Procedures for Homeowners to reject a budget

DavidG45 (Delaware)
Posts: 994

Posted:

I am providing the verbiage from our bylaws regarding passing of a budget. It appears the board must propose a budget, send it to all of the lot owners, then hold an open meeting in which the budget is ratified unless the owners vote it down. I assume this is relatively normal procedure, but I am curious about the mechanics involved. My first question regards what it means when it says a majority of all lot owners. Assume we have: 500 lots planned, 400 occupied, 100 lots still to be developed and owned by the Declarant. Would a "majority" mean 256, 201, or more than half of all owners present at the meeting, even if it's just a few dozen?

Second question, if it means all lot owners -- not just the ones at the meeting -- how would such a vote take place? Does the board have to send ballots to everyone in the same way that we hold our annual election? Or would we need to have a majority of owners physically attend the meeting and demand a vote?

TIA

***

(1) The Executive Board shall prepare a proposed budget of the Corporation at least sixty (60) days before the beginning of each fiscal year and set a date for a meeting of the Corporation, containing an estimate of the total amount which it considers necessary to pay the cost of maintenance, management, operation, repair and replacement of the Common Elements, insurance premiums, services, supplies and other expenses that may be declared to be Common Expenses by the Act, the Declaration, the Bylaws or a resolution of the Corporation, and which will be required during the ensuing fiscal year for the administration, operation, maintenance and repair of the Planned Community and the rendering to the Lot Owners of all related services. Such budget shall also include such reasonable amounts as the Executive Board considers necessary to provide working capital for the Planned Community, and if so elected by the Executive Board, a general operating reserve and reserves for contingencies and replacements.

(2) The Executive Board shall send to each Lot Owner a copy of the budget, in a reasonably itemized form which sets forth the amount of the Common Expenses payable by each Lot Owner on or before the commencement of the next ensuing fiscal year to which the budget applies. The said budget shall constitute the basis for determining each Lot Owner’s contribution and assessments for the Common Expenses.

(3) Within thirty (30) days after adoption of any proposed budget the Executive Board shall provide to all Lot Owners a summary of the budget, including any reserves and a statement of the basis on which any reserves are calculated and funded. Simultaneously, the Executive Board shall set a date for a meeting of the Lot Owners to consider ratification of the budget not less than ten (10) nor more than sixty (60) days after providing the summary. Unless at that meeting a majority of all Lot Owners reject the budget the budget is ratified, whether or not a quorum is present. If a proposed periodic budget is rejected, the periodic budget last ratified by the Lot Owners must be continued until such time as the Lot Owners ratify a subsequent budget proposed by the Executive Board.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

David

I say 251 as the developer usually gets at least 1 vote per lot and in some cases more.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

David

You are saying a total of 500 lots. I say 251 is the majority as the developer probably gets to vote the not yet sold lots.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By JohnC46 on 07/05/2022 11:12 AM
David

I say 251 as the developer usually gets at least 1 vote per lot and in some cases more.

Thanks. Don't know how I said 256 instead of 251.

So would the board have to send ballots, or would we need 251 "nay" voters to physically attend the meeting?

TimB4 (Tennessee)
Posts: 21,059

Posted:

David,

Typically, the proposed budget is presented at the annual meeting.

I would expect that an Association wouldn't even call for a vote to ratify the budget. They likely expect that it's not an issue unless someone brings it up. Hopefully, your Association would at least call for a vote to ratify.

Per your citation, a majority of all lot owners (not votes, but owners) must reject the ratification to have the board submit a new budget or go with the old one. Per your posting, there are 500 lots. Hence you would need 251 to reject a budget.
If you have proxies or absentee ballots, this might happen. Typically, there is no more then 20 to 25% of the owners who actually participate in the annual meeting and voting process. We call it membership apathy.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By DavidG45 on 07/05/2022 11:20 AM

Posted By JohnC46 on 07/05/2022 11:12 AM
David

I say 251 as the developer usually gets at least 1 vote per lot and in some cases more.

Thanks. Don't know how I said 256 instead of 251.

So would the board have to send ballots, or would we need 251 "nay" voters to physically attend the meeting?

As I read it, there must be a Members Meeting and a vote held.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JohnC46 on 07/05/2022 11:34 AM

Posted By DavidG45 on 07/05/2022 11:20 AM

Posted By JohnC46 on 07/05/2022 11:12 AM
David

I say 251 as the developer usually gets at least 1 vote per lot and in some cases more.

Thanks. Don't know how I said 256 instead of 251.

So would the board have to send ballots, or would we need 251 "nay" voters to physically attend the meeting?

As I read it, there must be a Members Meeting and a vote held.

ADD ON

Our Covenants say the BOD can raise the Annual Assessment (Dues) as much as they want to. Must submit a Budget to the members (via US Mail) on or before 12/01 too become effective 01/01. Members do not get to vote on it. Members could call for a Special Meeting on or before 01/01 and vote to reject the budget.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TimB4 on 07/05/2022 11:33 AM
David,

Typically, the proposed budget is presented at the annual meeting.

I would expect that an Association wouldn't even call for a vote to ratify the budget. They likely expect that it's not an issue unless someone brings it up. Hopefully, your Association would at least call for a vote to ratify.

Per your citation, a majority of all lot owners (not votes, but owners) must reject the ratification to have the board submit a new budget or go with the old one. Per your posting, there are 500 lots. Hence you would need 251 to reject a budget.
If you have proxies or absentee ballots, this might happen. Typically, there is no more then 20 to 25% of the owners who actually participate in the annual meeting and voting process. We call it membership apathy.

Thanks. Our board is considering a very large additional expense that I believe a majority of homeowners would absolutely oppose, and would vote against if they were given the chance. As you say, I would expect the board to NOT want to ask for a vote, and to certainly NOT send ballots in advance unless forced to. So it sounds as if we would need to stuff the meeting with homeowners and demand a vote.

The alternative would be for us to create our own proxies and go door-to-door getting them signed - but would that be legal? Would the board have to recognize those proxies?

MaxB4
Posts: 3,513

Posted:

Based on what the OP provided, my opinion would be it is up to the members to reject the proposed budget. It wouldn't be the obligation of the associatuon to provide any ballots, since the association members would have given 30 days notice of a budget radified by the Board.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DavidG45 on 07/05/2022 11:41 AM

The alternative would be for us to create our own proxies and go door-to-door getting them signed - but would that be legal? Would the board have to recognize those proxies?

Expecting proxies are allowed, it would be legal.

If your Association is incorporated, most are but check to be sure, corporate statutes would apply.
Per Deleware § 212. Voting rights of stockholders; proxies; limitations:

(c) Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority:

(1) A stockholder, or such stockholder’s authorized officer, director, employee or agent, may execute a document authorizing another person or persons to act for such stockholder as proxy.

(2) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of an electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such transmission must either set forth or be submitted with information from which it can be determined that the transmission was authorized by the stockholder. If it is determined that such transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.

(3) The authorization of a person to act as a proxy may be documented, signed and delivered in accordance with § 116 of this title, provided that such authorization shall set forth, or be delivered with information enabling the corporation to determine, the identity of the stockholder granting such authorization.

(d) Any copy, facsimile telecommunication or other reliable reproduction of the document (including any electronic transmission) created pursuant to subsection (c) of this section may be substituted or used in lieu of the original document for any and all purposes for which the original document could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original document.

(e) A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

Note: Delaware § 215. Voting rights of members of nonstock corporations; quorum; proxies specifies that the section I cited above does apply to nonstock corporations.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TimB4 on 07/05/2022 12:16 PM

Posted By DavidG45 on 07/05/2022 11:41 AM

The alternative would be for us to create our own proxies and go door-to-door getting them signed - but would that be legal? Would the board have to recognize those proxies?

Expecting proxies are allowed, it would be legal.

If your Association is incorporated, most are but check to be sure, corporate statutes would apply.
Per Deleware § 212. Voting rights of stockholders; proxies; limitations:

(c) Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority:

(1) A stockholder, or such stockholder’s authorized officer, director, employee or agent, may execute a document authorizing another person or persons to act for such stockholder as proxy.

(2) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of an electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such transmission must either set forth or be submitted with information from which it can be determined that the transmission was authorized by the stockholder. If it is determined that such transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.

(3) The authorization of a person to act as a proxy may be documented, signed and delivered in accordance with § 116 of this title, provided that such authorization shall set forth, or be delivered with information enabling the corporation to determine, the identity of the stockholder granting such authorization.

(d) Any copy, facsimile telecommunication or other reliable reproduction of the document (including any electronic transmission) created pursuant to subsection (c) of this section may be substituted or used in lieu of the original document for any and all purposes for which the original document could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original document.

(e) A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

Note: Delaware § 215. Voting rights of members of nonstock corporations; quorum; proxies specifies that the section I cited above does apply to nonstock corporations.

Thanks. Our bylaws do allow for proxies.

The one caveat is that the bylaws state "To be effective, proxies must be filed with the Secretary before the
appointed time of the meeting for which they are used." This is a little dicey logistically, because the board will only communicate through our property manager. Would handing the proxies to the property manager, but addressed to the Secretary, be the correct way to "file" the proxies?

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By MaxB4 on 07/05/2022 12:11 PM
Based on what the OP provided, my opinion would be it is up to the members to reject the proposed budget. It wouldn't be the obligation of the associatuon to provide any ballots, since the association members would have given 30 days notice of a budget radified by the Board.

While I agree the board seems to have no obligation to provide ballots, the bylaws appear to allow the board to provide as little as 10 days notice for the meeting.

MaxB4
Posts: 3,513

Posted:

We have a procedure in California similar to your budget issue. Boards can create or modify rules, subject to 28 day notice to reisdent, (used to be 30 days). After the 28 days, the board is free to finalize the rules, after considering any concerns by owners. No owner votes is required or necessary. They can overturn, but similar to your issue, the owners must take the intitive, not the Board. No where does your citation(s) states subject to a owner vote.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By MaxB4 on 07/05/2022 12:57 PM
We have a procedure in California similar to your budget issue. Boards can create or modify rules, subject to 28 day notice to reisdent, (used to be 30 days). After the 28 days, the board is free to finalize the rules, after considering any concerns by owners. No owner votes is required or necessary. They can overturn, but similar to your issue, the owners must take the intitive, not the Board. No where does your citation(s) states subject to a owner vote.

That's the part I find confusing. How can the owners reject the budget without voting? And how can they vote unless the board asks for a vote?

MaxB4
Posts: 3,513

Posted:

Again, it is the owners obligation to reject the budget, if they choose. I would put on the agenda that the Board is going to ratify the budget UNLESS a majority of owners vote to reject. The procedure would be similar to a recall of directors.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By DavidG45 on 07/05/2022 12:59 PM

Posted By MaxB4 on 07/05/2022 12:57 PM
We have a procedure in California similar to your budget issue. Boards can create or modify rules, subject to 28 day notice to reisdent, (used to be 30 days). After the 28 days, the board is free to finalize the rules, after considering any concerns by owners. No owner votes is required or necessary. They can overturn, but similar to your issue, the owners must take the intitive, not the Board. No where does your citation(s) states subject to a owner vote.

That's the part I find confusing. How can the owners reject the budget without voting? And how can they vote unless the board asks for a vote?

In our case our owners could call for a Special Meeting prior to when the new budget takes effect (in our case 01/01) and vote to reject the budget at that meeting. Tricky part is it only takes 10% to call for a Special Meeting but it takes 51% OF ALL OWNERS voting to reject.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DavidG45 on 07/05/2022 12:27 PM

Thanks. Our bylaws do allow for proxies.

The one caveat is that the bylaws state "To be effective, proxies must be filed with the Secretary before the
appointed time of the meeting for which they are used." This is a little dicey logistically, because the board will only communicate through our property manager. Would handing the proxies to the property manager, but addressed to the Secretary, be the correct way to "file" the proxies?

We hand them in at the meeting.

That said, best to check with the Board to be sure.
Don't say you are soliciting proxies, ask who to turn them into and by what date.
Additionally, ask if your proxy holder can just turn it in at the meeting.

Best to do this via email so you have something in writing.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By MaxB4 on 07/05/2022 1:08 PM
Again, it is the owners obligation to reject the budget, if they choose. I would put on the agenda that the Board is going to ratify the budget UNLESS a majority of owners vote to reject. The procedure would be similar to a recall of directors.

But only the Board decides what is on the agenda.

Note - I am not on the board. I am asking these questions from the point of view of a lot owner. How can the lot owners vote to reject a budget, given that the board seems to have no obligation to request a vote?

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TimB4 on 07/05/2022 1:31 PM

Posted By DavidG45 on 07/05/2022 12:27 PM

Thanks. Our bylaws do allow for proxies.

The one caveat is that the bylaws state "To be effective, proxies must be filed with the Secretary before the
appointed time of the meeting for which they are used." This is a little dicey logistically, because the board will only communicate through our property manager. Would handing the proxies to the property manager, but addressed to the Secretary, be the correct way to "file" the proxies?

We hand them in at the meeting.

That said, best to check with the Board to be sure.
Don't say you are soliciting proxies, ask who to turn them into and by what date.
Additionally, ask if your proxy holder can just turn it in at the meeting.

Best to do this via email so you have something in writing.

Thanks.

TimB4 (Tennessee)
Posts: 21,059

Posted:

David,

If you get enough votes (proxy or in person) and bring the issue up at the meeting, the board will need to address it.

Suggest, if a vote isn't called for, the following:

When the budget is passed out (or being discussed), raise your hand and say:

My understanding from the governing documents is that the membership can choose to not ratify the budget.
I, representing x lots via proxy plus those in attendance at this meeting, choose not to ratify the proposed budget.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

David

Reread a section of what you posted from your Bylaws:

(3) Within thirty (30) days after adoption of any proposed budget the Executive Board shall provide to all Lot Owners a summary of the budget, including any reserves and a statement of the basis on which any reserves are calculated and funded. Simultaneously, the Executive Board shall set a date for a meeting of the Lot Owners to consider ratification of the budget not less than ten (10) nor more than sixty (60) days after providing the summary. Unless at that meeting a majority of all Lot Owners reject the budget the budget is ratified, whether or not a quorum is present. If a proposed periodic budget is rejected, the periodic budget last ratified by the Lot Owners must be continued until such time as the Lot Owners ratify a subsequent budget proposed by the Executive Board.

This in itself sets the agenda for the meeting.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TimB4 on 07/05/2022 1:37 PM
David,

If you get enough votes (proxy or in person) and bring the issue up at the meeting, the board will need to address it.

Suggest, if a vote isn't called for, the following:

When the budget is passed out (or being discussed), raise your hand and say:

My understanding from the governing documents is that the membership can choose to not ratify the budget.
I, representing x lots via proxy plus those in attendance at this meeting, choose not to ratify the proposed budget.

One small problem is that owners are not allowed to talk until everything else on the agenda is covered. There is then an open forum session where owners can speak, but the only response from the board is “Thank you for your input.” This was at the advice of our property manager, who has assured the board that they do not need to interact with lot owners, ever.

That’s why I’m trying to make sure I am fully informed and can force the vote.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TimB4 on 07/05/2022 1:37 PM
David,

If you get enough votes (proxy or in person) and bring the issue up at the meeting, the board will need to address it.

Suggest, if a vote isn't called for, the following:

When the budget is passed out (or being discussed), raise your hand and say:

My understanding from the governing documents is that the membership can choose to not ratify the budget.
I, representing x lots via proxy plus those in attendance at this meeting, choose not to ratify the proposed budget.

One small problem is that owners are not allowed to talk until everything else on the agenda is covered. There is then an open forum session where owners can speak, but the only response from the board is “Thank you for your input.” This was at the advice of our property manager, who has assured the board that they do not need to interact with lot owners, ever.

That’s why I’m trying to make sure I am fully informed and can force the vote.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By JohnC46 on 07/05/2022 1:39 PM
David

Reread a section of what you posted from your Bylaws:

(3) Within thirty (30) days after adoption of any proposed budget the Executive Board shall provide to all Lot Owners a summary of the budget, including any reserves and a statement of the basis on which any reserves are calculated and funded. Simultaneously, the Executive Board shall set a date for a meeting of the Lot Owners to consider ratification of the budget not less than ten (10) nor more than sixty (60) days after providing the summary. Unless at that meeting a majority of all Lot Owners reject the budget the budget is ratified, whether or not a quorum is present. If a proposed periodic budget is rejected, the periodic budget last ratified by the Lot Owners must be continued until such time as the Lot Owners ratify a subsequent budget proposed by the Executive Board.

This in itself sets the agenda for the meeting.

Ah, you know what, “A meeting of the lot owners” seems to be they key, it is not a director’s meeting - it’s a Lot Owners meeting.

TimB4 (Tennessee)
Posts: 21,059

Posted:

David,

IF you have the votes, you might need to be a little pushy.

If you do not have the votes, pick your battles.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TimB4 on 07/05/2022 6:48 PM
David,

IF you have the votes, you might need to be a little pushy.

If you do not have the votes, pick your battles.

Yes. If the votes aren’t there, no reason to push for a vote.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By MaxB4 on 07/05/2022 12:11 PM
Based on what the OP provided, my opinion would be it is up to the members to reject the proposed budget. It wouldn't be the obligation of the associatuon to provide any ballots, since the association members would have given 30 days notice of a budget radified by the Board.

Spot on.