By Ryan D. Poliakoff / Published January 2018
Can you please explain how annual meetings and elections work? We live in a condominium, and my neighbors and I are thoroughly confused. The notice that was sent to us lists the election as an agenda item at the annual meeting, but we are also told that, even if we don’t have a quorum at the meeting, the election can still occur. How can that happen? And what is the proxy for if there is nothing to vote on other than the election? If we don’t send in our proxy, can we still vote in the election? I’m worried that my proxy is essentially a blank check for the board to do whatever it wants.
Annual meetings and elections are among the more complicated aspects of corporate procedure that affect condominiums and homeowners associations. To begin with, I often see associations refer to more than one meeting as an “annual” meeting. Some will notice both an annual board meeting and an annual membership meeting. Sometimes, that annual board meeting is specified by the governing documents, but often it’s just the result of a misunderstanding about the difference between the two types of meetings (or it is the name the board uses for its annual budget meeting). Once everything is broken down into smaller pieces, it should be easier to understand.
Every community association (such as a condominium association) is a corporation with members (think of them as corporate shareholders, but without the same types of equity rights). Typically, the members of the association are the record title owners. While all of the record title owners are members of the association, that does not mean that each individual owner votes on membership issues (such as the election of directors)—instead, each unit or lot typically exercises a single vote.
Certain very broad policy matters are decided by the membership at large, and these decisions are made at membership meetings. Every association has at least one membership meeting each year—a so called “annual meeting.” In order to hold a legal membership meeting, a minimum number of owners must participate, either in person, or through a proxy (a person who attends the meeting on the owner’s behalf). This minimum participation number is called a quorum. The quorum number in a condominium is typically a majority, and if a quorum is not reached, business at the meeting cannot move forward. If you are not going to attend the annual meeting in person, you should submit your proxy form so that the association can establish a quorum at the annual meeting and vote in the event that there are any membership decisions to be made (such as waiving reserves or approving material changes to the property). Often, however, the proxy is just sent as a formality, as, while there is no business to conduct at the annual meeting, the Condominium Act and the governing documents will both specify that an annual meeting must be held.
There are two main types of proxy forms—a limited proxy (where the owner will direct the proxy holder to vote on an issue in a specific manner), and a general proxy (where the proxy holder has the general right to vote however he or she sees fit). Pursuant to the Condominium Act, all important decisions in a condominium must be made by limited proxy. So, you usually do not have to worry that your proxy holder will vote against your interest—on all major matters, you will specifically instruct your proxy how to vote (even if, for example, the proxy holder is also an officer).
One major exception to the rule regarding conducting business at the annual meeting concerns the election of directors. While the election of directors occurs at the same time as the annual meeting, it is actually a separate and independent process that has its own minimum participation requirement (20 percent). Therefore, the election can occur even if the membership meeting fails to achieve a quorum.
In most associations, the election is listed as an item on the agenda for the annual meeting, but this does not accurately represent the legal relationship between the meeting and the election. Even if the meeting does not go forward, the election can continue.
Interestingly, many homeowners associations work differently. Unlike the Condominium Act, the HOA Act does not specify an election procedure (leaving the conduct of elections to the individual HOA bylaws), and so, unless the HOA’s own governing documents provide for a condominium- style election with its own quorum requirement, the election is in fact a part of the annual meeting, and it is subject to the same quorum requirements as that meeting. Now, the maximum quorum in an HOA is 30 percent, so it is much easier to achieve a quorum in a typical HOA membership meeting than a typical condominium meeting. Also, and unlike a condominium, most HOA elections are conducted by either general or limited proxy. So, in an HOA the proxy form is particularly important, as it is required in order for both the meeting and the election to take place.
Ryan D. Poliakoff
Partner of Backer Aboud Poliakoff & Foelster