HOA Proxies - Useful or misused?
22 January 2021 | Jerome November
I am a homeowner at a Homeowners Association (“the HOA and/or the Association”) but write in the capacity as trustee, having served on the board for the last two years. The HOA consists of 546 units and is divided into several Body Corporates, some of these having their own trustee committees. Despite these committees operating independently, their function as well as control, is subject to the Constitution of the HOA, and their members are also members of the Association.
Each year the HOA board of trustees gets elected by members of the Association, and the HOA elected board has the mandate to represent the interests of all 546 units. One of the most controversial issues the new board grappled with, in my experience, is the appointment of a person as a proxy, more especially, the issue of limiting the number of proxies a person may hold at meetings. The issue of whether the proxy vote is useful or misused in its present form has been fiercely contested at the last two annual general meetings. Let me expand why the issue of proxies has caused so much controversy at our HOA.
Importance of proxy votes
Voting plays a crucial role in the control and administration of HOA’s. Even though the HOA Constitution provides that trustees have full control over the finance and administration of the Association, it is the homeowners, who by way of votes at AGM’s, elect the board of trustees each year. Members also use the votes to determine the outcome when making important decisions such as approving the budget, making and changing of rules, as well as the removal of trustees. Hence, voting at AGM’s and other meetings not only determines the direction and future of the Association, but also determines who will be in control of directing the future of the Association. In essence, it means that whoever secures the greater part of votes at meetings has direct control over the finance and the decision making of the Association.
Homeowners who are not able to attend meetings, but want to ensure that their votes have an impact at meetings, do have recourse. Proxy votes are designed to allow homeowners who are not able to attend meetings to still cast their vote through another person. The Companies Act, 71 of 2008, which regulates non-profit organisations such as Homeowners Associations, provides for members to appoint a proxy. Hence, the HOA Constitution provides that a ‘member may be represented at a general meeting by a proxy, who may not be a member of the Homeowners Association’. However, the Act does not place any limit on the number of proxies a person may hold at HOA meetings, unlike the Sectional Titles Schemes Management Act 8 of 2011, which limits the number of proxies to two at Body Corporate meetings. On the other hand, the Companies Act does not prevent HOA members placing a limit on the number of proxies a person may hold at meetings.
Having no limitation on the number of proxies a person may hold at HOA meetings can be useful if it is used for its intended purposes, but its misuse is of great concern to some homeowners. The usefulness and misuse of proxy votes are addressed in the next section.
Usefulness of proxy votes
In smaller to medium sized Associations such as ours, every vote is of utmost importance, more especially, when confronted with important decisions such as budgets, election of boards or resolutions, and which require a mere majority of votes. For members to call a meeting, the HOA Constitution requires that a quorum be present before the meeting can proceed to business. For example, the Chairperson can only proceed with a general meeting if it reaches a quorum of no less than 25% of the total votes of all members of the Association entitled to vote. In instances where members have the need to call a special general meeting, trustees will be compelled to call such a meeting if the total votes of members entitled to vote exceeds 50%. To amend the Constitution, the total amount of votes required can be as high as 75%. At the last AGM held at our HOA, it was the 53 proxy votes of the administrator of the HOA that played a crucial role in securing the quorum of 137 votes required to proceed with the AGM. Hence, the use of proxies is not only useful in securing favourable outcomes at meetings, but is also important in ensuring that meetings attain the required quorums.
Misuse of Proxies
Despite its usefulness, proxy votes have drawn much criticism from members of the Association due to its misuse at AGM’s and other meetings. The fact that no limit is placed on the number of proxies a person may hold, has resulted in one or two persons using proxy votes to secure the outcome at meetings. For example, at the last AGM held, the administrator used the 53 proxy votes garnered to elect board members favoured. It was no surprise therefore that the list nominating the nine board members the proxy holder favoured out of the 17 candidates, was the same as those nine members elected to the board. In one of the emails uncovered after the AGM, the proxy holder was found to have appealed to one the members, who was out of the country, to ‘please appoint me as your proxy agent so that I can ensure that the proper board is appointed’. It was also clear that the proxy holder's position allowed access to the database which contained all the details of members not able to attend the AGM.
Another concern raised at the AGM is that the Constitution provides that persons appointed as proxy may not necessarily be members of the Association. This essentially opens the door for people who do not have a personal interest in the business of the HOA to be appointed as proxies. In the instance of the administrator, who was a tenant at the HOA and not a homeowner, it became clear that the sole purpose of securing sufficient votes to influence the outcome of resolutions and decisions at meetings was merely to serve self interests and not that of the HOA.
Way forward
From the above it is clear that proxy votes can be useful if used for the intended purposes. However, it is also clear that proxy votes can be misused, more especially, where those implicated do not have a personal interest in the Association. The way forward is to find a balancing act where the usefulness of proxies can be exploited to the maximum, but at the same time identify those areas where it is misused with the purpose of closing such gaps.
How interesting! Should you have any similar experiences, or wish to have a consultation to discuss proxies in your HOA, please contact us on 061 536 3138 or email info@tvdmconsultants.com.
About the Author: Jerome November LLM MPhil MPA LLD candidate (UWC) and Trustee at a large HOA in Muizenberg with the portfolio Constitution and Conduct Rules.