Even though the elections law went into effect well over six years ago, we still frequently come across associations without election rules in place. We often hear that some boards of directors resist investing in election rules because they do not want to spend the money; however, election rules can be drafted quickly and inexpensively by competent attorneys that specialize in common interest development law. The cost is particularly minimal in comparison to the serious risks involved in conducting votes and elections in the absence of voting rules.
Civil Code section 1363.03 requires that four types of member votes be conducted as a dual-envelope secret ballot system involving: (1) votes regarding assessment increases requiring member approval; (2) election or removal of directors; (3) amendment of the governing documents; and (4) the grant of exclusive use of common area to less than all members.
Are Elections Being Conducted in Compliance with the Law?
Although an association’s bylaws (and sometimes CC&Rs and/or Articles of Incorporation) do address election procedures, these documents do not include adopted and published election operating rules. It is not legally sufficient to conduct elections pursuant to the dual-envelope, secret ballot system without separate election rules; indeed, such an election violates the elections law, exposes the association to potential liability, and risks the nullification of any such vote or election.
The elections law was written to encourage disgruntled members to sue for elections law violations and to recover damages, civil penalties and attorneys’ fees in the process. Moreover, the legislature has also given the courts the option to “void” results of an election, which poses a huge risk to associations.
Absence of Election Rules Poses a Risk to Associations
Civil Code section 1363.09 allows an association member to carry out civil action for an election law violation, including the fact that an election was conducted without election rules in place, within one year of the date the cause of action accrues. If the cause of action “accrues” when a board is elected in violation of the law, and the election is subsequently voided, any action taken by the board in the interim may be invalidated. Considering the number of actions a board of directors takes in an average year, including collection and enforcement efforts and vendor contracts, the business of an association could be irreparably harmed if action taken by a board was determined invalid.
Special Assessment Vote
Similarly, voting on a special assessment without election rules in place poses a serious risk. For example, if a large special assessment was approved by a member vote in the absence of election rules, an owner did not pay, and an association attempted to collect the assessment via lien and foreclosure or obtaining a court judgment, the owner could claim that the assessment was invalid since the vote was conducted without election rules.
Governing Documents Approval
If governing documents are approved by member vote without election rules in place, that vote could be voided and the documents invalidated. We are aware of one small claims case in Santa Clara County in which a homeowner challenged a vote to approve governing documents. Although the association had adopted election rules in that case, the homeowner argued that the vote was conducted in violation of the rules. The small claims judge ruled in favor of the homeowner and ruled that the documents were “of no effect.” The practical effect of this small claims action is unclear because the CC&Rs had already been recorded, but the moral of the story is that it is very easy for homeowners to make these challenges in court.
Can We Draft the Rules Ourselves?
Our firm has defended associations in election challenges where the board opted to draft (or have an individual director draft) election rules without legal counsel in order to save money. As a result, each association ended up spending far more in attorneys’ fees to defend the association and the rules themselves than it would have cost to simply hire an attorney to draft the rules on the association’s behalf.
Drafting election rules is not as simple as incorporating some language from the statute. Election rules must be drafted so that they comply with the law and must be tailored to work with the association’s other governing documents; because all governing documents are different, election rules are also not “one size fits all.”
If you are a manager, make sure that every association you manage has election rules, and if you are a board member, make sure your association has election rules. If election rules have not been adopted, the immediate preparation, distribution and adoption of election rules should be the association’s top priority before any type of membership vote subject to Civil Code section 1363.03 is conducted.
Adopted from Amy K. Tinetti, Esq., a principal with the law firm of Hughes Gill Cochrane, P.C. located in Walnut Creek, California. This article is intended to provide general information and should not be relied upon as legal advice. Please contact your association attorney with specific questions and concerns.