Helpful Articles

APrior to the mid 1960s, the typical family home in the United States was almost exclusively the single-family detached house located in a neatly arranged subdivision. There seemed to be an unlimited supply of land. Each house was built on a separate lot. Construction costs were moderate and stable. The sidewalks, streets, lighting, other basic services (the infrastructure), and any parks or recreational facilities in the neighborhood were provided and maintained by the local government through taxes.
In recent years, land in desirable areas for home building has become much scarcer and, consequently, more expensive. Construction costs have continued to rise along with everything else. Government can no longer afford to provide the same level of service and variety of amenities to enhance the quality of life as it has in the past.
The Challenge
In order to continue to produce affordable housing and maintain an adequate housing supply for the population, land use had to become more efficient, and construction methods more economical. Ways to relieve local government of the burdening costs of infrastructure had to be discovered.
A Response
One response to the challenge came in various forms of group or cluster housing coupled with shared ownership of the land which, today, are collectively referred to as CIDs. Currently, it is estimated that more than 31 million Americans live in some type of CID. There are about 20,000 CIDs in California alone, with new ones being built every day.
A CID is descriptive not only of a certain type of real estate and form of home ownership, but also of a life-style that is becoming more and more common to the American way-of-life. To understand the concept, it is important to know that there is no one structural type, architectural style, or standard size for CIDs. They come in a variety of types and styles, such as single-family detached houses, two-story townhouses, garden apartments with shared "party walls," and apartment-like, multi-storied high rises. While recent studies indicate that the average-size CID in California is made up of 88 units, CIDs may, in fact, range in size from a simple two-unit development up to a large complex having thousands of units, many commonly owned facilities, and multiple associations under the auspices of one overall master association. However, despite the wide range of differences that may exist among CIDs, all CIDs are similar in that they allow individual owners the use of common property and facilities, and they provide for a system of self-governance and some degree of service for the benefit of the homeowners.
Something in Common
Legal Characteristics
CIDs have distinct legal characteristics that distinguish them from other forms of home ownership. One important feature is that the ownership in a CID combines individual ownership or the right of exclusive occupancy of a residential unit with the shared ownership of the common area within the development. Another distinguishing trait is that owners in a CID are automatically members of a homeowners' association that is responsible for the operation and maintenance of the common area. This association also provides for a system of self-governance. Finally, to pay the costs of the operation of the association, CID owners are assessed dues to cover their equitable share of the association's expenses.

Comparing and Contrasting
Four types of CIDs are common in California: condominiums, planned developments, stock cooperatives, and community apartments. Condominiums and planned developments, two of the most common CIDs, are similar to each other in that both provide the owner with title (ownership) to a residential unit and the right to use the common area within the development. The main difference between condominium and planned development ownership lies in the way title to the common area is held. In a condominium, each homeowner has an undivided interest in the common area with all the other owners in the development, whereas, in a planned development, the homeowners' association usually owns the common area.

By comparison, in the community apartment form of ownership the homeowner owns a title interest in the development. In the case of a stock cooperative, the homeowner owns a share of stock or a membership interest in the corporate entity that owns the structures and land comprising the CID. Coincidental with either of these two forms of ownership, the homeowner has the exclusive right to use a specific residential unit within the development.

The Association
Basic Structure and Early Operation
When a subdivider develops a CID, the subdivider must simultaneously structure an association of the CID owners that will be responsible for the ongoing management, operation, and maintenance of the common area. In creating this association, the developer must establish reasonable arrangements for the total operation of the association, to include: levying assessments; member and governing body meetings; voting and elections; governing body duties; and rights and responsibilities of the association. Initially, these arrangements must meet the requirements of the Real Estate Commissioner's Regulations administered by the DRE.

The DRE's regulations constitute the standards by which DRE evaluates the governing instruments for subdivisions, however, they do not constitute substantive requirements in and of themselves. DRE's role with regard to CIDs is primarily one of seeing that the initial subdivision offering is made under reasonable arrangements.

The Declaration, By-laws, and Articles of Incorporation are the documents used to establish the framework for the operation of the association. They form the legal basis for the "mini-government" of homeowners that is created. These documents are generally enforceable in a court of law, if the need ever arises. Once the original subdivider or his or her successor in interest holds title to less than 25% of the lots or units in the project, the association is free to change the governing instruments as it sees fit as long as the changes are consistent with the Common Interest Development Act. (See Civil Code Section 1350 et seq.) Case law mandates that the developer operate the association at all times in the best interest of the homeowners throughout the marketing phase, up until such time as the developer is no longer in control and the management and operation of the association passes to the homeowners and their elected representatives. Once this transition of power is complete, sales by the developer cease and the homeowners are in charge. The association becomes a totally independent entity answerable to its membership.

The homeowners' association is unique to CIDs. It exists only to serve a particular CID. Each owner in a CID automatically becomes a member of the association on taking title to a lot or interest in the project. Membership automatically terminates on the transfer of title. Only owners are association members and all owners must be members.

With the exception of associations in which the developer is in control, each member of the association, generally, has one vote for each subdivision interest owned. When a lot or unit is owned by two or more persons as co-owners, the governing documents usually provide for a method of determining how the one vote can be exercised on behalf of the various owners.

Rights and Powers of the Association
The association must be given sufficient authority to effectively manage, operate, and maintain the common area which typically includes the landscaping, recreation facilities, private streets and driveways, outdoor lighting, structures, roofs, fences, and any other components of the common area of the CID. Powers adequate for this purpose are set forth in the CID's governing documents.

These powers are usually delegated by the association to a governing body that must be elected by the membership at an annual or special meeting. The procedures for the election and for the removal of the members of the governing body are provided in the governing documents.

Although the governing body is given the power and responsibility to act on behalf of the association, if an action contemplated by the governing body will have a material effect on the rights of the membership, prior approval by at least a majority of the association is sometimes required. Examples of actions requiring such a vote are:

Levying a regular assessment on each unit or interest that is more than 20% greater than the regular assessment for the preceding fiscal year or special assessments which in the aggregate exceed 5% of the budgeted gross expenses for that fiscal year. These limits do not apply to increases necessary for emergency situations. An emergency situation is defined as an extraordinary expense: required by the court; or, necessary to repair or maintain common areas or other areas for which the association is responsible, which could not have been foreseen; or, to remedy a threat to personal safety. The limitation set forth above also does not apply to a special assessment to reimburse reserves transferred temporarily by the governing body to meet short-term cash flow requirements;

Where necessary, extending the term of the Declaration of Covenants, Conditions and Restrictions.

The Governing Body
Powers and Duties
The powers of the association to manage the CID are normally exercised by a board of directors or similar governing body that is elected by the homeowners. The governing body is usually delegated the complete authority to manage the affairs of the entire project, subject to the control of the homeowners. The specific duties and powers of the governing body, generally set forth in the governing documents, normally include, but are not limited to the following:
  • Enforcement of the governing documents and any other instructions necessary for the management of the project;
  • Collection of assessments from association members for the payment of taxes, insurance, and operational costs related to the common area;
  • Contracting for goods, services, and insurance on behalf of the association, subject to some limitations;
  • Delegation of powers to committees, officers, and employees appointed and hired by the governing body to assist in the management and operation of the association;
  • Preparation of budgets and financial statements as called for in the governing documents or as prescribed by law;
  • Adoption and enforcement of rules for the operation and control of the common area;
  • Ability to take disciplinary action, including fines, interest, and late charges, against association members who violate the governing instructions;
  • The right to enter a privately owned unit or interest in connection with construction, maintenance or emergency repair for the collective benefit of the owners;
  • Election of officers of the governing body and filling vacancies, except for one created through a removal by the association membership; and
  • Repair and maintenance of the common area.
Funding the Association
Regular Assessments
The sole source of income for most associations is assessments levied on all owners in the project, including the developer, for each interest or unit owned. (In CIDs where some owners may receive greater services or benefits, assessments may be determined by a formula or schedule that is based on the proportional value of common area services provided.) Regular assessments cover the day-to-day costs of running the association, which include the management and operation of common area recreational amenities such as swimming pools, clubhouses and tennis courts, and services that include landscape maintenance, security guards and scheduled social activities.
Regular assessments for all units or interests, including those owned by the developer, in a single phase CID, or in a phase of a multi-phase project, generally begin, for each phase, on the first day of the month following the first completed sale. (A single phase project is one completely developed at one point in time; a multi-phase project is developed in increments at different points in time.)
Special Assessments
Additionally, the governing body has the authority to levy special assessments against all CID interests or units for major repairs, replacements, or new construction on the common area or for a one-time, unanticipated expense which cannot be covered by the regular assessment (for example, insurance premiums that unexpectedly "sky rocket").
The special assessment should not be confused with a monetary penalty levied by the association against an individual homeowner to reimburse the association for an expense such as damage to the common area, or imposed as a disciplinary measure for a violation of the rules and regulations.
Other Charges
Some CIDs establish user fees or special charges for uncustomary services and activities. Typically, they are imposed on an owner specifically benefiting from the service, such as an owner who wants to use the common area pool, club house, or tennis courts to entertain private guests. The fees are usually on a pay-as-you-go basis, and they generally cannot become a lien on the owner's unit or interest.
Limitations on Governing Body Authority
Procedures for establishing and collecting regular and special assessments, late charges, interest, and fines are usually set forth in the governing documents. Even if the governing documents are more restrictive, the governing body may not, except in unusual situations or with the vote of a prescribed percentage of owners, impose a regular assessment that is more than 20% greater than the regular assessment for the preceding fiscal year, or special assessments which in the aggregate exceed 5% of the budgeted gross expenses of the association for the current fiscal year. The association must give owners notice, by first class mail, of any increase in regular or special assessments. Current law states that a late charge may not exceed 10% of the delinquent assessment or $10, whichever is greater. However, the governing instruments may specify a smaller amount. Also, any interest charged may not exceed 12%, commencing 30 days after the assessment is due. (See Civil Code Section 1366.)
Lien Rights
Once levied, the assessments, any late charges, reasonable collection costs and interest assessed according to the law become a debt of the owner of the separate interest. The amount of the assessment plus the other described charges becomes a lien on the owner's interest at the time the association files a notice of delinquent assessment with the county recorder of the county where the separate interest is located. The lien can be enforced in any manner permitted by law, including the sale of the property in order to recover money owed the association. If and when the owner pays the amount for which the lien was filed, the association must record a notice releasing the lien.
A statement describing the association's policy regarding lien rights and other legal remedies must be delivered annually by the governing body to the membership. (See Civil Code Section 1365.)
Budgeting for Today and Tomorrow
Prompt payment of assessments by all owners including the developer is essential, not only to cover the costs associated with the day-to-day operating costs, but also to build a reserve fund for future repair and replacement of major components of the common area. The reserves are an important part of the association's annual pro forma operating budget. They are generally collected with the regular assessment and set aside in a separate reserve account for the years to come. Ideally, all major repair and replacement costs will be covered by funds in the reserve account.
As the governing body is charged with the responsibility for maintaining the association's property, it is important that the accumulated cash be available when it is needed. Unlike an independent homeowner who can cause a repair or replacement to be made and pay for it out of his or her own pocket, the governing body is dependent on the membership for funding.
An insufficient reserve fund at a time when a major repair or replacement is needed usually results in the governing body levying a potentially burdensome special assessment, borrowing the money in extreme situations, or in some cases, deferring the work. A decision simply not to perform the needed repair or replacement might also be the response of a governing body afraid of the consequences of making an unpopular decision or of one operating at the "whim" of the electorate.
Such thinking and the failure of the association to adopt a "pay as-you-go" plan for the future can create an environment of declining property values due to the increasing deferred maintenance and the association's financial inability to keep up with the normal aging of the common area components. This, in turn, can have a serious negative impact on sellers in the project by making it difficult or even impossible for potential buyers to obtain financing from an institutional lender.
By contrast, a well-funded reserve goes a long way toward maintaining property values within a CID. Not only does it help eliminate the need for special assessments, but it spreads the costs of predictable repairs and replacements over time. Healthy reserves do away with the inequitable concentration of costs for anticipated major repairs and replacements on the owners in the project at the time the repair or replacement is required.
The law now allows the governing body to borrower from the reserve fund to meet short-term cash-flow requirements or other expenses. The money must be returned to the reserve fund within one year unless the governing body can document that a delay in repayment is necessary. Ultimately, a special assessment may be required to repay the money. That special assessment would be subject to the (5%) aggregate limitation discuss above. (See Civil Code Section 1365.5.)
Reserve Study
A reserve study prepared by the association or professionals hired by the association gives a current estimate of the cost of repairing and replacing major common area components over the long term, commonly thirty years. A reserve study generally consists of an inventory of all the major component parts of the common area, an estimation of the remaining useful life of each component, as well as the cost of replacing each component at a predicted time in the future. A well-prepared reserve study allows the association, the owners, and potential buyers to compare estimated required reserves with the reserve funds on hand, and thereby serves as a guide to their respective future actions. If the replacement value of the major components which the association must maintain is equal to or greater than one-half of the association's gross budget, the association must, at least once every three years, cause a reserve study to be completed and review that study annually in order to make any necessary adjustments to the analysis of reserve account requirements.
The DRE has two publications that would be useful in preparing a reserve study: the "Operating Cost Manual," for budget preparation; and "Reserve Study Guidelines for Homeowner Association Budgets". For information on these and other DRE publications, write to: Book Orders, P.O. Box 187006, Sacramento, CA 95818-7006.
Distribution of Financial Statements
The law requires that the association prepare financial statements for distribution to its members annually so that the membership will have an accurate picture of the association's financial position and level of preparedness for the future, and so that the membership can participate in the financial decision-making process. These financial statements include:
  • A pro forma operating budget which shall include: estimated revenues and expenses; a general statement describing procedures used to calculate necessary reserves; identification of cash reserves; an estimate of current replacement costs of and the remaining useful life of the major components the association must maintain; and a comparison, by percentage, of reserve funds accumulated and the current estimate of necessary reserve funds, with a statement as to whether any special assessment(s) will be necessary for any repair or replacement or to augment the accumulated reserves. (In lieu of the actual budget, the association may choose to distribute to all owners a budget summary with a notice that the complete budget is available upon request.) An association which does not distribute the required budget information to all owners may not impose an otherwise permitted increase in the regular annual assessment without a specified vote of the owners;
  • A copy of a review of the financial statement done in accordance with generally accepted accounting principles by a licensed accountant for any association whose annual gross income exceeds $75,000;
  • A statement describing the association's policies and practices in enforcing lien rights or other legal remedies for default in payment of assessments. (See Civil Code Sections 1365 and 1366.)
Duties, Rights and Powers of the Individual Owner
Duties and Responsibilities
In order that the association function successfully for the whole as well as for the parts, the relationship of the collective rights, duties, and responsibilities of the association to those of the individual owner must be recognized. When a person purchases in a CID, he or she assumes both collective and individual obligations that are set forth in the governing documents, California law, and rules and regulations adopted by the association. These duties apply not only to the common area, but also to the individual unit or interest that the person owns.
While the association is obligated to maintain the common area, sometimes to the extent of maintenance and repair of the exteriors of each owner's unit or interest, each owner is responsible for the maintenance and upkeep of the interior of his or her separate interest or unit. Typically, this includes the carpeting and drapes, interior walls, cabinets, counter tops, and the appliances and fixtures.
The individual owners may also have explicit maintenance responsibility for exclusive use common areas such as private yards, decks, and front doors. Sections 1351 and 1364 of the Civil Code specifically designate internal and external telephone wiring to serve a single separate interest as an exclusive use common area. The owner of a separate interest will be allowed reasonable access to the common area for the maintenance of internal and external telephone lines, subject to the consent of the association.
Each owner has the duty to pay assessments in a timely manner. Failure to fulfill this financial obligation not only places the association in financial jeopardy by creating a shortfall of funds necessary to operate the project, but also subjects the delinquent owner to potential interest charges, late fees, and costs of collection, including reasonable attorney's fees.
In addition, each owner must accept personal responsibility for his or her actions, as well as the actions of his or her guests, children, and pets with respect to the common area and/or to the other owners in the project. This personal obligation also extends to each owner's role in ensuring maximum property value for all units in the project by adhering to maintenance standards appropriate to the project. This "pride-of-ownership" is reflected in the upkeep of the individual unit or interest by each owner.
Basic Rights
Along with the duties and obligations to the association, owners have specific protection of their ownership rights under California law, as well as through the governing documents. One of the most basic of these rights is the owner's right to the quiet use and enjoyment of his or her unit or interest, as well as the right to use and enjoy the common area, subject to the established rules and regulations, and to the rights of others.
While the association generally has the exclusive right to modify or improve the common area, the individual owner has the right to modify or improve his or her unit (accordingly to the architectural controls and procedures in the governing documents and the local building codes and standards, as applicable). However, any such modifications or improvements must not adversely affect the rights of other owners. The rights of individuals to modify their units include handicapped owners, who also have additional rights under federal and state laws to improve the accessibility and livability of their units. (See Civil Code Section 1360.)
CID owners have a basic right to be informed and to participate in the operation of the association. In order that homeowners are given this opportunity, the governing documents include specific provisions for the association's giving notice of meetings, posting and/or mailing of certain information, and disseminating required financial statements, and other related information.
Right to Vote and Approve
Many governing documents grant CID owners the right to vote on major issues affecting the association, such as:
  • Election and/or removal of members of the governing body;
  • Amendment and/or extension of the effective date of the governing documents;
  • Approval of some third-party contracts entered into by the association;
  • Approval of regular and special assessments in excess of annual amounts of increase allowed by law;
  • Approval of various other decisions and expenditures such as improvement of the common area, annexation of other property to the existing project, and selling property of the association.
A successful and viable CID is generally one in which homeowners assume an active role in the association's function, not only by attending meetings, voting, and paying dues on time, but also by taking an active role in the actual functioning of the association by running for the elected offices, serving on committees, and generally participating in group activities. It is one where owners have developed and fostered a "sense of community". While the framework of the association is the governing documents, it can certainly be said that the "backbone" of the association is the active and involved membership.
* The following article was written by the late President of Condominium Property Management., Inc. , Manchester MO , Richard V. Telthorst. Authorization to reprint the article was given by Bill Summers the current President of the corporation.
My firm managed an association that had two distinct factions. Each alternating election produced a majority from one of the factions. Individuals representing the minority often used the board meetings to scrutinize the financial statements and the most routine aspects of getting contracts. They monopolized the meeting in an effort to discredit the chair, often maneuvering the discussion back to topics previously voted upon in which their opinion was in the minority.
Those meeting were not fun and they were always long. It was only by formalizing the process - voting on an agenda, voting on time limits, insisting upon a second for every motion before discussion, recording votes in the minutes - that the meetings became more manageable and effective.
Successful meetings don’t happen by chance. Meetings succeed when everyone attending understands the purpose and when clear ground rules exist for conducting the discussion. Issues that require decisions are identified in advance and the people attending have enough information to intelligently decide upon an appropriate action. The leader of the meeting understands his or her role as "gatekeeper."
What follows are some tips based on my experiences with board meetings. All of the skills are based on common sense and can make your meetings effective and even enjoyable.
Lay Out Ground Rules
You may be asking, "Why do we need to formalize the process? We know what the issues are - can’t we just get together and discuss them?" You can do it that way, but it likely will take much more of your time and some board members will become frustrated by the informality of the process.
Ground rules are essential. Without them, issues of little importance often take on major significance and consume unnecessary amounts of time. At the same time, important matters are held to the very end of the meeting when the frustration level and fatigue factor are high. As a result, the important issues do not receive the attention they deserve.
Ground rules also protect the majority. Most of us have been in meetings where one individual monopolizes the discussion with some particular concern that is important only to him or her. Or issues previously discussed and agreed upon by the majority will be returned to time after time because no clear rules exist for making decisions.
As a first step in establishing ground rules, it is best to establish rules that are fair and easily understood and that encourage a courteous and intelligent exchange of information.
One of the best known guidelines for meetings is Robert’s Rules of Order. It is a daunting volume, but don’t be intimidated: you will not need to understand all of its intricacies. The degree of detail and formality described by Robert’s Rules can be trimmed down to address the most important and basic ways that discussion should occur. Some of the key ground rules include:
  1. One person may speak at a time.
  2. The chair decides who that person will be.
  3. The speaker may speak only on the issue being considered.
  4. Those wishing to speak will be given an opportunity.
  5. Decisions require a motion, a second and a vote.
  6. Once voted upon, no further discussion is permitted.
When everyone understands the rules from the beginning, it is easier for the chair to direct the discussion, to keep speakers on track regarding the issue at hand, and to move the discussion toward an orderly decision. Never forget that you have been elected to the board to make decisions about the association’s, not merely to discuss them.
Another key ground rule is that each meeting should have an agenda. Sometimes it will be prepared by the chair and sent out in advance to the board members. It may be a standing agenda with the opportunity to add additional specific items at the beginning of each meeting. It may be an agenda that is prepared at the end of the previous meeting, or it may be prepared by the managing agent in consultation with the hair. Whatever method you choose, an agenda becomes the map for the meeting so that everyone knows where they are going and what the final destination will be.
The lack of an agenda is the most consistent reason for lengthy meetings. Without an agenda, any topic is fair game for discussion. While it is conceivable that every topic suggested at a meeting without an agenda might be of interest to those in attendance, the ability to act on the issues that are raised in greatly limited by the lack of preparation. An agenda is critical, and the lack of one will always make a meeting last longer than it should.
Every issue on the agenda that requires action needs to come to a vote. When everyone realizes this, many meeting problems can be avoided. For an issue or action to be voted upon, there must be more than one individual who feels compelled to take action on it. This person is the seconder. While it may seem unnecessarily stiff or formal, I encourage you to have the chair recognize a motion, for example, to contract for resurfacing the tennis courts. If there is another person who supports it, he or she should second it and it should then be discussed until the board is ready to make a decision and vote. The vote should be recorded in the minutes.
It is also a good idea to set a time limit for the meeting as a whole and for specific topics on the agenda. A time limit makes everyone’s attention more focused and adds to the clarity of the discussion. It also aids the leader in preventing the discussion from digressing from the main topic.
What Is Taking So Long?
The purpose of the meeting is to transact the business of the association. Anything that takes the time of the board members and is not mutually agreed upon as relevant to the issue of association business should wait for another occasion.
Often this is not how it works. The social aspect may be higher on someone else’s agenda than on yours. Others may view the meeting as an opportunity to hold forth on a particular issue. Or people will discuss issues that are irrelevant to the meeting. Whose pets continue to run loose and annoy the neighbors? What was the sales price of the end unit? This information may be interesting to some, but it is probably not critical to the operation of the association’s business. It may even take more time than the actual business.
An agenda and time limits will help control the topics, but the chair plays an equally important role. A chair who does not understand that special role that he or she plays as "gatekeeper", or who is reluctant to exercise the control that is vested in the office, will make a meeting inefficient and lengthy. As the name suggest, the job of gatekeeper is to protect the discussion - to remind the members of the rules, to maintain order, and to occasionally usher out a guest who has overstayed hi or her welcome.
The chair must also control circumstances when a chronic dissenter uses "bully tactics." These tactics can paralyze a board and add to the amount of time it takes to conduct even the most routine business.
Bully tactics can be putting someone else on the defensive, either by discrediting their information or interrupting them. It can be an older man with a sexist attitude who tells the women on the board that they don’t know what they’re talking about. At one recent board meeting I attended, the board was discussing fidelity bonds and it had reached a point where everyone was satisfied with the discussion. One member, however, questioned the integrity of the person handling the money. Although he was told that the matter was covered by the directors and officers liability insurance policy, he disregarded that information and proceeded to rehash issues already discussed - issues that we thought were already settled.
Every decision does not have to be unanimous. If someone has an opinion that is unfounded and everyone else is satisfied with the decision, it is alright to move on to the next piece of business. If someone is disgruntled about that, that’s unfortunate. But the chair needs to take control and make it clear that bully tactics will not be tolerated. When the person who uses bully tactics knows that he or she cannot dominate the meeting, the behavior usually diminishes.
The chair must know when to scoot the discussion along or bring it to a close. Observe the body language of other people on the floor. Recognize that all of the facts have been identified and it is time to make a decision. This can be done gently but firmly by saying, "Mr. Smith, I don’t think you’re brining up new points here. We’ve addressed these previously in the discussion, perhaps it is time for us to move on from that."
Most board meetings have a time either at the beginning or the end for owners to comment, complain, or lodge a cause. (Editors note: California law now requires that owners are given a time for comments.) This period should be covered by board rules as well, similar to those rules at a municipality meeting. An announcement should be made when it is time for public comment, time should be set on the agenda for it, and speakers should be given time limits.
The Formula for a Successful Meeting
To ensure that your Board’s meetings are efficient and effective, consider the following rules:
  1. An agenda is developed for the meeting and provided to all board members before the meeting so that they know which topics are going to be considered and they can come prepared.
  2. Minutes of the last meeting are distributed in advance so that they can be reviewed before the members come to the meeting. Any changes or corrections that have to be made can occur at the meeting.
  3. A moderate degree of formality must be used in conducting the meeting. Certain rules for discussion are defined. Everyone’s expectations regarding decision making are agreed upon and understood.
  4. Principles of good communication are practiced. These principles include courtesy: only one person may speak at a time. No interrupting. No ridiculing another person’s point of view. Direct communication, subtlety, and innuendo have no place at a board meeting. If it seems that there is another, unspoken meaning behind the words being used, it is the chair’s job to work with the speaker to identify the message.
  5. Set time limits. For example, the meeting will start at 7:00 p.m. and adjourn at 8:00 p.m. No more than 10 minutes will be spent on the financial report. The topics and the contracts under consideration regarding the painting schedule, for example, will be discussed and concluded in 20 minutes. If a minority of the members wish to continue beyond the agreed upon time limit, there should be a procedure for checking to see if others on the board are willing to continue the discussion.
  6. The chair must understand the role of the gatekeeper. It is the chair’s job to encourage free discussion of the topic being considered, to keep the discussion moving, and to identify issues relating to the topic. It also is the chair’s job to define the decisions that must be made. The chair must always remember that the board members have been elected to govern the association, not to discuss it.
  7. Adjourn the meeting on time.
  8. Follow up. There always will be action items that require attention from your managing agent or from specific committee members. See that the follow-up is accomplished before the next meeting.
If you follow these guidelines you will spend less time in your meeting. You will accomplish more. And you may find more qualified owners willing to serve on the board of directors.
Author: Gurdon H. Buck *
Publish Date: November/December 1987
Origin: Common Ground
Most attorneys who specialize in community association law find themselves being asked about the procedure and rules for taking minutes at meetings of the board or members of a community association. The following guide to minute taking addresses this issue.
To begin with, the worst basis for a set of good minutes is a bad meeting. If the president or chair does not follow parliamentary procedure, or understand the fundamentals of running a meeting, the resulting minutes will reflect the inevitable chaos. Minutes are the record of the official action of the assembly. Thus there must be a vote of the assembly to have any official action. if a meeting goes by without a vote being taken, that isn't a meeting, but rather a random collection of people, "a fortuitous gathering of citizens." It is also a waste of time. Such a gathering should generate no minutes, except to reflect the opening of the meeting and its adjournment.
As their name implies, minutes should be brief. Brevity, however, often requires more effort and thoughtfulness than long-windedness does.
As a minimum, the minutes should contain the following elements:
1. The exact corporate name of the association, and the words "Minutes of the meeting of (name of body)."
2. The date and place of the meeting.
3. The location and time of the meeting.
4. The names of the persons present in an official capacity.
If there is an open meeting, the non-voting audience need not be included. However, if the meeting is a membership meeting, a roll should be taken, and the number of persons or votes present should be announced, or at least a quorum announced, and entered into the minutes.
5. The resolutions, exactly as finally made, seconded, and passed.
There is no reason to include the summary of the debate, the discussion, the side remarks, the various drafts, and revisions of the motions, who said what, or any discussion on any item. None of these is the official action of the assembly. The resolution appearing in the minutes should be as voted upon and passed. If there are reports, they should be accepted by resolution without adoption of recommendations, if in fact they are not adopted, and their text appended to the minutes.
The resolution should have in it such background and introduction as the assembly has before it for discussion, and approval. Again, the remarks of individual members of the assembly, need not be included in the minutes. Those remarks are not the action of the assembly, and can be used in a misleading manner in later interpretations of action of the assembly.
In a well run meeting, the text of the motion will have been presented in writing before it is brought to action. If it is placed on the agenda for the meeting, or as a conclusion in a committee report, or as a written recommendation by the manager, it is more likely that the assembly will not stray from the issues at hand, and thus make a more reasoned decision, based on revisions and narrowly discussed amendments.
In light of the above reasoning, the motion should be made before any discussion of the topic. No motion, no discussion. A discussion without a motion is not only officially "out of order, " but also creates chaos. A committee report can be made, ending in a motion, if action is required. If no action is required, there must still be a motion to accept the report without action.
Minutes need to reflect correct parliamentary procedure. The group should not be discussing anything that is not properly "on the floor," that is, presented in the form of a motion that the group can act upon.
The worst examples of minute taking contain extraneous material. Taking minutes is not the same thing as taking dictation. The secretary's notes are for the purpose of getting the wording of the motions exactly as passed. If the secretary, or any member of the assembly, is uncertain about the wording of the motion, it should be re-read to the assembly before final passage.
In a fast moving meeting, it may be while to make a recording of the actions to assist the secretary in reproducing the wording of the various motions. The recording, ever, is not the recording of the action of the group. Neither are the secretary in notes. The action is only what the group actually approved.
It is not necessary for the secretary to be a member of the board. Often a professional secretary, or assistant secretary is hired to take the minutes, or a clerk might be employed to take the minutes and submit them to the secretary for approval and execution. This frees the secretary to participate in the debate. if a secretary is also a director and expected to take part in the debate, it is doing a great disservice to the elected position of the officer to saddle him or her with the job of taking minutes. in a community association, it is sometimes the manager or other employee who records the minutes of the meeting.
A motion is the agreed upon solution to a problem. The actual direction for action by an assembly should start with the word resolved, which is the resolution of the problem stated in the background statement and discussed in the debate. Thus, a motion that has passed is properly described as a "resolution."
6. The vote.
If the vote is "without objection," the fastest method of passing routine motions, it should be so stated in the minutes. if the vote is by voice, only the ruling of the chair need be noted, that is "the motion passed." if a member of the assembly successfully moves to divide the assembly by standing, a show of hands, or a paper ballot, the count should be recorded. In a small assembly, it is proper to show the names of those voting in favor, abstaining and in opposition to a resolution; Because of the fiduciary status of the board of a community association, it is advisable to list those voting with respect to all action motions. It is especially important to list those dissenting, so that they are not responsible for the consequences of an action with which they disagree.
7. The signature of the secretary, preceded by the word submitted.
The minutes are not official until they are approved by the assembly at a subsequent meeting. Once approved, they are the official action of the assembly, no matter what actually occurred. Thus, by approving the minutes with a differing statement of a resolution, an assembly can effectively change its mind.
8. Inclusion in the corporate record book.
The maintenance of the official records of the corporation is the principal function of the secretary. The minute book is the principal record of the corporation. The records should be on good paper, in an official notebook, which should be turned over to the succeeding secretary upon appointment or election to office.
Minutes are the sole, official reflection of the acts of the association. Without them, an association cannot, and has not acted. Sloppy minutes, that merely reflect the voices and words of the assembly, without putting down its actions, do not support any action.
* Gurdon H Buck is secretary to the Connecticut Chapter of CAI, and is secretary to the CAI Research Foundation. He is a former CAI National Trustee, and was organizer of the Connecticut Chapter of CAI. Buck is an author of many books and articles on community associations, is a newspaper columnist, and has appeared in many panels. He is an attorney, practicing community associations law in Hartford, Connecticut and was the winner of CAI's Byron Hanke Award in 1987.
Author: Charlene C. Marquez, A.M.S., President CJM Association *
Reviewed by: James Devereaux, Esq.
It's that time of year again - ANNUAL MEETING TIME!
What can you do to make the process as simple as possible? START EARLY! The Corporations Code and many Bylaws require that notices be mailed 10-90 days prior to the meeting. Bylaws may vary on this requirement (some say 30 - 60 days), so check your Bylaw provisions to be sure you are in compliance. If you've had problems getting a quorum at your Annual Meeting (and who hasn't?), we suggest you get that notice and proxy out early - 60 to 90 days before the meeting. That allows you to send out additional reminders and proxies at least two or three times again before the meeting, increasing the odds of acquiring enough proxies to accomplish a quorum the first time. The notice of the Annual Meeting should always include a map and/or directions, unless the meeting is to be held within the community at a clubhouse or similar area.
If you are lucky enough to have homeowners who have volunteered to serve on a nominating committee, they should get active about six months prior to the meeting. If you haven't found those volunteers, Board Members may be appointed to serve on the committee. Many Bylaws require that a member of the Board serve on the committee. Whether or not you have a nominating committee, solicit interest in serving on the Board and on committees in your newsletter before and at the same time you mail out notices and proxies. Any homeowner may request that his/her name be placed on the proxy and ballot.
Before you send out the notice and proxy, you must, of course, have a date and location set. If you don't have a clubhouse in your community, you will need to find an adequate location near the community. Elementary schools often allow use of their multipurpose rooms for minimal or no fees, but they need to be reserved well in advance. While hotels have nice meeting rooms, they are often very expensive.
The Corporations code requires that any item you know will be up for a vote at the Annual Meeting must be included on the proxy. You may, but are not required to, list those homeowners who will be running for the Board of Directors and allow homeowners to express their wishes on the proxy. This may work well if your nominating committee has completed its work early and if you have allowed homeowners adequate time to express their interest in running for the Board, however, naming candidates on the proxy often eliminates the possibility of anyone other than those listed on the proxy from being elected. A homeowner who arrives at the meeting and expresses his or her interest in running probably won't be elected unless he or she enters the meeting with a handful of proxies assigned to him or her.
One item that should be placed on your proxy and ballot each year is a Resolution Regarding Excess Operating Funds, which allows any excess operating funds to be rolled to the following year to offset increases in the assessments for the following year or to correct reserve deficiencies. The IRS regulations have been interpreted to require that this resolution be adopted annually by the Association members, not just by the Board and allows the Association the option of filing as a Corporation (Form 1120) or as a Homeowners' Association (Form 1120H). It is good policy to adopt this Resolution annually.
If other decisions are to be made at the meeting, such as amendments to the governing documents or a vote regarding earthquake insurance, be sure those items are fully explained in your notice and proxy so that homeowners may mark their proxies intelligently.
Keep in mind that a proxy is NOT a document on which a homeowner casts a vote, but is a document on which a homeowner "may authorize another person or persons to act by proxy" (Corporations Code Section 7613). A proxy must "afford an specify a choice between approval and disapproval of each matter of group related matters be acted upon at the meeting for which the proxy is solicited...and shall provide...that where the [homeowner] specifies a choice...the vote shall be cast in accordance therewith" (corporations Code Section 7514).
Whenever an item is placed on a proxy or ballot for a vote, homeowners should have the option of voting for, against, or abstaining on each issue. Be sure all of those options are available on the proxy and ballot. In addition, if names of candidates are listed on these documents, homeowners should be given the option of withholding a vote for all candidates or, in the case of a proxy, adding names of candidate they intend to nominate from the floor.
Many Associations offer incentives for attendance at Annual Meetings, such as refreshments, drawings for prizes, pot luck dinners, etc. While incentives often work, be sure that anything you offer is fair and legal. If you are unsure if an incentive is legal, discuss it with the Association's attorney before it is offered.
When proxies start arriving in the mail, you should be ready for them. Print a sign-up sheet and keep track of homeowners who have returned their proxies on that sheet. If this log is kept up on a daily basis and proxies are alphabetized as they come in, you will save yourself a lot of organizational work on Annual Meeting day. This sheet may also be used to note how each homeowner wishes their proxy holder to vote regarding each issue when proxies are assigned to the Board or an officer. Proxies may be turned in at the meetings as well, so be ready for an influx of proxies at the sign-in table. A sticky note can be placed on any proxy assigned to anyone other than the Board to facilitate giving the ballot to the appropriate person when they enter to sign in.
A week before the big day, all forms that will be needed for the Annual Meeting should be printed and collated. This includes the agenda, ballot for the election of the Board of Directors and any other ballots for other issues to be decided. If you know of homeowners who are interested in running for the Board, but did not present their names for election prior to mailing of the proxies, their names may be placed on the ballot. All candidates must be nominated when the floor is opened for nominations at the meeting, whether they expressed their interest as individuals or were named by the nominating committee.
I have found that printing the agenda and ballots in different colors helps you to identify the correct ballot when you are discussing it at the meeting. When a specific issue is discussed, tell your homeowners to take out the "blue" ballot and then discuss the issue with them. This avoids a lot of confusion, especially if there are a number of items that will be decided.
On the day of the meeting, you should review a checklist of items to be sure you have everything ready for the meeting. Following is a list for your review:
  • Sign-in Sheet
  • Signed Proxies
  • Annual Meeting Agendas
  • Election Ballot
  • Resolution Regarding Excess Operating Funds Ballot
  • Declarant Ballots (If Applicable)
  • Any Other Ballots
  • Extra Blank Proxies (You may need the extra blank proxies if you do not have a quorum.)
  • Tally Sheet for Each Ballot
  • Extra Pens
  • Committee Sign-Up Sheet
  • Organizational Agenda Packets (If Applicable)
If you do not have a quorum at the meeting, homeowners in attendance should be asked to complete a proxy before they leave to ensure a quorum at the Reconvened Annual Meeting. If you must reconvene a meeting because of a lack of quorum, be sure to follow the requirements in your Bylaws regarding when the reconvened meeting may be held and what notice, if any, must be given.
The Management team (or Board of Directors if you have a self-managed Association) should arrive at the meeting site at least 45 minutes to an hour before the meeting is scheduled to begin. This will allow you adequate time to get set up. Most schools will set up chairs and tables for you in advance, but some do not. You will most likely have to do some rearranging in any case.
Set up your sign-in sheets, completed proxies, agendas and ballots near the entry to the facility so you are able to catch homeowners as they enter. Having the agenda and ballots collated in order of the agenda will help you get people through this line quickly. If refreshments are being served, direct homeowners to the refreshments after they sign in. This will make waiting for a quorum easier on everyone.
Some Board Presidents like to run the meeting themselves, while other prefer that management run the meeting. Regardless of who runs the meeting, the President should call the meeting to order, open the floor for nominations, call for a motion, second and vote to close nominations, appoint inspectors of election (if they are being used) and close the meeting.
If you have an active Board (or are self-managed) and the Board wishes to run the meeting themselves, each Board member should have an assigned part in the meeting. With a five-member Board, the President will run the meeting; the Vice President may be asked to discuss the Association's activities and accomplishments over the previous year; the Secretary should read the minutes of the last annual meeting, which will need to be adopted by the members; the Treasurer should give a brief financial report and answer any questions regarding the financial position of the Association; and the Director at Large may want to discuss committee activities and introduce committee members, thanking them for their contributions to the community. If there are fewer members on your Board, some of these responsibilities may be delegated to committee members. With larger Boards, it may be difficult for each member to participate in the meeting. Often, management will handle those tasks if the Board prefers.
Once a quorum is established at the meeting, the President calls the meeting to order and the business is handled. The President should not deviate from the printed agenda. When members bring up items not on the agenda, they should be tabled until an open discussion following the scheduled business (usually while ballots are being tallied).
The agenda usually follows a format similar to that shown below:
By the President.
Give date notice was mailed and proof that a quorum is present at the meeting.
Read by the Secretary.
Given by Vice President or other Board Member if the President runs the meeting; by the President if management runs the meeting. The easiest way to compile a list of activities is to review the agendas for the past year - these will usually list all important issues decided by the Board over the past year.
Given by the Treasurer - should be brief, since most members are only interested in the bottom line - how are we doing financially??
The reasons for adopting this resolution should be discussed before a vote is taken. Members should be encouraged to adopt this resolution to allow for maximum flexibility in filing tax returns.
Each issue should be covered in detail and there should be a separate ballot for each item.
Begins by opening the floor for nominations; names of all homeowners who wish to run for the Board must be placed into nomination at this time, whether or not their names appeared on the proxy or ballot; when all nominations have been made, the nominations should be officially closed, with a motion, second and a vote, to assure that all members have had an opportunity to be nominated; each candidate should then give a brief statement regarding his/her interest in serving on the Board; cumulative voting should be explained - the Corporations Code requires that one homeowner express his/her intention to cumulate votes prior to voting, so this is the time for that statement to be made; then the vote should be taken.
If you appoint Inspectors of Election to count the votes, the Corporations Code requires that either one or three be appointed. Whether or not you appoint Inspectors of Election to count votes, you should have a clear and organized process for tabulating votes. Of course, counting of ballots should be done by members who are not running for the Board or related to anyone running for the Board.
If you have a property manager, a member of the management team should accompany the Inspectors of Election or ballot counters to a private area to explain the tally procedures and count the ballots; while ballots are being counted, the floor is opened for new business, member questions, suggestions, etc.; this is also a good time to remind homeowners that there is a sign-up sheet for anyone interested in being appointed to serve on a committee.
The President should announce the election and ballot results. Unless it is really important that the homeowners know how many votes each candidate received, it is probably best not to state the actual number of votes received. If a candidate received substantially fewer votes than others who were nominated, I see no point in announcing this information.
I generally like to have a brief organizational Board Meeting directly following the annual meeting to determine the new officers, sign bank signature cards, and handle other information of great importance. If the meeting will be held immediately following the annual meeting, it must be announced so that all members present are aware of the Board Meeting, since all Board Meetings are open meetings. If the Board will schedule this meeting for a later date, there is no need to announce it at the Annual Meeting.
The adjournment should be made with a motion, second and a vote to assure that everyone has had the opportunity to bring up any business prior to adjournment.
An Annual Meeting is as much a celebration of the Association and it's accomplishments as it is a time to handle the necessary business of the Association. If an Annual Meeting is well organized and the Board and management work together, it generally will not run more than 1 1/2 hours. When it is over, everyone should feel good about their Association and the people who have been elected to run it.
* Charlene C. Marquez, A.M.S., is President CJM Association Services in Pleasanton, California.
One of the four classic and perpetual problems of community association governance is that of dogs. (The others are children, garbage and parking which will be discussed in additional articles).
Many people are extremely fond of their pets and expect all others to share their feelings. These pet owners simply cannot understand why seemingly nice neighbors get so upset when dogs (or cats) run loose or bark.
Yet, pets are all too often a source of neighborhood annoyance. If you are a pet owner, you appreciate the companionship and pleasure your cat or dog adds to your life. But, many pet owners do not realize or won't accept that, with the right to own a pet, goes a corresponding responsibility for the actions of that pet.
Managers continually get calls about residents not carrying a pooper scooper, dogs barking excessively and/or dogs running loose.
Possible solutions to the problem:
1. If a pet is annoying to residents in any way, the residents should talk with the owner first. Everyone benefits if neighbors talk to neighbors to resolve this and any other type of problem before turning to the Association. In most cases you will find that they are cooperative and embarrassed when brought to their attention.
2. Designate a dog walking place rather than notifying residents where dogs cannot be walked and provide disposal bags to be used to deposit the feces in dump stations provided in those areas.
3. Employ a feces removal service. One such service in Northern California is Poop & Scoop.
If there is a need, someone will come up with a service to cater to those needs. Some associations are paying a service to provide monthly pickup service of feces along walking trails, in sand boxes and in other common areas where animals are attracted to use as bathrooms. When owners fail to pickup after their animals, the local Health Department can be called to cite the property owner for unhealthy conditions. They will clean up the feces, charge the Association for that service and levy a fine which is more costly than paying a local service to remove the offending material.
4. Pay a bounty for pickup of roaming animals. One community has totally solved the problem by paying a bounty to any person detaining a roaming dog.
Dogs in the community are licensed by the association using a specific application and an easily visible plastic tag issued which identifies the dog as an association dog. Association dogs, found roaming, are picked up by anybody and delivered to the management office where there are tethers and a pen. The owner is notified and must pay a $25 charge to the association to release the dog. The $25 is then paid to the person bringing in the culprit. Non-association or non-registered dogs are turned over to the local animal control, and no bounty is paid, but the local fine charged by the City can be more than the bounty.
The license application form should be carefully structured by the association's attorney to ensure that your documents allow this type of process to be implemented.
This would also allow lost pets to be returned to their owner without involving local animal control agencies.
5. Contact the local Animal Control Agency for those animals who continue to run loose and appear to be a threat to you and/or any resident in your development.
6. The Board should adopt rules regarding the behavior of pets and incorporate them into the Association's Enforcement Policy which should be distributed to all residents on at least an annual basis. Residents can then contact the Board and/or Manager to formally complain about an animal. Take care to follow your policy equally among the residents.
For more solutions to dog problems, Nolo Press Self Help Law has published a book called Dog Law as a legal guide for dog owners and their neighbors. The book is an excellent resource covering everything from nuisance to cruelty and neighbor rights in 31 states from Alabama to Wisconsin.
by Gayle L. Cagianut. CPA and Sandra K. Grunewald. CPA. MBA *
The financial statement sits imposingly in front of you, a stream of numbers rolling endlessly down the page. You’re a new board member, studying the numbers, hoping to decipher their meaning. Then you’re hit with the accounting jargon: balance sheets and income statements; cash basis and accrual basis. You think you hear the financial statements quietly laugh at you, and you begin to wonder if the board should hire a psychiatrist instead of an accountant.
Don’t despair. Financial statements may seem confusing initially, but they’re not as difficult as you think. Here’s a look at the basics:
How They’re Prepared
Board members should be familiar with at least two basic types of financial statements: balance sheets and income statements. A balance sheet shows a picture of the association’s status at a particular date. It is sometimes called an assets, and liabilities statement. An income statement shows the association’s income and expense status over a period of time. It also may be known as a statement of revenues and expenses or a statement of profit and loss. A well-run association should receive both statements regularly - monthly or at least quarterly - and in a timely manner.
The first step in understanding financial statements is to determine whether they were prepared on a cash, accrual, or modified cash accounting basis. Why? Financial statements vary greatly depending on the accounting method. The reader must know which accounting method was used in order to accurately read the statement.
The three methods are defined as follows:
  • Cash Basis: Cash basis accounting is similar to a personal checkbook. Financial records track when cash is received or paid out. Income is recorded when a deposit is made to the bank. Expenses are recorded when a check is written to pay a bill.
Cash basis financial statements are easy to understand and to prepare. The disadvantage, however, is they don’t give a full picture of the financial condition. The records omit information on unpaid bills or uncollected assessments.
  • Accrual Basis: Accrual basis accounting tracks any and all transactions, even if cash is not received or paid out. For example, income is recorded when the dues are assessed, not necessarily when they are collected. The same is true for expenses. Expenses are recorded when they are incurred. For example, if the association buys new equipment, the purchase is recorded even if the bill has not been paid. Because it tracks all income and expenses, accrual basis accounting more accurately records the financial activity of a particular time period.
  • Modified Cash Basis: Most associations use modified cash basis accounting for their record keeping. It is a compromise between the cash basis and accrual basis. With this method, most transactions are recorded on the cash basis, but some are logged on an accrual basis. For example, accounts receivable (amounts owners owe the association) and income commonly are recorded as they are billed (accrual basis). Expenses are recorded as the bills are paid (cash basis). Other accrual adjustments, such as prepaid expenses and income tax accruals, are not made.
Modified cash basis is less complex than accrual basis financial statements. During the annual review or audit, however, a CPA often must convert the financial statements to accrual basis.
Income Statements
Why it important to know the accounting method? Because it has a great effect on the numbers that appear in the income statement.
The purpose of the income statement is to keep you abreast of income and expense status over a period of time; for example, "for the six months ended June 30, 1993." The income statement generally shows the current period - either the month or quarter - as well as a cumulative total for the year. At the end of each year, this statement "closes out" and starts again with the beginning of the new fiscal year.
An important feature of the income statement is the budget to actual comparison. This compares budgeted numbers to actual numbers. A variance column may also be added, showing whether the association is over or under budget for each account. This column helps to determine the reason for the variance.
Now the accounting method becomes important. If cash basis, is used, income is recorded as dues are paid and deposited. With accrual basis, the income is recorded as it is "earned." How does this difference affect the financial statements? Consider a 50-member association that bills its members $200 per month. In a given month, the association’s financial statement will show a $10,000 increase in the assessments receivable account’s balance.
Although the association has not received the money from the members, they have earned the right to collect that money. The assessment receivable account is reduced as members pay. Depending on the accounting method, the association may appear to have more income that it has actually earned.
For expenses, cash basis financial statements record expenses as checks are written. Accrual basis records expenses as they are incurred. When the association contracts or buys something, that amount is accrued as an expense, even if it isn’t paid for. As it is accrued, the accounts payable account on the balance sheet increases. For example, the utility bills for December do not arrive until January 10. On the cash basis method, the bills are January expenses. On the accrual basis, they are recorded in December.
Balance Sheets
While the income statement depicts the income and expenses of an association over a period of time, the balance sheet takes a "picture" of the association’s status at a particular date. The balance sheet is made up of three sections: assets, liabilities, and Fund balances (or member’s equity). They are defined as follows:
  • Assets: These are items the association "owns." Once again, the makeup of the balance sheet depends on the accounting method. Cash basis financial statements generally list only cash as an asset. An accrual basis financial statement may list cash, assessments receivable, prepaid expenses, and deposits (money held by the association which will be returned).
  • Liabilities: These are amounts "owed" by the association, whether for products, services, or taxes. Cash basis financial statements generally do not contain liabilities. Liabilities may appear on a modified cash basis statement, but they are only updated at the end of the year, since the expenses are not accrued monthly or quarterly.
  • Fund Balances: This section is also known as members equity or retained earning. This generally states the current balance in the replacement (reserve) and operating funds. However, some accountants prefer to list reserves as a liability item. The sum of the assets must equal the sum of the liabilities and fund balances. This is a basic rule of accounting. Thus the term "balance" sheet.
It is important to understand what the reserve or replacement fund/liability indicates. Each accountant gives his or her own interpretation, so you need to understand what the fund represents. Usually it is the amount of money budgeted for future major repairs and replacements of the common areas. It is often the amount of cash the association has set aside. It also may be the amount the association projects it will have in its replacement fund by a particular dare. If the association falls short of its projections, "Due To" and "Due From" accounts may be set up to show the underfunded amount.
Once again, the presentation of the amounts allocated to reserves and the reserve fund balances vary greatly. The association, therefore, should discuss this with its financial statement preparer. At the end of the year, the CPA should adjust the financial statements to show the amounts budgeted for reserves, the amounts spent from reserves, and any permanent, approved transfers between operating and reserve funds.
As a board member, the association’s financial stability is one of your key responsibilities. This article should help you to understand the basics of financial statements. When reviewing the statements, don’t be afraid to ask questions. it is your duty to understand them.
What to Look for on the Balance Sheet
When reviewing balance sheets, ask yourself these questions:
  • Is there sufficient cash to cover operating expenses?
  • Is operating cash significantly increasing or decreasing? If it is increasing, should the excess be transferred to reserves or an operating savings account?
  • Is the association’s reserves on target with projections?
  • Are reserve expenditures being paid out of reserves?
  • Does the cash balance equal the "fund" or "liability" reserve amount?
  • Has the association "borrowed" from reserves to meet monthly expenses? If so, is there a plan to repay the amount?
  • Are receivables - the amount members owe the association - increasing or decreasing?
  • If receivables are increasing, does the board need to increase its collection actions? Does it need to "write off" bad debts or set up allowances for them?
Reviewing the Income Statement
Ask yourself these questions:
  • Are there miscellaneous income items? If so, know what they are.
  • Is the interest earned meeting the budget projection?
  • If assessment income is logged using a cash basis, are actual collections keeping up with the budget?
  • Compare the budgeted expenses to actual figures - are you over or under budget? In either case, understand the variance. If the association is severely over budget, you may need to adjust spending.
* Gayle L. Cagianut, CPA, and Sandra K.Grunewald, CPA, MBA are with the accounting firm of Cagianut and Grunewald in Oak View, California.
The Board of Directors would like to thank all committee members for volunteering their time and efforts in helping the Association. The Board has formed this committee to assist the community and the Board in ensuring growth, prosperity, and a sense of belonging. This Charter is designed to provide the committee with goals and guidelines to follow.
The Committee will be made up of five members, one of which will be the Chairperson. It is suggested that members be familiar with landscaping or architecture and have related work or educational experience. The Chairperson will be appointed by the Board of Directors from the five members.
The Committee is required to hold monthly meetings and keep informal minutes of those meetings (one page or less description of what happened). The Committee is also required to inspect the entire grounds every two months.
The stated goals of the committee are to make written suggestions to the Board on; area re-plantings, major proposals submitted by the landscaper, improvements and/or changes in the planting theme, landscape contractor performance, and evaluation of the landscape contract compared to the present needs of the community. Day to day supervision and direction of the landscape contractor should be avoided and should be channeled only through management.
The scope of the Committee's influence will be; the landscape standards, the landscape contract, and the landscape contractor.
The Committee, without additional approvals, is authorized to spend up to $25.00 per month for incidental supplies, long distance telephone calls or reimbursement of travel mileage (@ $.25 per mile). The Committee is also authorized to spend up to $300.00 per month for landscape improvements provided the budgeted category is within the approved year to date budget amounts (you cannot spend more than what provided for in the budget).
The Chairperson shall have authority request proposals and information from both the landscape contractor and management.
For changes which affect; the landscape standards, contractual obligations, or expenses greater than $300.00 per month, the Committee must obtain prior Board approval at the monthly Board meetings through the monthly Committee report.
The Committee also has the authority to remove it's own members with a vote of the majority of the Committee.
It is required that the committee provide monthly written reports to the Board of Directors no later than the 30th of each month which need to include the minutes and a report summarizing the month's activities and any recommendations for action by the Board of Directors.
Q: Our association requires residents to report rules violations in writing. Many residents, however, are hesitant to do this--they're afraid of retaliation, they don't want to get involved in a dispute, or they don't want to rat on their neighbors. Instead, they complain the association isn't enforcing the rules. Most residents want to report violations in secret--verbally--or they want the association to solve the problem for them. How can we motivate them to report rules violations in writing?

--Ambler, Pennsylvania
A: Enforcing association rules is a difficult task. The board has a duty to enforce the rules, but, as in your case, it often gets little or no assistance from community members who are reluctant to report violations by their neighbors.
It is difficult, if not impossible, for the board to identify every rule violation on its own. Therefore, member assistance is vital to effective rules enforcement. Here are some ways to motivate community members to report violations:
  • Educate the Community: Effective rules enforcement always begins by educating community members--through newsletters, bulletins, and community meetings--on the rules and their purpose. Homeowners often do not understand the importance of reporting violations. Let them know why the rules exist and how they improve the community.
Also, invite community members to participate in a periodic review of the rules. Greater community input and understanding can reduce violations and motivate residents to get involved in the enforcement process.
  • Allow Anonymous Written Complaints: Residents should be allowed to submit anonymous written complaints. However, the board must also inform community members that anonymity may limit the association's ability to enforce the rule.
For example, boards frequently must rely on an eyewitness to enforce a violation. If Johnny Violator cut down a tree on common property without board members present, then the board cannot independently verify that he cut down the tree. However, if Joe Homeowner saw the violation, he could identify Johnny as the violator to support enforcement action. If Joe remained anonymous, the board could not rely on his report. Therefore, signed complaints are often necessary. The association may even need Joe to serve as a witness if the association takes legal action against the owner.
Even if Joe is not willing to be identified, his detailed complaint still could provide helpful information to verify the violation. For example, he may identify the tree cutting contractor's name from the side of a truck. But in most cases, signed complaints carry more weight than anonymous ones.
  • Don't Promise Anonymity for Signed Complaints: Another problem comes when an association obtains a signed complaint, but promises an owner anonymity. State law or association bylaws may consider the signed complaint to be an association business record, subject to inspection by the alleged violator, destroying anonymity.
  • Verify Reported Violations: The board should take enforcement action only after verifying a violation. That way, if a resident anonymously reports a violation, such as an unapproved utility shed, the board often can verify it without involving a neighbor. In many cases, however, the board will not be able to verify violations without resident assistance.
  • Make it Simple: Reporting a violation should be as simple as possible. One way is to create a violation reporting form to distribute or make available to residents. The form should provide space to describe the violation and identify the violator. It should request a signature, but permit anonymity with a disclaimer that the board may be unable to verify and act on anonymous violation reports. The key is to make it easy for residents to report violations.
The association should make it clear that it often must rely on signed complaints. Still, it should encourage detailed anonymous complaints if residents will not sign a complaint. Communicating how the enforcement process works and that, without help from the residents, the process will break down is the best way to encourage people to report violations.