ADDING DIRECTOR QUALIFICATIONS

ADDING DIRECTOR
QUALIFICATIONS

QUESTION: A renter was elected to the board because our bylaws are silent on who can be a director. Now we have a husband an wife who want to run for the board. We don't have time to amend our bylaws before the election, can the board simply prohibit renters and spouses in our Election Rules?

ANSWER: There is a split of opinion in the legal community on this issue.

Opinion - Boards Can Add Director Qualifications. Some attorneys believe that additional qualifications may be imposed by the board without membership approval via the rules. They argue that boards are authorized to adopt election rules and this means they can add director qualifications when they adopt or amend rules. They argue that as long as the qualifications are reasonable, they would survive legal challenge.

Opinion - Boards Cannot Restrict Candidates. In my opinion, boards cannot restrict who can run against them. Only the membership has the power to impose director qualifications. I base my opinion on the following two points:

 1. No Restrictions in the Law. The Corporations Code imposes no restrictions on who may be a director except to require that they be a natural person. (Corp. Code §5047.) The Davis-Stirling Act has no restrictions of any kind on who can serve on the board. If neither the Corporations Code nor the Davis-Stirling Act restrict candidates, I don't believe directors can limit who can run against them.

2. Inconsistent with Bylaws. Moreover, rules adopted by a board cannot be "inconsistent with governing law and the declaration, articles of incorporation or association, and bylaws of the association." (Civ. Code §1357.110(c).) This requirement is repeated in the election provisions of the Davis-Stirling Act which state that board qualifications in the election rules must be "consistent with the governing documents. (Civ. Code §1363.03(a)(3).) In my opinion, it would be inconsistent to impose restrictions in the election rules where none exist in the bylaws.

RECOMMENDATION: Since there is no consensus in the legal community and no case law to offer any guidance, boards shouldconsult their association's legal counsel on how best to handle this issue.

FUSS OVER BUDGETS

QUESTION: Is there a requirement for the board to spend no more that the budgeted amount for a particular line-item in the annual budget? If not, why all the fuss regarding establishing, approving and publishing a budget?

ANSWER: Budgets are guidelines only. They are the board's best estimate of expenses so (i) directors will know how much to assess the membership and (ii) members will know how the board arrived at that number.

Consequences. If boards were prohibited from spending more than budgeted for a particular line item, it could have significant negative consequences for an association. Theoretically it would mean that if insurance premiums went up mid-year, the board would have no choice but to allow the association's insurance to lapse. That could be disastrous.