Decisions, Decisions, Decisions

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Published in the ECHO Journal, December 2010

Life consists of choices. We make decisions every day. Those decisions reflect our life experience and the way we think. Depending on the circumstances, we make decisions intuitively, rationally and emotionally. If you are on a homeowner association board of directors, however, you do not have an option about the manner in which you make most decisions. Unless your decisions are grounded on authority and persuasive evidence, you are asking for trouble. The purpose of this cautionary tale is to explain the special quality of board decisions and to provide guidelines for making decisions that will withstand formal criticism. Let me begin with a hypothetical example of a typical decision.

Case Study

Assume that you are a member of an age-restricted resident-owned mobilehome park (ROP). To maintain the park’s age restricted status, the law requires 80 percent of the residents to be over 55 years old. Your governing documents restrict membership to resident owners but permit rentals “in cases of extreme hardship” if the rental is approved in advance by the board. If rental is permitted, the prospective tenant must also be approved by the board.

Mary is 60 years old and has lived in the park for 5 years. She has informed the board that her employer has transferred her to the Thailand office for one year. She has asked for permission to rent her coach to her 40 year old married daughter. The questions posed for the board are whether to: 1) allow Mary to rent her coach, and 2) accept Mary’s daughter as a tenant.

At the Board Meeting

The board is evenly divided between those who support Mary and those who do not. Members who support Mary’s requests argue that: 1) since the rules do not require the hardship to be health-related or financial, Mary is entitled to rent her coach for any reason she chooses so long as the board approves her tenant, 2) Mary is a good bridge player, 3) the tenancy will only be for a year, 4) the daughter is out of work and needs a place to stay, 5) Mary’s son-in-law is disabled and they can’t afford to go anywhere else, 6) to deny Mary’s request would be discriminatory since similar requests have all been granted, 7) The park would not be any worse off with the daughter as a tenant than it is with Mary, 8) Mary has a duty to take care of her daughter in her time of need, and 9) the park is well under the 80 percent limit.

The faction opposed to allowing Mary to rent her coach to a non-owner contends that granting her requests is a bad idea because: 1) it would set a bad precedent, 2) it may be hard to hold the tenancy to one year if Mary decides to stay longer in Thailand and the tenant decides not to move out, 3) accepting a tenant who is under 55 could jeopardize the park’s age restricted status, 4) Mary never performed any services to the park, 5) Mary is a Druid and sometimes votes for the wrong political candidates, 6) Mary knew the rules when she bought her coach, 7) Mary does not suffer any special hardship that others in her position would not also suffer, 8) Mary’s daughter may not be able to pay regular assessments, 9) Mary should have asked for permission before she agreed to accept the transfer, and 10) the park would not be any better off with the daughter than it is with Mary.

This debate is typical of discussions in every HOA. The outcome of such decisions is usually arbitrary because:

  1. Arguments are not related to an explicit standard,
  2. Arguments are based on conclusions rather than reasons, and
  3. Debate is often diverted by irrelevant arguments.

Let me examine these points separately:

Argument Should be Based on Standards

The HOA owes its members the right to due process in the application of its rules. Due process presumes simple schoolyard fairness. One element of fairness is rationality of decisions that affect the member and her property rights. Since the right to rent is one of the sticks in the bundle of rights we think of as “property,” the association must act rationally when it impedes this fundamental right. In short, homeowner associations owe their members the right to fair and rational decision making. To be fair, the outcome of a decision should be reasonably predictable. To be predictable, a decision must be guided by explicit written standards. Where there is no standard to apply, or the board ignores the relevant standard, discussion is inevitably deflected to matters unrelated to the decision. The result is bad decisions.

Base Decisions on Reasons Not Conclusions

The second criterion for a sound decision is that it resorts to reasons rather than conclusions. What is the difference? Conclusions are factually unsupported and value-laden assertions. They are usually presented as self-evident and must always be accepted at face value. Reasons, on the other hand, incorporate evidence. Their validity is independent of the proponent’s values and life experiences. In short: reasons persuade; conclusions merely collide in mid-air with other conclusions. Most of the debating points made at the board meeting described above are take-it-or-leave-it conclusions.

For examples of the distinction between reasons and conclusions, return to the summary of points made at the board meeting. The point that “since the rules do not require the hardship to be either health-related or financial, Mary is entitled to rent her coach for any reason she chooses,” is an example of a reason. The point that “to deny Mary would be discriminatory,” on the other hand, is an example of a conclusion. Test your arguments by asking whether they are based on information/logic (reason), or merely on your personal preference (conclusion). There is nothing inherently wrong with a conclusion. It merely needs to be supported with reasons before it can be of any value in reaching a decision.

Facts Should be Relevant to the Issue

It is not enough for decisions to be based on reasoned information. The information must also be reasonably related to the standard being applied. For example, it may be true that Mary is both a good bridge player and a Druid. Those facts, however, have no bearing on the question whether she suffers a hardship that entitles her to rent her coach. Nor does it matter that her daughter or son-in-law suffers their own hardships. The question is whether Mary will suffer a hardship. The relevant inquiry is unrelated to Mary or to her personal qualities, politics, skill at card games, past contributions to the HOA, or her family values. To be defensible, the rental decision must relate to the hardship standard as it relates to Mary’s circumstance.

The Board’s Decision-Making Process

To make a defensible decision the board must:

  1. Define the question to be decided,
  2. Apply rules to the question, and
  3. Gather evidence on the question before deciding it.

To explain what I mean, let me return to the case study of Mary and her daughter.

The first question is: What do the governing documents say? Let us suppose, as is often the case, that the governing documents supply scant guidance in how to make a rental decision. The CC&Rs merely say that the board may allow rentals “in cases of extreme hardship.” There are at least two ways to approach such a rule. One is to parse the sentence in an effort to divine its meaning. What is meant by “hardship?” Must the “hardship” be Mary’s, or can it be her tenant’s? Is an “extreme hardship” different from an ordinary hardship? How do we know an extreme hardship when we see it? Must it have a financial component, or is mere inconvenience enough? Does it matter, for example, that Mary’s employer will pay her assessments and loan installments while she is in Thailand? Does it matter that in the past 5 years 3 vacant coaches have been vandalized?

How the Board Could Have Avoided the Problem

Facts of this kind are useful in making a decision only if they are relevant to the standard being applied. The standard is “extreme hardship.” One can argue that the risk of vandalism is a hardship. One can also argue that vandalism is only a hardship after it has happened. These debates illustrate that reasonable minds can differ when presented with identical facts. To get beyond those reasonable differences, the association must refine the standards it uses to make decisions. Where the standard is ambiguous, facts are mere chaff in the wind. Where the standard is ambiguous, even opposing facts are of equal relevance. The first step, therefore, is to be sure that the association has adopted rules that are sufficiently explicit to be applied. Let me return to the example to illustrate that point.

Instead of delegating to the board the unfettered discretion to allow rentals in cases of “extreme hardship,” its decisions would be easier to make, more predictable and hence more defensible, if they were bounded by a set of criteria to be used in making rental decisions. For example, the governing documents could be amended to say that a coach may be rented only if the owner demonstrates a need to vacate the coach due to the owner’s:

  • Ill health;
  • Inability to pay regular assessments;
  • Family emergency;
  • Need to vacate for major repairs, and
  • Financial needs.

These criteria could be further refined, but even these open-ended criteria are more helpful than the ill-defined “extreme hardship” standard. The suggested criteria may even be sufficient to avoid a subsequent charge from Mary that the rental decision was arbitrary since it was devoid of principled standards.

Allow General Principles to Guide Specific Decisions

Decisions regarding acceptance of proposed tenants could be guided by similar standards. For example, the board could be required to consider the following factors prior to reaching a decision.

  • Financial responsibility for assessments, (credit rating);
  • Tenant history (probable compliance with rules);
  • Number of residents in the coach in comparison with its size;
  • Potential for amplified music or other sources of loud noise;
  • Number, kind and size of pets;
  • Number of vehicles in the household;
  • “Slow and quiet” versus “noisy and active” life styles, and
  • State and federal laws.

These standards are bound to present problems in specific situations. They are, however, better than no standards at all.

Keep Your Eye On the Ball

The purpose of elaborating objective standards is not merely to adopt more rules. The purpose is to be as explicit as possible about the principles behind the rules you already have. Albert Einstein said “the most common form of stupidity is forgetting what you are doing.” The reason that forgetting our goal is the most common form of stupidity is that we all do it all the time. The only way to remember what your HOA is attempting to achieve is to deliberately examine the reasons behind your rules.

The rule requiring residents to be at least 55, for example, is not the product of blind prejudice against young people. It is a recognition that younger people tend to lead a more active life than people over 55. They tend to have larger households, they tend to have more and louder social events, and they often drive larger cars and have more of them per household. These generalizations, like all generalizations, are often wrong. There are young people who fit in an age restricted (over 55) mobilehome park better than some more senior residents. The trick is to have rules that will account for the exceptions. Rather than making the tenant decision only on the basis of age, therefore, it is more logical to make it on the basis of the factors that promoted the age restriction in the first place. The list of criteria enumerated above may start to achieve that objective. If not, similar standards should be refined into a set of established criteria that could be used to guide the board in reaching decisions to accept or reject prospective tenants.

I recognize that my ordered approach to decision making is contrary to human nature. I also realize that thinking through the reasons behind a generalized rule is difficult. It is far easier to simply bar residents under age 55. The difficulty with such a simplistic approach to association governance is that people dislike absolute and unprincipled rules even more than they dislike analyzing the reasons behind the rules they agree with. It is important to remember, however, that the decision-making process is often as important as its outcome.

Process Versus Outcome

People are more likely to respect the outcome of a process in which they feel fairly treated. That principle is true even if the decision goes against the person subject to the rules. One way to make someone feel fairly treated is to hear that person’s point of view and then explain the basis for the decision in an orderly way. One way to make the applicant feel that the decision was made fairly is to break complex decisions into their constituent parts and demonstrate how the evidence presented relates to the standard being applied.

Conclusion

Since your HOA, like every human institution, depends on voluntary compliance with its internal rules, losing the respect of your members breeds discredit not only for the rules, but for the institution that made them. People are more likely to respect rules that are grounded in principle and policy. It is essential, therefore, to articulate the reasons behind each rule and the goals sought to be achieved by it. When decision makers lose sight of the reasons behind their rules, the result is often unpredictable. Decisions that can not be foreseen in advance tend to be viewed as being capricious. Capricious decisions are unfair.

To avoid the appearance of capricious decisions, examine your rules to be sure they afford enough guidance to be applied predictably. When faced with a decision that is governed by a rule, take care to base the decision on information that is relevant to the objectives the rule was intended to achieve. In making such decisions, ignore any arguments directed at the person affected by the rule, and limit your deliberation to arguments related to the action or conduct from which the decision originated.


Gerry Bowden is a partner in the law firm of Dawson, Passafuime & Bowden in Scotts Valley.