HOA Law Blog
Your board of directors is conducting a regular board meeting when a disgruntled owner hands over a petition to the board. Now what? Is it valid? Do you have to hold an election or meeting? If so, by when? Where do you go from here? These are just some of the questions you might have when receiving a petition, and there are many others to consider. Membership petitions are becoming increasingly common for associations, and the relevant statutory authorities do not provide the clearest picture of how associations should handle them. Many owners believe they can demand anything they want through a petition, which is simply not the case.
Petitions are primarily governed by the California Corporations Code. Section 7510(e) of the Corporations Code states that 5% or more of the owners of a corporation can submit a petition for a special meeting of the members for any lawful purpose. Section 7511(e) of the Corporations Code states that the petition must be in writing and submitted to the board chair, president, vicepresident, or secretary. When receiving a petition, there are a few threshold issues to confirm. First, is the petition signed by 5% or more of the owners?
Related to this, do the signatures on the petition belong to actual owners? If 5% or more of the owners have not signed a petition, you can stop there because the petition is invalid. Of course, sometimes this is difficult to tell. When reviewing a petition, confirm that the signatories are record owners on title (i.e., the owners listed on the unit grant deed). Sometimes you will see multiple persons signing from one unit, which is only permissible if all such persons are actual owners. If not, only the owner(s) listed on the grant deed should be counted. Tenants and non-owner family members also do not count toward the 5% requirement.
Maintaining an accurate membership list is crucial so that you do not have to spend time or money researching unit grant deeds each time a petition is received. Also, remember that in any association with 20 or fewer owners, it just takes one owner to submit a petition. A common misconception about petitions is that it only takes 5% of the owners to compel an action to take place (or not take place). In other words, can 5% of the owners really make an association decision simply by submitting a petition? The answer is no – the 5% threshold simply refers to the percentage of owners needed to submit the petition to call a meeting. Whether the board is required to hold the meeting or what happens at the meeting is based on the underlying purpose of the petition, and this is where many petitioners get things wrong.
A valid petition allows owners to call a special membership meeting for a lawful purpose. Not every purpose, however, is lawful. The fact is that most meeting petitions are requested for matters that the owners do not get to vote on/decide. Under the Corporations Code, except for actions requiring owner input, all other actions rest with the board. If the law or an association’s governing documents do not expressly assign owners a right to take action through a petition, it is not for a lawful purpose. This means that owners cannot reverse a board decision through a petition because board decisions are not decisions to be made by owners. The law allows owners to recall boards, fill board vacancies, and reverse rule changes – these are some of the most notable and common scenarios where a petition is for a lawful purpose, given that the law recognizes these. Even in these instances, remember that there are still quorum and approval requirements that must be met for the underlying action to be approved, based on the governing documents or law.
When owners attempt to use a petition to terminate approved contracts (including management), propose a governing document amendment, or take some other action not directly delegated to the membership, the petition is not for a lawful purpose. Sometimes petitions seek no specific action other than to discuss association issues. This is typically viewed as being for a lawful purpose. The special meeting will be similar to a town hall where owners have the right to discuss a particular topic on a set agenda without taking any vote or action. When a valid petition is received, the association has 20 days from the date of receipt to set a meeting date and notify all owners of the special meeting. The meeting must be held between 35 and 150 days after the petition is received. The board ultimately determines the meeting date despite what the petitioners may want. Depending on the purpose of the meeting, election materials, such as a call for candidates for a recall election, should accompany the meeting notice.
Many associations include a copy of the petition with the notice to provide full transparency as to the identity of the petitioners. Some associations also offer owners the ability to retract their signatures, as many owners are often unaware of what they are signing. If the number of retracted signatures results in a petition of less than 5% of owners, the petition is arguably no longer valid. The above measures are ultimately board decisions; however, associations should consult with legal counsel to confirm the appropriateness of such actions. Petitions serve a legitimate purpose for association owners, but they can also be abused. They certainly create some confusion. As with many association issues, boards and managers should consult with legal counsel if there are questions upon receipt of an owner petition.