DIRECTOR QUALIFICATIONS VIA RULE CHANGE

DIRECTOR QUALIFICATIONS VIA RULE CHANGE

QUESTION: Our bylaws have only one qualification for serving on the board--that directors be members. By a rule change, the board added a new requirement that a director's primary residence must be in the development. The changeeliminates 40% of the membership from holding office.Some believe the president took this action because of disagreements with individuals who do not live in the complex who may run against her. Doesn't a change like this need a vote of the membership?

ANSWER: Because of a recent court decision, it appears that boards can unilaterally add new director qualifications without input by the membership.

Friars Village. Friars Village HOA had only one qualification for serving on the board, the nominee had to be a member of the association. The board adopted a rule that no one could serve on the board with another director related by blood or marriage. It's a good requirement but it was done without membership approval. A homeowner sued in small claims to invalidate the rule since it was inconsistent with the bylaws. The board moved the dispute to superior court and the case ultimately ended up in the court of appeals.

Reasonableness Requirement. The court of appeals concluded that boards have the authority to adopt additional director qualifications without the need to amend the bylaws, provided the qualifications are "reasonably related to the performance of the Board and will serve to protect its overall mission -- protecting the best interests of the Association." (Friars Village Association v. Hansing.) I'm not comfortable with the court's decision but it's now the law.

Residency Rationale. Is the residency requirement adopted by your board reasonable? Probably. The argument in favor of residency is that board members who live in your development will have a stake in the community and will be more inclined to act in the best interests of the membership.

RECOMMENDATION: Despite the arguments for a board-imposed residency requirement, a judge could easily decide that disqualifying 40% of the membership from serving on the board is not reasonable. Therefore, the safer course of action is to seek membership support for new director qualifications and then amend the bylaws. Doing so reduces the risk of a legal challenge and an adverse ruling.

CUMULATIVE VOTING 

QUESTION: Thanks to cumulative voting, an attorney whose home was heading into foreclosure got herself elected to the board. She then sued the board for failure to enforce the CC&Rs. She then demanded the association's insurance represent her as she was doing this "for the good of the community." Our insurance company declined with the explanation that "We don't pay for people to sue us." It makes one wish there was some kind of entrance exam before becoming an HOA owner.

ANSWER: As someone once noted, "Common sense is like deodorant--the people who need it most never use it." The scenario you describe is exactly why associations should amend their bylaws to eliminate cumulative voting. It helps to keep some of the more ethically challenged owners off the board. Or, if they happen to get elected, they can more easily be removed by the membership.