 Aloha and welcome to condo insider my name is Richard Emory I'm your host today. As you know every week on Thursdays at 3pm. We do a show condo insider we have three hosts. I'm a guest of the condo, Jane Sugemer and I we rotate and take turns. I should say in Jonathan billing that forgot one of our great hosts. So we take turns and we try to educate board members and homeowners and associations most condos about the things that are going on before us and I know the Hawaii real estate commission appreciates our effort because we get lots of complaints from homeowners and people who don't understand and end up costing money and rising director and offshore liability insurance premium and life goes on. I thought it might be helpful because today we're going to talk about common mistake boards make the things that cause the big problems the big lawsuits but I thought it might be helpful if I just briefly say a couple of words about my background so you maybe understand where I'm coming from. Well, first of all I found that a management company which I sold in 2011 and was the chief executive officer we grew to be the third largest management company in Hawaii so I would deal with boards and homeowners and problems every day. And then that led me into getting old and retiring and, and since then I'm a member of the National Association of parliamentarians. I teach continue education courses for real estate agents because I have a course I wrote called condo management and condo finance. And a lot of expert witness work where lawsuits end up talking about the standard of care reserve studies and things along that line so I come from a very different background and most management company managers the account executives they call them and from boards of directors are dealing with this but I see these things over and over and over again happening. And it's fundamentally from the same problems. And it begins with boards and getting sued and homeowners and getting sued and, and, and things I see that the common things I just happened you month after month in the state of Hawaii and it begins by understanding what we call some basics of Robert's rules of water. I know every time you think of Robert's rules of water you think emotion the second and procedural issues under Robert's rules, when in fact that's a very small part of Robert's rules. If you're interested Robert's rules the first edition was issued 1876 by Henry Roberts, and was 176 pages long. Today is closer to 650 pages, and we're on the 12th edition of Robert's rules and Robert's rules in our parliamentary procedure goes back actually to the ancient Greeks, and the Senate, and, and the rules established to conduct the affairs of Greece. But the word Parliament itself comes from the English Parliament. And that's kind of where it began. In 1812, Thomas Jefferson issued the manual of parliamentary procedure, and then you have other rules of water, and other organizations that exists out there. And, and so the procedural thing of Robert's rules that begins with understanding the most fundamental principle of parliamentary procedure. It's important because this is where all majority of all lawsuits in Hawaii begin. It begins with understanding that when you have an organization, let's say a condo association, or a nonprofit, or what anything. It begins with the founding document. It may be called the charter but in the case of the condo is called the declaration, which sets up basic purpose of the organization and establishes what authority exists within that organization. And that in the case of a condo maybe the authority may be to the board, or maybe to the owners or maybe to law. So but it begins with what I'm going to call the charter which is the declaration in a condo. Because just because you have an organization, and they have a board of directors, they can't do what they feel like they're limited by the basic founding authority within the governing documents. So, you just can't do what you want and let me briefly give you an illustration of that point. And a lawsuit that exists today in Hawaii. It's one example of many that have the same fundamental principle. Imagine an association a condo association, and it has 200 units, plus one commercial unit. Well, that declaration defines the authority for that particular project. And by doing so it limits what the board can do and it can't do based on the fundamental authority. So in this case the board gets together and says you know, our 200 residential units are primarily rental units, and mostly hotel units and legal hotel units by the way so we won't get into that issue. And that's what our purpose is, but in addition, we have one commercial unit that has a commercial purpose and owns all of the parking stalls in the building. So, if an owner has a hotel unit he rents out, and they want a parking stall they go to the commercial unit, and they rent the stall based on whatever the terms and conditions are of the commercial unit. And that's how the documents are written. So in this particular case, the board decided well we're going to pass a rule that the commercial unit can only use its unit for running to residents of the building. So the fundamental question is well, where does it say that in the documents it doesn't say that that unit that commercial unit, the documents say it can be used for any lawful commercial purpose. And for decades, it's been used to provide parking on a pay for use basis, where that particular person who wants to stall pays the commercial owner. Well the board decided then well we don't like that. We're just going to say, we're going to put a gate on that thing so nobody can get into the, the parking garage, unless they've registered with the front desk, and are a guest of the hotel. Well, ask yourself the fundamental question well, where does the board get the authority to do the fundamental documents say that the project is a mixed use project. It has a commercial unit to use for any commercial purpose, and the parking stalls are all part of that commercial unit that can be rented by the commercial owner. So where does the board, all of a sudden get the right, quickly after decades of being done the other way, and all of a sudden put a roll down security gate on the thing and prohibit the commercial owner from using the garage. The reasons in their mind security or other, I should tell you by the way, you say security, the entrance to the garage has its own entrance and some stairwell so they don't have to have access to the residential tower to operate to the parking garage. Ignoring that fact. So where do they have the right when the purpose of the documents are filed say it's a mixed use project, one commercial unit for commercial purposes that owns the 106 stalls or commercial stall, and then there's 200, rounding it off residential units that can be used as a vacation, you could have a long term tenant there or the owner could live there but it's because of the nature of this particular project is probably more likely that most of the units are used for rentals, vacationals, legal vacation. And going back to the concept I'm trying to share with you is just because the board is in control. I mean all the board members were residential owners. Do they have the authority to do that. And when they act because I think it's in the best interest of the association with outside the specified authority of the association. They probably breached their fiduciary duty for several reasons. One they lack the authority to do that. Number two principle number two under Robert rules of order is called protection of the minority interests. That is to say that that board even though their majority and other residential have an equal if not greater obligation in their actions to protect integrity of the minority interest, which in this case is the commercial owner. I mean, if you look at Robert's rules, kind of digressing a little bit on that concept. And where you have to call a special meeting for the homeowners or the members. As you know in a special meeting, the purpose of the business is only limited to that done by in the notice of the meeting. Why is that that way well if you notice a meeting to do a, and so I'm an owner and I don't care about a, I don't go. If all of a sudden without notice, they decided to do be. And so Robert rules is very specific. You're limited by the notice of the meeting and I'm going to come back to that in the second part of our show and give you an example of a nonprofit and and how that work but the message I'm trying to say here is that the number one mistake boards make in running an association and running meetings is acting without the authority to do so. So clearly within your specified, especially provided authority within the governing documents of the association, which maybe the decorator in some cases of the bylaw. You're limited to that authority and in some cases and condos, you don't have the authority and that's the homeowner's vote at some percentage it may be as low as a majority. It may be as low as exactly 50%, or it might be as high as 85%, or it might be as high as 100%. Example I often use in that case is. So all of a sudden we as residential owners in this example, this is a far fetched example. We get the other say I moved in 100% of the maintenance fees, you paid by the commercial unit. You get probably everybody but the one commercial unit to vote for you could say well, that's because they use all the common elements more than anybody else whatever reason they want to make up. Do they have the authority to do that. No, they don't have the authority to do that. That's specified that they want to amend their documents. Not only would they need the 67% of the current law, there's a provision on the current law that says plus all affected owners. So I'm sure the commercial you don't vote against it and do that but what the message I'm trying to share with you today is that I see boards more times and not act to make decisions that are outside their scope of authority. They can't do those things and I can't tell you how many lawsuits I get involved in each month where the board acted it's not always residential versus commercial without their authority so the number one take away before we take our break is you need to know what your authority is. It's not what your authority is by voting I have the authority that voted that way. It's the express authority defined in your charter or your declaration or your governing documents. You don't have the right to do what you feel like doing. I know we're going to take a one minute break we're going to come back and talk about the other two essential elements under proper authority and proper rules for running an association will be back in one minute. I was the head coach for the Punahou Boys varsity tennis team for 22 years and we were fortunate to win 22 consecutive state championships. My show is based on my book also titled beyond the lines and it's about leadership, creating a superior culture of excellence and finding greatness. I feature a wide range of amazing guests who share valuable insights about how going beyond the lines leads to success in everything you do in life. I'm looking forward to you joining me every Monday at 11am Aloha. We're back and we were talking about before the break, a couple of major components of Robert's rules, beyond holding a good meeting, and I use the word authority as the example. And I think it's very important because most of all the problems I see where boards think they have the authority to do something, and they don't have the authority to do something. What they do in some cases have some authorities limited by getting a homeowner vote, and they may have all the practical and financial and reasons why they think their ideas are good idea. But if in fact they have ignored the rights of the minority and have just taken an action they feel is appropriate when either their documents themselves specify otherwise, or specify they need someone else's authority along with it. Or in fact they simply just don't have the authority to make that change is a major obstacle in where I see these problems occur. Now I briefly talked about the important concept of Robert's rules of protecting the minority the minority interest. I was the consultant on a recent nonprofit associations meeting. And let me outline what the issue is that pick a nonprofit and assess the members and had told them we're going to borrow $5 million they had to have the members approval. And run up a written ballot and had a rounding off 75% of the owners approved it, you know I needed a majority 51% so they went forward and, and they wanted to do that well some of the old members didn't like the plan and what they're going to spend the money on so they with the within the bylaws provided notice the meeting and notice the meeting said specifically, we want to hold a meeting for an update on the renovation plans. Okay, so they had enough to hold a meeting. The board scheduled the meeting we had a couple hundred people show up to the meeting and some for some against whatever the renovations were but remember that wasn't a notice to the meeting. Notice was to have an update in the meeting so if I'm an owner sitting there saying well, I don't need an update I understand what's going on I might not come. And what the strategy was by this group was they called a meeting, and they said, once they had the meeting and the update, I make a motion to rescind the authority for the loan. I understand the problem at that moment in time because most of these associations, they had a quorum and the low percentage to achieve a quorum and a low percentage to a majority to approve such decisions, sort of. The problem you can see is first of all was the notice they never told anybody they want to have a vote. So people who might have voted on that and had come and said well I'm for against were denied their right to participate in the meeting because they weren't told the truth what was really going on. So Robert's rules is very specific that the only action that can be taken at the meeting is that in a special meeting that is that that has been defined in the notice of the meeting, rightfully so. And the notice of meeting was have an update so they held the update. So what would the chair doing when we have a motion in a second to rescind. Chair based on advice is told to rule the motion out of order. The motion was out of order because was voting was not provided for and the notice of the meeting, and it would, it would be unfair to those not given notice, you intend to hold him that notice, but attend the hold a vote on that particular issue. So the chair ruled that the, that the motion was out of order and would it wouldn't be about. And so what they do they appealed the order they appealed to the floor thinking and majority of those in attendance could override the chair by field. Problem number two. Well, there has to be two different points of view that are valid to overturn the chair of the vote, and the board had an attorney's opinion that said no, they couldn't hold the vote because it wasn't properly noticed. They didn't even appeal the chairs motion to do that because of the fact that the proper notice and intention wasn't given and Robert's rules was always defined around protecting the minority interest. And what's interesting about that case let's just said, say they had put in the notice correctly we want to hold a vote to rescind. And I would have had would be, you can't resend emotion previously adopted. If actions already been taken on that motion. It's kind of like imagine you voted to paint the building pink painted the building pink that's all makes a motion to resend the motion to the authority to paint the building paint under Robert's rules you can't imagine a motion where action has been previously taken. And in this case action been taken, it signed the bank loan inside the contract for construction. And so that would have been another opportunity. And from a parliamentary point of view to come up but the real reality was that Robert's rules is very clear, and all of us rulemaking and all of us policies and procedures that you have to have a, the rights and the minority have to be protected. When you look at governing. And you want to make rules that infringe on the commercial units or infringe on certain units not over other units, you better be careful because you have a fiduciary duty as the member of that board to everybody whether you live in a residential or commercial unit, whether you live in a residential unit or don't like something you're back as a board member as a fiduciary as the entity as a whole that you have an obligation to think at it from a broad point of view, protecting the rights of everybody. And so, if you don't protect the rights of everybody. I would argue that the residential units have a conflict of interest if they're taking action to basically in the parking stole example to basically make them limited common elements for the residential units so only the residential units guests can use them is contrary to the declaration was defined the project as a commercial mixed use property with a commercial unit that has all the law for rights to commerce and conduct commercial activity. And the best definition of commercial activity is to conduct business for a profit. So I mean, you can see where people just wanting to do what they think right or make their association a better place run a foul of their obligations by not knowing what their rights are as a fiduciary not protecting the founding purpose of the association itself. Now the third purpose of Robert's rules which I say for last is just to run a good meeting and that's where all these provisions or motions and seconds and, and come into play that it's very important to me to be run professionally conducted in accordance with the parliamentary law, and that minutes be kept in the accurate effect of what you did because it gets down to the lawsuits. That's what they go back to is the look at the java quorum did you have authority, did you have the proper vote, where people's rights infringed upon because you shoved it down their throat didn't follow parliamentary procedure. And so those things become very, very critical because running a good meeting and I think I've used this in other classes when you, my, my favorite example is you're conducting a vote of your board members, and they're in the middle of the recess to why the votes are being counted. And in the meantime, as they typically say we're going to go back to conduct our business and no objection now instead of, you're still the board's conducting its business, you know the IRS rollover provision these kinds of things, and someone stands up and says I moved to adjourn the meeting. What do you do. All motions have priorities and the highest priority is a motion to adjourn. The theory is not debatable. It's not amendable and you have to go to a vote. So there's an emotion in a second well that person happened to control the proxies and happened to control the voting, they can vote to adjourn that meeting right there in a spot before the tellers report was given. And the tellers report would become new business on a future meeting. These parliamentary rules have a lot of you have a big condo and you have a lot of controversy. My recommendation always hired a professional hire a professional registry parliamentary hire someone who knows what they're doing because people who think motions are just first and seconds and votes are way mistaken because there are so many other motions that can be made that affect your ability to have a democratic up or down vote on something. Examples of motions that are considered motions and our motions are a point of order point of information. And, and what a water is simply I think you're violating the bylaws you can't do what you're doing. That stops all business. One of information is I want to know how to. I want to know how much money we have in the bank before I vote I'm paying for painting the building point of parliamentary reference reference to be. I want the problem to tell me if I know how to do this. So anyway at this point in time I want to thank everybody for watching this show today. I'm really focused on trying to tell people learn more about what your authority is. Don't disenfranchise the minority interest look at what your true purpose is make business judgments according to that note I thank you for watching our show today. And we look forward to seeing you next Thursday. And I think really in 10 as our host next Thursday, but thank you for watching condo insider.