RESPONSE: I think it’s a good practice because it helps ensure accuracy. It does not violate the Open Meeting Act because it’s not an email discussion. Instead, it’s feedback from individual directors to the secretary on corrections and revisions. The draft minutes then go into the board packet for the next meeting for board discussion and approval.

Owner Correspondence #1. You are absolutely correct that letters, opinions, and conversations are not included in the minutes. If a homeowner wants their concerns heard by the board, they should put them in writing, send them to the association manager and request the letter be included in the board packet for board review. Board packets are generally retained as a business record. -Victoria C.

RESPONSE: I agree. It is important that owner correspondence be included in board packets so all directors can read the correspondence and take membership comments into account when making decisions. Making the correspondence part of the minutes is the problem. It can lead to potential liability if statements in the correspondence are defamatory. It can also lead to a great deal of turmoil in the community. As a rule, minutes should record what was done at a meeting, not what was said. (Robert’s Rules, 11th ed., p. 468.)

Owner Correspondence #2. Do you think it a good idea to include a “correspondence” section in the minutes with a very general summary of correspondence? For example, it might say: “Two letters were sent to owners regarding violations of our architectural policies; one letter was sent to an owner regarding assessments more than 90 days delinquent.” In this way, owners know what the HOA is doing, that architectural policies are being enforced, etc. -Glenn P.

RESPONSE: If done properly, it can be done. The summary must be very general (as you illustrated) and should not use any names.

Owner Correspondence #3. I have always felt that member input is not given fair consideration. Why do businesses representing HOAs always refer to member input as grievances, axes to grind, personal agendas, inflammatory, inaccurate, and defamatory? -Tom M.

RESPONSE: Most member input is good. It’s when someone proposes that letters be made part of the minutes that lawyers point out the risk, i.e., potentially inflammatory and defamatory correspondence being published thereby triggering costly litigation. Boards must be cautious about what they put in their minutes.

IRS Audit #1. I read the article about action the IRS is taking in Las Vegas against several HOAs. While your paragraph implies that the IRS is taking action against HOA reserves; that is not exactly how the article reads. It is not reserves that the IRS is looking at but, rather, income that an HOA gets from nonmembers and what expenses are allocated against that nonmember income. -William Erlanger, CPA, Levy, Erlanger & Co.

IRS Audit #2. My community rolls over surplus from the operating budget into the following year’s operating budget. Our reserves, presently in excess of $5 million, are invested. We pay tax on the interest every year and use the interest to subsidize our reserves. Can we reduce our tax burden if, instead, we use the interest in our operating budget?

RESPONSE: Since I’m not a tax attorney, I ran this by HOA tax specialist Bill Erlanger, CPA. In answer to your question, it is not what is done with the interest that has anything to do with income taxes. If interest is earned by the association, it is generally taxable. It does not matter if the interest is kept in reserves or transferred to operations. Some kinds of investment interest are not taxable but that depends on a number of factors that are beyond the scope of the question you asked.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

ANSWER: Your instincts are right. As provided for in Civ. Code §1367.1(c)(3), the board “shall” meet in executive session to discuss payment plans.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

ANSWER: Fines cannot be collected through non-judicial foreclosures (trustee sales) despite any authorizing language that might be contained in an association’s governing documents. Civ. Code §1367.1(e). Monetary penalties cannot be treated as an assessment and cannot be included in a delinquent assessment lien.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

ANSWER: Yes. It’s like paying taxes to California for roads and bridges you never use. Members cannot deduct a portion of their dues because they do not use recreational facilities or because they have a grievance against their association.

Because homeowners associations would cease to exist without regular payment of assessment fees, the Legislature has created procedures for associations to quickly and efficiently seek relief against a nonpaying owner. Permitting an owner to broadly assert … [a] “setoff” to such enforcement action would seriously undermine these rules.

A system that would tolerate a[n] owner’s refusal to pay an assessment because the unit owner asserts a grievance . . . would threaten the financial integrity of the entire condominium operation. (Park Place v. Naber.) 

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

RESPONSE: A number of you picked up on this and sent me emails. I’m impressed with the sharpness of my readers. The person who sent the original question included details that the increase had occurred over several years and, therefore, did not violate Davis-Stirling limitations. Kudos to everyone who spotted this issue.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

ANSWER: Most of the documents in question are probably corporate records and belong to the association, not the former directors. Minutes are clearly corporate records. Your former directors had a fiduciary duty preserve corporate records on behalf of the association and then pass them to the incoming board. It sounds like your ex-directors are in breach of their fiduciary duties. If they are worried about the records being altered or destroyed by the incoming board, they can make copies (at their own expense) and then turn over the originals to the new board.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

ANSWER: There is no conflict of interest. In fact, chairing a committee is good experience for serving on the board. Unless your bylaws provide otherwise, boards may appoint anyone they believe would be helpful (whether owner, renter or otherwise) on the committee. Moreover, the board president often serves as an ex officio member of all committees of the board. If so, the president has the right but not the obligation to participate in the committees. (Robert’s Rules, 11th ed., p. 456, 497.)

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

ANSWER: Good question. I like your practical approach to the issue but I suspect a court would be less practical in its ruling. Judges have an odd predisposition toward following the law. Even though minutes are only reports, approval of minutes (motion, second, all in favor) is itself a board action. For more information see board decisions by email.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP

Facts. A homeowner in the Tesoro del Valle Master Homeowners Association installed solar panels on a slope adjacent to his property without HOA approval. For aesthetic reasons and because of slope structure restrictions, the HOA wanted the panels on the owner’s roof. The owner refused and the association sued.

Aesthetic Considerations. The homeowner argued that “aesthetic considerations” were an improper part of the review process and violated Civil Code §714. The court disagreed. It ruled that “an evaluation of a proposed solar energy system–just as any other proposed improvement–would involve consideration of aesthetics.”

Cost Considerations. Expert testimony by the association showed that the cost of installing the solar panels on the owner’s roof was actually cheaper than installing them on the slope. Based on the testimony, the court ruled that the HOA’s guidelines were not unduly burdensome and, therefore, reasonable.

Duty to Redesign. The owner then argued that once the architectural committee disapproved his original application, it had a duty to redesign his solar energy system to meet their guidelines. Again the court disagreed. The court found that the law imposed no such burden on associations. Per statute, the only obligation by the committee was to inform the owner of the basis for its denial of his application. The court ruled that “the burden is on the homeowner to submit an application that is complete and sufficient to generate [architectural committee] approval.” (Tesoro del Valle v. Griffen).

RECOMMENDATION: The court’s ruling does not give associations license to deny any and all applications for solar energy systems. It does, however, demonstrate that if an association’s architectural guidelines are reasonable, they are enforceable. If boards are unsure about their guidelines, they should have an architect and legal counsel review them. For more information, see Solar Panels.

Adrian J. Adams, Esq.
ADAMS & KESSLER LLP