THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, December 9, 1995 TAG: 9512070245
SECTION: REAL ESTATE WEEKLY PAGE: 16 EDITION: FINAL
COLUMN: Common Ground
SOURCE: G. Robert Kirkland and Michael A. Inman
LENGTH: Medium: 74 lines
I am on the board of a homeowners association. We have recently discovered that one of our board members is not a homeowner. He is, in fact, married to a homeowner but is not on the deed himself.
Actually, our current board only recently discovered this provision when reviewing the bylaws. No one seems to have been aware of the requirement that all directors must be homeowners until this recent discovery.
Should this director resign? If he will not do so, should we remove him? How can we do that or, should we just let him serve out his term and not raise the issue at this point?
It is not uncommon for association documents to specify that the directors must be owners. It is also not uncommon to have provisions that simply require the majority of the board to be owners.
The purpose of the owner's qualification is to protect the association and the owners from excessive ``outsider'' control. This is an important point to keep in mind during any discussion about unqualified directors.
If the election of a non-owner director was an honest error, the decisions of that board upon a challenge by third parties will probably not be overturned, it being the general belief that it is better to overlook an innocent technical violation than to introduce the uncertainty and unpredictability that come from questioning the validity of a board's action.
When the association is dealing with third parties who are unaware of the unqualified director, the actions of the de facto director are as binding as those of legally qualified directors in contracts approved by the board during that director's tenure and will be valid and cannot be dismissed by the association. It would be unfair for a person who is dealing in good faith with the association to be penalized because of a legal formality.
More complicated questions arise concerning internal association operations. What happens if the owners challenge board actions taken during the non-owner's tenure? If the board was acting in ignorance of the director's lack of qualifications, and it was performing its ordinary day-to-day functions, a court will probably refuse to invalidate its actions.
The court usually finds that the risks of unpredictability and uncertainty outweigh the risks presented by the technical disqualification. But if the board's actions during the non-owner's tenure had severe impacts on the owners, a court will give serious consideration to a challenge by other owners.
Courts have overturned board actions that resulted in significant expenditures of association funds or the granting of substantial encumbrances on the common elements. Many of these court protections do not apply if the board intentionally operates with an unqualified member.
If the unqualified director is still serving, he/she should be removed or resign as soon as possible. If the board can operate with the director position vacant or if the remaining board members can fill the vacancy, resignation or removal should be immediate.
If the position cannot be left vacant and election is required to fill it, the unqualified board member should continue to serve until a successor can be elected at a validly called meeting of the unit owners. This new validly constituted board should consider ratifying all board actions taken during the unqualified director's tenure.
In a related issue, the actions taken by a board with an unqualified director may affect the coverage by the associations' directors and officer's liability insurance policy. Many insurance policies do not cover directors who are not owners even if the documents allow non-owner directors. MEMO: G. Robert Kirkland, president of a Virginia Beach property management
consulting firm, and attorney Michael A. Inman specialize in Virginia
community association issues and are affiliated with the Southeastern
Virginia chapter of the Community Associations Institute. Send comments
and questions to them at P.O. Box 446, Virginia Beach, Va. 23458. To
submit questions by phone, call 486-7265; by fax: 431-0410. by CNB