State Laws are Complicating Elections

On Jan. 1, 2020, Senate Bill 323, an extensive overhaul of the requirements for board of director elections in homeowner associations (HOAs) took effect in California. The new requirements may make it costlier and more complicated to hold elections.

“Now that it has taken effect,” says Kelly Richardson, a principal with Richardson Ober DeNichilo PC, a California law firm known for community association expertise, “the HOA management world is in an uproar because everyone is scrambling to keep up with a law that’s hard to comply with the first three months of the year. It’s a mess.”

California is not the only state to take such measures in recent years, and managers should be prepared for similar changes for their associations.

California’s New Requirements

Richardson has studied the new California law extensively and notes several areas as particularly significant.

Longer election cycles

He says the greatest single problem for HOAs is that the law extends the election cycle by at least 60 more days. “The best you could do now, and I submit that it’s impossible, is to have the election 90 days from the start of the cycle,” he says. “It’ll be closer to 100 or 110 days minimum.”

The extended cycle is due to the addition of two new election phases, each with a minimum interval of 30 days. “Section 5115(b) requires the HOA to announce the upcoming election and nominees at least 30 days before the ballots are distributed,” Richardson says. “And Section 5115(a) requires a call for candidates that must be at least 30 days before you close the time for nominations.

“The election cycle, which was a one-month process, has now become a four-month process. Can you imagine a little four-unit HOA needing to remember they have to start four months in advance of the election?”

And if your clients had an election scheduled for the first three months of 2020, they likely couldn’t change their rules in time to comply with the new timeframes.

Richardson notes, too, that the longer cycle can cause a conflict with corporations law when it comes to recall elections.

“If 5 percent of the members want a recall election, under corporations law, you can send the association a petition for a membership meeting and recall, and that election must be scheduled within 90 days of the date of the petition,” he says. “But you’re going to need close to 120 days to complete everything. If you put in on a shorter schedule to comply with the corporations law, you’re violating the election law, and the election could be invalidated.

“There’s no way you can comply with both laws.”

Disqualified candidates

The law prohibits non-members of an association from serving on the board. “I have a number of association clients that have bylaws saying a candidate for the board need not be a member,” Richardson says. For example, they may allow a tenant or a co-occupant of the owner of record. “Now the statute says you no longer have that option.”

The new law also allows associations to adopt bylaws or election rules that disqualify members who:

• Are delinquent in assessments (without a payment plan in place),
• Have not been a member for at least one year,
• Are co-owners with another director, or
• Have a felony conviction that would impair the HOA’s ability to obtain fidelity insurance.

“Here’s the rub,” Richardson says. “You have these four disqualifications that an association could choose to adopt as policy, but what if the association has other disqualifications? I have hundreds of clients that have other eligibility standards beyond those four.”

An association, for example, might require candidates to be residents or bar candidates who are suing it. It’s not clear whether the legislature intends for the list of four disqualifications to be exclusive or would allow additional disqualifications.

“One school of thought in the legal community is that these are the only options,” Richardson says. “Another says they aren’t, but, if someone challenges a disqualification in court, these four have already been found to be valid. Nobody knows the answer.”

The law also requires associations to offer candidates internal dispute resolution before they can be disqualified. “It’s unclear how you could negotiate someone’s ineligibility if they’re a felon or not a member or a co-owner, but that’s the new requirement,” Richardson says.

Delinquent owners

While the California law permits the disqualification of candidates because they are delinquent on their assessments, it doesn’t allow associations to block them from voting.

“Most of my clients would warn owners if they were delinquent that they wouldn’t get to vote and then hold a hearing to suspend the voting rights until they became current or for a certain period of time,” Richardson says. “That’s now illegal.

Election inspectors

Some management companies have routinely acted as the inspector for their clients’ elections, but the law now prohibits them from playing that role. Richardson thinks that makes sense.

“I always recommended that associations’ lawyers and managers not be inspectors because you want someone who’s independent, not a vendor,” he says.

But this change doesn’t mean associations must hire an independent inspection company. “They always have the option of having one or three volunteer owners do it,” Richardson says. “They don’t even have to be owners. The one stipulation is that an inspector can’t be running in the election.”

The New Jersey Experience

Associations and managers in California can look to some other states to get an idea of what to expect as the new law is implemented.

In 2017, for example, New Jersey passed legislation known as the Radburn law, addressing the development, operation, and governance of community associations. It included requirements related to board elections, among other things.

“Most associations required help from legal counsel to understand and implement the new procedures,” says Mary Barrett, a shareholder in the Princeton, N.J., law firm Stark & Stark. “The law included many new provisions, and some of those provisions were not easy to understand. In particular, the mandated time frames for sending out the call for candidates, accepting nominations, and giving notice were confusing.”

Barrett says associations had increased costs at first, due to the need for education and revisions to forms and procedures. While most associations have adjusted to the changes, she says, her firm does still occasionally see associations that don’t begin the election process early enough to comply with the mandated time frames for their scheduled elections and end up having to move the dates.

More headaches might be on the horizon. “There may be new impacts yet to come as administrative regulations have been proposed that appear to expand the law and create numerous new requirements,” Barrett says.