Posts for : January 2014

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2014 STATUTES RELATED TO COMMON INTEREST DEVELOPMENTS

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

This blog summarizes new homeowner association statutes which take effect on January 1, 2014, unless otherwise specified below.

 

1.                  Davis-Stirling Restatement (AB 805).  Last year, AB 805 repealed California Civil Code Sections 1350-1378 of the Davis-Stirling Common Interest Development Act (“Davis-Stirling”) and restated them in new California Civil Code Sections 4000-6150.  In order to give associations, managers and attorneys a year to familiarize themselves with the changes, AB 805 was not going to be effective and operative until January 1, 2014.  Key changes are as follows:

 

(a)                Section 4035 provides that documents to an association may be delivered by e-mail, facsimile, or other electronic means, with association consent.  If an association assents, personal delivery is permitted with written acknowledgement of receipt.  If an association fails to designate to whom document delivery is to be made in its annual policy statement (see Section 5310 below), delivery shall be made to the president or secretary.

 

(b)               Section 4045(a) allows an association to deliver documents to members by “general delivery” or “general notice.”  These include first-class mail, postage prepaid, registered or certified mail, or overnight delivery by an express service carrier; e-mail, facsimile, or other electronic means, if consented to; inclusion in billing statements or newsletters; and posting in a prominent location accessible to all members, if the association has designated the location for the posting of general notices in an annual policy statement.  Under Section 5120(b), election results can be posted in a prominent location within 15 days of an election rather than by mail if the annual policy statement specified said location.

 

(c)                Section 4235 authorizes a board to amend governing documents to correct a changed cross-reference resulting from this re-codification, without member approval.  A corrected governing document may be restated and recorded with a copy of the authorizing board resolution.  This statute only authorizes the board to replace the Civil Code provisions, not to change the governing documents’ text.

 

(d)               Section 4600 authorizes the board to grant exclusive use of common areas to an owner without membership approval for circumstances such as granting a disability accommodation, allowing installation of electric vehicle charging stations, assigning parking spaces which the governing documents were to assign, and to comply with the law.

 

(e)                Section 5260 requires certain member requests to be made in writing, including requests to add second addresses for delivery of notices, to receive a full copy of the budget or annual policy statements, and to opt out of a membership list.

 

(f)                Section 5300 requires the board to prepare and distribute, within 30 to 90 days of its fiscal year’s end, an annual budget report.  It collects Davis-Stirling’s financial statements and insurance requirements and adds new requirements.  The annual budget report must include: (1) a pro forma operating budget; (2) a reserve summary; (3) a reserve funding plan summary; (4) a statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, and a justification for that decision; (5) a statement as to whether the board, consistent with the reserve funding plan, has determined or anticipates that (a) special assessment(s) will be required to repair, replace, or restore a major component or to provide adequate reserves therefor; (6) a statement as to the mechanism(s) by which the board will fund reserves to repair or replace major components; (7) a general statement addressing the procedures used for calculating and establishing those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain; (8) a statement as to whether the association has any outstanding loans with an original term of more than one year; and (9) a summary of the association’s insurance policies and the insurance disclosure set forth therein.

 

(g)               Section 5310 requires the board to prepare and distribute, within 30 to 90 days of its fiscal year’s end, an “annual policy statement.”  This collects in one section Davis-Stirling’s various annual disclosure and notification requirements and adds new requirements. The annual policy statement must include:  the name and address of the person designated to receive communications to the association; the location of the common area where the association is to post general notices; collection policies; enforcement policies; dispute resolution information; and an address for overnight payment of assessments, among other information.  The statement must be delivered to the members by a means of individual delivery described in Section 4040.  Individual delivery does not permit delivery by electronic means UNLESS the owner has previously consented, in writing, to such delivery.

 

(h)               Section 5350 lists conflicts of interest as to which a director (or member of a committee of the board) may not vote.  Examples include decisions regarding discipline of the director/committee member, collection of assessments owed by the director/committee member, architectural changes sought by the director/committee member, and grants of exclusive use of common areas to the director/committee member.  This list is not exclusive and provisions of law relating to so-called “interested transactions” apply to director decisions.

 

2.                  Davis-Stirling Restatement (SB 745).  This omnibus bill would implement minor clean-up amendments to AB 805.  SB 745 would: (a) allow mail delivery of documents to an association; (b) allow a quorum by secret ballot for an election; (c) clarify that the declaration prevails if it conflicts with bylaws or operating rules; (d) allow a board designee to be present at the physical location where members can dial in during a teleconference; (e) clarify that no notice of an emergency or executive session meeting is required if the governing documents do not provide a notice period; (f) disclose a notice of rental restrictions to buyers; and (g) prohibit cancellation fees for a document request if work had not yet been performed, or if work that had been performed had been compensated.  In addition, SB 745 requires the retrofitting of existing toilets, urinals, shower fixtures, and faucets with water-conserving plumbing fixtures for multifamily residential buildings on or before January 1, 2019, unless an addition, alteration, or improvements requiring a building permit triggers earlier retrofitting; (2) replaces National Electrical Code standards with the California Electrical Code for inside telephone wiring; and (3) incorporates the State Fire Marshall’s smoke alarm requirements.

 

3.                  Commercial and Industrial CIDs (SB 752).  SB 752 would establish the Commercial and Industrial Common Interest Development Act, which would provide for the creation and regulation of commercial and industrial common interest developments.  Previously, commercial and industrial common interest developments (“CIDs”) were governed by Davis-Stirling, like residential condominiums and planned developments. Starting January 1, 2014, however, non-residential CIDs will look to new statutes starting with California Civil Code Section 6500.  The new statutes omit provisions designed to protect residential owners such as election provisions and disclosure requirements imposed on residential developments.  A commercial association may designate an agent, like a manager, to receive information.

 

4.                  Carbon Monoxide and Smoke Detectors (SB 1394).  This bill changes smoke detector and alarm requirements when a building permit is issued on or after January 1, 2014, for alterations, repairs, or additions exceeding $1,000.  It deletes the requirement that a smoke detector be installed in apartment complexes and other multiple-dwelling complexes’ common stairwells.  It also requires that on or after January 1, 2014, when a building permit for alterations, repairs, or additions exceeding $1,000 is issued, all required smoke alarms shall display the manufacture date, provide a place for the installation date, incorporate a hush feature, and incorporate an end-of-life feature that provides notice that the device needs to be replaced, and, if battery operated, contain a non-replaceable, non-removable battery that is capable of powering the smoke alarm for 10 years. Remember that existing law requires the installation of carbon monoxide devices in each existing single-family dwelling unit by July 1, 2011, and all other dwelling units by January 1, 2013.

 

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.

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“CLEAN UP” OMNIBUS LEGISLATION FOR THE NEW DAVIS-STIRLING ACT

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

Before the Legislature is Senate Bill (SB) 745, an omnibus bill that would implement minor clean-up amendments to the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”).  Though the changes are technical, not substantive, the following may be relevant and important to your Association:

 

  • Delivery of Documents to Association:       Civil Code Sections      4035(b)(1) and (2) allow the      Association to receive documents by e-mail, if it assented to email      delivery, and by personal delivery.       Section 4035 is amended to add subsection (b)(3) to allow      delivery “[b]y first-class mail, postage prepaid, registered or      certified mail, express mail, or overnight delivery by an express service      center.”  Thus, this provision      would authorize the delivery of documents to the Association by mail      delivery.

 

  • Quorum in a Duly Held Election:  Civil      Code Section 4070 is amended to read:  “If a provision of this act requires      that an action be approved by a majority of a quorum of the members, the      Davis-Stirling Action shall be approved or ratified by an affirmative vote      of a majority of the votes represented and voting at a duly held meeting      at in a duly held election in which a quorum is present      represented, which affirmative votes also constitute a majority of the      required quorum.” This amendment applies to any lawfully conducted member      election, whether conducted at a meeting, by secret ballot procedures      pursuant to Civil Code Sections 5100-5145, or by any other lawful      means.

 

  • No Conflict with Governing Documents:  Civil Code Section 4205 provides      guidance on the relative authority of the law and the most common types of      common interest development governing documents.  In response to public comments      expressing concern that Section 4205’s terminology might be read more      strictly than intended, the bill amends Section 4205, as follows:

 

“4205. (a) To the extent of any inconsistency conflict between the governing documents and the law, the law controls shall prevail.

(b) To the extent of any inconsistency conflict between the articles of incorporation and the declaration, the declaration controls shall prevail.

(c) To the extent of any inconsistency conflict between the bylaws and the articles of incorporation or declaration, the articles of incorporation or declaration control shall prevail.

(d) To the extent of any inconsistency conflict between the operating rules and the bylaws, articles of incorporation, or declaration, the bylaws, articles of incorporation, or declaration control shall prevail.”

 

Civil Code Section 4350, regarding operating rules, was amended to conform to Section 4205(c)’s terminology, as follows:

 

“4350.  An operating rule is valid and enforceable only if all of the following requirements are satisfied:…(c)  The rule is not inconsistent in conflict with governing law and the declaration, articles of incorporation or association, and bylaws of the association.”

 

Therefore, the provisions governing inconsistencies between the governing documents and the law now apply only if there is a conflict, rather than an inconsistency, between the two.

 

  • Notice of Teleconference Meetings:       Civil      Code Section 4090 is amended so that the Board’s notice of teleconference      meetings must identify a physical location where Association members may      attend and requires that at least one director “or a person designated      by the Board” be at that location.       Thus, if all directors are unavailable, the Board may designate its      manager or another member to be present at a physical location to connect      the Association members by teleconference to the other Board members.

 

  • Notice of Executive and Emergency      Meetings:  Civil Code Section 4290 provides      guidance on notice requirements for Board meetings.  In response to concerns that Section      4290 could require the Board to provide more notice for emergency and      executive session meetings if the governing documents impose a longer      notice requirement, Section 4290 was amended as follows:

 

“(3) If the association’s governing documents require a longer period of notice than is required by this section, the association shall comply with the period stated in its governing documents, except for a notice of an emergency meeting or a meeting held solely in executive session when the governing documents do not specifically provide a period of notice for these meetings.”

  • Disclosure of Rental Restrictions: Civil Code Section 4528 is amended to add the required      notice of rental restrictions (per Section 4525(a)(9)) to the form that      lists the documents that an owner in a common interest development who      wishes to sell her unit must provide to the buyer.  Thus, the Association’s form for billing      disclosures must include any rental restrictions.

 

  • Cancellation Fee:       Civil Code Section 4530 is amended to prohibit cancellation fees      for a document request if work had not yet been performed, or if work that      had been performed had been compensated.

 

In addition, SB 745 makes the following changes:

 

(1)           requires the retrofitting of existing toilets, urinals, shower fixtures, and faucets with water-conserving plumbing fixtures for multifamily residential buildings on or before January 1, 2019, unless an addition, alteration or improvements requiring a building permit triggers earlier retrofitting;

 

(2)           replaces standards under the National Electrical Code with the California Electrical Code for inside telephone wiring; and

 

(3)           incorporates the State Fire Marshall’s requirements for smoke alarms.

 

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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NEW FORMAT FOR BUDGETS AND ANNUAL DISCLOSURES UNDER AB 805

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

As their fiscal year’s end approaches, some associations are asking whether they need to update their budgets and annual disclosures to comply with AB 805.

 

Yes!  Associations and managers should learn the new formats of the “Annual Budget Report” under new California Civil Code Section 5300 and the “Annual Policy Statement” under new California Civil Code Section 5310’s and use them to insure full compliance with the new law.

 

AB 805 restated and re-codified the Davis-Stirling Common Interest Development Act (“Act”).  The Act took effect on January 1, 2013 but becomes enforceable on January 1, 2014, which gives managers, boards, and attorneys one year to familiarize themselves with the reorganized Act.

 

Many clients are also concerned that they need to overhaul their governing documents to comply with AB 805.  The law does not require associations to update their governing documents.  However, if they do not, existing and future boards of directors will lack guidance as to what the law requires and may rely on superseded provisions.  Since the new law mostly affects corporate matters such as notice, delivery of documents, the budget, and disclosure requirements, the association can amend those provisions in their bylaws and declaration of covenants, conditions and restrictions to incorporate the new requirements.  Alternatively, the new law permits associations to update their governing documents by a board vote to correct the old Civil Code references and insert the new ones.  Amendments are more critical for self-managed associations who have board members that are unknowledgeable about changes in the law and need more guidance.

 

Regardless of whether you amend your governing documents, your association should comply with AB 805 by distributing an annual budget report and annual policy statement 30 to 90 days before the end of its fiscal year, as summarized below:

 

A. Annual Budget Report:  AB 805 requires associations to provide an annual budget report, which includes the following:

 

  1. A pro forma operating budget;
  2. An Assessment and Reserve Funding Disclosure Summary form;
  3. A statement as to whether the association has any outstanding loans;
  4. Certificates of insurance for property and liability coverage and an insurance summary containing, in at least 10-point boldface type, the following statement:

 

“This summary of the association’s policies of insurance provides only certain information, as required by Section 5300 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association’s insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association’s policies of insurance may not cover your property, including personal property or real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling.  Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage.”

 

Any member who wishes to obtain a complete copy of the reserve study, reserve study plan, or insurance policies must provide a written request to the association or its management company. 

 

When preparing the documents in the annual budget report, your association should request that its budget preparer and insurance adjuster replace all references to former Civil Code Section 1365 with Civil Code Section 5300, to conform to AB 805.

 

B. Annual Policy Statement:  AB 805 also requires associations to provide members with important information about the association’s policies, including the following:

 

  1. The name and address of the person designated to receive official communications to the association;
  2. Each member’s right to submit a written request to have the association’s documents sent to two different specified addresses;
  3. Its location for posting notices of member and board meetings;
  4. Each member’s right to submit a written request that the association’s general notice be sent by individual delivery;
  5. Each member’s right to receive copies of the board’s meeting minutes (other than executive sessions) within 30 days of the meeting by sending a written request to the person identified in paragraph (1) above;
  6. Its statement of assessment collection policies (this item may be satisfied by attaching a copy of an updated Delinquent Assessment Collection Policy, which refers to the new Civil Code sections under AB 805);
  7. Its statement describing its policies and practices in enforcing lien rights or other legal remedies for default in the payment of assessments (this item may be satisfied by attaching a copy of an updated Delinquent Assessment Collection Policy);
  8. Fine schedule (if the board has not adopted a fine schedule, it should prepare one and mail it to the members for a 30-day comment period before adopting it at a duly-noticed board meeting and attaching it to the annual policy statement);
  9. A summary of its dispute resolution procedures, which should refer to the new Civil Code Sections under AB 805;
  10. A summary of the Association’s requirements for approving physical changes to a separate interest or portion of the common interest development (this item may be satisfied by citing relevant provisions of the declaration of covenants, conditions and restrictions and rules regarding alterations requiring architectural approval and the architectural review procedures); and
  11. The mailing address for overnight payment of assessments.

 

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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Contingent Fee Construction Defects Cases… Does it Sound too Good to be True?

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

 

Do contingent fee construction defects cases actually save you money?  Well, there are no upfront costs for legal fees because the attorney doesn’t get paid unless he or she gets money for the case.  Some law firms even pay the architects, contractors, and other expert witnesses needed to prove the case.  But remember the old business axiom, “with risk comes reward…”  Your attorney is smart enough to only take contingent fee cases that will make them money– after all they run a business.  Depending upon your fee agreement, some lawyers may charge up to 40% or more of the amounts recovered!  The attorney may also be motivated to push you into a quick settlement, whether it’s adequate or not.  The faster the attorney can get the case settled and get paid, the more he or she may make per hour. This may not leave you enough money to complete the repairs to your building.

 

To minimize your risk of losing money, you should determine if it is cheaper to pay hourly fees, which may or may not involve your getting a bank loan, or accept a contingent construction defects case fee agreement.

 

Determine the Type of Fee Agreement that is Best for You

 

Hourly Fee Agreement

 

You will most likely save money when your fee arrangement is hourly. This only works if your association can afford to pay the legal fees and costs required to pay lawyers and experts needed to win your case.  However, you may use money in your reserves to fund the litigation.  Our firm recently settled with all but two of the defendants in a case involving a mixed use building in San Francisco.  We recovered over $15,000,000 for the client, and we expect to get more from the non-settling defendants by going to trial later this year.  The client did pay over $300,000 in legal fees to our firm.  However, if we’d had the case on a contingent fee arrangement, we’d have been paid over $5,000,000 for doing the same amount of work and for recovering the same amount of money!

 

Contingent Fee Agreement

 

For some associations the board is concerned about the cost and risk of litigation, and prefers that the attorney do the work without receiving hourly fees, and obtain a percentage of the recovery.  Then a contingent fee arrangement may be best, but you may still face recovering too little money to complete your repairs.  In that case, you may have to choose between imposing a special assessment to make up the shortfall, or being unable to repair water intrusion and other defective conditions affecting your homes.

 

Hybrid Fee Agreement

 

The Hybrid Fee Agreement involves payment of an hourly fee that’s less than what the attorney usually charges, and also payment of a percentage of the recovery.  With this arrangement, the percentage paid to the attorney is usually lower than what you’d pay with a straight contingency.  This kind of agreement allows you and the lawyer to share the risk of litigation and save you money with lower contingent fee at the end of the case.    This type of an arrangement can mitigate risk while reducing the percentage of recovery to which the attorney will be entitled.  It can work well in some circumstances; however it can also result in a higher payment to the law firm than would be the case with a straight hourly arrangement.

 

Every case and every client is unique. Think carefully about the risks and potential rewards of any financial arrangement with a law firm that you may be considering before you sign on the dotted line.

 

This article is a summary of general principles of law.  It is not a substitute for qualified legal advice about a particular project or claim.

 

Contact a qualified attorney if you have questions about a specific project or claim.

 

The comments, statements and articles contained herein are general in nature and should not be relied upon as a basis for any legal opinion, action or conclusion on the part of the reader with respect to any particular set of facts or circumstances.