What are HOA Executive Sessions?
HOA executive sessions refer to a closed-off portion of an HOA board of directors meeting. In these sessions, the board meets separately to discuss sensitive matters without HOA member attendance. The purpose of these sessions may include discussing delinquent owners, personnel matters, pending litigation, and other topics that should not be discussed in front of all members. If extensive discussion of these sensitive matters is not necessary, courts have held that boards should not exclude members from these meetings. For example, while courts allow boards to enter executive session to discuss delinquent members , if the board is merely reviewing the delinquency report, this specific discussion should be held before all of the members. There are various situations where a board may enter executive session. Common examples include: Executive sessions do not need to be mentioned in a traditional HOA notice of board meeting. This exception greatly simplifies the logistics of holding an executive session. Understandably, there should be a limit to the situations where a board would hold an executive session so as to not create the perception that the board is trying to keep everything behind doors.
The Law Behind Executive Sessions
The legal framework governing executive sessions is fairly straight forward in most states, and most associations understand the general dynamics related to not conducting business or taking official action in executive session. Instead, executive sessions are the exception to the general rule, and must be conducted within specific constraints or parameters. Since executive sessions are the exception to the general rule, statutes governing common interest associations typically set forth the specific circumstances where executive sessions are permitted. For instance, in California, Civil Code section 4935 permits, but does not require, an executive session for the following purposes: (1) Litigation among homeowners or litigation in which the association is a party. (2) Meeting with the Association’s legal counsel. (3) Matters relating to the job performance of a manager or other employee or contractor, or to complaints against employees of the association. (4) & (5) Licensing, disciplinary, or recall proceedings, as set forth in the previous section. (6) Member discipline and collection. (7) Approval of contracts, grants of easements and extensions of existing easements, or the acquisition well (not having existing easements) on property owned by the association, unless the board determines that open meeting action would be strongly in favor of the membership and would not be opposed to the best interests of the association. (Note that provisions relating to protected disclosures must be redacted before the subject of the disclosure can be discussed.) In other states, the enabling statutes may be more general, or contain exceptions or a narrower scope. A homeowner association should specifically work with legal counsel to ensure it utilizes proper procedure in conducting executive sessions, no matter where the association is located.
Common Provisions for Holding Executive Sessions
Most state statutes around the country have at least one provision that addresses holding executive sessions in regard to HOAs, condominiums, and cooperatives. Unless these provisions are violated, the governing bodies have significant discretion in how they structure these private executive sessions. For instance, the statutes vary widely in determining who may attend such sessions.
Generally speaking, only the members of the board or the committee conducting the executive session may attend. Some of the statutes may also allow limited attendance by members of the association (who are not on the board or special committee), as well as officers, employees, and agents of the association, its master association, or authorized representatives of the board. Further, it is typically provided that any attorneys and accountants needed at the executive session (for example, to handle a pending lawsuit, a dispute over an invoice, or other pending matter), each of whose attendance is necessary, must also attend.
Executive Sessions Are Usually Scheduled Ahead of Time
General meetings of boards and committees are usually scheduled well in advance, for instance, typically at the annual meeting. In contrast, although some bylaws may anticipate or provide for regularly-scheduled executive sessions, it is more common that such sessions be scheduled on an ad hoc basis, perhaps when a pending matter necessitates an executive session.
Since executive sessions are usually scheduled close in time to the general meeting, notice of executive sessions is not usually given as a matter of course. However, where the statute or bylaws require notice of executive sessions to members, such notices should be given for both specific executive sessions upon the giving of notice of general meetings, but also as part of the annual disclosure of governing documents or rules.
Executive Sessions May Relay Confidential Information
Confidentiality is a key characteristic of executive sessions. This means that matters discussed may not be disclosed. However, it is not unusual for members to insist on being informed of certain types of private discussions held by boards or committees that conduct executive sessions. For instance, the number one request from owners typically has been to be informed of the outcome of the executive session, not the specific content of deliberations.
Topics Generally Addressed in Executive Sessions
Topics That Are Generally Discussed In Executive Sessions
In most associations, the board is going to conduct a portion of its business in executive session. Generally, there are three areas in which topics will be discussed in executive sessions. They are: official actions related to matters of personnel, pending or probable litigation, including matters subject to the attorney-client privilege and member discipline and hearings.
- Personnel: There are many reasons for an official action that pertains to personnel matters, including approval or disapproval of bonuses or merit increases, contract approvals of employment agreements, and discussion regarding the qualifications of applicants. However, it is generally wise to hold off on discussing the ratings for specific employees until a later closed executive session. The discussion about the ratings should be listed specifically on the agenda; however, the information is considered sensitive in nature, and having that recorded on the minutes may cause problems for the association later. Additionally, if a board member ever were to be deposed or subpoenaed, he or she would be asked for copies of the minutes, so it is probably safer to avoid making those written minutes public and to simply address that matter with a verbal report only, unless a closed session is held.
- Pending or Probable Litigation: This provision captures the back-and-forth conversations between your attorneys, insurance carriers, the other side’s attorneys and/or expert witnesses. A huge advantage to this provision is that the association’s in-house or retained legal counsel can participate in the executive session under the attorney-client privilege. The attorney-client privilege only attaches to the board as a whole, but if the attorney is already advising the board on these matters, then the attorney should be present during the executive session. If the attorney is not on the line, or in-person at the meeting, then legal advice cannot be provided because it will be impossible to determine if it is between the attorney and the board, or the attorney and management. None of those communications would be privileged. Be aware though, that if the board chooses to discuss general strategies or philosophies, and not specific actions that they may take, it is not necessary to us the executive session provisions. However, if there are specific actions, board votes, or communications between attorneys/certain individuals and the board, it is best to keep those discussions confidential and out of the minutes.
- Member Discipline and Hearings: Most associations have hearing policies and processes for members to address alleged violations of the Bylaws, the CC&Rs, or the rules and regulations. Many boards will go into executive session to determine whether discipline should be meted out to the member for a violation of the declaration of covenants, the bylaws, or the rules and regulations. Although some associations will list all of the details regarding the alleged member discipline on the agenda, unless there is a special circumstance, it is best to have a separate executive session on that issue alone.
Rights and Responsibilities of HOA Board Members
Members of an HOA’s executive leadership participate in much more than just cheerleading activities for verbal motions and statements brought forth at open meetings. Any executive outside the realm of HOA management can understand that the responsibility of governance can be overwhelming. For HOA board members, the task becomes even more involved because many board members are volunteers that often do not have prior experience or education in association governance. Nevertheless, they have a fiduciary duty to prepare as thoroughly as possible for every executive session and meeting. As members of an HOA’s board of directors, these individuals "wear the crown". They have unique rights and obligations.
Commonly, if an association’s bylaws and/or articles of incorporation cover the topics of board member executive session rights and obligations, that would be the first document to which to turn for answers. Also, state law may apply to an HOA’s executive session rights and obligations. In Colorado, the Colorado Common Interest Ownership Act ("CCIOA"), C.R.S. 38-33.3-101, specifically addresses an HOA’s right to executive sessions. The executive session of the board…
The executive session of the board may only take place during a regular or special meeting of the board and, except as otherwise provided by law, no proxy shall be allowed. At such a meeting, the board may consider matters pertaining to:
The concern regarding executive sessions is that disputes over board business are frequently discussed behind closed doors. In Colorado , CCIOA requires that the meetings revert back to an open meeting when the board is done with the executive session, which will provide an opportunity for homeowners to address various issues that may have been discussed by the board during the executive session.
Another concern relates to the board and management’s ability to safeguard association information and, therefore, the documents pertaining to the association’s business should be reviewed with great care. For example, board members may not discuss or disseminate legally protected information obtained in executive session (such as civil or criminal actions involving the association, personnel matters, litigation by or against the association or non-public financial records) in an open meeting.
Board members have a duty to "mind the store", so to speak. In their capacity as directors, they owe the association fiduciary duties of care and diligence. Service requires directors to act in good faith and in the best interests of the association. Essentially, to have a pulse and be conscious and aware and to apply their minds to the benefit of the association and it members. Taking reasonable care of the association’s interests as a director demands that a Board member "stay in the know" and "assist the association in its business." Each board member must always keep in mind that they are accountable to the members of the association for their decisions and actions or inactions.
Transparency and Compliance
Maintaining transparency while honoring privacy is the continual challenge that HOA boards face. Honest dealings with owners, transparency and compliance with the reasonable business judgment rule, are not only the hallmarks of good HOAs but a prerequisite for effective governance. To ensure transparency, boards must be mindful of what is discussed in executive session and must properly document the matters discussed. It goes without saying that the reason board meetings are held in open session is to allow owners to observe how the board conducts its business, including the handling of regulation violations, assessment delinquencies, and other owner matters. A procedural or substantive violation of the Open Meeting Act may impair the validity of association actions taken outside of a properly held executive session. To the contrary, maintaining accurate minutes of executive session proceedings promotes compliance with the Open Meeting Act and ensures that the business of the association is conducted in accordance with applicable law.
Consequences of Non-Compliance
Even though the decision-making process taking place behind closed doors may (in some cases) not be subject to statutory requirements, failure to comply with the applicable rules for executive session can lead to a number of negative consequences. In addition to being an empty pipe dream, any entity that meets secretly and attempts to claim they are protected by confidentiality could be setting themselves up for litigation .
Some of the potential disputes that could arise from improper executive session procedures are:
The existence of defects in the decision-making process that does not meet the legal requirements will naturally lead to anger among the members of the community. Not only will the board lose the trust of the community it was elected to serve (which makes it difficult to implement any corrective measures afterward), but it will also cost money in legal fees and possibly damages (if applicable).