whether current boads have the right to overthrow the management fee of previous bod decision

Though we have one HOA for a mix use condo in LA, the developers had prepared two
separate DRE budgets - one for residential and one for commercial from the
beginning and approved by DRE. This is documented in CC&R, with specific formula to compute the expense responsibility and require separate accounting book.

Our previous BOD were controlled by developers. They continued to own ⅓ of
residential units and ½ of commercial units. The previous board did not use
two budgets to run our HOA. They made decisions to have all residential units
to pay one set of fee and to have commercial units to pay a set of fee that
was 40% less than residential fee. There are 90 residential units and 8 commercial units, therefore all the accounting detail was hid under the radar screen. - pretty smart and tricky to be the least.

After the developers were voted out of the board in 2015. The new BOD did a financial audit according to the predefined procedure in CC&R and found the commercial units HOA fee could not cover the actual operating cost and the residential units have been subsidizing the commercial units’ expenses for over 60K in the past. This means the commercial units had been assessed insufficient HOA fees for years.

Our CC&R states the board has the responsibility to collect enough fees to
cover the cost plus the need to set aside reasonable reserve fund. After the residential units found out they have subsidized the commercial units over 60k in the past, they requested the board to assess the commercial units to pay back the past insufficient fee.

Since the developers still own commercial units. They challenged the new BOD by claiming the new board has no right to overthrow previous board's decision on HOA fees. Per CC&R, the board have to seek ADR first to collect this fee first.

I was not able to find specific clause in our CC&R or Dave sterling act
regarding past insufficient fee collection. However from BOD's fiduciary duty point of view, since the previous BOD did not use proper budget procedure to determine the HOA fees and caused insufficient HOA fee collected, furthermore, the residential owners were burdened to subsidize their cost for years, the new board shall have the rights to fix this situations by recovering the insufficient assessment money from the commercial owners via special assessments.

Since we are invoking the ADR process, we believe we can submit this to the mediators and let the neutral third party to make the judgement. We do not need to spend attorney fee from HOA to ask HOA attorney to give us the legal opinions which I believe they do not know and need go through a lot of research. even then, the other side will never listen anyway.

Question: does the new board has right to overthrow or reverse the previous board decision on fee that violate the CC&R documents?

I need your input on this matter.

thanks

Not an attorney but we're also a mixed use condo HOA where the developer owns the 3.61% commercial units of the project. Not as lucky as you, the formula for dues splits isn't in our CC&Rs, but they refer us to the original DRE (now BRE) budget. In it, it states 3.61% of dues except for electricity & water, which they pay less given they may not use the pool. Other items they contribute to are itemized in the DRE budget, but not everything is listed so they didn't pay for many years for things they obviously use, e.g., janitorial; gas, etc.
(We actually have a third entity that gets billed differently than the two others and we can only calculate that from the DRE budget)

I discovered this and we instructed the MC to began billing them and they didn't object. BUT the residential owners also paid about $60,000 too much over time. Since it was our MC that made the billing error, we tried to get them to reimburse the res. owners for their error. They refused. So, our next step is to approach the Commercial owner to see if they will. If they won't, we'll have to seek legal advice, which will lead to, I imagine ADR.

First, Steve, any board may overturn previous board's decisions so long as the new decision doesn't conflict with your governing docs.

But, I don't know if the board can make a special assessment of the commercial owners; I really feel you must work with your HOA attorney on that. With Mike, it seems you have a cue because the comm. owner was the j majority of the board.

You do have the right to bill the commercial owners the correct fees now.

You may, Steve, get a reply or two, but I've asked about our situation a couple of times and it seems no one here has such a messy budget, or, I should say, budgets. Our HOA attorney says our CC&Rs are among the 10most complex or the 100 or so he's reviewed (we're starting to amend them).

It's great they have separate meters for utilities, Steve. Right, I understood you that no commercial owners are on your board at present. But when they were on the Board they didn't adhere to fiduciary principals.

This is my understanding too. Most things passed by a motion of the board can be undone by a later motion of the board. I would avoid referring to "previous" boards, it is still the same BOD, just with different members.

just pop up one thoughts would like to share and get your feedback:
1. we do offer the 6 owers 50% discount to pay back the shortage of those years if they agree not go through the ADR process - which will cost money for both side. Only winner is the attorney.
2. Now we have 2 owners decide to take our offer, the developer owner still want to fight and he lobby the other 3 to ban together to fight.
3. we are thinking to ask for full non-discount amount of the HOA shortage fee each ownerd, because we really can not negotiate the HOA fee (technically). if they do not agree, then mediation failed. The HOA now has the rights to invoke the CC&R collection policy to collect the due include lien the unit etc and all the expense (include attorney fee) and late fee will apply.

is this make sense?

I would agree with this. Your commercial leasors made a good faith effort to pay their rent. Now you are going to tell them they owe more because of previous actions by the board.

As Steve makes clear: there are 6 Owners of the commercial suites. They do not pay "rent." Please reread Steve's OP. They are not lessees, they are owners.

I don't know how many "lots' there are total. Among them is the developer. The developer controlled the board during the period the commercial owners underpaid & the res. Owners overpaid. Is this right, Steve?

This error was allowed by that board to persist even thought the CC&Rs clearly showed how much in maintenance fees the comm. owners should have paid.

I agree that it'll be difficult if not impossible to get the comm. owners to reimburse the residential aspect of this HOA.

IMO, the main thing is to make sure each comm owner pays the correct amount going forward. I added that it's important to see if the commercial lots should have their OWN separate reserves account. They may have components that the residential owners do not use. This means you need to get a complete reserves study done, Steve, by a certified analyst who has the skill set to read your CC&Rs and DRE budget.

Oh, I see your point, Mark. Our 6 comm. suits comprise 2 "lots," both owned by our developer, who occupies 2 suites. He has 4 lessees (suites vary in size). We have no idea how he handled the raise in dues viz. his lessees once he started being billed correctly. It was not something that we directors thought about. Our main concern, confirm by our our GC was that the billing be fair to all Owners. Our develop has very deep pockets, so I'm guessing he easily dealt with the loss of some income when his expenses went up.

In Steve's case, the comm. owners themselves, when they controlled the Board, failed to follow the CC&Rs and overbilled the res. owners.

The Residential Owners of Steve's HOA have no relationship whatsoever with the comm. owners' lessees, John. The Comm. Owners are on their own to deal with their tenants.

Kerry: "In Steve's case, the comm. owners themselves, when they controlled the Board, failed to follow the CC&Rs and overbilled the res. owners." Now maybe I misunderstood Steve, but it seems the comm owners when they controlled the Board purposely ignored the dues splits specified in the CC&Rs, penalizing the res. owners $60,000 over time because the latter were billed too much.

I do agree, and have agreed, getting the Comm owners to reimburse the res, owners would be very difficult. I also advised Steve to get a good reserves analyst to make sure Comm owners are paying what they should into reserves. Steve's HOA may need an attorney for this whole mess. Or a budget specialist.

Probably going to have a statute of limitations issue there


I suggest that you keep it in your vest pocket. The idea seems ludicrous to me.

http://canhr.org/factsheets/abuse_fs/PDFs/FS_FinanElderAbuse.pdf
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?secti15610.70.&lawCode=WIC

Are you just looking for affirmation of your ideas here. You seem to ask no questions

Mark, there is NO SLT problems, as this is qualify as 'insufficient assessment', and we are NOT to file law suit on them. we just treat as 'collection'. Normally, SLT is 10 years. we are short.

as far as senior financial abuse possibility, we know how hard to qualify, we have run another big time legal case against the same developer few years ago on the scam he run to sell the condo to us. actually judge grant us the apps. that scare the developer a lot.

I have 6 years experience leads that cases. at this time, we just want them pay back the fee that residential member pays for them. Make it fair to everyone and move on.

Sue, you miss read the whole situations. we are only dealing with the owner, 8 commercial owners. we are not deal with the leaser.. that is NOT the scope.

hope this clear.

You are aware of case law? SEABROOK ISLAND PROPERTY OWNERS ASSN v. PELZER

I don’t think anybody told that they couldn’t. He also asked if they could go back in time and recoup this money. He seems set on the answer being yes, even though the SOL and case law indicates otherwise.

I have agreed at least twice that trying to get reimbursement from the Comm owners for the developer-controlled billing errors or scam would be very difficult. But an HOA attorney's advice is needed.

MarkM31, that particular case law does not apply to our situations.

Trying to collect an increased amount and calling it back assessments is sticky. What is a unit was sold, do you only assess the current owner? You could either increase future assessments or do a special assessment if this is permitted in your governing docs. Sometimes special assessments are not allowed to increase your reserves. I would suspect that an increased assessment going forward is your best bet.

Could you quote the CC&R section that allows the creation after-the-fact of a loan from R to C? That actually sounds unlikely.

And why is the case law I cited not applicable either? It seems like almost a mirror image of your situation.

https://www.davis-stirling.com/HOME/Case-Law/Seabrook-v-Pelzer

Steven wrote: "The actions to do so is "administrations of the property..."' That phrase is new to me too. Is it defined in th front section of your CC&Rs where usually there are many definitions?

"administration property" is said in 7.01 a of the article in our cc&R. let me copy by retype it
for your reference:

7.01 Assessments:
(a) Assessments may be levied by the Association for improvement and maintenance of
the common area(s), Adminstration of the property, and to promote the recreation,
safety, and welfare for the common good of all the Owners.

Balance the HOA account book(s) is within the scope of "Administration of the property"
so the BOD have the obligation to balance it by special assessment for the exact amounts to
Commercial side owner to balance the book.

There are 2 questions/issues need to answer in the resolution of this whole issues:
1. whether current bod can over through the previous bod decision on HOA fees. - we have the answer now.
2. 5 of the commercial owners says that they have pay their monthly HOA fee regularly on the best faith. why all the sudden because of this changes, they have to repay back the difference? it is not their fault, but the developer's error that make him only pay 1 unit's fee with 50% discount, for his own benefits. we can understand this.

But the administration of the association book has to be done. BOD really can not write off this entire 60K because 90 residential owners will not agree. Commercial owner has ask us to provide the legal ground to do so. I think now we have it. - what is your thoughts on this?

Your books are balanced, and no body is writing anything off. Your language is incorrect and misleading

What is your roll here? The President? Or something else?

Has a CPA told you you're books don't balance?

And do the commercial properties have the exact same rights as do the residential users? Do they need and use the elevator? Are they supplied parking? Are they supplied security? Who pays for their HVAC and HVAC maintainence? How is their water and sewer paid?

Kerry, did you get chance to think more about 'administration of property' by an assessment for all commercial owners and use the money collected to pay back to the residential side of the accounting book.

Further, since there is NO reserve fund in commercial side. For compilance, we should also add another assessment to have reasonable amount of reserve fund for them.

what are your thoughts on this? thanks