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HOW TO MONITOR OCCUPANCY AND ENFORCE RENTAL RESTRICTIONS

February 24, 2014 By:  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.

 

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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2014 STATUTES RELATED TO COMMON INTEREST DEVELOPMENTS

January 9, 2014 By:  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.

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

January 9, 2014 By:  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.

 

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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