Board director lives in association-owned rental unit without paying rent

Question: Several years ago, our homeowner association nonjudicially foreclosed on two condominium units, resold one and kept the other as a rental unit. A board director decided to stay in the rental unit temporarily while she rented out her own condo. She has now lived in the rental for more than five years without paying rent, monthly dues or special assessments because that’s the association-landlord’s responsibility.

The association loses rental revenue and must pay $425 a month in dues. The management company doesn’t want to rock the boat because the board director-renter is responsible for their contract renewal. The board doesn’t want to rock the boat because the board director-renter is still on the board. Owners are fed up and want to see that rental condo pay for itself. Can we get her out of that unit so it can be rented legitimately?

Answer: This type of self-dealing and misappropriation of association assets amounts to theft. If the management company and the entire board refuse to stop such dishonest and wasteful behavior, then you and the other owners should take steps to remove the board, fire the manager and evict the non-paying tenant.

Every board director has a fiduciary duty to the association and its owners. State Corporations Code section 7231 requires a director to perform the requisite duties in good faith and in a manner such director believes to be in the best interests of the association, with such care as an ordinarily prudent person in a like position would use under similar circumstances.

It is not reasonable and is a breach of the board’s fiduciary duty owed to all assessment-paying titleholders to allow a sitting director to remain in the association-owned rental unit for five years and not pay rent and assessments.

Although direct deals between directors and the association are not prohibited, they should be thoroughly scrutinized for potential conflicts of interest.

If a director is supposed to maximize benefits to the association for use of its assets, that director cannot negotiate for a better deal for herself than an unrelated third party would get.

A board director taking for herself what could be rented to someone else robs the association of a monthly revenue stream, forcing all other owners to pay more to fund association operations.

As a titleholder, you have standing to file a police report for theft by this director. You may also file a lawsuit against the director-renter and the board of directors for failure to take remedial action for such a severe breach of duty and misappropriation.

A vendor, such as this management company, that looks out only for its contract renewals is not serving the best interest of the owners and should be replaced.

The board must proceed to take steps toward eviction. Once the association has served a pay-or-quit notice, it may initiate formal proceedings for removal if she does not comply. If this director wishes to continue to occupy the rental unit, she must pay the costs.

If you and your fellow owners fail to take timely action, your association may forever lose rights to this condo unit.

California recognizes adverse possession, which is a means for an effective trespasser to gain rights to the unit if he or she is openly occupying it as a true owner would for a certain period of time.

Although that time period is usually far in excess of the amount of time already lapsed in this case, it can be reduced in certain circumstances, such as when the squatter pays the property taxes.

Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.