The issue…

In my last post about the delay in publishing the “Jalisco Condo Manual – Second Edition,” I mentioned that a higher court in Jalisco had found that Article 1032 of the Jalisco Civil Code was unconstitutional. I’ve received a surprising number of enquiries for details about this, and thought it easiest to deal with it in another blog post.

Article 1032 is the civil code article that allows a condo to petition a judge to sell a unit at public auction if the owner repeatedly fails to pay fees, or violates other obligations.

How we found this out…

A condo decided to sue a particularly intransigent delinquent owner, and to rely on Article 1032 to rid the condo of the problem owner. This type of lawsuit is usually faster than a typical suit for recovery of a debt. However, there were unusually lengthy delays in getting the documents reviewed and approved by the judge.

Working through a Guadalajara lawyer, we discovered that the local court had never had a suit like this before. In the past, local area condos had always just sued for the money owed. The judge, being unfamiliar with this article and its procedures, wanted more information before proceeding with the suit and the auction.

The lawyer did some searching in court records in Guadalajara to find an example case the judge could review.

He uncovered a case where a condo had successfully sued under Article 1032. The owner of the unit (a lawyer) had launched two appeals, which were denied. The auction was ordered to proceed, and a buyer was found. The owner launched one more appeal, and was, unfortunately, successful!

The argument he used in this final appeal was that, the way Article 1032 is written, it precludes the owner from presenting a defence.

The constitutional problem…

Article 1032 just requires the condo to petition a judge with sufficient documentation, and if it has proven that it is a properly constituted condo, the identity of the titleholder, and that a repeated violation has occurred, the judge will then order the property to be sold at public auction. There is no provision in this article for any submission from the owner.

Article 14 of the Mexican Constitution establishes the key legal principle of Seguridad Juridica (Legal Certainty). When the state seeks to use privation against someone (the act of taking away property or rights), this can only be done by means of a trial held in front of the courts. There can only be a judgement imposed against the defendant if they are allowed to contradict that which they are accused of, or that which is demanded from them, and that they be allowed to defend their interests.

All laws passed in México must comply with this basic principle, and because Article 1032 doesn’t allow for this (because it has a defect in its wording), the higher court deemed it unconstitutional.

History of the case…

The case in question occurred in the Ninth Civil Court in Guadalajara. The lawsuit was admitted, and, following Article 1032 of the Civil Code and the corresponding civil procedures, the Judge gave the defendant a 5-day term to name his property appraiser. The defendant did not accomplish this. The defendant challenged the decision of the court, and the judge denied it, based on the way Article 1032 was worded.

The defendant then filed an amparo lawsuit (a type of injunction on constitutional grounds) saying that Article 1032 violates his human rights. The judge for the amparo suit did not grant a hearing because he felt that the procedural stage of the lawsuit did not permit such an appeal.

The Judge, following the rules in Article 1032 and the associated civil procedures, received appraisals from the condo and from a court-appointed appraiser, and established the value of the property. The Judge then ordered that the property be put up for auction following the auction procedures set out in the Code of Civil Procedures.

A person was interested in buying the property, and presented an offer of purchase to the Judge. After publishing the required proclamations, they won the auction sale, and the property was ordered to be transferred to them as the new owner.

Later, the defendant filed another amparo to revise entirely Article 1032 to comply with the constitutional principle that obliges the laws of all States of the Republic to not violate the Constitution. The judgement of the Fifth District Court in Civil Matters found that this article does violate the principle of a hearing, since the article does not allow the defendant to be heard in a trial before receiving a judgement. This higher court ordered the judge in Guadalajara to abandon without effects all judicial acts in that judgement.

You can find the details in “Juicio de amparo indirecto 213/2012-III” (Judgement of Indirect Amparo 213/2012-III) published by the Juzgado Quinto de Distrito en Materia Civil en el Estado de Jalisco (Fifth District Court in Civil Matters of the State of Jalisco) on March 8, 2012.

The ramifications…

It is important to understand that this ruling does not change the Civil Code, nor does it create new law. Article 1032 still exists as written.

However, if you use the procedure outlined in this article to sue a delinquent owner, and that owner appeals using this constitutional argument, you will likely lose your suit, and will have to pay the delinquent owner their legal costs, as well as being out of pocket for your own costs. If, as was the case for the Guadalajara condo, the case had proceeded to the auction stage, these out of pocket legal costs combined with the paid-out costs for the defendant were substantial (I believe about $70K to $80K pesos).

Until the state Congress rewrites this article, and modifies the Civil Code, a condo’s best approach may be just to sue the owner for the unpaid fees as a debt.

The problem with this is that, depending on the back-log of cases in the local court, this could take 1-1/2 to 2 years. It’s unlikely such an owner would pay fees during the duration of the suit. Therefore, if you won, you’d likely then have to initiate a new suit to recover these new unpaid fees. And on and on…

The ideal, in my opinion, is what was intended by Article 1032 – removing the problem once and for all.

As I mentioned in my last post, we have a modified suit before the courts now that we hope will accomplish this goal, but which we hope cannot be overturned using this constitutional argument. Unfortunately, we don’t yet know if it will succeed. Once it has concluded, one way or another, I will include all the details of what we learned in the “Jalisco Condo Manual – Second Edition.”

We also intend to work to lobby the state legislature to make the necessary changes to the wording of Article 1032 to make it comply with the Constitution. Although they are continually updating and changing the Civil Code, this issue is likely not high on their list of priorities. We hope to change this, and get it on their radar. However, this is a future project…

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In the “Jalisco Condo Manual,” I say that all board meetings must be open, and that owners must be allowed to come.

So… where is this in the state condo law?

If you’re looking for a specific article in the Condo Law that directly says this, you’ll be disappointed. It’s one of those things that are derived from other requirements in the legislation. We’ll go over these in this article.

The other related issue I want to bring up is that of transparency.

What does the condo Board do?

While this might seem obvious, I’m convinced that many people don’t understand this. Unfortunately, some of them are on condo Boards.

The Board is elected each year for a one-year term by the owners. This happens at the Annual Ordinary Assembly. The Board should be given powers of representation by this assembly – this gives them the ability to act for the condo in legal and administrative matters beyond the condo’s walls.

In simple terms, the Board is responsible, with the Administrator, for looking after the ongoing repair and maintenance of the common property, and carrying out any directives given by the owners at an assembly.

The state condo law says that the Board must: act for the owners in matters of their common interest; make sure that the Administrator complies with his/her obligations; meet at least once a month to examine the state of the condo accounts and their proper entry into the financial records of the condo; and fulfil their obligations together with the Administrator under observance by the owners.

The Board can also have other duties and abilities that are defined in the condo By-laws. However, these must be additional to, and cannot contradict or remove, the duties and authorities given by the state condo law (or any other higher laws).

Why must board meetings be open?

The state condo law clearly says that the Board must work with the Administrator to carry out their obligations under observance by the owners.

Since the only forum in which the administration discusses condo issues and makes decisions about them is the board meeting, it’s rather hard to imagine how this requirement can be met with closed board meetings!

Given this, it also stands to reason that owners must be given adequate notice of the time and place, along with an invitation to be there. While it’s possible that no owners will show up, they must be given the opportunity to do so. If not, they’re being deprived of their legal right to oversight.

Condo records are the owners’ property

Some secretive, non-transparent Boards seem to also want to prevent owners from inspecting the records of the condo. In my opinion, they cannot do this.

The state condo law calls for a minimum of three specific kinds of records to be kept as part of the condo’s permanent records: minutes of all assemblies, with attachments; minutes of all board meetings, with attachments (financial and other reports, quotes, letters, emails, and all other documents presented or discussed at the meeting); and financial records of all income and expenses. By law, these financial records must be up to date within 15 days after the latest expense has been paid.

These records are the property of the condo, and not the Board or the Administrator. Both the Board and the Administrator are transient (they each serve a one-year term), and the Administrator must turn over all condo records in his/her possession to their successor.

As condo property, the records are the property of the owners (since the condo cannot own anything). Owners cannot be denied access to property they co-own.

What’s transparency?

Although not yet reflected in the condo law, transparency is the cornerstone of modern administrative practice.

In Mexico, recent legislation has imposed an impressive transparency model on both the federal government and non-profits. State governments are rapidly following this lead, and at least one municipality (Tlajamulco) has passed ground-breaking transparency legislation.

Although governments are taking the lead with this, a move towards greater or full transparency should be the goal of every administrative body (such as a condo board).

The ideal of transparency is that all decisions to be taken by an administrative body must be placed under scrutiny by its stakeholders, and in the widest possible sense. A condo board is an ideal candidate for this goal, since it’s much more similar to a municipal government than to a corporate body.

Great! However, understanding transparency is much easier than carrying it out. Many administrative bodies have fallen into set routines, even if they are against the law.

To some, the appeal of a culture of administrative secrecy is high. Especially to those personalities who enjoy exercising power and control.

Laziness is also a significant element. It takes more effort to make sure that the rationale for decisions is recorded, that supporting documents exist in the records, and that everyone has access to this data.

In the 21st century, no one disputes that transparency is essential to modern democracy (yes, a condo is a democracy). Unfortunately, many people only fully support transparent practices up until they have to follow them.

All this is especially true of condo boards. This status quo is a very difficult thing to change. The administrative culture in many condos directly contradicts the concepts of transparency.

Building transparency for owner oversight

Since the goal of all condo boards should be to administer their condo in a transparent way (owners should be very concerned if this is not the case!), there are steps a Board can take to go beyond the bare necessity of giving owners oversight.

For example, a Board should include an Agenda for each board meeting with the meeting notice sent to the owners. Following good practice for effective meetings, an Agenda should have been prepared before the meeting for the board members anyway (so that they can prepare for the meeting). It’s just a matter of distributing it more widely.

This also gives the owners an opportunity to have items put on the Agenda for discussion by the Board. Many Boards forget that they’re elected by the owners to represent their common interests. The Board cannot ignore valid concerns of owners.

It’s also a good idea to send out a draft of the board meeting minutes to the owners (by email, or posted on the condo web site) as soon as possible after the meeting. These should include all attachments, just as they will be entered in the condo records.

This lets those owners who couldn’t be there (especially those who were out of the country) know what was discussed at the board meeting, and what decisions were made. Apart from increasing transparency, this also guarantees that oversight by the owners, as required by law, is possible for those who could not physically be at the board meeting.

The state condo law requires the Board to meet at least once a month to receive the Administrator’s monthly financial report, and to verify the state of the condo’s accounts and their correct entry into the condo’s financial records.

Beyond being a legal requirement, this is an excellent and necessary management tool so that the Board can monitor the actual expenses of the condo vs. the budget approved by the owners. If condo finances start going wrong, this trend can be identified, and corrective measures taken, before it gets out of hand.

This financial report must be attached to the minutes of the monthly meeting in which it was presented, both for the permanent condo records and the owners inspection (that pesky oversight again!).

While the condo law only says that the quarterly financial report must be made available to any owner who requests it, I recommend that these reports should also be automatically sent to owners either by email or posting it on the condo web site. This extra step is proactive, and goes towards achieving the goal of transparency. Besides, the financial report shows how the Board is managing the owner’s money, and there certainly should be nothing to hide!

Summary

By law, the board and Administrator must carry out their duties under the observance of the owners. Condo records, of which board meeting minutes and financial reports are a part, are the owners’ property, and owners cannot be prevented from accessing them.

In my opinion, this means, at a minimum, holding open and announced board meetings, and making the minutes of these meetings available to the owners.

I also strongly believe in going further than this minimum to create an administration that is as open and transparent as possible. This costs nothing, increases the sense of community (which a condo is!), and contributes to a feeling of inclusiveness by the owners. That should be what everyone in the community wants.

WARNING: Rant Ahead!

This next bit is a bit harsh. However, this is something I feel strongly about…

In my opinion, we all must question the motives of those who want to run a community by a secretive body, with closed meetings and little or no owner oversight. If this happens, it isn’t at all unreasonable for owners to wonder, “What are they hiding?”

I feel that this practice not only goes against the intent of the law, but creates an unhealthy and adversarial relationship between the Board and the owners whom it serves.

I know of no rational reason to leave owners out of the process of administering their own property. Nor can I imagine any legitimate business operation or process associated with the management of a condo that should be hidden from the owners. Certainly, I’ve yet to hear any reason for this behaviour that makes sense.

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