Reader Questions - Multiple Ownership, Unilateral Actions

Hi,

I am professional and own multiple rental properties in a condo complex.

I happen to be a board member of HOA. Can I be sued personally?

Thanks,

B.S, Anaheim Hills

Dear B.S.,

Civil Code 1365.7 provides that volunteer directors are not personally liable so long as the association holds directors and officers liability insurance. That insurance minimum is $500,000 for an association of 100 or less residences, or $1,000,000 if there are more than 100 residences. There are other limitations, such as the actions must be within the director’s role, and in good faith. A director acting outside of the corporate process, or a director who receives compensation of any kind) other than reimbursement of out of pocket expenses) could be outside the very important protection of this statute.

Another limitation is found at subpart (e) of the statute, which limits the immunity to owners of no more than two memberships in the association. I assume the thinking behind this law was that someone who owns more than two memberships in an association is not really a volunteer but has primarily a business involvement.

So, if you have more than two memberships in one association you may want to consider having personal umbrella insurance coverage.

There is still another source of protection, the all-important “business judgment rule” (see earlier HOA Homefront columns for that discussion.).

Best regards,
Kelly

Dear Kelly,

Is it permissible for a President of a HOA and manager to meet with a homeowner and sign an agreement without letting the Board of Directors know about the discussion and agreement?

Thanking you in advance,

E.H., Cherry Valley

Dear E.H.,

It may be permissible, if the board has given the President or manager express authority in advance. Otherwise, the agreement might be considered tentative since it is not a corporate action until the board ratifies it. It is often helpful for a board to give the president and manager authority to execute a certain contract or agreement within defined parameters.

However, even with good intentions, a director or manager acting outside their express authority could be outside the corporate process, and thereby exposing themselves to personal liability. In normal business operations, presidents and general managers often have broad authority and power to make decisions for the corporation – but a common interest development (aka :HOA”) is not a business. The president or manager only has what power is given by the board, and presidents only have one vote.

The internal dispute resolution process of Civil Code Section 1363.840(c)(2) provides that an individual representative of the board may enter into a binding agreement with a member provided the agreement is within the authority given to that representative by the board.

The corporate process often can be frustrating to the “take charge” president or manager, but it is there to protect them. By following the corporate process, the agreement is documented to be an agreement of the association, and not the promise of the individual officer or the manager.

On the rare occasions in which there is no time to obtain board authority, and a manager or director is forced to make a decision by an emergency, that decision needs to be put before the board for ratification as soon as possible. Once ratified, the action becomes the corporation’s action.

Thanks for your question,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.