Real Estate & Property Law

Holiday Parties for Board Members - Are They Legal?

It's holiday time and the usual questions arise. Here is a good one from a reader:

"Is it proper (legal under Davis Sterling or Corp Code) for B of D's to throw themselves a holiday party for directors and their guests? Does this not cross the line about directors not receiving "pay" for their services? At the very least should there not be a resolution that approved the expenditure of funds, which, after all, belong to the homeowners who are not invited to the party? Many homeowners would agree that the hard working directors deserve a party for the hundreds of hours they put in each year, but they resent the secrecy about it. All expenditure of money should be transparent. Because we have multiple boards, the party is for [30+] people plus guests--some directors are boycotting the party in protest."

Sounds like many recognize the benefit of such a party but since some directors are boycotting, this sounds like it could be a political hotbed. Hopefully it will not be. There is nothing in the Davis Stirling Act or Corporations Code that limits or promotes celebrations or parties. Most bylaws say that board members should not be compensated; it is their volunteer status that provides them with some legal protections. They are doing a service that the masses in homeowners associations do not relish.

The reader acknowledges that lots of homeowners would agree the working directors deserve a party but object to the secrecy. I don?t know what secrecy is involved but imagine that associations that have these kinds of celebrations don?t honk the horn about the cost of such a party. On the other hand an owner has a right to see lots of financial records including the items defined as ?enhanced financial records? in the following passage from Civil Code Section 1365.2.5:

? (2) "Enhanced association records" means invoices, receipts and canceled checks for payments made by the association, purchase orders approved by the association, credit card statements for credit cards issued in the name of the association, statements for services rendered, and reimbursement requests submitted to the association, provided that the person submitting the reimbursement request shall be solely responsible for removing all personal identification information from the request.?

So it is hard to keep any hard and fast secrets about the party. If there are secrets about place and time, then I suppose that would tend to make people wonder why. Maybe the board fears ?crashers?.

The simple answer is that there is not a law that sets parameters about holiday parties. Some boards include owners in an annual bash and then while some look forward to it, other owners complain about the cost. There is a fiduciary duty aspect that would lead me to say such parties should be planned with prudence in mind. I could say that flying the board to Las Vegas for dinner would definitely be on the imprudent end of the spectrum. Overdoing the booze is also imprudent. But limiting the shindig to a BYO brown bag is too far on the other end. The reasonableness and prudence falls somewhere in between. Keep in mind the disdain of the public in hearing about the corporate muckity muck parties involving private jets and grossly expensive parties. It's not out of the realm of possibility that a homeowner or owners could stir up some real trouble if it appeared there was a gross abuse of authority.

Arranging a holiday party to thank the board members for their service would not constitute compensation.

Full post as published by California Condo & HOA Law on December 02, 2010 (boomark / email).