8 Points of HOA Governance 101

By Curtis G. Kimble.

HOA governance isn’t simple or easy and, unfortunately, board members are just volunteers doing their best with too little time and too little money.  I think that’s why even basic principles of HOA governance are often misunderstood by board members (and managers too).  Here is some clarification of 8 frequently misunderstood issues:

1.  Officers and directors are not the same thing.  One of the most fundamental concepts of corporate governance is that directors and officers have entirely separate functions and positions.  Directors are the representatives of the members, elected by the members.  The primary, if not the sole, function of a director is to vote on the decisions before the board.  The directors make up the board, which has the authority to act for the association.

Officers are not (normally) elected by the members, they are elected or appointed by the board.  Usually, the officers are also directors, although there’s no law requiring that they be (but a lot of bylaws require it).  Officers only have the authority or power given to them specifically and expressly, by the bylaws or by the board.  Removing an officer is generally easy, the board is usually authorized to remove an officer, with or without cause.  But if a person is both an officer and a director, removing them as an officer doesn’t remove them as a director.  Removing a director may generally only be done with a vote of the members.

2.  Quorum.  What is a quorum?  Is it important?  A quorum is the minimum number of members that have to be represented at a member meeting in order to have the meeting (or the minimum number of board members that have to be present at a board meeting to have a board meeting).  That magic number will be stated in your bylaws or CC&Rs.  It may be an unreasonably high number (like 50% to 75% of all owners) or it may be a realistic number, but either way it’s required.  If it’s unreasonably high, change it, amend the bylaws, but don’t ignore it.  One of the first things to occur at any meeting should be the determination of a quorum.

3.  The documents that apply.  If your association has CC&Rs (a declaration), bylaws and articles of incorporation, do those documents have to be followed?  If so, how closely do they need to be followed?  The answers are absolutely and to the word.  I’m sure it will come as a surprise to the conscientious readers of this blog, but some boards . . .  how shall I put this . . . don’t appreciate the weight that should be given to what the governing documents say.  They tend to think you are able to pick and choose what you adhere to, or that if they simply aren’t aware of what’s in the documents, then there’s no need to comply with them.  Virtually nothing that is contained in governing documents is optional.  They must be adhered to strictly and literally.

4.  The laws that apply.  There are basically two types of HOAs in Utah – condominium HOAs (or condominium associations) and non-condo HOAs (also called PUDs or community associations).  It’s very important that you know which one you are in (consult your attorney if you don’t).

Condominiums:  The Condominium Ownership Act applies to all condominiums in Utah.

Noncondo HOAs (PUDs or community associations):  The Community Association Act applies to residential non-condo HOAs in Utah (and to mixed-use commercial/residential non-condo projects as of May 14, 2013).

Both:  The Utah Revised Nonprofit Corporation Act also applies to all associations that are incorporated as nonprofit corporations, as most are.

5.  Hierarchy of laws and documents.  If your CC&Rs and bylaws contradict each other, they aren’t simply ignored or tossed out as invalid.  There is a specific heirarchy that generally applies when documents or the law contradict each other.  When a lower document contradicts a higher document, the provision in the higher document is the valid and effective provision and the one in the lower document is ignored (until the documents are amended, which is hopefully promptly after the contradiction is found), unless the higher document is a law that specifically defers to a lower document.

In a condominium, the law states that the following order prevails:

(a) the Condo Act,
(b) the Nonprofit Corporation Act,
(c) articles of incorporation,
(d) declaration (CC&Rs),
(e) bylaws,
(f) rules.

In a non-condo HOA, the order is not set by statute or case law, but the following order should prevail:

(a) the Community Association Act,
(b) the Nonprofit Corporation Act,
(c) declaration (CC&Rs),
(d) articles of incorporation,
(e) bylaws,
(f) rules

6.  Voting Thresholds.  Too often, the subtle distinction between different voting approval thresholds are ignored.  For instance, is there a difference between these two requirements:   “a special assessment shall require the approval of a majority of the members voting in person or by proxy”  and “a special assessment shall require the approval of a majority of the members represented at a meeting in person or by proxy”?

The difference is that the first one requires approval of a majority of those members that actually cast a vote.  The second requires the approval of a majority of the members that show up at the meeting or who are represented by proxy.  So, if 90 members show up to a meeting personally, 10 have given proxies, a vote for a special assessment is held and 94 votes are cast, the number of votes needed for approval under the first requirement above is 48 (a majority of 94).  The number of votes needed for approval under the second requirement is 51 (a majority of 100).

Also remember that, in a condominium, the law requires that voting rights of each owner be directly tied to each owner’s undivided interest in the common area .  This means that if a member has a .837 percent undivided interest in the common area, that member has a .837 vote in any matter put before the association membership (elections, etc.).

7.  A board meeting is not an association meeting or member meeting.  Board meetings (usually held monthly or quarterly) are just that, meetings of the board.  While it is recommended that board meetings be open to the members and the members be allowed to speak during a specified comment period, they are not meetings of the association or member meetings. Typically, the only association meeting or member meeting is the annual meeting held once a year.

8.  HOA Registry.  Finally, remember that the law requires each association to update their information with the Utah HOA Registry within 90 days of any change in that information (e.g., after a board election where a new board member was elected, or after changing managers).  It wasn’t just a one-time requirement and it’s  not an annual renewal.  It must be updated after any change and all information required by the law for condos and the law for non-condos must be included.

This may be new information for some, but hopefully, it just serves as a helpful refresher for others.  In many HOA issues, the devil is in the details and attention to those details will help ensure proper and lawful operation and governance of your association.

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2 Responses to 8 Points of HOA Governance 101

  1. Lew says:

    Our HOA, Incorporated in 1972, recently had a vote “without a meeting” to amend our CC & Rs. The Association is subject to both the Non-Corporate Act and the Utah Community Association Act.
    My understanding of Utah Codes 16-6a-707 and 16-6a-1704(3)is that it requires unanimous 100% approval of an action for HOA’s created prior to April 2001. There are also Utah Case laws Levanger v. Vincent (2000) and Park West Condominium v. Deppe (2006) supporting this required unanimous vote.

    The Bylaws require a vote in person or by proxy at a meeting of owners. Only the Board of Directors are permitted to hold a vote without a meeting.
    Which takes precedent, the 67% Community Association Act or the 100% Non Profit Act? The Community Association Act is silent on the method of voting.

    • The Community Association Act takes precedence over the Nonprofit Corporation Act, in my opinion. (See Restatement Third, Property (Servitudes) Section 6.13, comment a, “[I]n the event of conflict between servitudes law [such as the Community Association Act] and the law applicable to the association form [such as the Nonprofit Corporation Act], servitudes law should control.”)

      Regarding an HOA taking action without a meeting, it is important to remember that there are two different such mechanisms authorized by the Nonprofit Corporation Act.

      The first is set forth in Section 16-6a-707, which you reference, and it authorizes an association to take action without a meeting and without prior notice by what is referred to as a “written consent,” unless otherwise provided in the articles of incorporation and except that if the corporation existed as a nonprofit corporation before April 30, 2001, then either unanimous approval of the members is required, or the articles of incorporation must be essentially amended at a meeting of the members to permit action without a meeting by written consent.

      A “written consent” is essentially a petition-style mechanism, where members can sign a petition, with no other prior notice, and the action passes upon receiving the necessary number of written consents or signatures.

      The second mechanism is set forth in Section 16-6a-709. It is action by written ballot in lieu of a meeting (or in conjunction with a meeting). It provides that any action that may be taken at any meeting of members may be taken without a meeting, unless the bylaws state that action cannot be taken without a meeting.

      It requires a written ballot to be delivered to all members and a deadline to respond at some point in the future, unlike the above petition-style mechanism. Thus, all members are given the opportunity to vote in the proposed action and all members are given advance notice before the voting occurs. This method allows for participation in the vote by all members, including those that live out of state or whose schedules don’t permit attendance at a physical meeting, thus it is often regarded as the fairest way to take a vote of the members.

      Utah law has made it clear in recent years that the CC&Rs should not be overly difficult to amend (see, for example, Utah Code Section 57-8a-104), a sentiment I agree with. CC&Rs need to be able to be changed to match actual or desired practices of the members and the association.

      (The foregoing is not legal advice applicable to any specific situation and I am not acting as anyone’s attorney in relation to this comment.)

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