State statutes and an association’s governing documents contain requirements relative to the conducting of annual membership meetings. Typically, associations are required to conduct a general membership meeting every year for the primary purpose of electing new directors. The election of directors is critical to the proper functioning of a homeowners association as all management activities and the exercise of all association powers must be under the direction of the association’s board of directors.
Without a functioning board of directors a homeowners association cannot legally conduct business and the association will be subjected to serious ramifications such as: (i) the lapsing of necessary insurance coverage; (ii) a cessation of required maintenance of common areas; (iii) non enforcement of rules; (iv) the inability to prosecute and/or defend lawsuits; (v) inability to file tax returns and other required annual filings; and (vi) a loss of legal standing. These ramifications can potentially result damage to the association and the homeowners.
Associations that have employed a professional management company to assist in the operations of the day-to-day management of the association must still have a properly functioning board of directors as managers are merely appointed agents of a homeowners association and they do not have powers or authority independent of the directives that are issued to them by the association’s board of directors. Furthermore, property managers do not have the authority to appoint replacement directors. In the absence of a proper board of directors, a property manager should not be acting on behalf of a homeowners association.
Having a board of directors that can legally conduct an association’s business means that a there have been a sufficient number of directors elected and/or appointed to the board of directors to constitute a quorum. A quorum is generally a majority of the total number of directors that are required under the association’s governing documents. Thus, if an association’s bylaws require a five-person board, and there are only one or two people that are willing to serve as a director, those two people do not have the power to make decisions or conduct business on behalf of the association. They would however, have the power to appoint additional directors to fill vacancies and to establish the required quorum until such time as the membership elects new directors.
In a situation where a homeowners association has less than a quorum of sitting directors and those who are serving fail or refuse to appoint the required replacement directors that are necessary to fill vacancies, the members of the association should immediately call a special membership meeting for the specific purpose of electing the necessary new directors. The procedures for calling such a special membership meeting are contained in the association’s bylaws. As action by the members at a specially called membership meeting will also necessitate establishing the necessary quorum of the members in order to conduct the election, if a quorum of the members cannot be obtained, the membership meeting would have to be adjourned to a later date. The procedures and time periods required for conducting the adjourned meeting should also be specified in the association’s bylaws.
When the homeowners fail, or are unable to act due to the inability to establish the required quorum, state statutes and/or the association’s governing documents empower the existing directors and the association members to file a petition in the court having jurisdiction over the association seeking an order that compels the holding of the meeting and a reduction in the quorum requirement. In extreme situations where the association is unable to conduct business due to the lack of necessary directors, the court can also appoint a receiver to oversee the association until such time as a proper board of directors is able to take charge over the association’s management activities.
Homeowners associations should not blindly attempt conduct business in the absence of decision making by a quorum of a properly elected and/or appointed board of directors. Acting members of homeowners associations that do not have a proper board of directors should immediately consult experienced legal counsel for appropriate guidance on the best way to rectify the situation.