Reader Questions - Paying Directors

Dear Mr. Richardson,

Ran across your column recently and that spurred me into writing you.

I belong to an HOA in Riverside County. I have been told that state law governing HOAs override all HOA rules and regulations, CC&Rs and bylaws. However, if an HOA chooses to be more restrictive than the laws governing the HOA it may do so.

This leads me to the following question. I understand that Corp Code 7233 allows the directors to be compensated for any work they do for the HOA. That is if they bring said compensation to the attention of the membership and said compensation is approved by the membership.

Our bylaws prohibit directors from being compensated for any work done for the association. This leads me to believe that this bylaw, being more restrictive than the state law, would override Corp Code 7233.

Am I correct in my assumption?

G.P., Aguanga

Dear G.P.,

Yes, but two different issues may be involved. An Association’s governing documents may in most respects be more restrictive than the law, with a few exceptions. However, Corporations Code 7233 refers to the HOA doing business with a director, not paying a director for the director’s services. I discourage clients from doing business with members, and often suggest bylaws be amended to ban contracts with a member (including directors) unless the contract is approved by membership vote.

Contracting with a homeowner presents several problems – the possible questionable appearance, the problem of suing one of your neighbors if the work goes badly, and the possible claims that the homeowner is getting a “sweetheart deal”. One director did earthmoving work for his association for free, and there still were allegations that something was wrong with the arrangement!

As to compensating directors for their service on the board, interestingly, there is no specific section in the Davis-Stirling Act banning directors from being paid. HOWEVER, there are at least three reasons why receiving any compensation:

1. Volunteer immunity under Civil Code 1365.7 is lost;
2. Volunteer immunity under Corporations Code 7231.5 is lost; and
3. The integrity of the board’s governance is damaged.

Can a director be reimbursed for out of pocket expenses? Yes. “Value of time” or “mileage” is not “out of pocket”, however. If you can show the treasurer a receipt, then it is out of pocket.

Compensation of any kind, whether cash or a discount on assessments is a very bad idea, and not worth the loss of immunity and the damage to board’s credibility.

Thanks for your question,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.