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HOW TO CLARIFY MAINTENANCE RESPONSIBILITY FOR EXCLUSIVE USE COMMON AREA UNDER THE NEW LAW 0

Many CC&Rs, particularly those in older communities, do not adequately identify or define maintenance and repair responsibility for exclusive use common area components such as patios, balconies, exterior doors and similar components. And when there is uncertainty between an owner and the HOA as to who is responsible for a repair, disputes are inevitable. Fortunately, Civil Code Section 4775 fills in the blanks. In the absence of well-defined CC&Rs, we look to Civil Code Section 4775 which previously provided (before 2017) that the HOA is responsible for repairing, replacing, or maintaining the common area, other than exclusive use common area, and the owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common area appurtenant to the separate interest.

 

On January 1, 2017, the new language under Civil Code Section 4775(a)(3) came into effect stating: “Unless otherwise provided in the [CC&Rs] of a common interest development, the owner of each separate interest is responsible for maintaining the exclusive use common area appurtenant to that separate interest and the HOA is responsible for repairing and replacing the exclusive use common area.”  (Emphasis added.)  Industry practice has held that the owner is only responsible for the basic upkeep and maintenance of the exclusive use common area’s usable surfaces, while the HOA would be responsible for any major or structural repairs to the exclusive use common area.

 

Since the statute does not define the term “maintaining,” a board can broadly define it in an operating rule in order to shift some of the repair burden to the owners. For example, if the board includes deck recoating as part of an owner’s maintenance responsibility, the board shifts that responsibility and expense onto the owner, without having to amend the CC&Rs. The HOA would need to adopt guidelines for deck maintenance such as:

 

  • what to look for when inspecting the decks for damage (bubbling of deck surface, cracks in the membrane, soft spots in the deck that sag when stepped on, flashing that is pulling away from the wall, and water that does not flow to the drains)
  • how to avoid damage to the waterproofing membrane
  • how often the deck should be resealed (waterproofing products such as Dexotex require recoating every 5 years–sooner if there is heavy usage or damage from patio furniture, etc.)
  • the kinds of waterproofing systems that are acceptable to the association
  • prohibited deck systems, such as carpet and tile
  • prohibited charcoal grills which are fire hazards and hot coals dropped onto the surface will burn through the waterproofing membrane
  • deck drain maintenance
  • deck to wall flashing maintenance

How should HOAs deal with the newly clarified Civil Code Section 4775?

  • Review their CC&Rs to see if they are crystal clear about who repairs and replaces the exclusive use common area such as siding, balconies, patios, decks, planter boxes, windows, storage doors, indoor/outdoor pipes, sprinkler systems, wiring, parking stalls, doors, screens, steps to entryways, outdoor light fixtures, walkways, hallways, fences, mailboxes, porches, air conditioners, heating systems, outdoor stairs, etc.
  • Adopt guidelines for the owners’ maintenance of exclusive use common area, as described above, after consulting with licensed professionals.
  • Have the board and legal counsel prepare an operating rule entitled “Maintenance Responsibility Matrix” that is consistent the CC&Rs and the reserve study for exclusive use common area. This is not supposed to override or supersede governing documents, yet without timely challenge by homeowners, the content usually stands.
  • Review the reserve and operating budgets to make sure the added repair and replacement expense for exclusive use common area is budgeted for and included in the annual assessment calculation.
  • Survey the owners to see if they wish to amend the CC&Rs to shift certain repair and replacement responsibilities such as window replacement onto the owners to keep assessments down.
  • Have the owners vote to amend the CC&Rs to shift repair responsibility for balconies, patios and similar exclusive use components to the owners and to attach a “Maintenance Responsibility Matrix” consistent with that shift in responsibility. Otherwise, the statutory language will control, leaving the HOA responsible to repair (and fund) what could be costly exclusive use common area repairs. Shifting responsibility to the owners may create some problems. First, if the owners must pay for scaffolding to replace windows, there would be no economies of scale or discount to do one window compared to the HOA replacing all windows at once. Second, some owners do not repair on time thereby causing eye sores, enforcement problems and leaks that damage the common area.
  • Have the owners vote to amend the CC&Rs to clarify that the HOA is responsible for repair and replacement of certain exclusive use common area, to attach a “Maintenance Responsibility Matrix” and to provide a credit to owners who previously performed such repair and replacement. Such owners must furnish invoices and documentation to provide evidence of such expenditures.

HOA boards and management professionals must still be aware of the fact that Civil Code Section 4775’s default structure does not supersede any conflicting provisions in the CC&Rs. Moreover, even when an exclusive use common area is to be repaired or replaced by the HOA, there may be instances where a homeowner should be held responsible for the repair or replacement costs. For example, owners can cause premature failure by moving heavy items across the surface, such as large plant-filled pots, sharp legs on chairs and tables, etc. Owners can also damage deck surfaces if they are not swept because sand and grit, when walked on, will grind into the surface and damage the waterproofing. Most CC&Rs contain provisions allowing (and even requiring) the HOA to levy what is commonly known as a “reimbursement” special assessment against the homeowner to recover the HOA’s repair costs. The authority for a HOA to take such action is also supported by Civil Code Section 5725(a).

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LOAR AND CO-COUNSEL WIN LANDMARK SUPREME COURT CASE

By Ann Rankin, Esq., Law Offices of Ann Rankin

On July 3, 2014, the California Supreme Court announced its ruling in Beacon Residential Community Association v. Skidmore, Owings & Merrill, et al.   The case was a big win for Law Offices of Ann Rankin and its co-counsel, Katzoff & Riggs—and for property owners throughout California whose buildings suffer from design errors caused by the negligence of architects and engineers.

 

The Supreme Court justices unanimously ruled in the opinion that principal architects of new residential construction can be held liable to the eventual purchasers of those projects (and their associations) for negligence in performing design services, even where the architects don’t have any written contract with the consumers who purchased the property from the original developer or with their property owners’ association.

 

The case involves a 595-unit development in San Francisco consisting of four buildings (some high rise and some mid-rise) across from AT&T Park.  Its homeowners association, the Beacon Residential Community Association, sued a number of defendants who developed, designed and built the project for common law negligence and for violation of Performance Standards contained in SB 800, codified as Civil code 895 et. seq.  The performance standards set forth minimum standards which for-sale residential buildings sold after January 1, 2003 are required to meet.

 

The Association alleged that the architects were responsible for a number of design errors, including inadequate fire separations, water intrusion and solar heat gain.  Solar heat gain is a well-known phenomenon which, in the case of the Beacon, results in interior temperatures in many of the units being thirty degrees or more higher than the outside air temperature during sunny weather.  The solar heat gain resulted from a design involving large glass windows—many of them floor-to ceiling—in an un-air-conditioned building made of steel and concrete.  The windows were also designed with no low-e coating to cut down on solar heat gain.  Once the building heats up, it often does not cool down for days or weeks—even at night.  This condition is exacerbated by inadequate ventilation.

 

In late 2011, the architectural firms filed a motion asking to be dismissed from the lawsuit, claiming that the Association had no right to sue them because they had no legal duty, either to the association or to the homeowners who purchased the homes within the property.  The trial judge agreed, ruling that the architect had “no control” over the ultimate construction of the project and only made “design recommendations.”  The trial judge also said that the association could make a claim against the architects only if the association could prove that the architects had ignored the instructions of the developer, and had designed the buildings in a manner contrary to the developer’s wishes.  The association argued that this was an incorrect legal standard, and that an architect who is hired by a developer should be accountable for making negligent design decisions even if the architect did not, in so doing, defy the wishes of the developer.

 

In December of 2012, the First District Court of Appeal unanimously reversed the trial court’s order and held that both under the common law and under the provisions of SB 800, the architects owed a duty of care to the owners and their association.

 

In February, 2013, the California Supreme Court granted review of the Court of Appeal decision.

 

The Association contended that there were numerous precedents allowing building owners and their associations to sue negligent design professionals, and that these cases had never been overruled.  The architects had contended that these cases should be disregarded because of a more recent case absolving auditors of liability to investors who purchased shares of stock in reliance on an audit report that turned out to have failed to disclose problems with the corporation’s business.

 

The Association contended that there’s a big difference between an auditor, who may simply fail to realize that his corporate client has “cooked the books,” and architects who earn millions of dollars by designing a large condominium complex.

 

The architects also contended that potential purchasers had the right to inspect the homes before purchasing and, as a result, could obtain more than an “ordinary consumer’s” knowledge about the conditions of the property.

 

The Association explained that when consumers obtain a visual inspection of a unit, they don’t receive enough information to understand whether the common areas are designed or built correctly or incorrectly, and that such inspections don’t include any destructive testing or detailed review of the construction documents.

 

The Supreme Court agreed with the Association and its counsel on all of these points.

 

The architects also pointed out a provision in their contract with the developer that expressly stated that they would not be liable to the eventual purchasers or any homeowners association.  However, none of the people who ended up buying the units had ever agreed to the provision, nor had the owners’ association,  so the association said they should not be bound by a provision that they had never negotiated or agreed upon.  The Supreme Court sided with the association on that argument as well.

 

The Supreme Court concluded that its decision, in favor of the owners’ association, was also sound public policy.  It simply required the architects to perform their services properly and held them to a duty of care to individuals and associations who would eventually live in and manage the properties that those architects designed.  Thus, it unanimously affirmed the Court of Appeal’s decision to reverse the trial court’s ruling.  As a result, the architects are back in the case as defendants, and the case can now go to trial.

 

Since the Supreme Court is the highest California court, the decision in the Beacon sets a precedent which will guide courts in all subsequent cases in which owners and their associations have claims against negligent architects, engineers, and other design professionals.

 

The Executive Council of Home Owners and the Consumer Attorneys of California both filed amicus curiae briefs in support of the Association’s position.  Needless to say, the American Institute of Architects filed an amicus curiae brief in support of the architects’ losing position.

Ann Rankin is the founding principal of the Law Offices of Ann Rankin in Oakland, CA and a member of the ECHO Legal Resources Panel.  She and her firm are counsel for the Beacon Residential Community Association.

 

This article is informational only and is not a substitute for qualified legal advice.  See an attorney who practices in the areas of construction defects litigation and common interest development law if you have a potential legal issue involving the design of your community.

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HOW TO MONITOR OCCUPANCY AND ENFORCE RENTAL RESTRICTIONS

By Hanh Pham, Esq., Law Offices of Ann Rankin

 

Our firm has received many inquiries regarding how to enforce rental restrictions.  It seems that renters everywhere host loud parties, or that owners are trying to satisfy lending requirements for lower rental rates.

 

So, what can the association’s board of directors (“Board”) do to enforce the rental restrictions in their declaration of covenants, conditions and restrictions (“CC&Rs”)?  Unfortunately, it’s not easy to monitor occupancy or to enforce rental restrictions.

 

MONITORING OCCUPANCY

 

Most associations determine whether an owner lives in his or her unit by determining whether the owner has asked that communications such as invoices for assessments should be sent to the property address or to another address that’s not in the property.

 

Another method, which may cost more money and take more time, is to check the Tax Assessor’s records to see where the property tax invoice is sent.  Of course, the fact that the property tax bill is not being sent to an address within the development does not prove that the unit isn’t owner-occupied; some people may have a relative or a CPA who helps with financial matters.  However, the fact that invoices for assessments and bills for property taxes are being sent to an address outside of the complex should cause you to make a further inquiry.

 

A difficult issue arises when an owner allows family members to occupy the unit.  For example, in some situations, parents will purchase a unit and allow their adult children to live there.  In other cases, adult children may buy a unit and allow their older parents to live there.  In these cases, the occupant is often not a “renter” in the sense that the occupant pays rent for the right to possess the premises.  In my opinion, such a situation shouldn’t be treated as a “rental,” but the association should consider this situation and perhaps develop a policy to exempt it from the rental restriction.

 

Of course, sometimes an owner’s neighbor will know when the owner moves out and a renter moves in.  If the association has a move in/move out policy, that may be another source of information.  The association should also consider asking owners for their emergency contact information and their tenant’s information.  Some owners will consider this request an invasion of privacy, but others may provide the information.

 

To address a possible violation, the Board may wish to invite the owner to an internal dispute resolution (IDR) meeting to discuss the Board’s concerns.  The Board can perform an investigation based upon public records, testimony from neighbors, etc. and ask the owner questions.  The Board could also ask for a copy of the owner’s driver’s license or other information with the owner’s principal address to ascertain the owner’s address.  Some owners will decline to provide this information; this will force the association to dig deeper.  The Board will have to make a business decision about how much money to spend on such an investigation after the IDR meeting.

 

ENFORCING RENTAL RESTRICTIONS

 

If a violation is found after the IDR meeting and the owner continues to rent out the unit, the Board can enforce the rental restrictions by providing notice of a hearing to impose disciplinary action in accordance with the governing documents (with no less than 10 days’ notice) and giving the offender an opportunity to present his or her side of the story.

 

Before the hearing, the Board should adopt a fine schedule in the same manner it would adopt any operating rule (e.g., mail the proposed schedule to the members for a 30-day comment period before a Board vote at a duly-noticed meeting).  The fine for each violation must be “reasonable,” which means that it must fit the offense and should include a per diem fine for continued violation of the rental cap (i.e., $200 for each day that the unit is rented in violation of the CC&Rs).

 

Once the hearing notice is issued and the hearing date arrives, the Board merely conducts a fair hearing in which the accused can explain his or her side of the story.  Owners often attempt to circumvent the rules by claiming that long-term guests, friends, or family members are occupying the residence.  If, after investigation, the Board finds that this claim is an attempt to avoid compliance with rental restrictions, the Board may proceed with disciplinary action, including levying a fine, suspending voting rights, suspending the owner and tenant’s privileges to use recreational facilities such as a pool, clubhouse, or fitness room, and/or ordering the owner to commence an unlawful detainer action within a specified period.  If the fine remains unpaid for 30 days, the association can collect it by filing a small claims court action and referring it to a collection agency.

 

If the owner continues to rent out the unit, the association can serve a Request for Resolution asking that the owner agree to participate in mediation of the dispute within 30 days.  If the owner does not respond within 30 days or rejects the Request, the association may file an action for injunctive relief requesting that a court enforce the rental cap and award the association reasonable attorney’s fees pursuant to California Civil Code Section 5975(c).  However, if the association proceeds down this road, it faces a heavy burden of proof and the cold realities of a crowded docket and a judge that may not be sympathetic to its action.

 

In addition to enforcement of the rental restrictions, the association should distribute a formal disclosure to all homeowners and prospective purchasers about the rental cap and about the procedure for submitting a request to rent.

 

The information contained in this article is for informational purposes only and does not constitute legal advice.  Anyone obtaining information on this site should consult with an attorney.  The information herein is generalized and not related to any specific set of facts.  Neither this article’s content nor any transmissions between you and our firm through this article are intended to provide legal or other advice or to create an attorney-client relationship.  In communicating with us through this article, you should not provide any confidential information to us concerning any potential or actual legal matter you may have.  Before providing any such information to us, you must obtain approval to do so from one of our lawyers.

 

By choosing to communicate with us without such prior approval, you understand and agree that our firm will have no duty to keep confidential any information you provide.

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2013 STATUTES RELATED TO COMMON INTEREST DEVELOPMENTS

By Ann Rankin, Esq. at the Law Offices of Ann Rankin

This article summarizes new homeowner association statutes affecting you and which take effect on January 1, 2013, unless otherwise specified below.

1.  Davis-Stirling Restatement (AB 805, 806).  These bills would repeal California Civil Code Sections 1350-1378 of the Davis-Stirling Common Interest Development Act (“Act”) and would restate them in new California Civil Code Sections 4000-6150.  The law takes effect on January 1, 2013, but does not become operative (enforceable) until January 1, 2014, which gives managers, boards and attorneys one year to familiarize themselves with the reorganized Act.  AB 805 would revise and recast provisions regarding notice and delivery, standardize terminology, establish guidelines on the relative authority of governing documents, and establish a single procedure for amendment of the declaration.  The bill would establish an express list of conflicts of interest that may disqualify members of a board of directors from voting on certain matters.  The bill would also, among other things, revise provisions related to elections and voting, establish standards for the retention of records, and broaden the requirement that liens recorded by the association in error be released.  AB 806 updates the many references to the Act in other parts of  California statutes to reflect the new correct statute numbers.  The new law does not require that associations avoid amending their governing documents until January 2014, and specifically provides for associations to update their existing governing documents (CC&Rs and Bylaws) by a board vote in order to correct the old Civil Code references and insert the new ones.  Management firms would be well-advised to learn the new disclosure format of the “Annual Budget Report” (in future Civil Code Section 5300) and the “Annual Policy Statement” (in future Civil Code Section 5310) and begin using that format sooner, to insure full compliance with the new law.

 2.  Open Meeting Act and Rental Restrictions (AB 2697).  This bill amends the Open Meeting Act so that the board of directors only needs unanimous consent on substantive decisions made by email during an emergency situation and the Association’s representative instead of a board member needs to be physically present during the board’s teleconference meeting. This bill also removes the requirement that a seller’s disclosure describe how and to whom a rental restriction would apply.

 3.  Association Records (AB 1838).  This bill would prohibit a cancellation fee for copying association records if the cancellation was requested in writing by the same person who placed the order and if work on the order had not yet been performed or if the work had been Paid for. The bill would require the association to refund all fees for the association records if the request was canceled in writing and work on the order had not yet been performed. Additionally, if the request was canceled in writing, the bill would require the association to refund the share of fees collected for the association documents that represents the portion of the work not performed on the order. The bill would also require that the form be written in at least 10-point type.

 4.  Notice to Association After Foreclosure (AB 2273).  This bill would add California Civil Code Section 2924.1 to require the foreclosing party to record a sale within 30 days of the sale.  The recorded sale would provide the associations with public notice as to who now owns the property and where they may be contacted for assessments due.  In addition, AB 2273 shortens the time for foreclosing parties to notify associations that they are the new owners.  However, in order to take advantage of this aspect of the new law, associations must record a “Request for Notification” prior to the property receiving a notice of default.  Where an association has recorded a “Request for Notification,” the foreclosing party must notify the association within 15 days after the date of sale.  This will greatly help to ensure that associations receive notice of foreclosure, and the identity of the new owner, as soon as possible so that assessments can be charged to the proper party.

 5.  Electric Vehicle Charging Stations (SB 880).  This bill cleans up SB 209, which was adopted in 2011, to strengthen the association’s authority to regulate the installation of electric vehicle charging stations within the common areas and associated costs.  This bill took effect on February 29, 2012.

 6.  Deficiency Judgments (SB 1069).  This bill amends California Code of Civil Procedure Section 580b to provide that no deficiency judgment shall lie on any loan, refinance, or other credit transaction that is used to refinance a purchase money loan or subsequent refinances of a purchase money loan, except to the extent that the lender or creditor advances new principal which is not applied to any obligation owed or to be owed under the purchase money loan, or to fees, costs, or related expenses of the refinance. The bill would provide that any payment of principal for a refinanced purchase money loan would be deemed to be applied first to the principal balance of the purchase money loan and then to the remaining principal balance. The bill’s provisions would apply to a loan, refinance, or other credit transaction used to refinance a purchase money loan which is executed on or after January 1, 2013.

 7.  Disclosure of Notice of Default (SB 1191).  This bill would require every landlord who offers for rent a single family dwelling, or a multifamily dwelling not exceeding 4 units, and who has received a notice of default that has not been rescinded with respect to a mortgage or deed of trust secured by that property to disclose the notice of default in writing to any prospective tenant prior to executing a lease agreement for the property. The bill would provide that a violation of those provisions would allow the tenant to void the lease and entitle the tenant to recovery of twice the monthly rent or twice the amount of actual damages from the landlord, and all prepaid rent, if the tenant voids the lease and vacates the property in addition to any other remedies that are available. The bill would also provide that if the tenant elects not to void the lease and the foreclosure sale has not yet occurred, the tenant may deduct a total amount equal to 2 months’ rent from future rent obligations owed the landlord who received the notice of default. The bill would specify the content of the written disclosure notice and would require the notice to be provided in English and other languages, as specified. The bill would exempt a property manager from liability for failing to provide the written disclosure notice unless the landlord notified the property manager of the notice of default and directed him or her in writing to deliver the written disclosure.

 8.  Service of Process; Private Investigator (AB 1720).  This bill amends California Code of Civil Procedure Section 415.21 to require a person to be granted access to a gated community for service of process upon displaying evidence of licensure as a private investigator.  This bill would state that it is not the intent of the Legislature in enacting this act to abrogate or modify the holding of the court in Bein v. Brechtel-Jochim Group, Inc. (1992) 6 Cal.App.4th 1387, relating to service upon a guard in a gated community.

 9.  Swimming Pool Safety (AB 2114).  This bill would require a new, public swimming pool, spa, or public wading pool to have at least 2 circulation suction outlets per pump and be separated by a distance of at least 3 feet in any dimension between the suction outlets, or be designed to use alternatives to suction outlets, including, but not limited to, skimmers or perimeter overflow systems to conduct water to the recirculation pump. The bill would also require the circulation system to have the capacity to provide a complete turnover of pool water.  This bill defines a “public swimming pool” as a swimming pool operated for the use of the general public with or without charge, or for the use of the members and guests of a private club. Public swimming pool does not include a swimming pool located on the grounds of a private single-family home.

I hope that this information is helpful.   Please be advised that this letter is intended as an update on pertinent  California law and is not intended as legal advice. Should you have any questions or concerns regarding specific matters, please call me at  510-653-8886.

 

This article is general in nature. It is not a substitute for qualified legal advice. Contact an attorney with expertise in common interest development law if you require specific legal advice.