’s okay for members to send campaign material (at their own expense) pointing out this owner’s penchant for resigning.

CC&Rs MYSTERIOUSLY
AMENDED

QUESTION: When I moved into my HOA 29 years ago, the CC&Rs made the association responsible for maintaining the exterior of the buildings. Now our CC&Rs state that homeowners are responsible for the exterior. The members never voted to make such a change. Is this legal?

ANSWER: Except under limited circumstances, boards cannot amend CC&Rs without approval of the membership. Boards are allowed to (i) delete developer marketing language, (ii) delete discriminatory language, and (iii)update Civil Code references. All other changes require membership approval.

Member ApprovalChanging maintenance obligations requires membership approval via secret ballot. If the board recorded a maintenance amendment without membership approval, the amendment is not valid. (Taormina Theosophical Community v. Silver.)

RECOMMENDATION: Do a little investigation and find out when the amendment was approved and whether it was by the membership or the board. If it was recorded without member approval, the amendment is void. 

UNINSURED GRANDFATHERED
GARDENER
QUESTIONOur gardener of many decades, who will be turning 70 soon, is neither licensed, bonded, nor insured. Years ago, when the HOA began using only workers or companies who were insured, he was “grandfathered.” Does our board have a duty to ask him to get insurance or quit?
ANSWERI cringe whenever I hear boards are hiring workers without insurance. Whether old or young, workers are subject to injury. Without insurance, your association is exposed to significant potential liability.
Worker’s Comp. If your grandfathered gardener works primarily for your association, he is likely not an independent contractor. He will be deemed an employee. In addition to liability for injuries, this creates a separate set of problems related to payroll withholdings and overtime.
If he is truly an independent contractor, but unlicensed and uninsured, your association automatically becomes his employer if he is injured.(State Compensation Ins. Fund v. Workers’ Comp. Appeals Board.)
In either scenario, your association could face large special assessments since there is no cap on damages if your gardener is injured, including claims for pain and suffering. With insurance, the claims are limited and the loss is paid by insurance.
RECOMMENDATION: To protect your association, you can either (i) require your gardener carry insurance, (ii) make your gardener an employee of your association and insure him, (iii) make him an employee of your management company and they insure him, or (iv) stop using him. You should talk to legal counsel about how best to handle this.
NEW
SAN DIEGO OFFICE
I am pleased to announce the opening of a new San Diego office in prestigious Tower 591 in Mission Valley. Our address is:

ADAMS | STIRLING PLC
591 Camino de la Reina
Suite 905
San Diego, California 92108

Our legal team in San Diego is Jamie Hendrick, Carrie Heieck, Nancy Sidoruk, and Candace Schwartz under the leadership of Laurie Poole. We look forward to building more long-term relationships with clients in beautiful, vibrant San Diego.

SB 1265 & 1128. I read your article about Governor Brown’s veto of Senate Bills 1265 and 1128. Thank you for persuading the Governor to veto these horrible bills. -C.T.

RESPONSE: I had a small role in opposing the move by the Center for California Homeowner Association Law (CCHAL) to strip 13 million homeowners of their right to qualify who served on their boards. Two organizations were in the forefront in persuading the Governor to protect consumer rights: (1) the Community Association Institute’s California Legislative Action Committee (CLAC) and their legislative advocate Louie Brown and (2) the California Association of Community Managers (CACM) and their legislative advocate Jennifer Wada.

*****

Board Meeting #1. In the context of unauthorized board meetings, is “majority” meant as majority of the the serving board members, or majority of authorized board members? Example: Five members are authorized but only three seats are filled. Two members talk about whether or not to hire a new landscaper. Legal or illegal? -Steve C.

RESPONSE: Board meetings are defined by the Davis-Stirling Act as a gathering of a quorum of directors at the same time and place to “hear, discuss, or deliberate upon any item of business that is within the authority of the board.” (Civ. Code §4090.) A “quorum” is defined as “a majority of the number of directors authorized in the bylaws.” (Corp. Code §7211(a)(7).)

In the scenario you posed, two directors talking about hiring a new landscaper does not violate the Open Meeting Act. Even so, your board is operating with only three directors. That means two directors effectively control the voting. In the spirit of openness, you should save your discussions for board meetings. Also, you should make a concerted effort to fill your empty seats.

Board Meeting #2.  What if director 1 contacts director 2 and discusses a matter on the agenda without discussing how to vote? Then director 1 calls director 3 and the same thing occurs. Then director 1 calls director 4, etc. Is this okay because they don’t discuss how to vote? -Sue O.

RESPONSE: No, it’s not okay. It’s still a chain meeting because the directors are discussing an item of business that will come before the board. (Civ. Code §4090.)

Board Meeting #3. It has always been my understanding that motions must be approved by a majority of the authorized board, not those who are present. Thus, if 3 out of 5 show up, a vote of all 3 must be positive in order to pass an action item. Please clarify this. -Maggie L.

RESPONSE: A majority of the authorized seats constitutes a quorum. (Civ. Code §4090(a).) Unless your bylaws define “approval” to mean a majority of authorized directors, any decision by a majority of the directors at a duly noticed meeting where a quorum is present is the act of the board.(Corp. Code §7211(a)(8).)

For example, if you have a 5-director board, three directors constitute a quorum. If three directors attend a duly noticed meeting, the board can conduct business. At that meeting, a majority of the quorum (two) is sufficient to approve motions (unless your bylaws state otherwise).

NEW FIDELITY BOND
REQUIREMENTS

Fidelity Bond #1. The new fidelity bond requirements take effect on January 1, 2019. Do all HOAs have to be in compliance by that date or can they comply upon renewal? -Tianna T.

RESPONSE: Assembly Bill 2912 did not make allowance for renewal dates. All associations must be in compliance on or before January 1, 2019.

Exposure to Litigation. If a statutory bond is not in place January 1 and the association suffers a loss on January 2, the board may be forced to impose a special assessment to cover the loss. Angry homeowners will likely threaten (and file?) lawsuits against directors for their failure to comply with the statute.

Bond Requirements. Before January 1, 2019, associations need to (i) establish proper limits for their bond in an amount equal to or more than the combined amount of the reserves and total assessments for three months, (ii) cover all persons handling funds, including officers, directors, employees, managing agents and the management company, and (iii) carry coverage for computer/funds transfer fraud.

Computer Fraud. The computer fraud requirement is especially important since cyber fraud continues to escalate sharply. The prevalence and sophistication levels seem to increase daily.

For example, a hacker could easily access a treasurer’s computer and completely wipe out the association’s accounts by electronically transferring all operating and reserve funds to an offshore account. If a management company is targeted, the cyber criminal could access a manager’s entire portfolio and empty all accounts.

Time is Short. To get a proper fidelity bond in place by January 1, 2019, boards must (1) determine the highest level of reserves to insure through December 31, 2019 plus 3-months’ of assessments, (2) identify officers, directors, employees, and managing agent/companies to include, and (3) add computer/transfer fraud coverage.

Carrier Policy Forms. The carrier may need to amend its policy forms to accommodate the computer/transfer fraud element as well as increased limits and managing agent elements. A proposal must then be presented to the board, approved and bound. If a particular carrier cannot meet the new statutory requirements, you will need to seek coverage elsewhere.

Recommendation: Contact your insurance agent now and start the process.

Fidelity Bond #2. If an association carries a crime policy as well as a directors and officers (D&O) policy, does it need a fidelity bond? -Diane B.

RESPONSE: A crime policy and fidelity bond are the same. The coverage is also referred to as employee dishonesty insurance. Even if an association already has a fidelity bond/crime policy, it is unlikely it meets all the requirements that go into effect January 1, 2019. Boards and managing agents should immediately contact the association’s insurance agent and give them a copy of the Assembly Bill 2912 and ask for a proposal that satisfies the new requirements.

Fidelity Bond #3. We were wondering about the new fidelity bond law. Does the manager as additional insured have to carry the same limits as the association? -Wendy G.

RESPONSE: The new fidelity bond requirement does not make the manager an additional insured. It requires the association to maintain prescribed levels of insurance to protect it from loss in the event the managing agent steals the association’s money.

Unless the governing documents require greater coverage amounts, the association shall maintain fidelity bond coverage for its directors, officers, and employees in an amount that is equal to or more than the combined amount of the reserves of the association and total assessments for three months. The association’s fidelity bond shall also include computer fraud and funds transfer fraud. If the association uses a managing agent or management company, the association’s fidelity bond coverage shall additionally include dishonest acts by that person or entity and its employees.

Fidelity Bond #4For computer and electronic transfers fraud, is there a specified amount that is required (at least $10,000 or the three months of assessments plus reserves) or is it that there is just coverage included in the policy? If it is just that the coverage is included, do you have a percentage recommendation for the amount that should be included in the policy?

RESPONSE: I’m not sure I followed your question. It doesn’t matter if an employee steals cash, alters checks, or electronically transfers funds into his account–the statute requires insurance “equal to or more than the combined amount of the reserves of the association and total assessments for three months.” For a small association, the fidelity bond might be $50,000. A large association might need $5 million.

The $10,000 requirement you referred to is not an insurance requirement, it’s an approval requirement. The statute requires prior board approval whenever there are transfers greater than $10,000 or 5% of an association’s total combined reserve and operating account deposits. As I pointed out in my October 14 Newsletter, the transfer requirement is ambiguous and needs clarification in future legislation. I also discussed the two-signature problem related to reserve transfers.

Thank you to Tim Cline, CIRMS of the Cline Agency for his assistance with these questions. 
Adrian J. Adams, Esq.

Boards can contact us for friendly, professional advice.

Adrian J. Adams, Esq.
Founder & Managing Partner
ADAMS|STIRLING PLC

Contact us about amending your CC&Rs and Bylaws.

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Reprinted from
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About 

With an extensive background in the community association industry, Adrian Adams is one of the leading attorneys in California specializing in common interest developments. Adrian founded “Adams Stirling PLC” and quickly grew his firm into a preeminent boutique firm specializing in highrise condominiums, stock cooperatives, business parks, lake associations, golfing communities, equestrian associations, and ocean-front communities.

 

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