Annual Meetings are What’s Happening!

The Bylaws for homeowners associations as well as the Arizona Non-Profit Corporations Act (the “Act”) requires homeowners associations to have annual meetings of members. (Most, if not all, homeowners associations are non-profit corporations.) This article will address several of the common questions that arise about annual meetings and the annual election of boards of directors.

Q: What will happen if there are no candidates for the board of directors and all of the current directors’ terms are expiring?

Some members believe that a state agency will take over the operations of the association if there is no board. However, there is no public agency that will operate a homeowners association. Rather, if there indeed is no board of directors to run the association, any interested party can (and will need to) file an action in Superior Court to have a receiver appointed. A receiver will operate the association, be paid by the association, and must report regularly to the Court. However, this is a radical short-term measure and one I have not seen in my 26 years of representing associations.  Typically, members can be cajoled to step forward to sit on the board, or current board members will agree to stay on for another term. Generally, letters to the members calling for volunteers are not enough. Personal visits or phone calls by current board members must be made. If an association is self-managed, waning volunteer power is a good reason for the board to consider hiring a professional community management company. A manager reduces the workload of the board significantly. A manager also may mean increased assessments, which is another motivation for volunteers to step up and keep the community managed solely by volunteers. In any event, a manager can take care of association business a short time without an operating board of directors; however a manager cannot (and usually will not) proceed without the direction of the board of directors. The management company cannot make deci­sions regarding collection of assessments or enter into contracts with major vendors, including the management company itself. Without board decisions, the maintenance of the common areas, the property taxes, the liability insurance premiums, and other bills may go unpaid.

If there are no willing or able replacements to serve on the board for the coming term, and the current board intends to step down, some arrangement needs to be made to repopulate the board. The Act requires that all non-profit corporations have boards of directors. Furthermore, a functioning board of directors is necessary to carry out the requirements of the governing documents and maintenance of association property. In addition, the Act states that the term of a sitting director does not expire until his/her successor is elected and qualified. Thus, it is a breach of duty for all of the board members to walk away and leave the association without a board. So, board of directors need to plan for the annual meeting and election far enough in advance to assure that the vacant board seats will be filled and the association operations can continue without interruption or confusion.

Q: If the annual meeting is a members’ meeting, can the members initiate business at the meeting?

It is true that the annual meeting is a members’ meeting and is the time for the board to inform the members about the finances and operations of the association and for the members to voice their questions and concerns to the board. Therefore, some members believe that they can, for example, make a motion to heat the swimming pool throughout the winter months or to change the parking rules. In fact, members have specific decision making power in their homeowners association. Members elect and can remove the board of directors; members generally have the exclusive power to amend governing documents; members usually must approve assessment increases above a certain percentage; and the governing documents may give members other powers. But the day-to-day operations of the Association and decisions about expenditures, contracts, maintenance, etc. are directed by the board of directors. Thus, association members cannot seek to make decisions that are not within the powers given to to them in the governing documents. A proper member motion at an annual meeting would be (for example) to ask the Board to consider heating the pool throughout the winter months. Then, the board can put the matter on its board meeting agenda.

Q: Does the annual board election have to take place at the annual meeting, with voting allowed in person and by absentee ballot?

A.R.S. §10-3708 in the Arizona Non-Profit Corporations Act allows action by written ballot on “any action that the corporation may take at any annual, regular or special meeting of members.”  Therefore, the annual election of directors can be held before the annual meeting by written ballot, though the votes will not count toward the quorum at the meeting. If written ballots are used, the following requirements apply:

a. A written ballot must be delivered to every member entitled to vote.
b. The written ballot must: set forth each proposed action and provide an opportunity to vote “for” or “against” each proposed action.
c. The number of votes cast by written ballot must equal or exceed the quorum required to be present at a meeting authorizing the action.
d. The number of approvals must equal or exceed the number of votes that would be required to approve the matter at a meeting at which the total number of votes cast was the same as the number of votes cast by written ballot.
e. All solicitations for written ballots must:

i. indicate the number of responses needed to meet quorum
ii. state the percentage of approvals necessary to approve each matter other than the election of directors
iii. specify when the ballot must be delivered to the association in order to be valid

Written by: Carolyn B. Goldschmidt
October 2013