We were swamped with feedback on the signing of Senate Bill 323 by Governor Newsom. Readers had a lot to say about the bill pushed by the Center for California Homeowner Association Law (CCHAL).
In addition, attorneys from around the state discussed internal problems in the poorly drafted bill. Following are some of the complications already identified:
Email Privacy. Associations who currently have a list of member emails must now add those emails to the membership list and make them available to any member who asks for them. Even if members intended their email addresses for HOA communications only, CCHAL has made them public.
Most members will not want email address made public. To avoid this, associations need to either (i) purge their existing email list or (ii) send everyone a form allowing them to opt out of the membership list. This needs to be completed before January 1, 2020.
RECOMMENDATION: Boards should alert their membership of the pending disclosure and their ability to opt out. Opting out can be done via email.
Email Opt Out Problems. Because of poor drafting, SB 323 allows members to opt out in one provision but failed to allow for it in a second provision referenced by the first. New language in Civil Code §5200 defines "Association records" to include Membership lists with email addresses. It allows members to opt out of the membership list pursuant to Civil Code §5220. Unfortunately, Section 5220 does not include email addresses.
A strict reading means members can opt out of everything except sharing their email addresses. I prefer to read 5200 as the authorizing statute so any opt out includes email addresses.Unfortunately, CCHAL opened the door to legal challenges.
RECOMMENDATION: Boards should follow the advice of their their legal counsel on how best to handle this situation.
Election Confusion. Section 5100 of the Civil Code was amended to require the inspector of elections to deliver to the membership ballots and a copy of the election rules at least 30 days before an election. Section 5115 overlaps duties by making the association responsible for giving notice of the election and for distributing ballots.
RECOMMENDATION: Duplicative mailings by the association and the inspector will be costly and confusing. To avoid this problem, one of the parties should delegate to the other the duty of mailing everything. The board should delegate the task to the election inspector or vice versa.
Who Can Be An Inspector? Under existing election laws, an association can use their management company or their CPA to handle the election. More often than not, it saved money. That is no longer allowed. Starting January 1, "An independent third party may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the association for any compensable services other than serving as an inspector of elections."
This will likely cost more since management companies and independent inspectors will need to both be involved preparing election materials. Their will be some duplication of effort. It makes elections more expensive, not less.
Volunteer Inspectors. Boards can avoid some expenses by selecting homeowners to be inspectors of election. Unfortunately, inspector duties have increased, which means the risk of error has also increased. If lawsuits are filed, the inspector will undoubtedly be named.
If sued, will the inspector be covered by the association's D&O insurance? That may depend on the particular association's insurance policy.
RECOMMENDATION: Before appointing homeowners as inspectors of election, boards should make sure they are protected under the association's D&O insurance.
Incentives Removed. Under SB 323, no one's voting rights can ever be suspended. An owner can be six months delinquent, ignore the association's rules, have numerous unpaid fines and still vote. Suspension has been an incentive to pay assessments and comply with the association's governing documents. CCHAL took away the incentive.
Non-Owner Directors. CCHAL also took away the right of associations to decide for themselves if they want to elect non-owners to their boards. This is a blow to small associations who may want qualified non-owners on their boards. CCHAL's hostility toward tenants is inexplicable. Fortunately, the bill does not prevent boards from appointing tenants to their boards. They just can't be elected.
RECOMMENDATION: Have legal counsel review the appointment provision in an association's bylaws to make sure there are no barriers to such appointments.
Director Qualifications. Poor drafting created another anomaly. Changes to election requirements provide a handful of mandatory and permissive disqualifications but does not clearly limit associations to those disqualifications. For example, associations are required to disqualify nonmembers from nomination and are allowed by CCHAL to disqualify co-owners, those who have owned for less than a year, delinquent owners, and persons with a criminal conviction that would prevent the association from obtaining a fidelity bond.
The bill seems to imply that no other disqualifying provisions can be used but it does not actually say it.
Some believe all existing director qualifications in an association's bylaws will continue to be valid after January 1, 2020. I don't believe that was CCHAL's intent but who knows? (It appears CCHAL's real intent was to create full employment for lawyers.)
RECOMMENDATION: Boards should consult legal counsel.
Removal of Directors? CCHAL created yet another anomaly. It did not address director removal provisions. That means a member not in good standing could be elected to the board but, once elected, could be removed from the board because the director was (i) not in good standing, (ii) suing the association, (iii) missed three consecutive meetings, (iv) is a registered sex offender, etc.
As long as the removal provisions are not worded as a qualifications, they are still valid.
RECOMMENDATION: Associations will need to talk to legal counsel about how best to handle this situation. (More employment for lawyers.)
New Timeline. The election timeline is now longer. Associations need to sequence their elections as follows (if I missed anything, please let me know):
ANNUAL MEETING TIMELINE
1. At Least 90 Days Prior to the Annual Meeting: Select 1 or 3 inspector(s) of elections and set a date for the annual meeting.
2. At Least 90 Days Prior to the Annual Meeting: Give notice of the election procedure and the deadline for submitting nominations and where to submit nominations.
3. At Least 30 Days Before Ballots Are Distributed: Prepare a candidate registration list and a voter list. The voter list must include each voter's name, voting power and the physical address of the voter's separate interest, parcel number, or both. The mailing address for the ballot must be listed on the voter list if it differs from the physical address of the voter’s separate interest or if only the parcel number is used.
4. At Least 30 Days Before Ballots Are Distributed: Allow members to verify the accuracy of their individual information on the candidate registration list and voter list.
5. At Least 30 Days Before Ballots Are Distributed: Give notice of (i) the date/time/address to return ballots, (ii) the date/time/location of the meeting, and (iii) the list of candidates.
6. At Least 30 Days Prior to the Annual Meeting: The inspector must deliver, or cause to be delivered ballots and a copy of the election rules.
RECOMMENDATION: Management companies and inspectors of election should work out a timeline sequence of events necessary to comply with all the new requirements.
Higher Costs and Litigation Exposure. The legislation is a mess. Associations will incur legal fees, pay more for elections, and have greater exposure to litigation. The bill is like lipstick on a pig--it's ugly.
RECOMMENDATION: At a minimum, every association will need to work with legal counsel to amend/restate their election rules. Amending bylaws is discretionary. At some point, boards should amend their bylaws to eliminate invalid provisions. We will be sending a package to our clients with recommended changes and pricing. If you would like a proposal, contact us.
The legislation sponsored by CCHAL generated more emails than I can print. Following is a sampling:
Nightmare Bill #1. NOOOOO!!!!!!!!!!!!!! -Jamie H.
Nightmare Bill #2. Wow what a nightmare! Is there an appeal option to this disaster? -Dino D.
RESPONSE: No, there is no appeal. Someone would have to float a new bill next year to undo the mess created by SB 323. Having just voted it through, it's unlikely the legislature or the governor would reverse direction.
Nightmare Bill #3. Is there a way associations can fight this? -Laurel S.
RESPONSE: See below.
Nightmare Bill #4. If there are 55,000 HOAs in the state, we should be able to get at least 50,000 signatures on a Newsom recall petition. Lets get this rolling! -Robert M.
RESPONSE: I was surprised to discover there are already two petitions to recall the Governor for his mismanagement of the state. See Petition #1 and Petition #2.
Nightmare Bill #5. I have not only signed the recall Newsom petition, I signed up to donate a hundred a month to the campaign. -Anonymous
RESPONSE: I'm not advocating a recall but it would interesting if it actually happened. Legislators and governors might leave associations alone for an election cycle or two.
Nightmare Bill #6. I am all for SB 323! It benefits members! -Kathy M.
RESPONSE: I suspect you have not read the bill. It takes away homeowner rights and takes money out of their pockets. Every association in California will have to rewrite their documents. It will be costly for HOAs, lengthen elections, and create more exposure to litigation. None of this benefits members.
Nightmare Bill #7. Gov. Newsom should leave us alone and work on the homeless problems. He is trying to solve a non-problem instead of looking at real problems. -Finn M.
Nightmare Bill #8. What happens if an association does not comply and make these updates immediately? This will hurt very small and poor associations such as ours. -Christine K.
RESPONSE: If an association conducts elections without election rules or does so with nonconforming rules, members can challenge and possibly void the election and be awarded a fine of $500 plus attorneys fees. (Civ. Code §5145.)
Nightmare Bill #9. Our association was in the process of amending our bylaws. Now that SB 323 has passed are we required to include it? -Jim M.
RESPONSE: If you are in the drafting phase, you should include SB 323. If your bylaws are currently out for a vote, you can either pull them back and revise them or let the voting continue. It's a business decision for the board to make. Talk to your legal counsel and see if he/she thinks revisions can be made without taking the document back out for a vote.
Nightmare Bill #10. Does that mean an owner can violate all our rules, refuse to comply, refuse to pay fines, and still run for the board? We can't disqualify them? -Don R.
RESPONSE: That is exactly what it means. You can no longer disqualify scofflaws. They can occupy a seat on the board.
Nightmare Bill #11. I am the president of 496 condos. I have a personal list of email addresses about 240 owners and tenants, people who I send an advance copy of the newsletter, alerts for coyotes, community events and warnings. I blind copy all emails for privacy. Would those have to be shared? When they gave them to me, it was with the understanding of anonymity. -Sharlene D.
RESPONSE: If the email list is your personal list, it does not have to be shared. If the list is used by the board to transmit official communications from the board to the membership, it would be deemed a record of the association and would have to be shared with any member who requested it.
Nightmare Bill #12. Does SB 323 allow our signatures to be copied? -Susan R.
RESPONSE: At one point it did. SB 323 was subsequently amended so "Signed voter envelopes may be inspected but may not be copied."
Nightmare Bill #13. Does this apply to commercial associations or just residential? -Jeff L.
RESPONSE: Only residential associations have to suffer under this legislation.
Nightmare Bill #14. My board is asking if this new law is going to affect their upcoming annual election scheduled in January 2020. -Marti M.
RESPONSE: Not every agrees on this issue. Until January 1, 2020, your association's existing bylaws and election rules are still valid and applicable. That means the appointment of a manager as your inspector for the January election is currently valid. Starting January 1, you cannot appoint your manager to be an inspector. However, if he/she was validly appointed in October/November, the appointment may be valid for your January election. The more conservative approach is to hire an independent inspector.
Nightmare Bill #15. I see SB 323 as a good thing. Many people in my association believe the management company is corrupt and this is a good way of showing the truth. -Ted S.
RESPONSE: I don't see how taking away homeowner rights and increasing the cost of elections exposes corruption in a management company.
Nightmare Bill #16. It’s so depressing what is happening to California. -Marilyn B.
Nightmare Bill #17. Thank you for the update on SB 323. Could you clarify the restriction to being on a board with joint owners. Does this imply that an owner who is one of three persons on title is not eligible as a board member? -Frank G.
RESPONSE: If there are three of you on title, only one can be elected to the board. This is often practiced by larger associations but not small ones. Large associations have a large pool of volunteers to draw from. Small associations don't have that luxury and need the flexibility to elect co-owners to the board. You are not required to including this in your election rules--it's discretionary.
Still Ringing. How is it that I only just now notice that your mail comes from ADAMS | STILRING after enjoying your emails for several years? Has your great humor infiltrated the From line or is it an error on my part. Faithful reader. -Helga L.
RESPONSE: It's so close to Halloween that Gremlins are on the loose. I found one changing names and dates in my newsletter. Fortunately, I caught him before he could do any real damage. I put him in a box and shipped him to the legislature where he could be more productive.
Boards can contact us for friendly, professional advice.
Adrian J. Adams, Esq.
Founder & Managing Partner