Board not following through with membership vote for lease agreement. Any course of action via the courts?

Started by GnomeX • 28 replies • 1579 views

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GnomeX (Washington)
Posts: 253

Posted:

Here is the situation.

Last annual meeting it was voted on and passed by roughly 80% of the members attending to lease our clubhouse for 3 years. New Board came in and they refuse to follow through.

This is a loss of income of $12,000 a year, $36,000 over the 3 year lease period.

Is there any way we can go to the courts and force the Board to follow through. Like opposite to an injunction. I have the leasee begging me to help as I was on the Board when everything was agreed upon and put to a vote of the membership.

Thanks in advance.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By GnomeX on 03/31/2014 12:32 PM

Is there any way we can go to the courts and force the Board to follow through.

That is a question to ask an attorney.

The cheaper and easier way would be to gather signatures and new volunteers willing to serve on the Board and recall the Board.

Of course, before you do either of those options, have you asked the Board why they chose not to rent the facility? If you did, what did they say? If you haven't, you should do that first as there may be very sound reasons why they chose not to rent the facility to the public.

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By TimB4 on 03/31/2014 1:00 PM

Posted By GnomeX on 03/31/2014 12:32 PM

Is there any way we can go to the courts and force the Board to follow through.

I have spoken with the Board. The leasee is a church and the new Board doesn't want a church. There are no valid reasons not to lease. They just don't want them in there. Like I said this was all setup before I resigned on the Board back in January. We were just waiting on the attorney to draft the lease agreement.

They are just flat out refusing to follow through with the membership's vote on this.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

They are just flat out refusing to follow through with the membership's vote on this.

As they can well do. Such a vote is a recommendation at best.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You do realize that if you were to rent out this facility that you all would have to make it to meet ADA standards. As long as you keep it private and owned by the HOA, you don't have to put in the expense of updating it. Which the cost of making the building ADA is on the HOA and NOT the place that is renting it. So how much money are you really losing if you say have to put in an elevator, handrails, wheelchair ramps, handicap parking, and other amenities? Plus you have to realize it's now PUBLIC use exposing it to less restrictions/rules. The renters are only held to the lease agreement terms NOT the HOA rules unless you were smart enough to write that in there.

I don't think it's a good idea to rent out the clubhouse to a church or any other organization/company. It should only be rented out to MEMBERs only. If you want such an agreement, then make sure one of the people of that church is a member of the HOA and have them sign a proper lease or terms.

Remember: suing your HOA is suing yourself and your neighbors. Your not really going to get much of a "win" out of this in the long run. Your looking too much at the short term and not enough at the long term consequences. Blinded by the dollar signs. There are more considerations in play here. Your HOA should be a non-profit and should be renting the place out only at the cost it takes to have the place running and fully stocked. Any "profit" is subject to taxation. A HOA is to be funded ONLY by it's members for it's members. Any money outside of dues collections (late fees) or special assessments is subject to taxes.

So even if you rent the place out, it's not good for your bottom line for your HOA. The insurance rate will go up, paying more taxes, maintenance costs increases, and expenses to make it compliant add up quickly. So your board is probably doing the right thing and denying this.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

As John pointed out, the membership vote would have been considered a recommendation and not a requirement. Typically, the governing documents give full control of the common areas and common elements to the Association (i.e. the Board).

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By TimB4 on 03/31/2014 2:29 PM
As John pointed out, the membership vote would have been considered a recommendation and not a requirement. Typically, the governing documents give full control of the common areas and common elements to the Association (i.e. the Board).

Great... So it looks like we will be removing another Board... geez...

BTW Melissa the ADA requirements were looked into and we were exempt. Members don't use the building which was why so many people wanted it leased (and eventually sold). The lease amount was going to actually give some revenue until the clouded title issues were resolved.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Again... Revenue equals taxes. If you make a lease, it should be for the expenses for having the place open and in use. Otherwise your "revenue" is creating more expenses. Need to look at the IRS laws on this situation. Removing a board who thinks before acting isn't the worse board on the planet. Removing means just getting your way? or does it mean doing the right thing for the HOA as a whole? I think leasing is a HUGE mistake and will end up with more issues than you are all prepared for.

Former HOA President

CarolR11 (Colorado)
Posts: 2,563

Posted:

If it was voted on at your last annual meeting, were all of the requirements for votes in your State followed? In other words, were the same requirements that you must follow to elect directors met? I'm trying to understand if it was indeed a voting matter then the Board must abide by. Or if it merely was an "advisory vote"?

If it was a "real" vote by the membership, quorum was met as defined in your documents, etc., than you should see an attorney to enforce your governing documents. If, that is, it's worth the trouble to you & others. I do remember all of the work you previously did on your board.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Carol,

It's going to boil down to what the governing documents say. As an example, our CC&Rs limit selling or transferring common area to a public agency and requires membership approval. However, I've seen CC&Rs that give full control over selling or leasing of common areas to the Board. Therefore, as I said, it will depend on what Gnome's governing documents say about the issue.

BanksS
Posts: 403

Posted:

Quote:

Posted By GnomeX on 03/31/2014 12:32 PM
Here is the situation.

Last annual meeting it was voted on and passed by roughly 80% of the members attending to lease our clubhouse for 3 years. New Board came in and they refuse to follow through.

This is a loss of income of $12,000 a year, $36,000 over the 3 year lease period.

Is there any way we can go to the courts and force the Board to follow through. Like opposite to an injunction. I have the leasee begging me to help as I was on the Board when everything was agreed upon and put to a vote of the membership.

Thanks in advance.

Had a contract between the HOA and the church been executed. Even a verbal contract is enforceable. The church may have a case for breach of contract. It depends on what conversations or written documents occurred between the church and the HOA prior to the new board coming in control.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By GnomeX on 03/31/2014 2:37 PM

Whoa...backup some. Many want it sold you say.

What is this all about? Divest ourselves of a clubhouse maybe in the middle of our neighborhood. Yes..yes..we can make some money. How about a Gentleman's club...whorehouse...crack house...meth lab, etc.

Talk about short term thinking.

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By MelissaP1 on 03/31/2014 2:41 PM
Again... Revenue equals taxes. If you make a lease, it should be for the expenses for having the place open and in use. Otherwise your "revenue" is creating more expenses. Need to look at the IRS laws on this situation. Removing a board who thinks before acting isn't the worse board on the planet. Removing means just getting your way? or does it mean doing the right thing for the HOA as a whole? I think leasing is a HUGE mistake and will end up with more issues than you are all prepared for.

Melissa with all due respect, you don't know the end and outs. Melissa you also forget I was the Treasurer for years. I know the numbers of our situation and this would have been a net positive revenue for our association after all taxes and expenses. We looked into all that. We also had the attorney drafting the documents.

We have an empty clubhouse that NO members use and the members want to rent out so we can at least get some revenue from it.

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By JohnC46 on 03/31/2014 5:08 PM

From church to a meth lab and whorehouse. Come on John. I was asking a serious question. Not asking for ridiculous what-if apocalyptic scenarios.

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By CarolR11 on 03/31/2014 2:58 PM
If it was voted on at your last annual meeting, were all of the requirements for votes in your State followed? In other words, were the same requirements that you must follow to elect directors met? I'm trying to understand if it was indeed a voting matter then the Board must abide by. Or if it merely was an "advisory vote"?

If it was a "real" vote by the membership, quorum was met as defined in your documents, etc., than you should see an attorney to enforce your governing documents. If, that is, it's worth the trouble to you & others. I do remember all of the work you previously did on your board.

Yes it was a valid vote. On the agenda and mailed to all members. From legal counsel we were informed that to lease the building we had to follow RCW 24.03.215. Any such lease has to pass by 2/3rds at an annual meeting or special meeting. Which is what we did.

The problem is the building is 35+ years old, completely empty, and not used by the membership at all. So many people in the community wanted the building to be at leased or sold (which it was leased out 4 years ago but that leasee moved out). Others in the community just want the building demolished. After having it appraised, the building is valued at least $400,000 and our Board thought it best to at least lease it or sale it instead of demolishing it. The church made an offer to our Board last summer, so the Board voted to accept their offer pending the annual meeting vote. So in a sense we did have a verbal agreement and all of this was going forward and pending. The measure voted on was to lease the building for 3 years with a first right of refusal. It was put to a annual meeting vote and passed by close to 80%.

But I think John is right that the new Board doesn't have to follow that vote. Again it says as much in RCW 24.03.215

But I can tell you right now, they cannot ignore this without repercussions. When this gets out in the community there is going to be a shit storm and this new Board is going to be on the chopping block... again...

CarolR11 (Colorado)
Posts: 2,563

Posted:

Well, I know that boards can dump a lot of kinds of decisions made by pervious boards. This can include contracts. Here at least, all of our contracts have a 30-day "out clause."

But a valid vote by the HOA membership, the election of directors, for instance, cannot be changed at the whim of a new board. Similarly, if the membership votes to revise the bylaws, let's say, a new board may not decide to go back to the old bylaws. So, what does your RCW 24.03.215 say about this--memberships votes? Is it a WA state code or law?

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By CarolR11 on 03/31/2014 6:29 PM
So, what does your RCW 24.03.215 say about this--memberships votes? Is it a WA state code or law?

Here is RCW 24.03.215

"(1) Where there are members having voting rights with regard to the question, the board of directors shall adopt a resolution recommending such sale, lease, exchange, or other disposition and directing that it be submitted to a vote at a meeting of members having voting rights, which may be either an annual or a special meeting. Notice in the form of a record stating that the purpose, or one of the purposes, of such meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property and assets of the corporation shall be given to each member entitled to vote at such meeting, within the time and in the manner provided by this chapter for the giving of notice of meetings of members. At such meeting the members may authorize such sale, lease, exchange, or other disposition and may fix, or may authorize the board of directors to fix, any or all of the terms and conditions thereof and the consideration to be received by the corporation therefor. Such authorization shall require at least two-thirds of the votes which members present at such meeting or represented by proxy are entitled to cast. After such authorization by a vote of members, the board of directors, nevertheless, in its discretion, may abandon such sale, lease, exchange, or other disposition of assets, subject to the rights of third parties under any contracts relating thereto, without further action or approval by members.

So it looks like there is no recourse except to remove the Board...

This kind of thing is what got the last Board removed. People are going to be livid.

JanetB2 (Colorado)
Posts: 4,219

Posted:

GnomeX:

The way I read what you posted above is to change after (member vote) then the board must consider "subject to rights of third parties under any contracts". Who are the third parties who have contracts being violated by allowing lease to the church which was already approved by the prior board?

If there are no other third parties who have prior contracts and if the prior board signed a contract with the church to lease then there could be a BIG problem which needs to be resolved. The big question is are there ANY signed contracts and if so with whom are they obligated.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Janet,

Gnome said that all that needed to be done was have the attorney draw up the lease agreement. Therefore, there may or may not have been a verbal agreement but there appears to be none in writing.

The third party, in my opinion, would be the church and it would be up to the church to bring legal action for any damages they may have incurred. However, I doubt the church will look at bringing such action unless they were out funds.

CarolF (Florida)
Posts: 435

Posted:

Re the ADA question. The following is from www.David-Sterling.com. Similar articles have been published by Fl attorneys.
Americans With Disabilities Act
The Americans with Disabilities Act (ADA), 42 USC §§3601-3631, protects families and persons with defined disabilities, similar to protections based on race, color, sex, national origin, age, and religion. It addresses discrimination in the areas of employment (Title I), public services (Title II), public accommodations and commercial facilities (Title III).

Open to General Public. The ADA's public accommodations provision (Title III) does not apply to homeowner associations unless its facilities are open to the public. Following are examples:

The [ADA] applies to "public accommodations." This may include facilities that are part of a common interest development, such as a sales or rental office receiving public traffic, or commercial facilities that are part of a residential project. A meeting room leased to the public for a fee is subject to the act, but not a room used only by the association members. If a community association or condominium owns, operates, or leases a swimming pool, tennis court, or other recreational facility that is open to members of the general public, then, with respect to the operation of the recreational facility, the community association or condominium would be a place of public accommodation governed by Title III of the ADA. A recreational facility that is open to members of the public (rather than being reserved exclusively for the use of association members and their families and guests) is probably a place of public accommodation. Other places of public accommodation that are sometimes owned, operated, or leased by associations include: Day care center; Senior citizen centers; Refreshment stands; and Meeting rooms that are occasionally rented to business or civic groups. [Carolyn v. Orange Park Community Assn. (2009) 177 Cal.App.4th 1090, 1104 (internal cites deleted)]

Read more: Americans with Disabilities Act http://www.davis-stirling.com/MainIndex/AmericanswithDisabilitiesAct/tabid/1234/Default.aspx#ixzz2xdR0ALG7
from Davis-Stirling.com by Adams Kessler PLC. If your association needs legal assistance, call us at (800) 464-2817.

CarolR11 (Colorado)
Posts: 2,563

Posted:

Thank you for the exact citation of RCW 24.03.215, GnomeX. The part that causes me to question whether the membership vote was even proper is: "Notice in the form of a record stating that the purpose, or one of the purposes, of such meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property and assets of the corporation . . .'

So, first, your HOA members only wanted to lease out a small portion of your HOA (vs. "all or substantially all").

But a second matter is that contracts can be entered into verbally. So, I'd seek legal advice on that and the intent of that passage above.

JohnB26 (South Carolina)
Posts: 1,569

Posted:

as per CarolF's quote:

A xxxxx leased to the public for a fee is subject to the act.....

JohnB26 (South Carolina)
Posts: 1,569

Posted:

Also:

If a community association or condominium owns, operates, or leases a swimming pool, tennis court, or other recreational facility that is open to members of the general public, then, with respect to the operation of the recreational facility, the community association or condominium would be a place of public accommodation governed by Title III of the ADA

TimB4 (Tennessee)
Posts: 21,059

Posted:

I'm not sure why the thread is diverging into ADA requirements. Per the OP, this issue was looked into.

Quote:

Posted By GnomeX on 03/31/2014 2:37 PM

the ADA requirements were looked into and we were exempt. Members don't use the building which was why so many people wanted it leased (and eventually sold). The lease amount was going to actually give some revenue until the clouded title issues were resolved.

CarolF (Florida)
Posts: 435

Posted:

I think we are saying that the board might have looked into this more thoroughly and this could be part of the issue as to why they have not followed through. Who exactly gave the opinion that they are exempt? An attorney?

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By CarolF on 04/01/2014 5:04 PM
I think we are saying that the board might have looked into this more thoroughly and this could be part of the issue as to why they have not followed through. Who exactly gave the opinion that they are exempt? An attorney?

Knowing who gave the opinion does not tell everything. What was the question that was asked? Example: I ask an attorney, "Are HOAs exempt from ADA requirements?" Answer, "Yes."

Many times it is possible to ask a question in a way that will get the answer that is wanted.

JohnB26 (South Carolina)
Posts: 1,569

Posted:

property used by the members and their guests is exempt from ADA as it remains private

once leased to the PUBLIC, or a person / org. who makes it available to the PUBLIC, it becomes a 'public accommodation' and subject to the ADA

whether the lessee or the lessor would be the responsible party ?

while y'all may not like the facts, the case is closed

JeffT2 (Iowa)
Posts: 880

Posted:

Religious organizations are also exempt from the ADA, mostly.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Bruce makes a valid point. How was the question asked to get the ADA reply? Are HOA's exempt yes. Once it is leased or to be sold, it may need to be. The issue with the religious institute or not, is that this is still going to be a lease. If they church cancels or doesn't eventually buy the property, it still has to be up to "public" standards.

What if this church is the "Church of Satan"? That's considered a religion as well as Christian. Is that okay then for you all to sign such an agreement?

Sorry but this situation doesn't sound like a good business decision. The tax ramifications, the loss of use/access, possible ADA compliances, legal expenses, and increased traffic issues. Are your roads private? Consider that the roads may now be turned to "Public" unless your all willing to pay out of pocket all the road repairs needed on a more used road, signs, or parking destinations. Want to be able to tow? That's another can of worms not even tackled or addressed. I am sure someone will eventually block someone in or park in an unused driveway. Will that be the HOA issue or the leasee?

Former HOA President

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