Written by Richard Thompson
Question: What is the difference between the CC&Rs and the rules and regulations? Even if the rules and regulations were never filed on the public record, would they hold up in a court of law?
Answer: CC&Rs stands for “Covenants, Conditions & Restrictions”. CC&Rs include the Declaration, Bylaws, Rules, Regulations, Policies and Resolutions.
As far as standing up in court, no one can predict the outcome of a judge or jury decision. But the board has a responsibility to make sure all rules, regulations and policies are in writing, distributed to all owners and residents and easily accessible when needed (website recommended for 24/7 access). If the HOA’s rules are fair and uniformly enforced, most judges will rule for with the board.
Question: I am an HOA treasurer and have been attempting to implement spending controls. We have two board members who regularly purchase items for the HOA and want to be reimbursed. My concern is that expenditures are unpredictable and hard to track. I’ve proposed that all expenditures by these individuals must be for budget approved line items. This was rejected by the board as being too restrictive. What do you think is a reasonable policy?
Answer: It sounds like your HOA has a long history of directors spending money as they saw fit. Your well intentioned controls were predictably not well received by the Old Guard. The first question that comes to mind is: Has the old routine caused budget overruns? If yes, you have a sound basis for your controls. If no, you may be making much ado about nothing.
That said, it is not common for random directors to routinely spend the HOA’s money. In self managed HOAs, the president and treasurer generally handle payments, occasionally reimbursing a director for an HOA expense that can’t wait for the normal payment process. Ideally, if you have a hired manager, all expenditures should be routed through the manager. It is much easier to hold an employee or contract manager accountable than a fellow director.
Your biggest obstacle doesn’t seem to be opposition to good financial management practices, but perception that such is not needed. Getting a barge to change course takes time. Continue to press for change. The board has a fiduciary duty to run HOA business in a business-like way.
Question: I recently took over professional management of an HOA which has over $70,000 of unpaid water bills. The water department has threatened to shut off service within 48 hours. The board directed me to impose a special assessment of $1000 per unit without a meeting or member vote. Can an emergency special assessment be imposed without member approval?
Answer: You need to read the governing documents to see what authority the board has to raise special assessments. Even if the board has authority to do so, proper and reasonable notice must be given to the members and time to raise the cash.
If a special assessment requires approval of the members, a member meeting needs to be called with advanced written notice. The meeting must have a legal quorum and a legal majority vote as defined by the governing documents. You may be able to pull this off by mail in ballot if your governing documents allow it. But none of this could possibly take place within 48 hours.
The board needs to make immediate and adequate payment arrangements for the water bill, perhaps by getting a short term loan from the bank. Or, you might be able to get the water department to leave the water on if money is on the way (special assessment or loan). But they will, no doubt, want to see the written evidence (letter from bank, copy of special assessment notice, etc.).
The bigger question is, if this HOA has allowed things to get so bad that basic utilities can’t get paid, what other fires are you going to find that they want you to put out? This crisis didn’t happen overnight and the board likely has others waiting in the wings. Unless you are getting paid extra to deal with these special circumstances, you need to seriously evaluate whether this is an account worth your time.
Question: Our professional manager is pandering to certain board members and ignoring policies passed by the board majority. How do you keep a manager from getting involved with Board politics?
Answer: The board president has primary authority over the manager and should speak to the manager directly and plainly about this problem. Most managers are only trying to please or do their job. It may be a simple misunderstanding. If, however, there is conscious subterfuge and unwillingness to change, the matter should be addressed directly with the management company owner. If change isn’t forthcoming, the president should recommend to the Board that there be a change in management company.
On the other hand, if the manager is kowtowing politically to board president who is abusing her authority, the remaining directors need to have a heart to heart with the president. All officers serve at the pleasure of the board. If one is exceeding authority, the board can remove and replace that person with another director who won’t.
Question: Our bylaws indicate that expenses are shared equally. We have one and two bedroom units that vary significantly in size. Dividing expenses equally seems unfair. Can we simply vote to change it? If so, how many need to vote in favor of it?
Answer: Occasionally, developers propose an expense allocation like the one you describe. It’s easier to calculate but clearly overlooks disparity in size and value. When there is substantial difference in square footage, the norm is to allocate expenses according to a unit’s square footage as a percentage of the total units square footage. In that case, the expense share may range, for example, from 2% to 5% depending on unit size.
When developers ignore the unit size issue, the inequity usually becomes apparent after turnover. Then, those that feel they are carrying a bigger share than they should lobby to “fix it”. The problem is that fixing it requires 100% consent from those that will pay more and those that will pay less. In this regard, individual owners have the protection against a majority foisting its financial will on the minority whenever it sees fit. It’s different when it comes to a rule that applies to everyone, like No Pets. A majority could vote to eliminate pets but the same rule would apply to everyone.
If a majority of the owners were allowed to change the expense allocation formula without this 100% requirement, theoretically 51% of the owners could pass an amendment that would force 49% of the owners pay 100% of the expenses. So expense allocation is one area that absolutely requires 100% consent of those affected. While it’s theoretically possible to achieve if 100% are willing, people are people and there is usually someone that refuses to budge.
Bottom line (listen up developers), the expense allocation formula needs to be fair from the get-go. After turnover, it’s too late to change.
Question: One of our homeowners wants to start an HOA newsletter. A few board members object to starting a newsletter because people don’t read the minutes as it is, the board would need to review it and finding someone to do it consistently may be difficult. What say you?
Answer: Having a regular newsletter is not just a good idea, it’s a basic good management practice. To encourage readership, the newsletter should be worth reading and provide information that all members need to know. If certain members don’t choose to read it, that’s up to them. The HOA should not withhold information because of it.
The board secretary generally previews the newsletter for content and accuracy. This doesn’t take much time for a two to four page newsletter (more than ample for most HOAs).
Newsletters do not need to be long and involved, just timely and relevant. There is boilerplate information that can be repeated each issue (like key contacts) and pre-written articles that can be used to make a point. There are over 1800 HOA articles in the Regenesis.net Article Archive that are designed exactly for that purpose available to subscribers.