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

October 10, 2017 By: loarweb In: Uncategorized

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).

GOVERNING DOCUMENTS SUPERSEDE THE NEW AIRBNB LAW 0

March 12, 2015 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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

Clients ask whether San Francisco’s new Airbnb law (effective February 1, 2015) supersedes their declaration of covenants, conditions and restrictions’ (“CC&Rs”) short-term rental provisions or whether they need to amend the CC&Rs to address Airbnb. The brief answers to both questions are “No.”

Airbnb is a website for people to rent out lodgings, usually on a daily basis. The new Airbnb law, San Francisco Administrative Code Chapter 41A legalizes short-term rentals but imposes a number of restrictions, discussed below. San Francisco’s Planning Department will enforce the new law.

The new law does not change CC&Rs’ current restrictions; it imposes additional restrictions. Your association should send notices to its homeowners to familiarize them with the new law’s important requirements, including the following:

The 90 Day Rule. The law limits rentals where the host is not present in the unit to a maximum of 90 days per year. Violators who continue to rent out their apartments beyond 90 days would be subject to a $416-a-day fine for the first offense and $1,000 a day thereafter.
Only Primary Residence May be Rented. Permanent residents (those residing in their units for at least 275 days per year) are allowed to rent out their primary residences, but not locations in which they don’t live or second or vacation homes. If you are a new resident, you must have occupied this specific unit for at least 60 consecutive days prior to your application. If you own a multi-unit building, you may only register the specific residential unit in which you reside.
Registry and Permits. Hosts must register and obtain a permit from the planning department to engage in short-term renting and pay a $50 fee every two years. Hosts will also need to obtain a city business license. Short-term rentals will be listed and tracked by the city in a registry. This information will not be available to the public unless a public records request is filed.
Insurance Requirement. Hosts must be covered by liability insurance with at least $500,000 in coverage. Alternatively, they may offer their units for rent through a hosting service that offers at least this much coverage.
Hotel Taxes Must Be Paid. The 14% San Francisco hotel tax must be collected and paid to the city. Airbnb has already started collecting and remitting such taxes for its San Francisco hosts. Your association should also send reminders to homeowners regarding the CC&Rs’ rental restrictions. Typically, CC&Rs prohibit rentals of less than 30 days and require the Owner/landlord to provide certain tenant information to the association. The reminder should also advise homeowners that they will be subject to a fine, suspension of membership privileges, and/or a lawsuit for injunctive relief and attorney’s fees incurred to enforce the rental restrictions in the CC&Rs if they violate these provisions. If you need assistance in preparing reminders to the homeowners or summarizing the Airbnb law to them, please contact our firm.

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.

AB 1783: Potential Changes to the Dispute Resolution Process relating to Common Interest Developments

September 19, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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

The California Assembly and California Senate passed AB 1738 unanimously and forwarded it to Governor Edmund G. Brown, Jr. on August 27, 2014. Governor Brown has not yet acted on this bill.

AB 1738 would amend California Civil Code Sections 5910 and 5915, which are part of the Davis-Stirling Common Interest Development Act, by clarifying that resolutions to disputes be in writing and that members shall not be charged for participating in informal dispute resolutions.

Section 5910 currently discusses the minimum requirements for a dispute resolution procedure between an association and an owner. AB 1738 would amend Section 5910 to require that any resolution of a dispute between a homeowner and an association be in writing and signed by both parties. A verbal agreement would no longer suffice.

Section 5915 currently provides a dispute resolution procedure for associations that do not otherwise provide a “fair, reasonable, and expeditious dispute resolution procedure.” It does not apply to associations that meet Section 5910’s requirements. AB 1738 would amend Section 5915 to state that “[t]he parties may be assisted by an attorney or other person at their own cost when conferring.” AB 1738 would also amend Section 5910 to state that only a written agreement signed by both parties would be judicially enforceable. Section 5915 currently does not include this requirement. Further, AB 1738 would amend Section 5915 to state that “[a] member shall not be charged a fee to participate in the process.” Section 5915 currently states that “[a] member may not be charged a fee to participate in the process.”

How would these changes affect you?

AB 1738 would amend Section 5910 by requiring any resolution to a dispute between the association and a homeowner to be in writing and signed by both parties. Therefore, a handshake would not be sufficient. This adds a layer of formality to the process that is not currently present. If AB 1738 passes, a verbal resolution would not meet Section 5910’s requirements.

AB 1738 would amend Section 5915, first, to state that an attorney could represent an association or owner, at its own cost, during the resolution process. This would add another layer of complexity, and potentially cost, to a process which is mean to be simple, inexpensive, and efficient. Second, AB 1738 would amend Section 5915 to require a resolution to be signed by both parties to be judicially enforceable. Therefore, once again, a verbal agreement would not be judicially enforceable. Third, AB 1738 would amend Section 5915 by stating that a member shall not be charged for participating in dispute resolution under Section 5915, thus removing any ambiguity created by the word “may.”

In summary, AB 1738 would require resolutions to disputes to be in writing. Further, for associations without dispute resolution procedures, AB 1738 would clarify that owners may not be charged for participating in Section 5915’s resolution process and that counsel may represent owners and associations.

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.

LOAR AND CO-COUNSEL WIN LANDMARK SUPREME COURT CASE

July 21, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law, Uncategorized

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.

HOW TO STOP SHORT-TERM VACATION AND CORPORATE RENTALS

April 11, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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

Our firm has received many inquiries on how to stop short-term rentals from being posted on airbnb, which has recently become the most popular website in the Bay Area for advertising condominiums by the night or the week.

Short-term rental provisions vary depending on the declaration of covenants, conditions and restrictions (“CC&Rs”), but thirty (30) day or six (6) month minimum lease terms are the most common. The purpose of these provisions is to reduce the use of residences for hotel or transient use. Owners do not want homes in their community to be used as a vacation or corporate rental, which may generate excessive noise, late night parties, trespassing, increased traffic, and other disruptive activities.

Many of these advertisements are for high-end condominiums with close proximity to the beach, convention center, or downtown. Owners rightly object to sharing desirable amenities such as a pool, spa, exercise studio and/or sauna with tourists and travelers.

Many associations want us to send cease and desist letters to airbnb. Unfortunately, an association has no contractual relationship with airbnb, which is not bound by CC&Rs. Thus, the association has minimal leverage to demand that airbnb cease from posting ads from the association’s owners and tenants. They are similar to Craigslist and vrbo in that they do not have control over persons posting on their website. However, the terms and conditions on airbnb’s website indicate that each host represents and warrants that a housing accommodation “will not breach any agreements” that the host has entered into with any third parties and will comply with applicable laws, tax requirements, zoning laws, and laws governing rentals of residential and other properties. Hosts may not read or ignore these terms, which they expressly violate by renting their units in violation of the CC&Rs and local law.

In particular, Chapter 41a of San Francisco’s Administrative Code states that renting an apartment or home for less than 30 days is illegal in San Francisco unless you get a bed-and-breakfast permit. Violators may face a fine of up to $1,000 or six months in jail. Airbnb rentals keep happening under the radar because they’re too hard to police. Usually, neighbors report the possible violation to the association’s management.

Violations of the minimum lease term requirement can be addressed as would any other CC&Rs violation, by notice and hearing. The board of directors (“Board”) can have management send the offending owner a cease and desist letter demanding that the owner take down the posting. If the posting continues, the Board can send a violation notice and call the owner to a hearing in executive session. If after the hearing the owner is found to be in violation, then the Board can impose a fine according to the fine schedule.

If fines do not curtail the rental activity, the Board may want to consider a suit for injunctive relief. Before a complaint can be filed, however, associations must serve the offending owner with a request for resolution and offer to mediate the dispute. If the owner accepts the offer to mediate, then mediation is held. Often, mediation will resolve the dispute. If it does not, then the association may file a lawsuit for injunctive relief. If it prevails, then the court can order the owner to pay the association’s legal fees.

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.

HOW TO MONITOR OCCUPANCY AND ENFORCE RENTAL RESTRICTIONS

February 24, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law, Uncategorized

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.

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.

2014 STATUTES RELATED TO COMMON INTEREST DEVELOPMENTS

January 9, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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.

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

January 9, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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.

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.

NEW FORMAT FOR BUDGETS AND ANNUAL DISCLOSURES UNDER AB 805

January 9, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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:

A pro forma operating budget;
An Assessment and Reserve Funding Disclosure Summary form;
A statement as to whether the association has any outstanding loans;
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:

The name and address of the person designated to receive official communications to the association;
Each member’s right to submit a written request to have the association’s documents sent to two different specified addresses;
Its location for posting notices of member and board meetings;
Each member’s right to submit a written request that the association’s general notice be sent by individual delivery;
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;
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);
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);
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);
A summary of its dispute resolution procedures, which should refer to the new Civil Code Sections under AB 805;
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
The mailing address for overnight payment of assessments.

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.

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

January 9, 2014 By: loarweb In: Construction Law, HOA, Law, Real Estate Law

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.

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