By Curtis G. Kimble.
HOA governance isn’t simple or easy and, unfortunately, board members are just volunteers doing their best with too little time and too little money. I think that’s why even basic principles of HOA governance are often misunderstood by board members (and managers too). Here is some clarification of 8 frequently misunderstood issues:
1. Officers and directors are not the same thing. One of the most fundamental concepts of corporate governance is that directors and officers have entirely separate functions and positions. Directors are the representatives of the members, elected by the members. The primary, if not the sole, function of a director is to vote on the decisions before the board. The directors make up the board, which has the authority to act for the association.
Officers are not (normally) elected by the members, they are elected or appointed by the board. Usually, the officers are also directors, although there’s no law requiring that they be (but a lot of bylaws require it). Officers only have the authority or power given to them specifically and expressly, by the bylaws or by the board. Removing an officer is generally easy, the board is usually authorized to remove an officer, with or without cause. But if a person is both an officer and a director, removing them as an officer doesn’t remove them as a director. Removing a director may generally only be done with a vote of the members.
2. Quorum. What is a quorum? Is it important? A quorum is the minimum number of members that have to be represented at a member meeting in order to have the meeting (or the minimum number of board members that have to be present at a board meeting to have a board meeting). That magic number will be stated in your bylaws or CC&Rs. It may be an unreasonably high number (like 50% to 75% of all owners) or it may be a realistic number, but either way it’s required. If it’s unreasonably high, change it, amend the bylaws, but don’t ignore it. One of the first things to occur at any meeting should be the determination of a quorum.
3. The documents that apply. If your association has CC&Rs (a declaration), bylaws and articles of incorporation, do those documents have to be followed? If so, how closely do they need to be followed? The answers are absolutely and to the word. I’m sure it will come as a surprise to the conscientious readers of this blog, but some boards . . . how shall I put this . . . don’t appreciate the weight that should be given to what the governing documents say. They tend to think you are able to pick and choose what you adhere to, or that if they simply aren’t aware of what’s in the documents, then there’s no need to comply with them. Virtually nothing that is contained in governing documents is optional. They must be adhered to strictly and literally.
4. The laws that apply. There are basically two types of HOAs in Utah – condominium HOAs (or condominium associations) and non-condo HOAs (also called PUDs or community associations). It’s very important that you know which one you are in (consult your attorney if you don’t).
Condominiums: The Condominium Ownership Act applies to all condominiums in Utah.
Noncondo HOAs (PUDs or community associations): The Community Association Act applies to residential non-condo HOAs in Utah (and to mixed-use commercial/residential non-condo projects as of May 14, 2013).
Both: The Utah Revised Nonprofit Corporation Act also applies to all associations that are incorporated as nonprofit corporations, as most are.
5. Hierarchy of laws and documents. If your CC&Rs and bylaws contradict each other, they aren’t simply ignored or tossed out as invalid. There is a specific heirarchy that generally applies when documents or the law contradict each other. When a lower document contradicts a higher document, the provision in the higher document is the valid and effective provision and the one in the lower document is ignored (until the documents are amended, which is hopefully promptly after the contradiction is found), unless the higher document is a law that specifically defers to a lower document.
In a condominium, the law states that the following order prevails:
(a) the Condo Act,
(b) the Nonprofit Corporation Act,
(c) articles of incorporation,
(d) declaration (CC&Rs),
In a non-condo HOA, the order is not set by statute or case law, but the following order should prevail:
(a) the Community Association Act,
(b) the Nonprofit Corporation Act,
(c) declaration (CC&Rs),
(d) articles of incorporation,
6. Voting Thresholds. Too often, the subtle distinction between different voting approval thresholds are ignored. For instance, is there a difference between these two requirements: ”a special assessment shall require the approval of a majority of the members voting in person or by proxy” and ”a special assessment shall require the approval of a majority of the members represented at a meeting in person or by proxy”?
The difference is that the first one requires approval of a majority of those members that actually cast a vote. The second requires the approval of a majority of the members that show up at the meeting or who are represented by proxy. So, if 90 members show up to a meeting personally, 10 have given proxies, a vote for a special assessment is held and 94 votes are cast, the number of votes needed for approval under the first requirement above is 48 (a majority of 94). The number of votes needed for approval under the second requirement is 51 (a majority of 100).
Also remember that, in a condominium, the law requires that voting rights of each owner be directly tied to each owner’s undivided interest in the common area . This means that if a member has a .837 percent undivided interest in the common area, that member has a .837 vote in any matter put before the association membership (elections, etc.).
7. A board meeting is not an association meeting or member meeting. Board meetings (usually held monthly or quarterly) are just that, meetings of the board. While it is recommended that board meetings be open to the members and the members be allowed to speak during a specified comment period, they are not meetings of the association or member meetings. Typically, the only association meeting or member meeting is the annual meeting held once a year.
8. HOA Registry. Finally, remember that the law requires each association to update their information with the Utah HOA Registry within 90 days of any change in that information (e.g., after a board election where a new board member was elected, or after changing managers). It wasn’t just a one-time requirement and it’s not an annual renewal. It must be updated after any change and all information required by the law for condos and the law for non-condos must be included.
This may be new information for some, but hopefully, it just serves as a helpful refresher for others. In many HOA issues, the devil is in the details and attention to those details will help ensure proper and lawful operation and governance of your association.