HOA Board eligibility

Started by AnthonyW1 • 59 replies • 1392 views

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AnthonyW1 (South Carolina)
Posts: 14

Posted:

Our condo HOA defines membership as follows: Every person or entity who is a record Owner of a fee or undivided fee interest in any Unit... shall be a Member of the Association, provided that any such person or entity who holds such interest merely as a security for the performance of an obligation shall not be a member.

Meanwhile, with regard to the Board of Directors, it says "the Directors shall be Members".

My question: if someone owns numerous condo units, can they "assign" someone as the "owner" of one of their condo units for the purposes of being on the Board? In this case the developer's company owns the condo units, and the General Manager (an employee) of the company has been "assigned" one of those units and elected to the Board. Does that legally meet the definitions above for being a Member?

ChrisE8
Posts: 454

Posted:

Quote:

Posted By AnthonyW1 on 11/09/2020 2:16 PM
Our condo HOA defines membership as follows: Every person or entity who is a record Owner of a fee or undivided fee interest in any Unit... shall be a Member of the Association, provided that any such person or entity who holds such interest merely as a security for the performance of an obligation shall not be a member.

Meanwhile, with regard to the Board of Directors, it says "the Directors shall be Members".

My question: if someone owns numerous condo units, can they "assign" someone as the "owner" of one of their condo units for the purposes of being on the Board? In this case the developer's company owns the condo units, and the General Manager (an employee) of the company has been "assigned" one of those units and elected to the Board. Does that legally meet the definitions above for being a Member?

By the terms of the documents that you posted, NO. The director himself or herself has to be "a record Owner of a fee or undivided fee interest in any Unit". But is that what was intended?

AnthonyW1 (South Carolina)
Posts: 14

Posted:

Thank you for the reply. What do you mean by "is that what was intended?" That language is in the HOA By-Laws, and that employee has been on the board for several years. I've been told "our HOA attorney said it's legal".

Since being a Member includes entities, does that mean that only an Owner of that entity would be considered a Member?

CathyA3 (Ohio)
Posts: 6,299

Posted:

I'm not a lawyer, but the first thing that jumped out at me is the phrase "record Owner". I assume this means something like the person's name is on the deed, and you can't simply appoint someone else to be the "owner".

It's common for a corporate owner to appoint an employee to act as their agent. Ditto an owner with health issues who appoints an adult child to act as their agent. But the agent doesn't become the owner of record and thus a Member, which means they could not serve as a Director.

That's my take on it. Hopefully some of our resident legal beagles will weigh in on this because it's an interesting question.

ChrisE8
Posts: 454

Posted:

Quote:

Posted By AnthonyW1 on 11/09/2020 2:31 PM
I've been told "our HOA attorney said it's legal".

That doesn't mean anything. The board hires the HOA lawyer. Of course the HOA lawyer will say that the board that hired him is valid.

By the terms of the documents you posted, each director must be a member. Not "the employer of each director must be a member".

If the governing documents also say that directors have to be real people (natural persons, individuals, however it's phrased), then that makes this even clearer.

I've never heard of a director being an entity. If the person has been signing documents in his own name as "director", then that makes it hard for him to now claim that the entity is the director.

A director must be a real, live person who is a record owner of a property. Period.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

As I understand it a corporation or LLC that owns multi units must designate one person as their representative thus that person is a member.

ChrisE8
Posts: 454

Posted:

Quote:

Posted By JohnC46 on 11/09/2020 3:11 PM
As I understand it a corporation or LLC that owns multi units must designate one person as their representative thus that person is a member.

Representative for what purposes? Owner meetings? Signing things? Respectfully, that doesn't mean that the person can serve on the board, even if the person is a representative for various other things.

AugustinD
Posts: 5,144

Posted:

AnthonyW1,

-- Per the terms of the governing documents, is this condominium still under developer control?

-- If so, then can you check the Declaration carefully and see if there is a section that talks about what rights the developer has prior to turning the condo association over to the membership?

-- I am wondering if the section that says "Directors shall be members" does not apply yet.

-- Link to SC Nonprofit Corporation Act https://www.scstatehouse.gov/code/t33c031.php

-- For my own edification: I think the part about "holds such interest merely as a security for the performance of an obligation shall not be a member" does not have any bearing on the question the OP asked. I think this phrase refers to lenders (like banks) who have provided a mortgage to a record owner. The bank has an ownership interest in the property, but the property is merely security for the performance of payment of the debt (monthly mortgage payments). Googling shows the phrase does appear in many HOAs declarations and/or bylaws. Of note is that there are HOA declarations that require the HOA to get the permission (a vote, if you will) of lenders on certain topics that come before the HOA membership as a whole for a vote.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By ChrisE8 on 11/09/2020 3:19 PM

Posted By JohnC46 on 11/09/2020 3:11 PM
As I understand it a corporation or LLC that owns multi units must designate one person as their representative thus that person is a member.

-- I agree. I would go further: After the declarant's rights have gone away, and the membership controls who is on the board, I think it would be very rare for a HOA/condo's governing docs to allow a corporation that owns several units, or even just one unit, to appoint a corporate representative for the purpose of this corporate representative's being a candidate for the board, to be elected by the membership.

-- Declarations often have verbiage about how a corporation that owns a unit or several units can vote in annual meetings. But like ChrisE8 posted, this is not the same as the corporation or its agent being eligible to be a director.

-- I think a condo unit that is in probate, with an executor overseeing the estate, translates to the executor having the right (and obligation) of voting on membership issues. But the executor cannot run for the board. Same idea for someone who has power-of-attorney for an owner.

-- Related aside: The South Carolina Nonprofit Corporation Act says all directors must be "natural persons."

ChrisE8
Posts: 454

Posted:

Quote:

Posted By AugustinD on 11/09/2020 3:51 PM

Posted By ChrisE8 on 11/09/2020 3:19 PM

Posted By JohnC46 on 11/09/2020 3:11 PM

-- Related aside: The South Carolina Nonprofit Corporation Act says all directors must be "natural persons."

There you have it. The HOA lawyer is wrong. End of story.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By ChrisE8 on 11/09/2020 4:11 PM

Posted By AugustinD on 11/09/2020 3:51 PM

-- Related aside: The South Carolina Nonprofit Corporation Act says all directors must be "natural persons."

There you have it. The HOA lawyer is wrong. End of story.

I think this will depend on what the governing documents say.

AnthonyW1 (South Carolina)
Posts: 14

Posted:

To answer a few earlier questions:
At this point, the property is no longer being developed, and the HOA definitely controls.

With regard to an entity owning a unit, in the section on Voting Rights, the By-Laws state this: "When more than one person holds such interest or interests in a Unit, all such persons shall be members; however, they shall select one (1) member to vote, which such member shall be designated as the 'Voting Member' and shall be so designated in writing to the Secretary of the Association. In no event shall more than one (1) vote be cast with respect to any Unit. The determination of what members shall be the voting member where more than one person owns an interest in a Unit shall be by a majority vote of the total undivided interest of ownership in such Unit." But that all applies to voting rights, and not to Director eligibility.

I agree that the language about "... interest merely as a security for the performance of an obligation..." does not have any bearing, as that applies to lenders (like banks) who have provided a mortgage to a record owner.

I recognize that all directors must be "natural persons", and that's not an issue since the Director at issue as a "person" - he just is an employee of the company that owns the multiple units, but he himself does not own that company nor the units.

Is anyone aware of any law, statute or case law regarding this topic? How would one go about trying to enforce this to have this person removed as a Director?

AnthonyW1 (South Carolina)
Posts: 14

Posted:

One additional piece of text: in the Master Deed, it states this: "The Owner or Owners of each Unit shall automatically become Members of the Association upon his, their or its acquisition of an ownership interest in any Unit and its appurtenant undivided interest in Common Elements, and the membership of such Owner or Owners shall terminate automatically upon each Owner or Owners being divested of such ownership interest in such Unit, regardless of the means by which such ownership may be divested."

Also: "No person, firm or corporation holding any lien, mortgage or other encumbrance upon any Unit shall be entitled, by virtue of such lien, mortgage or other encumbrance, to membership in the Association, or to any of the rights or privileges of such membership."

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By AnthonyW1 on 11/09/2020 6:26 PM
At this point, the property is no longer being developed, and the HOA definitely controls.
...
I recognize that all directors must be "natural persons", and that's not an issue since the Director at issue as a "person" - he just is an employee of the company that owns the multiple units, but he himself does not own that company nor the units.

He is not the record owner. From everything you presented, he cannot serve on the board. So far it appears to me that anyone saying otherwise is making an argument without a basis in law.

Quote:

Posted By AnthonyW1 on 11/09/2020 6:26 PM
Is anyone aware of any law, statute or case law regarding this topic? How would one go about trying to enforce this to have this person removed as a Director?

Your first post said this person was "elected" to the board. I suggest you write a letter to the Board as follows. (For the purposes of this discussion here, let's call this fellow "John Doh.")

Dear Board of Directors,

The Bylaws at Sections ___ and ____ state that "Directors shall be Members," and that only a "record Owner" may be a Member. Mr. Doh is not a record owner. I respectfully request that the Board remove Mr. Doh from the Board. Subsequently I respectfully request seek a record owner to fill the vacant seat.

If you do not intend to do this, please let me know by December 1, 2020.

Thank you,

name
address
email
phone

Send the

Once December 1 passes, please post back with the Board's response.

If the Board refuses to remove Mr. Doh, then per South Carolina statute 27-31-170 it appears your next step is to file for injunctive relief in court.

AugustinD
Posts: 5,144

Posted:

AnthonyW1, how did this non-Member win election to the Board in the first place?

KerryL1 (California)
Posts: 14,550

Posted:

Just finished a horrendously long and serious executive session and just cannot look this up, but think about it this way: Every unit has an owner whether multiple or singular.

I'd say every unit has the right to be represented ON the Board of directors. So...somehow, someone can be a candidate to be a potential director. What is the mechanism for that in SC?

This is addressed in the CA new Election Rules statutes effective 1/20. Civ. Code Sect. 5100, et. sec. The following is from our Election Rules, but I think I recall it is the same wording in the new statute:

"The Association must disqualify a person from nomination [as a director] if not a member of the Association at the time the request for nomination is received. If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity has the power to appoint a natural person to be a member for purposes of this section. The Association is entitled to require that any such legal entity provides the Association with written confirmation of the name of the natural person appointed by that entity, and that such confirmation is signed by an officer of that entity, or other person ostensibly authorized by that entity to confirm such appointment, before that person is accepted for nomination as a candidate."

This isn't new though. One director on our board, per out bylaws, must be the Onwer of our commercial unit. It's owned by our developer, long out of the picture, but they still occupy part of the commercial area. This corporation selects an employee to be the required director on our Board.

AugustinD
Posts: 5,144

Posted:

AnthonyW1, send the letter certified mail, return receipt requested. You want to start a paper trail to show the court you did all you could to avoid a lawsuit and burdening the courts and taxpayer.

AnthonyW1 (South Carolina)
Posts: 14

Posted:

How did this non-Member win election to the Board in the first place? He nominated himself to get on the ballot and then was elected by the vote of the members.

The language "the governing authority of that legal entity has the power to appoint a natural person to be a member for purposes of this section" is the argument that is being made about this person being eligible to be a Director. The owner of the corporation has designated this person as the member associated with a particular unit, and that makes him eligible to be a Director. Not sure if SC law has similar provisions as the cited CA law.

Just to add to the confusion, the owner of the company that owns the units was also voted in as a Director, but I believe that makes sense since he owns the company, and therefore is the "owner" of those units. But, it sounds like he may also be able to appoint someone else as the "natural person" member for one of his other units, and thus make that person eligible to be a Director.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By KerryL1 on 11/09/2020 6:55 PM
I'd say every unit has the right to be represented ON the Board of directors.

Your governing docs have a mechanism for a corporation that owns a Unit to seek candidacy (via an agent who is a person) for a board seat. But I think this is a bit unusual.

Maybe your COA is a little different since it is not all-residential. Some of the units are designated for commercial use.

I do not think such a right exists when the governing documents and state law require that directors be (1) record owners; and (2) natural persons, without any other verbiage. Corporations often are record owners of condo units. But corporations are not natural persons. I do not see a way around this legally.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By AnthonyW1 on 11/09/2020 7:10 PM
How did this non-Member win election to the Board in the first place? He nominated himself to get on the ballot and then was elected by the vote of the members.

The language "the governing authority of that legal entity has the power to appoint a natural person to be a member for purposes of this section" is the argument that is being made about this person being eligible to be a Director.

The key difference being there is nothing to this effect in your HOA's governing documents. Ask whoever is saying this to give you a citation to either the governing documents, state law, or SC case law. For now, I am betting they come up short. They might make a legal argument, but it may or may not have support in statutes and may or may not have been tested in the SC courts.

Quote:

Posted By AnthonyW1 on 11/09/2020 7:10 PM
The owner of the corporation has designated this person as the member associated with a particular unit, and that makes him eligible to be a Director. Not sure if SC law has similar provisions as the cited CA law.

By my reading, South Carolina statutes have a different position on what a "natural person" is.

For that matter, one can find matrices on the net that lay out state-by-state how each state defines "person."

This thread seems pretty good:
https://www.hoatalk.com/Search/ForumSearch/tabid/87/forumid/1/postid/207768/view/topic/Default.aspx
But in the thread I link above, be careful about assuming that South Carolina statutes are quite similar to California statutes. So far by my reading, they are not.

Quote:

Posted By AnthonyW1 on 11/09/2020 7:10 PM
Just to add to the confusion, the owner of the company that owns the units was also voted in as a Director, but I believe that makes sense since he owns the company, and therefore is the "owner" of those units.

If he is the sole owner of the company, perhaps. Perhaps not. The Bylaws say one has to be the "record owner." The law often distinguishes between a company and the person who owns it. E.g. if a company is an LLC, doesn't the owner have certain protections from debts of the LLC? If the stakes were high and the owner of this company that owns several units was going to do something bad while serving on the board, I might very well recommend taking the HOA to court to remove this person (who owns the company, with said company being the "record owner" of the Units).

All who own Units at this condo went in with eyes wide open with regard to what the governing docs and state law say.

From the SC NonProfit Corporation statute: "All directors must be natural persons. The articles or bylaws may prescribe other qualifications for directors." The reference to the Bylaws is not casual. To come to a decision, the courts go into a HOA/COA's governing documents and interpret the wording in them all the time.

Quote:

Posted By AnthonyW1 on 11/09/2020 7:10 PM
But, it sounds like he may also be able to appoint someone else as the "natural person" member for one of his other units, and thus make that person eligible to be a Director.

Until I see something more authoritative for South Carolina, I am unpersuaded that a company that owns Units in the OP's COA can designate a natural person and lawfully have this designee run for and serve on the COA's Board.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Augustin is usually on point, but it seems reasonable, to me, that a corporate entity should have a mechanism to be represented in this case.

AugustinD
Posts: 5,144

Posted:

I am pondering things like:
Suppose the company that is the "record owner" for several units is an LLC. The LLC stops paying the units' monthly (yearly) assessments. The COA can go after the company and possibly foreclose on the unit. But I do not think the COA can successfully go after the owner of the LLC for payment of the debts.

To me this says that the owner of the LLC has a stake in the COA that is quite different (remote, I would say) from the stake that a record Owner who is a natural person has. To me this argues for not giving the owner of the LLC the right to be on the board until appropriate legal authorities have been cited.

I suppose all this depends on how strongly the OP feels about the situation. I am also still concerned there may be something in the governing documents that expressly covers this situation, but the OP has not seen it yet.

AugustinD
Posts: 5,144

Posted:

Here's some discussion of Florida's take on the subject:
=========================================================
Board Member Eligibility for Entity-Owned Condominium Units

It is common for entities, such as a corporation, LLC, or partnership, to hold title to a condominium unit. However, this form of ownership can result in entity-owned units being prohibited from submitting a candidate for the condominium’s board of directors when the condominium’s governing documents limit board member eligibility to unit owners.

The Condominium Act defines a “Unit Owner” as “the record owner of legal title to a condominium parcel.” Moreover, the Florida Not For Profit Corporation Act, which applies to condominium associations established as non-profit corporations, requires all directors to be natural persons. Thus, for condominiums which require all board members to be unit owners, only those individuals who are listed on the Deed are considered unit owners for board member eligibility purposes.*

In some instances, the governing documents will define who qualifies as an eligible board member candidate on behalf of entity owned units, such as the partner of a partnership or the officer or authorized agent of a corporation. Occasionally, the governing documents require entity-owned units to designate the names of persons who will occupy the unit. In such an instance, it is possible the designated individuals are eligible candidates for the board. However, if the governing documents are silent, entity-owned units may be entirely excluded from offering a candidate for the board.

Ultimately, board member eligibility for entity-owned units turns upon the specific language of the condominium’s governing documents. If you are unsure about board member eligibility for your association, the experienced attorneys at Haber Law can help you.

*One exception to this rule is contained in Section 617.0802, Fla. Stat., which provides that the grantor and beneficiary of a trust holding legal title to a condominium unit are considered members of the association and, therefore, eligible to serve on the board of directors.

-- https://www.haber.law/board-member-eligibility-for-entity-owned-condominium-units/

============

Here's some discussion of a bit of Florida case law that talks about an LLC owned concod unit and applied what the governing docs expressly said about LLC ownership and board service: https://www.floridabusinesslawyersblog.com/southwest-florida-condo-association-loses-battle-interpretation-bylaw-governing-board-directors/

AnthonyW1 (South Carolina)
Posts: 14

Posted:

Additional language in the Master Deed:
"Co-Owner or Owner means a person, firm, corporation, partnership, limited liability company, association, trust, or other legal entity or any combination thereof, who owns a Unit within the Condominium."

"Association means council of Co-Owners as defined by the Horizontal Property Act and also means XYZ Homeowners' Association, Inc., the corporate form by which the council of Co-Owners will operate XYZ Horizontal Property Regime."

That's the only other language that I can see in the Master Deed, HOA Articles of Incorporation, and HOA By-Laws.

AugustinD
Posts: 5,144

Posted:

Thank you, Anthony. Based on what the Florida sites say; KerryL1's citing specific language in her condo's governing documents; and my experience being that the propensity of the courts is to turn to the exact words in the governing docs, I am going with the following: "Ultimately, board member eligibility for entity-owned units turns upon the specific language of the condominium’s governing documents." It seems not uncommon for governing documents to have specific language about {entity ownership and serving on the board}. Yours do not. To me this says that you are on solid ground to insist that anyone on the Board be a "record owner." And I do mean the name of anyone wanting to be a director must be the name on the Unit's deed verbatim (like CathyA3 said). Also per SC corporate statute, the "anyone" must be a "natural person."

AnthonyW1 (South Carolina)
Posts: 14

Posted:

Thank you all for this helpful discussion.

This morning I found this additional post:
https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/69314/view/topic/Default.aspx

It states that Ohio law settled this matter regarding condos as follows: "If a unit owner is not an individual, that unit owner may nominate for the board of directors any principal, member of a limited liability company, partner, director, officer, or employee of that unit owner."

I wonder to what degree South Carolina would view this similarly.

AnthonyW1 (South Carolina)
Posts: 14

Posted:

This post also addresses this topic:
https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/228535/view/topic/Default.aspx

CathyA3 (Ohio)
Posts: 6,299

Posted:

I was right, this is an interesting question and not at all clear when you dig into things.

My take on this is that the language of the CC&Rs in this case don't adequately account for the rights of a corporate owner to have a seat at the table. So we'd have to punt to state law to see what it says about HOA or corporate directors.

On the other hand, I bet if this question went before two different courts that you could get two different answers.

Musing here:

The problem I see with having a corporate agent being defined as a member - unless this definition were qualified or limited in some way - is that natural person owner/members will have some different rights and responsibilities. For example, does being a corporate "member" entitle that person to the use of the amenities, and does the HOA's insurance account for this? Also, an LLC has some important protections that a natural owner does not have. For example, if the HOA has an uninsured loss that makes the individual owners personally liable for the settlement, natural owners' personal assets are at risk while the LLC's assets are limited to (probably) the unit(s) they owned. (OT question: do similar issues arise when a unit is owned in trust?) It's not a level playing field, and one of the important principles of HOA ownership is that all are subject to the same rules.

This is another of those hidden gotchas that folks who buy property in HOAs or COAs don't understand, and that (I'm willing to bet) lawmakers didn't think all the way through.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By AnthonyW1 on 11/10/2020 5:25 AM
This morning I found this additional post:
https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/69314/view/topic/Default.aspx
It states that Ohio law settled this matter regarding condos as follows: "If a unit owner is not an individual, that unit owner may nominate for the board of directors any principal, member of a limited liability company, partner, director, officer, or employee of that unit owner."

I wonder to what degree South Carolina would view this similarly.

To be clear, I think it is not that Ohio law "settled" this. There was no court decision. Ohio enacted a statute one of whose sections addresses this situation for Ohio only. The quotation above is from Ohio's condominium statute, specifically:

Ohio Revised Code 5311.08
"Every condominium property shall be administered by a unit owners association . All power and authority of the unit owners association shall be exercised by a board of directors, which the unit owners shall elect from among the unit owners or the spouses of unit owners. If a unit owner is not an individual, that unit owner may nominate for the board of directors any principal, member of a limited liability company, partner, director, officer, or employee of that unit owner."

I have found nothing equivalent in South Carolina's condo statute (a.k.a. Horizontal Property Act), https://www.scstatehouse.gov/code/t27c031.php or its nonprofit corporation statute.

Quote:

Posted By AnthonyW1 on 11/10/2020 5:56 AM
This post also addresses this topic:
https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/228535/view/topic/Default.aspx

This 2017 thread, concerning Florida law, never settled the issue of whether an LLC may designate a representative to run for and serve on a Florida condo board. I trust the Florida law firm site I quoted above far more than this 2017 thread.

I am not falling back on, "One never knows what a judge would rule." I think it's more likely than not that at least an appeals court panel would follow South Carolina statutes and this COA's governing documents in coming to a decision: Record owners who are natural persons only may serve on the board, as all agreed when they bought a unit in the COA, and consistent with the states and HOAs/COAs whose statutes and governing documents expressly address this.

AnthonyW1, how important is this to you?

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By ChrisE8 on 11/09/2020 3:19 PM

Posted By JohnC46 on 11/09/2020 3:11 PM
As I understand it a corporation or LLC that owns multi units must designate one person as their representative thus that person is a member.

I have given you my belief and I do not intend on debating it with you.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Direct copy from our Bylaws:

Section 1. Governing Body: Composition. The affairs of the Association shall be governed by a Board of Directors, each of whom shall have one (l) vote. The directors shall be Members or spouses of such Members; provided, however. no person and his or her spouse may serve on the Board at the same time. In the case of an owner which is a corporation or partnership, the person designated in writing to the Secretary of the Association as the representative of such corporation or partnership shall be eligible to serve as a director.

AugustinD
Posts: 5,144

Posted:

JohnC46, what year was your HOA/condo's declaration recorded?

AnthonyW1, same question.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By AugustinD on 11/10/2020 11:06 AM
JohnC46, what year was your HOA/condo's declaration recorded?

AnthonyW1, same question.

06/2007

Understand SC Corporate Laws are riddled with the expression.....unless your Bylaws say otherwise. So they have to be read closely.

Also realize the SC Horizontal Property Act only applies to multi level condo building associations. It does not apply to single home nor townhouse type associations.

AnthonyW1 (South Carolina)
Posts: 14

Posted:

Ours is a multi-story condo, and our Master Deed and HOA Articles of Incorporation and By-Laws were recorded in 2006.

AugustinD
Posts: 5,144

Posted:

The OP's quotation above from his condo's governing documents indicates his condo is subject to the SC Horizontal Property Act.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By AnthonyW1 on 11/10/2020 11:26 AM
Ours is a multi-story condo, and our Master Deed and HOA Articles of Incorporation and By-Laws were recorded in 2006.

If I had to bet money on it, I expect your Bylaws say similar to mine especially in a high rise were it is common for a corporation to own multi units.

Can I assume the association is controlled by the owners meaning the developer/declarant no longer plays a role?

AnthonyW1 (South Carolina)
Posts: 14

Posted:

Our By-Laws are silent on the topic of corporations being owners - I've quoted all of the relevant content from our By-Laws in prior comments in this thread.

The association is controlled by the owners. However, the developer/declarant still appoints 1 of the Directors for a few more years. Two of the remaining 4 Director seats are currently filled (voted by the homeowners) with 1) the developer/declarant and 2) an employee of his company (i.e. this Director was the genesis of my original question). The developer owns multiple units and "assigns" one of his units to that employee so that they say he's eligible to run for the board.

ChrisE8
Posts: 454

Posted:

Quote:

Posted By AnthonyW1 on 11/10/2020 12:26 PM
Our By-Laws are silent on the topic of corporations being owners - I've quoted all of the relevant content from our By-Laws in prior comments in this thread.

The association is controlled by the owners. However, the developer/declarant still appoints 1 of the Directors for a few more years. Two of the remaining 4 Director seats are currently filled (voted by the homeowners) with 1) the developer/declarant and 2) an employee of his company (i.e. this Director was the genesis of my original question). The developer owns multiple units and "assigns" one of his units to that employee so that they say he's eligible to run for the board.

And what votes are needed to amend the bylaws? If the developer/declarant plus a few supporters can amend the bylaws, then the developer/declarant can just amend the bylaws and fix this issue.

The HOA lawyer is still wrong, though, and if any board votes passed because of this currently-ineligible director, that might throw into question the validity of those votes.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Sorry but to me as long as the developer/declarant can still appoint any of the BOD, the owners are not in control. I can go along with "someone" that owns several units appointing someone as their voting members and eligible for the BOD. I question if you are truly owner controlled.

Also if one entity does own enough units and they get one vote per unit, could they outweigh the rest of the owners thus in reality control the voting? There was a lot of legal hanky panky in high rise, multi unit associations in the Myrtle Beach area. A lot of gullible owners got sucked into deals where they ended up with little or no control. I hope this is not your situation.

AnthonyW1 (South Carolina)
Posts: 14

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Yes, that is absolutely our situation. The developer/declarant owns multiple units, and has enough of his own votes plus those of other apathetic owners to get himself and his employee re-elected. Plus he retains the rights to appoint 1 additional seat on the board for a few more years. And their company is the vendor of maintenance services to the property, which is a huge portion of the total HOA budget. I will say that this board has made some good HOA financial decisions over the past years (we're in much better financial shape than we were a number of years back), but there's so much lack of transparency and inter-mingling of business interests between the HOA and their business.

ChrisE8
Posts: 454

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Posted By AnthonyW1 on 11/15/2020 9:00 AM
Yes, that is absolutely our situation. The developer/declarant owns multiple units, and has enough of his own votes plus those of other apathetic owners to get himself and his employee re-elected. Plus he retains the rights to appoint 1 additional seat on the board for a few more years. And their company is the vendor of maintenance services to the property, which is a huge portion of the total HOA budget. I will say that this board has made some good HOA financial decisions over the past years (we're in much better financial shape than we were a number of years back), but there's so much lack of transparency and inter-mingling of business interests between the HOA and their business.

Sounds like the HOA in NC where I am selling my rental property.

Just because he does that doesn't mean it's OK. However, if the developer has enough power to amend the bylaws, he can fix the bylaws to allow his employee to serve on the board. So you can raise this issue, which is a valid issue to raise, but check the amendment section of the bylaws to see if the developer can just fix it.

AnthonyW1 (South Carolina)
Posts: 14

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Amendments require approval by 67% of homeowners, so it would be really difficult to get that (we don't even get that many owners to vote in the annual elections!)

KerryL1 (California)
Posts: 14,550

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I finally had time to look at CA statutes on this topic, and, as I noted above, they ae the same as in our HOA new election rules (no COAs in CA).

CA Civ. 5105 (b) (2) "An association shall disqualify a person from a nomination as a candidate for not being a member of the association at the time of the nomination.

(2) If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of this article."

There's more detail, of course, in the cited statute. (Above, I should not have used my own HOA as an example as it muddied the waters)

I also think Anthony's O.P says it clearly: "Every person or ENTITY [my emph.] who is a record Owner of... any Unit... shall be a Member of the Association..." Elsewhere, Anthony adds, the Master Deed states: "The Owner or Owners of each Unit shall automatically become Members of the Association upon his, their or ITS [my emph.] acquisition of an ownership interest in any Unit..."

And, again, I can't get my head around the rights of any owner to serve on the Board being cancelled because they are an "it" or "entity." One unit, one vote is just. So I completely agree with JohnC.

The Bylaws would have to be changed by Anthony & those who support him to say that co-owners may not serve simultaneously. This, by the way also now is in CA Civ. 5205. btw, 67% is quite a lot higher than most to change bylaws.

To Cathy's point. Only residents in my HOA may use the recreational amenities. Absentee owners may not. This is very common.

KerryL1 (California)
Posts: 14,550

Posted:

Sorry--see more in CA Civil 5100.

GeorgeS21 (Florida)
Posts: 3,808

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I'm gonna stick with my assessment that the entities that own the properties can appoint, through some legal mechanism, a person to vote or attend meetings in that capacity. To do otherwise would seem to preclude representation to corporations or LLCs - which simply doesn't seem to pass a basic legal and fairness test.

AugustinD
Posts: 5,144

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Posted By KerryL1 on 11/15/2020 5:14 PM

CA Civ. 5105 (b) (2) "An association shall disqualify a person from a nomination as a candidate for not being a member of the association at the time of the nomination.

(2) If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of this article."

There's more detail, of course, in the cited statute. (Above, I should not have used my own HOA as an example as it muddied the waters)

I also think Anthony's O.P says it clearly: "Every person or ENTITY [my emph.] who is a record Owner of... any Unit... shall be a Member of the Association..." Elsewhere, Anthony adds, the Master Deed states: "The Owner or Owners of each Unit shall automatically become Members of the Association upon his, their or ITS [my emph.] acquisition of an ownership interest in any Unit..."

And, again, I can't get my head around the rights of any owner to serve on the Board being cancelled because they are an "it" or "entity." One unit, one vote is just. So I completely agree with JohnC.

If an entity-Owner can designate a person to be its "HOA member" for the purposes of candidacy for and service on the Board without a statute or covenant saying the same thing, then why does California statute have the section above, and why do your California condo covenants and JohnC46's covenants have the following sections?

California condo covenant -- "If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity has the power to appoint a natural person to be a member for purposes of this section. The Association is entitled to require that any such legal entity provides the Association with written confirmation of the name of the natural person appointed by that entity, and that such confirmation is signed by an officer of that entity, or other person ostensibly authorized by that entity to confirm such appointment, before that person is accepted for nomination as a candidate."

South Carolina condo covenant -- "In the case of an owner which is a corporation or partnership, the person designated in writing to the Secretary of the Association as the representative of such corporation or partnership shall be eligible to serve as a director."

By GeorgeS21's and your reasoning, these sections are superfluous.

I continue to believe what the Florida law firm stated (as quoted above) controls.

I checked the case law and so far can find nothing addressing eligibility of a non-person entity Owner for serving on a HOA/condo.

I suppose we may never know unless this matter reaches a court.

KerryL1 (California)
Posts: 14,550

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I always value Augustin's contribution and especially the research. There actually also is a similar instruction about how to have a natural person be on an non-profit board in CA corps code when an entity is the member, but I'd have to search to find it and I'm very slow at such things. I imagine it's codified in CA, SC & elsewhere due to questions and debate over the years.

I'm guessing it's been in corps. code a long time.

I think the CA quote is from Civil Code. There's no condo code in CA.

AugustinD
Posts: 5,144

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Posted By KerryL1 on 11/16/2020 9:39 AM
There actually also is a similar instruction about how to have a natural person be on an non-profit board in CA corps code when an entity is the member [snip].

In California, the relevant section of the Corporation Code seems to be Section 5056 (c), https://www.davis-stirling.com/HOME/Statutes/Corp-Code-5056:

"Where a member of a corporation is not a natural person, such member may authorize in writing one or more natural persons to vote on its behalf on any or all matters which may require a vote of the members."

This covers general membership voting by an entity. Then California Civil Code 5105 (b) (2) (a part of California's HOA/Condo statute) covers an entity's appointment of a natural person to represent an entity as a member of the HOA/condo:

"If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of this article."

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Posted By KerryL1 on 11/16/2020 9:39 AM

I imagine it's codified in CA, SC & elsewhere due to questions and debate over the years.

It seems to me that the only time this question is going to arise is when the noprofit corporation is a HOA/Condo or some kind of cooperative, like certain electric company cooperatives. In other words, this issue arises pretty infrequently in the corporate world.

The South Carolina Condo statute and the South Carolina Nonprofit Corporation statute have no wording like California's statutes. Various word searches of both of the following turn up nothing like California's rather unique wording:
https://www.scstatehouse.gov/code/t33c031.php
https://www.scstatehouse.gov/code/t27c031.php

Same for Florida:
http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0718/0718.html
http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0617/0617.html

I realize George, the OP and you tend to think a corporation that owns a condo unit (or several units) should have the exact same rights as a condo unit (or units) owned by a natural person. But the law seems to me to be explicit when a natural person may step in to represent a corporation. E.g. when one wants to sue a corporation, corporate statutes are clear that service is made upon the corporation's registered agent (a natural person).

Also I continue to feel that a corporation that owns a unit has rights that natural persons owning units do not have. If fairness is the rule to live by, then the natural persons on the title of a condo unit are not being treated fairly.

I think you all are paying too short shrift to the Florida law firm article I linked above.

KerryL1 (California)
Posts: 14,550

Posted:

Not paying short shrift--just haven't had time to look it up : )

CathyA3 (Ohio)
Posts: 6,299

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Posted By AugustinD on 11/16/2020 10:53 AM
.... snip ....

Also I continue to feel that a corporation that owns a unit has rights that natural persons owning units do not have. If fairness is the rule to live by, then the natural persons on the title of a condo unit are not being treated fairly.

Maybe not a "right" per se, but something I'd mentioned earlier is that a LLC is able to limit their liability by holding only their property in the corporate entity. This means that if something goes really bad - for instance a huge uninsured loss for the association - then the natural persons could in theory lose most or all of their assets whereas the LLC's loss would be limited to the home.

It's not a level playing field, that's for sure, which is another reason people should really think hard about enacting a rental restriction in their communities. But most folks can't see beyond their own immediate right to rent their condo if they want to. The ability to rent gives the investors a toe hold in the community, which is how a number of condo associations ended up becoming rental communities during the previous housing downturn. (For what it's worth, I spotted a recent article about hedge funds buying up single family homes, so the HOAs aren't immune from this risk either.)

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