Questions and Answers -
Elections Reform For Homeowners Associations in 2006

By Beth A. Grimm, PLC

You probably have heard by now more questions than answers regarding the new "election's reform law" that took effect July 1, 2006. Wouldn't it be nice if you had answers? Well, here goes:

Question: What's the big deal?

The "big deal" is that unless your association has been conducting elections by a double envelope secret mail balloting system similar to the absentee balloting system for public elections, things are going to change for almost every, if not every, HOA election that takes place after July 1, 2006.

Question: How are elections going to change?

HOAs are required to adopt rules called the election rules that contain certain requirements and are required to conduct elections using the double envelope secret mail balloting system similar to the absentee balloting system for public elections for most elections.

Question: Do the rules have to be approved by the members?

No, they do not, unless there is a provision in your governing documents that requires approval of rules, - and even then, check with your attorney. It may not apply. The new law says that the election rules are subject to the Civil Code processes in 1357.100 and following, and those codes require circulation of new rules or rule changes to the members for a comment period at least 30 days before the open board meeting at which they will be considered for approval. There are some exceptions, one of which is that if the rules are written such that there are no discretionary provisions in them but the provisions simply reflect California law and the association governing documents, then pre-BOARD-approval circulation is probably not necessary. However, you need to check with your own legal counsel on this as different attorneys have different advice to give.

Question: What must appear in the rules?

The rules Must ensure that any candidate or member of the association advocating a point of view has equal access with other candidates or members to association resources including "media, newsletters, or Internet web sites" during a campaign. This does not mean it must be offered to all but it does mean if one gets to use the resources, all candidates and members advocating different points of view regarding the election get equal access. The association may not edit or redact (blacken out or remove) any content from communications but may include a statement of non-responsibility for the content. Must ensure access to the common area meeting space, if any, during a campaign, at no cost, to all candidates, including those who are not incumbents and to members advocating a point of view including those not endorsed by the Board, for purposes reasonably related to the election. The extent to which the Board can limit access is not stated in the statute but it seems that there could be limits set to avoid obvious abuse of the privilege. Must specify the qualifications for candidates for the Board and procedures for nomination of candidates, and allow for any member to nominate themselves. The issues here relate to whether a person who does not qualify to be a board member because of stated qualifications in the Bylaws can be nominated and get their name on the ballot. Different attorneys take different positions on what point in the election the qualifications can be invoked. Must specify voting rights. This means much more than how many votes an owner gets. Often the answer is one vote per unit or Lot and if cumulative voting is allowed by the governing documents, how it will be implemented. Examples of some of the nuances would be a set of documents that bases voting rights on square footage or ownership rights, or special weighted voting protecting developers, or special rights based on which groups can select which board positions.

Must specify the method of selecting one or three independent parties to act as inspector or inspectors of election and some of the restrictions such as the fact that ballots are to remain in the custody of the inspectors at all times and no ballot packages may be opened prior to the "close of the polls" or voting period.

Question: Does this requirement of ensuring equal access to media, or free access to association common area space such as a clubhouse, require the Board to offer "unfettered" access meaning each members of the association claiming to advocate opposing views may have as much "space" or "time" as they want to advocate their views?

Not exactly. I read this statute as somewhere between zero and unfettered use. My feeling is that reasonable limits do need to be set for all candidates and association members. For example, candidate statements in the newsletter might be limited to 25 or 50 words or less. Opposing views might have similar limitations. Use of the clubhouse might be limited to a candidates' night and if any candidate or member who wishes to speak cannot be present on that night, perhaps offering one or a two alternative dates. Members with opposing views are also so entitled but if the Association wants to designate certain dates as dates for these uses, it seems reasonable to do so. Setting reasonable limits does not mean the board can limit the candidate or any other member from advocating their point of view at an association-arranged meeting or on their own, by using the clubhouse on the same terms as other members, by seeking a mailing to the members via access to the membership lists, etc. Other attorneys most likely have varying opinions on this so it is good to work with an attorney you trust to set the parameters. Neither brother Bob nor your last divorce attorney is equipped to advise on this unless they have specific training in common interest development law and have followed and studied the issues with his new elections reform law.

Question: If a member can nominate themselves or nominate another member, and there is no restriction on being qualified to be nominated, what do we do about candidates that would not qualify to serve?

I believe that the association has an obligation to the best of its ability to enforce its governing documents with regard to qualifications for board members. For example, your bylaws might require that board members are in good standing, meaning current with regard to their assessments and not in violation of any of the governing documents. If your bylaws require these things, then I feel the board must determine at some point that the person who has submitted a name for nomination would not be entitled to be elected. The decision not to allow them to serve might be made at the time the person submits their name as a nominee, or at the time the ballots are drawn up, or it might be made at the time the ballots are in. In either event, I believe it is critically important for the board (through management or the inspector of election or other resource) to let any owner who has submitted their name or someone else's name, in writing, that if they or the person they nominate are not qualified to serve, then something (depending on the circumstances such as whether the problem can be cured) needs to be done about it. If a board does not include a member's name on the ballot then it is crucial that there is proof that the qualification is violated, and that the Member was advised that this would affect their ability to be nominated and serve. And any Member could conceivably become qualified during the course of the election so disqualifying them prior to their being elected could be a premature move. Again, it is best to check with your own legal counsel for advice on this.

Question: Can we use members as inspectors of election?

An HOA can use members, the association manager, the association CPA, a poll worker, or pretty much any other person that has no familial relationship or financial relationship with any of the board members or any of the candidates. The big word in the statute is "independent" third-party. If the HOA wants to use the manager or any other vendor used by the association, the election rules need to state that, or the person will not be qualified to serve under the law. In my opinion, election rules should give the Board various options with regard to the appointment and I believe it helps the Board to be able to have choices depending on the type of election that is coming up. And be sure to give the choice of inspectors due consideration because making an election more controversial is not a good idea. Things will be dicey enough just making sure that all of the "i's" are dotted and the "t's" are crossed with the new elections laws. And keep in mind that inspectors may have to make decisions on ballots, proxies and processes that could turn an election one way or another and having paid vendors for the association (that may be viewed as biased toward the incumbent board) might not be a good idea.

Question: What kind of elections are we talking about?

Elections that are covered by this new law are elections related to election of or removal of directors, any elections that would be required with regard to assessments, elections relating to transfer of common area for exclusive use, and elections relating to amendment of any of the governing documents.

Question: Can we place other measures on a ballot with"the big four" which are not covered by the new law?

It is my belief that you can. I would just suggest that you place that option in the Rules.

Question: What is this double envelope secret ballot process?

The association will have to distribute to each owner, whether by mail, personal delivery, or otherwise (and I strongly recommend documenting the association records with the method used), a package containing a ballot with measures upon it, a small unmarked envelope into which the ballot is to be placed after the choices are marked, and a larger envelope that has a return address to the inspector of election. The owners should be provided with explicit instructions so they know what to do. The envelope that is addressed to the inspector will also have to have, in the upper left-hand corner, the member's name, mailing and property address (or instead of the property address, the lot or unit identifier - this would be the description of property that entitles Owner to vote) and there needs to be a blank for the owner to sign their name. It is fair to assume that not everyone will follow the instructions but the more effort the board makes to make it simple for the owners, the "better" the return will be.

Question: Can the envelope to the inspector(s) be addressed to the manager?

If the mailing address is going to be the management office, the envelopes should still be addressed to the inspector of election, in care of the management office. This may be the only option if the inspectors of election are members of the association or the manager. If care is not taken to assure that the envelopes to the inspector(s) of election look different than a normal everyday envelope, the ballot packages may get mixed up with other mail and be opened accidentally. Inspectors of election are not supposed to open ballots before it is time to tabulate them. Neither are managers, board members, or members of any committee. And even at the meeting where the ballots are to be counted, they should not be opened until a determination of quorum is made.

Question: What may the inspector or inspectors do if they do not know what to do with regard to any question that might arise during the process?

It is best to try and head off problems if possible. For example, it is wise to have some instructions for the inspectors and allow them to read the instructions, and ask questions before the meeting. The inspectors could even consult with the association's counsel if they have question beforehand or during the process.

Basically, however, the inspectors have the right and responsibility to hear and determine all challenges and questions that arise out of or in connection with the right to vote and the ballots. Any decision of the inspectors is presumed valid (but note that does not prevent a challenge to the election). The intent of the law seems to be that by choosing an independent inspector of election, and allowing inspectors to rule on questions that come up about the process, the ballots, and the member's rights etc., arguments as to the fairness and objectivity should be minimized. Thus, it does not make sense to invite problems by choosing an inspector of election who is controversial even if they are independent of any relationship with Board members or candidates.

Question: What about quorum? Is a quorum required for all elections?

Yes, a quorum is required for elections if there is a quorum stated in the governing documents or California law. The Corporations Code does provide for a quorum at 33 1/3% if the documents are silent. If you want to help avoid apathy problems in Board elections, the Board can suggest to members that they approve a quorum requirement (document amendment) that is equal to the number of ballots that are returned, rather than having a minimum stated. Even if the governing documents do not have quorum requirement, corporate law does for those incorporated associations where the governing documents are silent on the subject.

Question: What about proxies? Can they still be used?

Proxies are a subject of confusion and controversy in the new law. It simply is not clear on how an association might integrate proxy use with this double envelope secret mail ballot system. Different attorneys have adopted processes that integrate proxy use and others have all but eliminated proxies from the elections process. In some regards, proxies have lost their importance because ballots returned by a Member count as if the member was present in person or by proxy. However, some owners will want or need to assign a proxy, and most bylaws for HOAs provide that members can vote in person or by proxy. Certainly, a Board can propose an amendment to Bylaws to the owners asking them to prohibit proxies, but this could disenfranchise Owners who are called out of the country in military service or have some comparable situation that does not allow them to participate in an election.

If the board distributes a proxy, the statute requires that a separate page be attached with voting instructions. The clear intent of the law is that voting should be secret so proxies with the ballot measures on the form are no longer allowed to be counted as ballots. If the Board distribures a proxy, it needs to provide the form of proxy required by the statute. However, I believe there are various ways to interpret what might constitute a proper "separate" page. For example, I believe a proxy could be used in conjunction with the secret ballot allowing the ballot itself to constitute the "separate" page with instructions. Proxies will probably continue to confuse the new elections process. Trying to deal with two separate process, i.e., voting by written mail ballot and using a proxy to assign the right to another to vote is going to be confusing to Boards and to owners.

Question: Do we still need to have a meeting if we use this new voting procedure?

No meeting is required for any election unless the governing documents require a meeting or state that the election must be held at a meeting. Commonly, Board elections require an annual meeting but most other elections under the statute do not. Removal of Board members may require a meeting. However, keep in mind that since the mail ballot is required, it is difficult to actually "vote at a meeting". One can "count the ballots" at a meeting and that will have to do. I believe it is possible for boards to integrate the meeting one way or another, either by having it before the ballots go out, at the end of the voting process, or somewhere in between.

Question: What is the worst thing that can happen under the new law?

Probably one of the worst things that can happen is any individual member might be able to upset the entire election by taking a challenge to Small Claims Court in getting a judge or hearing officer to agree that any technicality calls for an entire "re-do". This is especially frustrating in any case, but could be expensive for a large association that had to go to considerable expense in the firsts place, and thought it did everything right the first time. But, of course, there are worse possibilities. An owner can seek a fine of up to $500 for each violation of the new law and if a Board of Directors, the association's attorney, and/or inspectors of election really screw up, and are short on "good faith" defenses, the fines could add up. But, of course, there are still more possibilities. An association could be taken to "Big Court" (the Superior one), and end up in heated litigation, and if it loses, and end up with a big attorney's fees award to have to pay. In other words, the association may end up paying not only its own attorney, but the attorney hired by an owner or owners who challenge the election. The odds are against an Association recovering its attorney fees even if it wins, because it has to prove the action by the challenger was frivolous. That could be difficult to prove.

Please consult with an expert on this. You have to have rules. You have to have inspectors of election. You have to have a process. You have to act in good faith. You may have to demonstrate to someone ranging from the least savvy Small Claims Court referee to the smartest retired High Court Judge that you acted in good faith and did everything you could to satisfy the mandates a Civil Code Sections 1363.03, 1363.04, and 1363.09. Trust me when I say it this: I believe it virtually impossible to anticipate every trip hazard and be guaranteed that you can avoid a challenge under this new law. Why? Because it does not mesh with existing laws in a logical way. See the corresponding article on all things wrong with the new elections law. It does not mesh with governing documents in a logical way. And there is no roadmap for resolving conflicts at this point in time. The new law was not written with the corporate model in mind and ignores many of the Corporations Code and Davis Stirling Act provisions that were in place long before it. Many statutes either specifically conflict with the new elections law, conflict in part with the new elections law, or, though they do not directly conflict, leave open questions as to whether total, or in part, they have any value left. You can read about the problems right here at http://www.californiacondoguru on the same page you found this article by clicking on the link that says "Things Wrong With the New Elections Reform Law.

If you want to look up the code sections themselves, you may link to: http://www.leginfo.ca.gov/calaw.html .... (check the code you want and plug in the first of the series number of the statute)

If you want to look up the bills that were passed covering the new elections reform law, you may link to: http://www.leginfo.ca.gov/bilinfo.html , (plug in the bill numbers SB 61 and SB 1560).

If you want to follow my dialogue on the new bill, visit http://www.californiacondoguru and click on the front page, the box that says "Beth's Blog". I am doing my best to keep a consistent running commentary about how to resolve issues in the elections reform law.

And, of course last but not least ...... Good luck!

copyright 2006, Beth Grimm, all rights reserved