If for Any Reason an Officer of the Board Cannot Continue
What Happens When Nobody Runs for the HOA Board?
An HOAleader.com reader wants to know what happens when nobody runs for any open board seats. Here our experts give the lowdown.
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All of our experts have seen this issue arise to varying degrees. "We've had this problem," says Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va. "Often we have this at transition, where owners aren't happy with the developer and they think that by holding out and not running for the board, they're going to put pressure on the developer. I've also had it because of apathy and you don't have a big enough pool of volunteers."
What's the big problem when it comes to open board seats? That may affect your ability to operate the association. "The board needs a quorum to do business," says Raymond Daniel Burke, a principal at Ober Kaler, a law firm in Baltimore, who represents an average of 20 community associations. "And if there's a vacancy of an officer who's necessary for things like signatures on checks, it becomes very consequential that you have that vacancy."
What's an HOA to do? Here are five tips:
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1. Read your governing documents.
"Your governing documents will be the roadmap for handling a vacancy," says Burke. "They'll establish whether the board can operate with vacancies, whether there's a limited time the board can do so, and the means by which the vacancy has to be filled. For instance, all governing documents will provide for a special election to fill a vacancy. But some permit a board to appoint someone until next election or a special election can be advertised if the board isn't able to do business because of the absence of a quorum."
2. Explain to board members that breaking up is hard to do.
You may have to tell departing board members that their work isn't done. "Here, what typically happens is that the members whose terms have expired or are expiring will continue on," says Samuel "Sandy" Moskowitz, a partner at Davis, Malm & D'Agostine PC in Boston who represents 30–40 community associations at any given time. "Most of our governing documents say something to the effect that your term ends when your successor is duly elected and takes office. If your successor isn't elected, your two–year term continues."
That's also the case in Florida. "The way it works in Florida, in the HOA setting, you serve until your replacement is elected," explains Matthew Zifrony, who advises homeowners and condo associations at Tripp Scott, a Ft. Lauderdale law firm, and who's also served as the president of a 3,000–home association. "I live in a community where there are seven board members, and if at our upcoming election nobody asks to run, all seven board members will stay on. In the condo setting, you have to send out forms where people submit their name to run for office. If there aren't enough names submitted, all get elected to the board. Then they'd collectively decide whom to appoint to the remaining open board seats."
Does that mean board members literally can't resign? No. "If somebody's intent on resigning, he can resign," says Moskowitz. "Typically, what happens is the other board members or property managers will say, 'You can't resign; we don't have anybody to replace you.' And the board member will say, 'OK, I'll do it one more year, but that's it!'
"The result is that the same board members continue to stay on the board," adds Moskowitz. "I've seen this happen when nobody runs or you don't get a quorum for the meeting to elect a new board. The board will have authority to fill vacancies, and you wind up having an insular board because you have the same people continuing in office."
3. Don't rush an appointment.
"The bylaws may provide that when there's a vacancy between annual meetings, the board can appoint someone until the next election," explains White. "Some bylaws say you can appoint someone to fill the unexpired term of that individual. In either case, you have to pick carefully and do your homework. Unfortunately, some boards reach out and pick a warm body, but warm bodies can be very destructive."
4. If there's no board, you may need outside help.
"When there's no board, usually the documents provide for the unit owners to go to court to have someone appointed to the board or to have a receiver appointed," says Moskowitz. "You can take drastic measures to make sure a board is always in place."
5. Think twice before participating in a whole–board resignation.
"We've had situations where the entire board has resigned, and there's no board whatsoever," says White. "Then you look at your state law. Some states say you can't have a corporation that doesn't have directors. If the state takes away your corporate existence, that's bad because you also lose the benefit of your corporate shield.
What's a corporate shield? It's also called the corporate veil. One of the benefits of forming a corporation is that it protects company officers and shareholders from personal liability. Outsiders can't pursue them personally for actions they've taken on behalf of the corporation. But under nearly ever state's law, corporate officers and shareholders can be stripped of that protection if they take or fail to take certain actions. When courts allow corporate officers to be sued personally, it's said that those officers have lost the corporate shield or that the court has pierced the corporate veil. Bottom line: if you lose your corporate shield as an officer of your association, it means you risk being personally sued for your actions.
"As I mentioned, I've also seen owners say they're not going to run anybody during developer transition," adds White. "When owners say that, the developer often turns to me and says, 'Will you explain to them what happens if they do that?' Then I'll explain the loss of the corporate shield. I also explain that some states provide that the affairs of the corporation continue to be the responsibility of the last board members as sort of the trustees of dissolution, which means that while board members think they've resigned, they may not have. When the entire board resigns or is vacant, it's a complicated analysis that depends on the state law."
Source: https://www.hoaleader.com/public/What-Happens-When-Nobody-Runs-for-the-HOA-Board.cfm
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