On July 1st, 2006, the way community associations have traditionally conducted annual meetings and/or taken votes will be history. This new law, set out in new Civil Code Section 1363.03, will affect how all homeowners associations in California will conduct most of their voting and elections, including the election of directors, a vote by the membership for assessment increases, amendments to the governing documents, and grant of exclusive use common area (subject to the limitations of Civil Code Section 1363.07). This new law was premised on what we believe is the mistaken opinion that association elections and balloting are “fraught with fraud.” The big change is that all voting will be by secret ballot. There is cleanup legislation that has been proposed, which expands the secret ballot process to all association votes. Failure to comply with these new rules could, by court order, set aside the results of an election or vote taken by an association and/or could subject an association to a penalty of five hundred dollars ($500.00) for each violation.
The newly required Election Rules and Regulations (Rules) are considered “operating” rules under the Civil Code, which will require that they first be sent out to the owners for comment. The Rules should set forth the process by which membership meetings are to be conducted, how voting is to occur and who is in charge. No longer may the association’s managing agent (unless your Rules provide otherwise) be in charge of the registration process nor may they assist the inspector(s) of election (“inspector(s)”) with the vote tally. While the number of inspector(s) has not changed (either one (1) or three (3)), the new law requires associations to specify how they are going to select the inspector(s), requires the inspector(s) to be independent third parties which include, but are not limited to, volunteer poll workers with the county registrar of voters, a licensed CPA, or a notary public. Although inspector(s) may be a member of the association, that member cannot be related to a board member, nor a candidate for election to the board of directors, a member related to the candidate, or be a person that is currently employed by or under contract to the association unless expressly authorized by the Rules. The inspector(s) must be selected prior to the vote or election as the inspector(s)’ role and responsibilities have been expanded.
If an association’s governing documents require an annual meeting to elect the board of directors (“board”), you will still be required to follow the Civil Code-mandated process. Cumulative voting and quorum requirements set forth in the governing documents remain controlling. The association or its managing agent will be obligated to provide information to the inspector(s) so that the inspector(s) can determine which members are in good standing and have a right to vote, notify members that they have a right to run for the board, the right to submit a candidacy statement, the right to utilize the association’s media in the same manner that any other candidate is utilizing an association’s media, which includes (by way of example) the association’s website or newsletter, if applicable. The board must be consistent with the procedures as they are to be applied to all members. Further, associations must provide access for all members to the association’s common area meeting space (or spaces) so that the member/candidate can have a forum to discuss their candidacy or anything reasonably related to the election.
The code provides a comprehensive list of inspectors’ obligations, which include the designation of a location for the homeowners to mail their secret ballots, determination of the good standing status of the member as referenced above, the counting of the secret ballots (more on that in a moment), the designation of mailing address (referenced above), notification to the homeowners of when the voting will commence and when it will conclude (referred in the code as a polling place, which would make that consistent with municipal elections), request for candidacy statements, etc. Because the legislature apparently believed that community associations were not allowing for secret voting, the underlying process is to secure confidentiality in all votes by homeowners for the elections referenced above.
The Rules must provide procedures that the inspector(s) can utilize at the annual meeting, if applicable. This is important because the association’s managing agent (unless authorized in the Rules) will not be able to provide information and direction to the inspector(s) as to how they should handle any issues or problems that arise.
The secret ballot referenced above requires that associations send to the homeowners (and for the homeowner to return) two (2) envelopes, one that will fit inside the other. The “secret” ballot will go inside the smaller inner envelope. The secret ballot, which requires the homeowner’s vote, may not be signed by the homeowner or have any other documentation on the ballot that would identify the homeowner. That ballot will be placed into the inner envelope, which will be, on its face, designated as the envelope for the secret ballot. That envelope will be placed into another envelope that will be pre-addressed to a location specified by the inspector(s). On the exterior envelope the homeowner, must in their own hand, print and sign his or her name, address, and lot or parcel or unit number that entitles him or her to vote. Owners will likely need some help with this as they likely will not know their parcel number. The homeowner is required to, where referenced, sign their name on that envelope. Although the cleanup legislation referenced above would allow for that information, other than the signature, to be provided not in the homeowner’s own hand, currently that is not the law. Managing agents and boards of directors are rightfully concerned that homeowners will have difficulty understanding that if they do not fill out all of the information, the ballot inside the envelopes will not count towards the election. Not only is the board obligated to prepare the Rules, they should carefully set forth instructions to the homeowner as to how to fill out the envelope.
Counting of the ballots is also going to be an issue. How long will it take to register the members and then count the secret ballots? Will this interfere with the inspector(s) noticing when the polls will close? Members of the association are entitled to watch the counting of the votes. However, no one except the inspector(s), including members of the association, the board of directors or the association’s managing agent, may review or open any secret ballot prior to the time and place where the secret ballots are counted and tabulated. When completed, the inspector(s) are required to provide the board with the results of the election and the association is required to advise the homeowners, in writing, within fifteen (15) days of the election by publicizing the results.
If a member requests a recount and challenges the election results, the association shall make the ballots available for inspection and review by the members or their representatives. The association has an ongoing obligation to preserve the confidentiality of the vote and that includes the recount. Any member may bring a lawsuit against the association in small claims court (within a one-year period from the date of the election or vote) contesting the results. The small claims judge now has the power to void the results of the election upon finding that the election procedures required by law or the rules were not followed. If the member prevails in a lawsuit contesting the vote, under the new law they will be entitled to reasonable attorneys’ fees and costs and the Court may impose a penalty of up to $500 for each violation. On the other hand, if the association prevails in that lawsuit, assuming the small claims court judge’s decision to void the results of an election or vote has been appealed to the Superior Court, it shall not be entitled to its attorneys’ fees and costs unless the Court finds that the homeowner’s action was frivolous, unreasonable, or without foundation.
While the voting and elections procedures have changed, boards of directors still have an obligation to enforce the governing documents while complying with civil code obligations. The State Legislature has enacted a very complicated new law designed to ensure elections and voting are secret. It remains to be seen how well this new law will work. Good Luck! And if you need help, contact our office!