Real Estate & Property Law

May Board Members Accept Compensation in an HOA or Condo Association?

May directors receive compensation? Here is the question as posed to me:

"I am a new Board member and I am having trouble with an interpretation that my Board President has provided us. It comes from an Attorney:

The Bylaws state:
No Director shall receive compensation for any service rendered to the association. If approved by the Board, a director may be reimbursed for actual expenses or costs incurred in the performance of his/her duties as a director.

[FROM THE ATTORNEY] 'This clause means that a director is prohibited from receiving payment for services rendered [as a director]. If a director, with Board approval, is paid for handyman services, this is separate and distinct from being a member of the Board.

The "no payment" rule protects Board members (who are all volunteers), from liability if they are sued. Corporation Code S7231.5 also provides a 'no monetary liability' on the part of a volunteer director or officer of a non profit corporation. "Volunteer" means the rendering of services without compensation (as a Director or Officer).

However, the reimbursement of mileage and other costs is not a payment under either the Civil Code or the Corporation Code.'

I have read your article on this subject and found it very responsible, whereas I believe this interpretation is one sided and incorrect. It seems to me that the first sentence is pretty direct and that if "as a Director" is not stated it is not implied. Our Board has a habit of paying directors for menial tasks, like delivering the newsletter. What do you think?"

I tend to agree with the attorney's opinion - that the clause relates to services provided as a director; however, it would be much more clear if it actually said that - "services as a director." If a board member provides services to the association outside the scope of what would be expected of a volunteer director such as publishing, editing or delivering a newsletter, management, accounting, legal, etc., then a contract should be drawn up listing those duties specifically and the compensation therefor specifically so there is no doubt as to what is compensated and what is not. And disclosure of the contract to members is required under the Civil Code (in the Davis Stirling Act). See:

1365.6. DISCLOSURE OF DIRECTOR'S FINANCIAL INTEREST IN CONTRACT.
Notwithstanding any other law, and regardless of whether an association is a corporation, as defined in Section 162 of the Corporations Code, the provisions of Section 310 of the Corporations Code shall apply to any contract or other transaction authorized, approved, or ratified by the board or a committee of the board.

Comment: The impact of this section is basically to say that any contract that is executed by the Association in which a Director has a financial interest is not automatically void or voidable, if the terms have been disclosed to the membership. The concept supported is openness. You can see a copy of Corporations Code Section 310 at www.ca.gov, navigating to the California Codes.

As for disclosure, that would usually be through minutes of the Open meeting when the contract was approved.

As for delivering the newsletter, I do not know if that is menial? Are there 2000 or 20 homes? Things like this might make a difference, and the question is not really whether it's "menial" but rather whether the service would be something that would normally be expected of a volunteer board member. That probably falls outside the expectation.

Furthermore, if a board member gets $$ for delivering the newsletter and there is no specific contract covering these kinds of jobs and separating this from board services, the board member risks losing his or her volunteer status and when it comes to considering liability, and the legal protections he or she would otherwise enjoy if sued. The compensation, especially if it is "menial" too, is probably not worth the risk.

Full post as published by California Condo & HOA Law on March 28, 2011 (boomark / email).