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LOSING
ENTIRE BOARDS
 QUESTION: What happens if no owner, none, zero is willing to serve on the
board? That is my situation in an association I manage. Help!
ANSWER:
Finding owners willing to serve on boards is a growing problem. Some of
the reasons include:
- Owners are too busy working and raising
families to devote the time required;
- Stress caused by "crazies" who constantly
harass and threaten boards; and
- The increasing number of laws that must be
followed, making directors feel vulnerable.
Business Without a Board. By law,
corporations must have boards to function.
Each corporation shall have a board of
directors. . . . the
activities and affairs of a corporation shall be conducted and all corporate
powers shall be exercised by or under the direction of the board. . . . the activities and affairs of the corporation shall be managed
and all corporate powers shall be exercised under the ultimate direction of
the board. (Corp. Code 7210)
Without a board, an association cannot conduct
business, which means insurance coverage will lapse, maintenance ceases,
rules enforcement ends, the association's corporate status lapses and lawsuits
cannot be answered. This exposes each owner to potential liability.
Management Companies. Management
companies have no independent authority to oversee associations. Managers can try to
persuade owners to volunteer, but managers have no authority to appoint
directors. Without a board, the management company should immediately resign the
account or face potential liability itself.
Receivers. If necessary, courts can appoint a third party
(a receiver or custodian)
to oversee properties. This is a costly solution and results in higher dues for
all members, since the membership would be forced to pay the receiver's fees and
associated legal expenses.
Incentives. Creating incentive, positive or negative, for
owners to serve on the board is problematic. Associations cannot penalize owners for
refusing to serve on boards. Nor can they reward owners for serving, such as waiving their homeowner
dues, since this makes the directors “paid” professional directors and removes the
protections afforded
volunteer directors.
Reduced Boards. If the bylaws call for five directors but only
one is willing to serve, that one director may not have any authority (by law
and the association's bylaws) to conduct any business except to
appoint
additional directors. Once a quorum of directors has been appointed, the board
may then conduct business.
Unfortunately, there is no real solution to the
problem. California continues to enact laws that increase the burdens on directors,
and every association seems to have its allotment of "crazies." Even so, when
push comes to shove most owners realize they have an investment to protect and
will reluctantly volunteer their service.
Very truly yours,
Adrian Adams, Esq.
Adams Kessler PLC |
