Given the fact that nearly all homeowners associations are structured as corporate entities (corporations) that are created under the laws of the state in which the homeowners association is domiciled, it is mandatory that the association have a valid board of directors. The state corporation laws require all corporations to have a board of directors to exercise all corporate powers and conduct the activities and affairs of the corporation. While many corporate responsibilities and activities may be delegated to management personnel, managers are mere agents of the corporation and have no independent authority to conduct business on behalf of the corporation. Thus, even if the corporation employs management personnel, the corporations board of directors remains responsible and must oversee and prudently direct those people.
Without a properly functioning board of directors, a corporation cannot legally conduct its business. When an associations business activities cease, there are resulting consequences including, but not limited to, such things as: homeowners stop paying their dues; the lapsing of insurance and necessary services; cessation of maintenance of common areas; no enforcement of governing documents; and loss of legal status and the ability to prosecute and defend lawsuits. Such consequences can ultimately lead to a collapse of the homeowners association and potential personal liability on the part of the last directors and individual owners.
Valid Director Actions Require a Quorum
The details concerning the required structure and operations of a particular homeowners associations board of directors will be contained in the associations bylaws (part of the associations governing documents) which will specify a specific number of directors that are required for the association. In order to conduct any business other than the appointment of additional directors to fill vacant seats, there must be a quorum of the directors acting. A quorum is a majority of the total number of directors called for in the associations bylaws. For example, if the bylaws specify a total of five board members, a quorum would be three directors. Thus, unless there are three directors available to participate in a meeting, there is no quorum and the directors cannot validly conduct business. Board decisions would then be made by a majority of the directors present after the quorum has been established. State statutes also contain provisions pertaining to corporations and homeowners associations and will impose additional requirements relative to a corporations board of directors.
If the required number of directors have been elected and/or appointed but are not at a particular meeting, the association cannot conduct business except to adjourn and continue the meeting to another date. If the composition of an associations board of directors is less than the required quorum and the existing directors do not take the required action to appoint replacement directors to fill the vacant positions, the associations members can call a special meeting to elect the required new directors. The procedure for membership special meetings is contained in the bylaws for the association and/or the state statutes.
Election of HOA Directors by Homeowners
A homeowners associations directors are typically elected each year at an annual meeting of all of the homeowner members of the association. Most associations elect all new directors each year, but some associations have provisions in their bylaws that provide for two year terms on the board with one half of the total number of directors being elected each year. The procedures for the election of the directors by the members are also covered in the associations bylaws. Assuming the association has a proper number of directors conducting the associations business, the board should, in accordance with any requirements set forth in the bylaws, provide notice of the annual membership meeting at which the associations directors for the next year will be elected. If there is not a properly functioning board, or if the board fails or refuses to hold the required annual membership meeting at which the directors should be elected, any member of the association has the right to file a petition in the appropriate court within their jurisdiction seeking an order which directs the association to conduct the required meeting and elect the required directors that are necessary for the proper functioning of the associations board of directors.
When the annual meeting of the associations members is held, much like the requirements for the board of directors, there must be a quorum of homeowners to conduct business (including the election of the necessary directors). The actual number of association members that are required for a quorum of the members is fixed in the associations bylaws and/or state statutes. To facilitate the establishment of a necessary quorum, association bylaws and state statutes typically provide that association members can vote by submitting a ballot containing their vote in lieu of actually attending the required meeting. Each properly submitted ballot counts as if the member who submitted it were actually present at the meeting. If the required quorum of the associations members cannot be achieved, the members cannot proceed with the annual meeting and alternative procedures must be implemented to enable the association to properly conduct its business operations until such time as the necessary quorum can be established and the meeting can be conducted. In said event: (i) the last elected / appointed board members continue to serve beyond their fixed term until such time as a proper election can be held and the new directors are elected; (ii) the membership meeting must be adjourned and no other business may be conducted. The associations bylaws and/or state statutes will set forth the time periods and any other procedural requirements for the conducting of the adjourned membership meeting; and (iii) membership ballots that were submitted for the meeting and were not opened are retained and used at the adjourned meeting (the ballots that were submitted by the members should never be opened and counted prior to the establishment of a quorum at a membership meeting).
Difficulty Electing New Directors
It is not uncommon for homeowners associations to have difficulty in achieving the required quorum at an annual or an adjourned membership meeting. When that occurs, the associations existing board (assuming there is the required number of directors for conducting business), or any member of the association, can file a petition with the court having jurisdiction over the association, seeking an order allowing for a reduction in the percentage of members that is necessary to establish a quorum of the members. If there is a quorum of the last elected directors they continue to manage the association until the new directors are elected. In an extreme situation where an association cannot get the required number of members to elect new directors and the association does not have a quorum of existing directors that is required to properly conduct business, it may be necessary to seek the appointment of a receiver to take control over the operations of the association under the direction of a court until such time as the association has a properly functioning board of directors.
The Importance of Minutes to Document the Validity of Action Taken
Because action that was taken in the name of the association by less than the required number of directors and/or members can be determined to be invalid in a subsequent action challenging that action, it is important for association board members and homeowners to understand the importance of having a properly elected and/or appointed board of directors and the need for quorums to properly conduct business. To document the fact that membership and/or director actions were pursuant to a requisite quorum, it is critical to maintain proper minutes of every meeting of directors and members of a homeowners association. The minutes of each director meeting should state the names of each director who was present at the meeting to reflect that the business conducted at that meeting was by the requisite. Similarly, the minutes of membership meetings should specify the number of ballots that were submitted and the number of members that were actually present at a meeting. Every member attending a membership meeting should be required to sign an appropriate sign-in sheet for the meeting to evidence their attendance and the establishment of a quorum of the members. The sign-in sheet should be retained by the association with the minutes of the meeting. The results of the votes of directors and/or members should also be documented in the minutes to properly record decisions that were made.