SB 1560 WAS SIGNED INTO LAW SEPT 22, 2006, AND THE NEW ELECTIONS LAW IS SETTLED [ FOR NOW] - WHAT DOES THAT MEAN TO HOAs in CALIFORNIA?
SB 1560 - SB 1560 is signed into law! What does this mean? It means that we have some "settled" language to deal with in writing rules for elections in HOAs. Is it great? No. Is it better than what we had with SB 61 - I think most would say "yes" because of one or two key factors. Read on. What I am presenting here is food for thought suggestions for areas that may require rule changes. Chances are an association with election rules that were prepared before September 22 of 2006 will need changes because of SB 1560.
You can make revisions to the rules without paying a professional if you wish. I do not recommend that because if you change one course of action, it can affect another, and that could trip you up at elections time. As you will see from the below discussion, and earlier writings, good faith and fair procedures are a key part of surviving any frivolous challenges to elections. The elections reform was instituted because of claims of abuse of processes in elections and to say none exist would irresponsible. However, it is my belief that most associations have in the past and will continue to try to have fair elections. The biggest obvious problem is a lack of education and understanding about how an election should be conducted. If you are interested in learning more about that or other subjects that relate to HOAs and the laws, check out the "Creative Learning Solutions" and publications available at on the website.
You need to take a look at these areas in your rules and future practices:
1. SB 1560 For The Most Part Eliminates the Need for Proxies. You may eliminate the proxy for most purposes when using the double envelope voting system because after SB 1560, the ballots that are returned count toward a quorum. They are counted as if they were people present at a meeting if the balloting is done in conjunction with a meeting. However, the reason I say "for most purposes" is that most documents allow for use of proxies. A board could be asked to honor a proxy. An Owner might request a proxy. Associations are not required to send proxies out under the new law for an election under Civil Code 1363.03, but that does not mean that Owners will avoid asking for or using proxies. Understanding this should help you prepare for the event of an owner asking for or demanding a proxy. You may have a situation where an Owner is leaving the country because of military service and they want to give a proxy to their neighbor or the Board to vote on their behalf while they are gone. For the most part I believe the members can be trained in such a manner that they still have the rights afforded by a proxy (to let another vote on their behalf), but do not need a proxy to accomplish that; but in a case where the request comes when no particular election is in the works, a proxy may have to be provided. You could also have situations where the inspectors are asked to rule on proxies because someone has brought some to the meeting (and the balloting extends into the meeting). The association representatives checking members into a meeting and/or the inspectors will have to make a determination as to whether the proxy holder should get ballots for the proxy givers. So don't forget what proxies are - is all I am saying. They can still come up. If your rules provider did not provide that all annual elections will be done by the new double envelope ballot process, you may be left in a position of having a valid quorum for the vote for directors but no quorum for voting on the annual IRS election or approval of minutes from the prior annual meeting. Why? Because the voting will not include those who responded by mail.
The traditional proxy form could be provided to an owner who asks for a proxy except that the new elections law requires a separate tear off page setting forth the choices. In the past the choices were on the proxy because that was what was required by the Corporations Code. The tear off sheet is intended to promote privacy as it would be given to the person who receives the proxy - ostensibly with instructions about how to vote. People will be generally confused about this because the secret double envelope ballot package accomplishes the same thing.
Note specifically that proxies may no longer be used instead of ballots. See the following definition of a proxy (and by the way, the Inspectors of Election and any association personnel should have this information available.
"(A) "Proxy" means a written authorization signed by a member or the authorized representative of the member that gives another member or members the power to vote on behalf of that member. (2) Proxies shall not be construed or used in lieu of a ballot. An association may use proxies if permitted or required by the bylaws of the association and if those proxies meet the requirements of this article, other laws, and the association's governing documents, but the association shall not be required to prepare or distribute proxies pursuant to this section. (3) Any instruction given in a proxy issued for an election that directs the manner in which the proxyholder is to cast the vote shall be set forth on a separate page of the proxy that can be detached and given to the proxyholder to retain. The proxyholder shall cast the member's vote by secret ballot. The proxy may be revoked by the member prior to the receipt of the ballot by the inspector of elections as described in Section 7613 of the Corporations Code."
Associations may not have to provide proxies to establish a quorum anymore but probably are forced to continue to accept them (and give the proxy holder a ballot) if they satisfy the above definition. Obviously, proxies do not replace ballots.
I believe members can be retrained from using proxies to "validating their ballot packages" when they want someone else to vote on their behalf. All they need to do is provide their name and address information on the outer envelope (if it is not already provided when the envelopes are mailed) and sign the outer return envelope to the inspector(s) and then hand the package over to another member to complete the ballot and turn it in. Having language to this effect in your rules and the instructional letter to owners that goes with the ballot package will help accomplish this "retraining." If the member "validates" the package just so and has another fill out the ballot and turn it in, it has the same effect as giving that person a proxy. And I believe that it unnecessarily complicates things if an association sends out proxies to the members with the ballot packages because SB 1560 confirms that proxies are revocable, but ballot packages sent in or turned in to the inspectors are not. (Note you may well have received an elections policy providing for a proxy with the ballot package but prior to SB 1560 the ballot returned did not count toward the proxy and that was the only way to establish a quorum for a valid election at that time.)
2. Meetings May be Necessary. SB 61 did not require meetings for elections, so foregoing a meeting and conducting all ballots by mail was offered as an option in many rules prior to SB 1560. Now, however, you need to check this out: if your election rules provide for voting without a meeting, but your governing documents require a meeting or require that nominations be taken from the floor at the annual meeting, or contain any language requiring the holding of a meeting in conjunction with an election, then the rules need to be revised because of SB 1560. Some documents have "an out" with language stating that any action that could be accomplished at a meeting may be likewise conducted by mail and that would preclude the necessity of a meeting. However, many documents still require that board members be elected at a meeting. You cannot really conduct a vote at a meeting under the new law, but you may have to incorporate a meeting into the voting process for some or all elections. The alternative is to consider amending your governing documents to do away with the requirement of a meeting. Amending of course requires homeowner approval and also requires voting for it under the new double envelope mail balloting system. And doing away with the meeting may eliminate whatever interest there is on the part of members who come to the annual meeting. Perhaps you can see why it is important to consider the entirety of your governing documents - especially the Bylaws, in correcting or rewriting rules after SB 1560.
As for help with meeting the quorum requirements, if your documents call for an adjourned annual meeting (which would be allowed as a second chance at achieving quorum if it was not achieved at the first scheduled annual meeting in any given year) and the election for directors is combined with the mail ballot and annual meeting, that the Board can schedule the "adjourned" meeting. Please note that this requires some planning because you may need to call the inspectors back for this. If the quorum is lowered for the second meeting (would be stated in the Bylaws), then this may help you have a legal meeting. Failure to go through the process of holding the second meeting if there is provision for it may likewise hurt the association if the ballots are counted without a quorum and Board members are appointed instead of elected, for lack of a quorum.
3. Soliciting Candidates. Many rules written for associations require Boards to solicit candidates by a written communication (newsletter, letter, etc. are acceptable) well before the ballot goes out to members. This requirement would assure that the Board made some reasonable effort to find volunteers to serve, and give all members a chance to nominate themselves. If there is any challenge to your election based on a complaint that the Board did not let owners know they had the right to be nominated, a written solicitation might cure any perceived defect if there is a challenge. Some documents have specific nominations procedures that can still be implemented. However, if those procedures prevent any owner from being nominated, or make it unduly difficult for any member to be nominated, there is a probably a good chance the Association will lose if their practice is called into question in a court challenge because of the specific entitlement in the statute that allows any owner to be able to nominate themselves.
4. Nominations From the Floor. SB 1560 says: "Notwithstanding any other provision of law, the rules adopted pursuant to this section may provide for the nomination of candidates from the floor of membership meetings or nomination by any other manner. Those rules may permit write-in candidates for ballots."
If your documents require that nominations from the floor be taken or accepted, then you need to allow for that. If there is no language requiring it, then the Board seemingly can eliminate nominations from the floor and close the "polls" (make the ballots due back) prior to or at the beginning of any required meeting. However, it is imperative to explain to the members what will happen here. It is better to let members know whether nominations will or will not be taken from the floor at the annual meeting because owners need to know before they vote. If there will be other candidates nominated at the meeting then there may well be more choices than those shown on the ballot. "Write in" blanks are legal and can become important. If you are taking nominations from the floor, "write-in" lines on the ballot leave space for owners to write in names of the additional candidates resulting from nominations from the floor. And the Owners can decide whether to mail their ballots in or wait for the meeting to see and hear other candidates. Use of common sense is important here. Try to put yourself in the shoes of any hearing officer reviewing the practices used and the rules. If it is clear to members what the options are, and a member ignores the instructions and then challenges the election, I have to think that member will have a problem prevailing any challenge to the election..
5. Candidate's Rights. Candidates and association members have a right to equal opportunities for expounding their views and have a right to use the clubhouse if there is one, to present their views with regard to pending elections. The law allows for use at no cost to the member of Association facilities, if there are any. Owners that or are candidates or wish to expound views are supposed to have access to the various forms of communication used by the Association including meeting space, publications and medial. The use must be "for purposes that are reasonably related to the election." The rules or guidelines used by the Association need to be very fair about this. And only time will tell what the courts think is "fair" with regard to allowing access to association facilities and media.
6. Qualifying Candidates: The new elections reform laws (SB61 and SB1560) both say: "A nomination or election procedure shall not be deemed reasonable if it disallows any member of the association from nominating himself or herself for election to the board of directors." I talked a little about this above. SB61 provides that qualifications for Board members need to be put in the rules. SB 1560 goes a step further and clarifies that qualifications listed in the rules must appear in the governing documents. In other words, Boards cannot make them up. So if you have qualifications in the Rules that are not in your documents, you need to eliminate them. Some rules that have been written allowBoards to deny an unqualified candidate from running for the board by refusing to put their name on the ballot. I did but no longer feel that is a wise practice to deny a member from nominating themselves. Other attorneys feel differently about this and still encourage denying an unqualified candidate the opportunity to be nominated. I still put in rules that the Board should notify the candidate that they do not qualify and ask them to cure the defect or withdraw as a nominee. I still think this is reasonable, because in some cases, prospective candidates may not know that they do not qualify and might reasonably withdraw if the problem is not curable. And allowing unqualified candidates to run for the Board is a real "Catch 22". It causes owners to waste votes on board members who can be unseated as soon as they get into office because of a lack of qualifications.
7. Cumulative Voting - Explaining It - Using It. SB 1560 requires Boards to explain and allow members to vote by cumulative voting in Board elections if the governing documents "provide for it". Some bylaws allow it; some deny it; some are silent, and some confuse matters because they refer to the Corporations Code provisions for cumulative voting which allow it when any member steps up before a voting begins and ask to "cumulate" their votes. I believe the intent is that if the documents would allow it under any circumstances, the Board has to mention and explain it "up front" when the ballots are sent out to members. However, other attorneys may not feel the same so rely on your legal counsel if you are not a client of mine. Each Association should listen to its own attorney or it will be thoroughly confused. However, it does not hurt to provide information to your own attorney of the nature of this article. We are not all perfect and may miss something.
8. Handling Apathy Issues. Guess what? Most associations have apathy problems! (No surprise, is it!) This means they will either not have enough candidates for a "contest" for the Board, or enough return ballots in any election to constitute a quorum. So they will have to have practical ways of handling these circumstances. After July 1, I changed my practices and put the guidance in the guidelines instead of rules so that the Boards could approve the rules (and the rules would be consistent with the laws and governing documents) without pre-adoption circulation to the owners. But I still wanted Boards to understand that there are some practical resolutions if apathy presents seemingly insurmountable problems for which the new law offers no solution. In my view, the guidelines for implementing the rules do not have to be circulated to the members. The most important thing to keep in mind if you need to apply a practical resolution such as using acclamation or appointment for board members is to be able to illustrate, should there be a challenge to the legality of the election, that reasonable efforts were made to seek out candidates and./or get members to return ballots. Again, it comes back to fair practices and fair opportunities for members to be involved. Associations will also have to instruct inspectors what to do if their are fewer candidates than board positions open, or not enough return ballots to constitute a quorum. The key here is - "Be prepared ...." for these events so that if they do happen, you will not be stumbling. "Stumbling" breeds distrust in HOA elections. If the Board does not have in place remedies to deal with the difficult eventualities, the most vocal members at the meetings will invent their own options.
9. Inspectors of Election/Helpers. No ballots are to be opened or counted prior to the final tabulation so make sure processes are in place to identify ballots that are mailed to the association business offices (such as the manager's office), if that is the place they are going to be mailed. Per SB 1560, inspectors may appoint or bring counters to assist with tabulation of votes. Inspectors can "check in" ballot packages prior to the counting process, meaning they can log in received ballot packages by the information on the envelope. However, no envelope can be opened prior to counting. The Association will want to coordinate with the inspector(s) to make sure that the persons checking members/attendees into a meeting, if voting continues into a meeting, are not getting new ballot packages if one was previously returned by mail. Likewise no proxy holder should receive a ballot package for a member if the member has already returned the ballot by mail. Inspectors or check in personnel will be reviewing proxies if a member brings one and it is up to the inspector to make a determination as to whether it satisfies the definition of a proxy. Between the two of them (if a meeting is involved and the "checkin" personnel are different than the inspectors) to make sure that no proxy holder is given a ballot for a proxy-giver-member who has already voted by mailing in their ballot package.
10. Storage of Election Materials. SB 1560 provides "the sealed ballots at all times shall be in the custody of the inspector or inspectors of election or at a location designated by the inspector or inspectors until after the tabulation of the vote, and until the time allowed by Section 7527 of the Corporations Code for challenging the election has expired, at which time custody shall be transferred to the association. If there is a recount or other challenge to the election process, the inspector or inspectors of election shall, upon written request, make the ballots available for inspection and review by an association member or his or her authorized representative. Any recount shall be conducted in a manner that preserves the confidentiality of the vote. ... After the transfer of the ballots to the association, the ballots shall be stored by the association in a secure place for no less than one year after the date of the election."
The time allowed by Section 7527 of the Corporations Code is 9 months. Thus, your inspectors will either store the ballots for 9 months in their own available facilities or, designate the Association business offices as the place of storage. If members are used as inspectors, it seems quite obvious to me that they would not necessarily have any storage facility available. In order to protect the integrity of the ballot storage, and stay with in the intent of this language, my suggestion is that the ballot box with all materials from the election in it be sealed with tape with a notation on the outside of the contents and a notice that the inspector(s) of election should be notified and invited to participate in the recount or other processes where the contents would be examined. That would also provide protection for the association AND the inspectors from any unauthorized tampering with the contents.
Reactions to this new law are mixed, but most are positive, given the changes. Cleanup legislation is always risky and in this case, every time a problem was resolved with some language, it seemed another was created with other language added. It is not an easy process to convert to a confusing and convoluted set of parameters, but time and practice will help iron out some of the kinks.
Should you just say "No"? Some Associations have simply decided to ignore the new law because it is so unreasonably cumbersome. Some Associations refuse to adopt rules, thinking that will work. But there is one very clear thing: the new statute says that Associations shall adopt rules so failure to do so altogether will be a loser in any elections challenge.
Good planning and instruction to members is what's important here. If you expect a contested election and are required to or planning to take nominations from the floor of the annual meeting, be sure to let owners know that they have options for turning in their package at the meeting. It would be a sticky situation if the Board did not so advise owners, many mailed in their ballot packages, and later found out, through the buzz going around, that there would be an opportunity to consider candidates whose names were not on the ballot. If it is a controversial election and you plan to use your management company as one of the inspectors of election, include one member from each "camp" as well so that both sides will be well represented in the ballot receiving and counting process. That should help minimize the level of distrust. There will be times when the cost of outside inspectors is very justified so don't rule it out as a possibility now or in the future, just because of compliance cost issues.
If you had an election in the summer 0f 2006, you fell into the choppy waters area between SB 61 and SB 1560. SB 1560 which was signed September 18 but the provisions say it was "operative July 1" which (technically) makes it retroactive (if that is even legal). But it does not seem fair that an association should be punished by a retroactive law if it complied with current law at the time (individuals cannot be so punished). So, if there is a challenge to your election during that period (July 1-September 18) you could probably argue that either set of statutes applied, whichever supports your processes. One can easily argue that it is quite difficult to know which law applied, since SB 1560 was not signed into law yet during that period.
Coping with this new law is not easy and I want to provide as much assistance in setting good rules and establishing reasonable interpretations of this statute as I can. Thus, the purpose of this article... Remember though, it does not serve as nor replace good legal advice about your own situation.
© 2006, Beth A. Grimm, all rights reserved.