 Aloha and welcome to Condo Insider. As I've said many times, it's a Hawaii show for both board members and owners about living in an association and how they work. And I know some of you out there think they don't work. But we're going to talk about how that structure is supposed to be and talk about issues and how we can solve them. Last week we began a detailed discussion of the Condominium Law 514-B. And we had Part 1 which talked about government structure. And that's about what board of directors and how their structure with declarations and bylaws and the basic governing documents. And then this week, Part 2, it's a four-part series we hope we're kind of moving target because we're not sure how on each show we'll take it away. We're going to talk about government process, about meetings and record keeping and things along that line. And when I've asked to come back, my resident expert and good friend and buddy who I've driven to drink over the years, Scott Shirley, welcome back to the show. Well, thank you. Apparently I did okay last time you had me back. In 15 seconds or less, just briefly tell everybody your background again. Background, 31 years in real estate. I actually also chaired the Real Estate Commission Condominium Review Committee. And now I'm doing in-house training along with you as a matter of fact. Well, I feel sorry for our students. I do too. Anyway, last week we had a general discussion about government structure. Today is government process and next week will be fiscal matters, financial matters. Then four are going to be kind of a summary of common problems and myths and things with regard to the structure. We kind of ran out of time last week when we were talking about government structure. We had gotten through the board, the declaration of bylaws, but two topics or two items we didn't quite get through. So I want to kind of wrap those up before we go to the government process. And that is the difference between the board and a managing agent and the resident manager or an employee. So let's talk about briefly, quickly, what is a managing agent? The managing agent is the person who has been hired by the board because they have a duty to hire and so forth to help run the day-to-day operations of the Condo Association's help with the House Rule Enforcement and things like that and very importantly also advise the board on issues like what's in 514b, what's in their bylaws to make sure that the board is going in the right direction. And commonly they also take care of collecting the maintenance fees or using a financial statement and making sure their reserve funds are invested as well. And again, advising the board what that process is and helping them through that process to some extent. One of the things I find that people are most confused on is they keep saying what's the management company's responsibility. The management company should do this when the term is truly managing agent. So would you kind of briefly say what an agent is so people get a better understanding? Well, there's been, and you and I saw this actually at one education session that you and I attended in that the term in 514b and bantied around is managing agent. What that really means though is the management company. It's the term managing agent is sort of taken on that role of the management company. And for some that does cause a bit of confusion. And so what you really have is the management company that is hired and then the management company assigns what we may call an account executive or sometimes called a managing agent for each of these condo associations or home owners associations to help in the management of it. I think the key to me in this is the word agent itself. The word agent management companies typically don't have any express power to do anything. They're really an agent of the board so when they do something they're doing it with the board's approval. And so management companies typically in their management contracts don't have some express power to make all these decisions on their own. That's right. They're truly an agent of the board and as such owe a duty of obedience and loyalty to the board of directors. Absolutely just like the board owes that to the owners and not only that occasionally a board will say you know we want to do this and a lot of times it's the managing agent who will say well according to the statute or your own bylaws you're not allowed to do that. If the managing agent like the board has a fiduciary duty and a fiduciary duty everybody goes they say we should do this that's your fiduciary duty. Well the fiduciary duty is to the association it's not to the board it's not to the owners it's to the entity which is the association itself. And granted both the managing agent management company have a fiduciary duty under the statute as well as the board but as a managing agent management companies can't just go do things and solve problems and spend money and thus the board has granted them the authority to do so. Or have voted on it and it's appeared in the minutes that they're allowing the managing agent to do a specific task. And how does that differ from the resident manager or a manager like a site manager general manager? Well the resident manager is probably the most put on employee on the face of the earth. He lives in these condo associations generally speaking and his job is enforcement of the house rules making sure that say there's landscapers making sure that the landscapers are doing their job provides the managing agent with reports as to what's going on on the property it's actually a very big job on the resident manager's part because they're technically I can't even say technically they're basically on the job 24-7 even on their day off. Well the thing about resident managers or general managers whatever it may be you know they are an employee of the association and they really report to the board also they may have some dotted line responsibility to the management company or the board may have given the management company certain oversight but that manager is an employee of the association reporting to the board of directors who will determine whether they're satisfied or not satisfied with the quality of the work. Well you know another good example of the resident manager as opposed to the managing agent is it's 12 o'clock at night and there's a plumbing break on the top floor. Now are you going to call the managing agent or are you going to call the resident manager? The resident manager is the one who's going to initiate to stop that from doing any damage. Yeah and because you have a managing agent or management company it's very important that people look at what their scope of work is in the contract because it doesn't mean they're responsible for everything. We see managing agent contracts with all they do is the financials to fiscal only. We see some where they do the meetings plus the financials and there's some where they actually get involved in the property management usually the larger associations where they have a resident manager or general manager with their own staff more times than not they report directly to the board and the managing agent has no real authority over them except some technical issues on payroll and things along that line. Well I think that's another important aspect to realize as well is not every managing agent is doing exactly the same job at every association it depends again on the scope of that contract. Right so anyway that kind of summarizes part one which was last week and supposed to have been finished last week and what I want to go into now is part two which is process which really means meetings and governance with respect to record keeping and things along that line and there's different kinds of meetings. So let's begin with homeowner meetings or member meetings which would be an annual or a special meeting. Tell us about why they have those why you have to have them and kind of how they work and we'll work our way through this. Well I think the real important aspect of that particular meeting or what is commonly referred to as the annual meeting is it is the owner's meeting. That's where all the owners can come and actually participate because it is their meeting and you're required to have that at least once a year. Again not every owner is able to attend but they can for an annual meeting send somebody on their behalf to represent them at that meeting as well. Well it's interesting because we call it an annual meeting and the state law is very specific. It has to be conducted once a year. But for a meeting to be conducted and business conducted at an annual meeting you need a quorum. So what happens if you don't have a quorum? Does that mean you've held your annual meeting? Actually no the requirement if you don't have a quorum that's why you work so hard to try to make sure you've got the proxies and know who's coming but things do happen and you end up without a quorum you're actually supposed to reschedule that annual. You have to have that annual because otherwise you can't even replace the board members the current board members whose terms may have been up actually have to sit in that spot until they reschedule that annual meeting. It was an interesting thing because I have seen situations where there is no quorum and so the board takes the position while we had our annual meeting we just didn't have a quorum so we didn't conduct any business but we had the annual meeting but we didn't do any business. The problem with that is one of the key elements of an annual meeting is approving your tax well over resolution and I had a guest on our show previously on accounting Rodney Horano did an excellent job and he was saying that you jeopardize your tax status and the roll over funds if you don't do that resolution at a meeting. That's right. And then some boards have kind of used this to kind of stay in power without having an election because nobody showed up. I would just say back to the fiduciary duty to the organization they have an obligation to continue to try and to go ahead and solicit proxies and the way they can approach that is instead of just not having the annual meeting adjourn it to a date in the future. That means all the proxies you've gathered already are still valid so you adjourn it to a date in the fixture and you go back but I just don't think it's the proper thing to try to argue well we had an annual meeting even though we never had a quorum and we never did any business etc. Well when I see issues of not having a quorum I was joking with the board president last year about this she was complaining to me that they've tried and tried and tried to have their annual meeting and they're just not getting the quorum. So I jokingly asked her is there any controversy going on and she goes no we're fairly new we're only a few years old and everything's running just fine and I said you know that might be why nobody's showing up. I said in your next notice send out that you're discussing raising the maintenance fees 110% you might get a response you might get a quorum. I think you know even sending them notices of the potential tax issues and whatever you should be able to get people to send in quorum only proxies you know. So what is a proxy what does that come from? Well the proxy situation is say you and I are an owner I'm an owner and you are a friend of mine and I use that term loosely and I understand and I'm not going to be able to make it to the annual meeting but I want to know what is going to go on and things like that I can give my ability to attend and vote at that meeting via a proxy to you and have you attend on my behalf and the only time you can use a proxy is at the annual meeting you can't do it for a regular board meeting and so I'll give you my proxy because I'm on vacation somewhere and you're going to go on my behalf and then you're going to report back to me later what happened and all that kind of good stuff what's important to remember however is that proxy can be given to anybody it doesn't have to be another owner in the building or doesn't have to go to the board members themselves and I've jokingly said over the years you can give it to the homeless guy on the street if you so choose to go on your behalf Well let me say this we're going to take a quick break right now which tells me that our four part series is probably going to end up to be a six or seven part series with all the things I want to discuss with you on 514B so we'll be right back after a short break Aloha I'm Kaui Lucas host of Hawaii is my mainland every Friday here on Think Tech Hawaii I also have a blog of the same game at kauilukas.com where you can see all of my past shows join me this Friday and every Friday at 3pm Aloha Shrunk join us on shrink wrap Hawaii my name is Steven Phillip Katz I'm a licensed marriage and family therapist I see couples, individuals families cause we all have problems and if you're curious about shrinks and what they talk about come look at my show shrink wrap Hawaii and maybe you'll find your shrink Aloha and Happy New Year it's 2017 please keep up with me on power up Hawaii where Hawaii comes together to talk about a clean and just energy future please join me on Tuesdays at one o'clock Mahalo okay we're back at condo insider talking with Scott Shirley about part two government process and I was kind of laughing we were laughing as we took the break that our four part series might be extended so I'm going to try to help roll this along a little quicker cause let's remember this about annual meetings required annually it's in your bylaws it's in the state law if you don't have a quorum boards should take a lot of effort to make sure that you get a quorum so you can elect directors there may be other mandatory resolutions in your bylaws you have to pass as well as the tax rollover resolution you could be jeopardizing your taxes if you don't have an annual meeting you need to have a quorum 50.1% of the owners by person or by proxy that meeting if it's a brand new development has to be held when 40% of the units are sold or when 10% of the owners request such a meeting and the meetings conducted by roberts rules of order those you may not know at my book on roberts rules is 691 pages long there are different rules for annual meetings and board meetings the boards are much more informal in their nature and the order of business of the annual meetings in the bylaws but you should have an annual meeting every year that's where you make certain decisions like collecting your board and now the next step we're going to go on to what is the special meeting of the homeowners well the special meeting of the homeowners could be a myriad of things actually what I experienced a number of times in regards to special meeting is where owners have actually gone out and done a petition to call for a special meeting and all those cases that I was involved in it was to remove somebody from the board so that's one example of how a special meeting can be called the board president can actually call a special meeting too you might want to go into more detail on that one we don't want to tell you how to remove your board actually the special meetings are meetings not at the annual meeting it comes up in between the annual meeting where either the president the board majority or 25% of the owners by petition can call a special meeting what's important to notice and that is that meeting is limited to the written call of the meeting exactly the purpose of the meeting is to amend bylaws that's all you can do with the meeting if the purpose of the meeting is to remove the board of directors that's all you can do at the meeting so if in fact you actually had a petition which I would vote for to remove Scott as a board member on the board and you went to that meeting you couldn't remove Richard because the call was to remove Scott exactly it's a notice and transparency issue so people need to be very careful with respect to how they write the petition because when you have a board removal people have a right to be heard under the statute so you're giving them notice I'm going to try to remove you you have a right to speak to the owners in the assembly and say why you don't want to be removed so you have to be very careful about your special meeting preparation to make sure that the call of the meeting is accurate so you're not limiting what you can do with that meeting and that's my very first special meeting that I got involved with 20 some odd years ago the board president was an attorney and made it very clear that that petition has to be very specific and again just like you said that's all that's going to happen at that specially called meeting that's correct so anyway that's what a special meeting is we do see every year special meetings for specific purposes and sometimes it's because they've had a environmental area or disaster and they need to agree to spend some money or amend their declaration for better technology whatever and they just can't wait until next year to deal with it although they certainly could deal with it by we call mail ballot written consent that's another way to handle it but so people understand that's what a special meeting is it's a special meeting for a special purpose and at meetings there's typically two types of voting straight voting and cumulative voting I prefer straight voting just quickly we've discussed this last week I think just briefly review us what the difference between the two is well my favorite example and I've done this at many many meetings is say you have a ballot of new directors and two directors terms are over and you have three people running for those two spots what an owner has at that point in time is they have two votes so in straight voting they put one vote next to one name and one vote next to another name and whoever gets the most votes wins in cumulative voting which can get a little confusing as well is I have two votes there's three people running I could do it the straight way which is one vote to this name one vote to this name or take both of my votes and apply it to one name and that's what they refer to as cumulative voting you're taking all your votes into one name the parliamentary concept behind it allows minorities to get influence on the board by stacking their votes for a candidate through cumulative voting it's important for our listeners to understand that that's an express right within the bylaws if you don't have cumulative voting in your bylaws I'm going to quote quote say then you can't vote cumulatively although believe it or not there's some argument that if you're an incorporated non-profit and you're under 415B you may have the right with enough notice and enough owners to request cumulative voting which is the non-profit corporation act and I'm going to lead that to the attorneys to debate that one out that's another showing itself but I have seen it happen and it just causes the managing agent all sorts of grief with respect to that type of voting so that's kind of the homeowner type we're meeting special meetings and how they work and it's an obligation to statute order businesses into bylaws and you conduct business and we discussed some of the other issues last week so let's go into the board meeting which is more frequent as well we know where the board members get elected at the annual meeting where do the officers come from and where do their duties come from well where the officers come from is what should be happening at the end of that annual meeting where the board sits down and determines who's going to be president who's going to be vice president their terms may be dictated by the bylaws you often see that they've got staggered terms so that the entire board is not coming off at every annual meeting although I have seen annual meetings where the bylaws were expressly written that way you only serve one year next annual meeting you're off maybe so it's very important to understand what your bylaws say in regards to that meeting and the terms and everything like that you and I were just discussing the other day that an entire new board had been elected and then suddenly nobody wanted to serve as the president a whole new board and my brain wasn't working that day so I contacted you and said what do you do then and you said the vice president was alone so I go back and said the vice president well nobody wants to be vice president either and my response to that basically was why did anybody run for the board because then it's the treasurer and it has to take over if there's nobody there then the secretary takes over and then the speaker of the house takes over and then the designated survivor you know he goes on and on that's kind of tragic because it's a volunteer organization and being the president doesn't impose any greater liability on you because it's the board liability as a whole and how you vote and how you conduct as a director and or vice president or secretary or whatever the president basically just chairs the meeting to make sure it's run in a logical and organized fashion and so when you hold this board meeting the question is what kind of notice do you have to give notice A and B how about homeowners who want to attend can they talk what's the deal on that this actually is an issue that's been coming up frequently in the last year or so I believe where owners are feeling that they're not given the chance to participate in the meeting and 514B actually states that owners have a right to participate now the board may set up guidelines on participation so that one person doesn't get 20 minutes of the floor and the other one only gets one minute of the floor and things like that so you can have guidelines to keep things running smoothly I was notified by one of my students recently that there was a board where they didn't like one of the owners so they made a motion and passed it that he's not allowed to come to any more board meetings not allowed to do that the owner has the right to participate in that board meeting but you and I have actually been to meetings where they hand out the rules this is how we're going to conduct the meeting well there's legislation today even though I think the legislation is clear today but there's legislation to make it more clear today that's moving along quite well in the legislature but kind of backing up to hold a board meeting, boards are supposed to provide notice on the project 72 hours in advance of a board meeting and or upon simultaneous notice to the board of the meeting so you're not limited to giving 3 days notice you could all of a sudden say we have an emergency we're calling a board meeting for this purpose tonight at 6 o'clock and so long as you notified the owners at the same time you notified all the board members by posting a notice on the project you're not prohibited from certainly you should give 3 days notice or more but the reality of this things happen in condo world and this law is very clear it's 72 hours or upon simultaneous notice because it's this only of a notice at the project that's all that's required and I think the law looks at the fact just like you said it's condo world, there are emergency situations sometimes you have to call a meeting that evening at 6 o'clock and the proposed change in the statute this year which is moving along and probably will be adopted in some form or another is that see what you said earlier about you can always speak in the form that's not the intent of the current statute they should be allowed to participate in any part of the meeting but the board has the right to put reasonable rules in place to limit the time so that people have a chance to be heard without taking away the board's need to do business that's kind of what the balance is so the proposed change in the statute which will become law in my opinion clearly identifies the board's what we've always suggested in the past an item comes up at the board meeting like we're going to paint the building pink and we take the position okay the board is going to discuss it first and the board goes back and forth they discuss it and they say okay this is a chance for the owners to speak would anyone like to speak on the issue of painting the building pink and you give those owners a chance to speak and everybody speak first and they want to say one more thing and they have a chance to talk and most don't take advantage of it at some point in time the board says okay we've had enough input at this point in time now that everybody has spoken once we're going to go ahead and vote on the matter or defer it whatever they're going to do but you don't want to be in a position of not letting owners participate in the property that they own and the key to that too is if you're not letting the owners participate they are going to assume that's why you're not giving me the chance to speak and I know that this is part two so we're going to this is part two A we're going to be going to part two B next week and we're not going to get through the rest of this agenda so we'll just quickly say one more thing about this for a board, let's say a nine member board to me they have to have a quorum of five members exactly and they have to be careful on their bylaws because some bylaws say the majority of those in attendance can vote so three of the five can pass a resolution some bylaws say you still need a majority of the whole board of nine to vote to adopt a resolution it's more common that a majority of those in attendance can vote for it and under the law they can attend by telephone and so with that being said are you ready for part two B next week to talk about executive sessions and record keeping? Oh yes I'll be ready and that'll be part two A, B, C anyway we want to thank everybody for watching today this is a little slower process but you know 514B is a big law and as Scott was saying earlier the actual course that the realtors have to take was four hours long so we're trying to do this in half the time so we'll do our best but thank you all for watching Condo Insider today and until next week aloha