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IRRIGATION WITH POTABLE WATER CAN BE A “NO-NO” (January 2025)

The California Legislature has set its sights on using potable water for the irrigation of “non-functional turf.”  Beginning January 1, 2029, community/homeowner associations will be prohibited from using potable water (water suitable for human consumption) for the irrigation of nonfunctional turf located in the common areas, excluding exclusive use common areas.

For commercial properties, the ban will begin January 1, 2028.  Apartment buildings are generally considered residential and not subject to the potable water ban; however, mixed use properties with commercial operations, in addition to residential units, could have landscape areas that are subject to the ban.

“Non-functional turf” is a ground cover surface of grass that is not located in a recreational use area or community space; it is commonly known as decorative or ornamental.  A “recreational use area” is an area designated to accommodate human foot traffic for recreation (e.g., sports fields, golf courses, playgrounds, picnic grounds, and pet exercise areas).  “Community space” is an area designated to accommodate human foot traffic for community events or social gatherings.    

Notwithstanding the prohibition, potable water can be used to the extent necessary to ensure the health of trees and other perennial non-turf plantings, or to the extent necessary to address an immediate health and safety need.  Another exemption may be available for species of grass that require a low amount of water if the user (1) certifies that the grass species needs certain low levels of water and (2) demonstrates that the grass is watered in a way that uses certain low levels of water.

Commencing June 30, 2031, and every three years thereafter through 2040, associations with more than 5,000 square feet of irrigated common area (excluding exclusive use common area) must certify that their property is in compliance.  Commencing June 30, 2030, and every three years thereafter through 2039, commercial properties with more than 5,000 square feet of irrigated area must certify that their property is in compliance.

 

NEW HOA RESPONSIBILITY FOR REPAIRING UTILITIES (December 2024)

Starting January 1, 2025, new legislation (SB 900) will alter the default (i.e., if not addressed in the CC&Rs) repair and replacement responsibilities for utilities (gas, heat, water, and electricity).  Unless otherwise provided in the CC&Rs, or unless maintained or repaired/replaced by the utility provider, the association is responsible for repairs/replacements necessary to restore interrupted utility services that begin in the common area, even if they extend into a separate interest or exclusive use common area.

The Board must commence the process to make the repairs within 14 days of the interruption of services.  If the Board is required to vote to initiate the repairs/replacements, voting may be performed by electronic means, including, but not limited to, email.  If the Board is unable to meet a quorum within the 14 days, then at the next duly noticed Board meeting following the 14th day, the total number of Board members at that meeting are deemed to constitute a quorum, but only for the purpose of the vote to commence the repair process.  The meeting notice must indicate the use of a reduced quorum.

If there are insufficient reserve funds available to cover the costs of repairs/replacements, the association may, after the Board passes a statutorily prescribed resolution, obtain competitive financing to pay for the costs without a vote of the members and levy an emergency assessment for the repayment of the loan.  The resolution must be distributed to the members with the notice of the emergency assessment and any other required notices.

These requirements do not apply if the association is in an area affected by one or more of the following, which materially affect the association's ability to perform its responsibilities: A state of disaster or emergency declared by the federal government and/or a state of emergency proclaimed by the Governor or a local governing body or official.

 

NEW TENANT PROTECTIONS FOR “QUALIFIED COMMERCIAL TENANTS” (November 2024)

Via recent legislation (Senate Bill 1103), California has expanded some tenant protections, previously applicable only to residential leases, to certain commercial leases starting on January 1, 2025.  The protections apply to commercial leases in which the tenant is a “qualified commercial tenant.”  To be a “qualified commercial tenant,” the tenant must satisfy both of the following two criteria:

  1. the tenant must be (a) a microenterprise (five or fewer employees including the owner and generally lacks sufficient access to loans, equity, or other financial capital), (b) a restaurant with fewer than 10 employees, or (c) a 501(c)(3) non­‑profit organization with fewer than 20 employees; and

 

  1. the tenant must have provided the landlord, before or upon execution of the lease and annually thereafter, a written notice that the tenant is a qualified commercial tenant and a self‑attestation regarding the number of the tenant’s employees.  If the tenancy is from month to month or shorter period, the tenant must have provided the notice and self‑attestation within the previous 12 months.

The tenant protections now applicable to commercial leases with a “qualified commercial tenant” include the following:

  • Rent increases on commercial leases that are month to month or shorter periods will now require 90 days written notice if the increase is more than 10 percent over the preceding 12 months.  The notice must include information on the statutory provisions.
  • If the lease was negotiated primarily in a foreign language (Spanish, Chinese, Tagalog, Vietnamese, or Korean), the party that drafts the lease must deliver, before lease execution, to the other party and any other signers a translation of the entire lease.  At the time and place where the lease is executed, notice in the same language must be provided to the tenant.  Failure to comply entitles the tenant to rescind the lease.
  • With implied term leases (e.g., month-to-month), the owner/landlord must give 60 days written notice to terminate the tenancy if the tenant has occupied the premises for a year or more.  The notice must include information on the statutory provisions.
  • There are restrictions on charges for building operating costs (often called “CAM charges”).  For leases that were executed or renewed after January 1, 2025, that are month to month or shorter period, or that were executed before January 1, 2025 but do not have an operating cost provision:
  • Building operating costs cannot be charged unless (i) the costs are allocated proportionately per tenant, by square footage, or another method as substantiated through supporting documentation provided to the tenant; (ii) the costs have been incurred within the previous 18 months, or are reasonably expected to be incurred within the next 12 months based on reasonable estimates; (iii) before the execution of the lease, the landlord provided the prospective tenant a paper or electronic notice stating that the tenant may inspect any supporting documentation upon written request, and the landlord provides the documentation within 30 days of that request; and (iv) the costs do not include expenses paid by a tenant directly to a third party or expenses for which the landlord was reimbursed.
  • To alter the method or formula used to allocate operating costs in a way that increases the tenant’s share of those costs, the landlord must provide the tenant with written notice of the change in the method or formula with supporting documentation of the basis of the alteration.

Violations can lead to liability for actual damages, reasonable attorneys’ fees and costs in the court’s discretion, and treble and punitive damages if the landlord acted willfully or with oppression, fraud, or malice.

 

ARE EV CHARGING STATIONS A “MUST” FOR HOA'S (October 2024)

Two questions arise when it comes to installing electric vehicle charging stations: (1) are Associations required to provide electric vehicle charging stations for the owners’ use and (2) must Associations allow owners to install electric vehicle charging stations?  As the use of EVs become more prevalent, these questions become increasingly relevant to more Associations.

The short answers are “no” to the first question and “yes” to the second one.  Starting in reverse order with the second question, the Davis-Stirling Common Interest Development Act declares void and unenforceable any prohibition or unreasonable restriction on the installation or use of an electric vehicle charging station within an owner’s unit or in a designated parking space (e.g., a deeded parking space, a parking space in an owner’s exclusive use common area, and a parking space that is specifically designated for use by a particular owner).  This includes several charge points simultaneously connecting several electric vehicles to the station and any related equipment needed to facilitate charging plug-in electric vehicles.

However, the Association may impose reasonable restrictions.  “Reasonable restrictions” are ones that do not significantly increase the cost of the charging station or significantly decrease its efficiency or specified performance.  In any event, charging stations must meet applicable health and safety standards and requirements imposed by state and local authorities, as well as all other applicable zoning, land use, or other ordinances, and land use permits. 

Applications for Association approval of charging stations, if required by the Association, must be processed and approved in the same manner as applications for approval of an architectural modification and cannot not be willfully avoided or delayed.  The approval or denial of an application must be in writing, and the application is deemed approved if there is no written denial within 60 days from receipt of the application, unless the delay is the result of a reasonable request for additional information.  If the application is approved, the owner must maintain a liability insurance at all times and provide a certificate showing proof of the required insurance within 14 days of approval and annually thereafter.

Turning to the first question, the Association may, but is not obligated (at least for now) to, install a charging station in the common area for the use of all members of the Association.  Owners too may do so.  If either the Association or an owner does so, the Association must develop appropriate terms of use for the charging station.

The installation of a charging station for the exclusive use of an owner in a common area, that is not an exclusive use common area, must be authorized by the Association only if installation in the owner’s designated parking space is impossible or unreasonably expensive, in which case the Association must enter into a license agreement with the owner.

If an owner-installed charging station is to be placed in a common area or an exclusive use common area, the owner must engage a licensed contractor to install the charging station, name the association as an additional insured under the owner’s liability insurance policy, and pay for both the costs associated with the installation/maintenance/repair of and the electricity usage associated with the charging station.

 

HOA PAYMENT PLANS AND NOTICES OF DEFAULT (JULY 2024)

A significant case for community associations recently came out of the Court of Appeal.  In Doskocz v. ALS Lien Services, the court addressed two previously undecided issues pertaining to the collection of delinquent assessments: (1) can the statutorily prescribed priority for applying partial assessment payments (i.e., first to the principal balance of the assessment itself and then to collection costs, attorney’s fees, late charges, and interest) be changed with the owner’s consent and (2) can a Notice of Default be recorded before the $1800/one-year threshold is met?

On the first issue, Civil Code section 5655(a), part of the Davis-Stirling Common Interest Development Act, requires that partial assessment payments be applied first to the principal balance of the assessments owed, and, only after the assessments owed are paid in full, can payments be applied to collection costs, attorney’s fees, late charges, and interest.  There is an argument, as was made in Doskocz v. ALS, that an owner can waive this priority as part of the terms of an agreed payment plan, so that the partial payments would be applied first to the collection costs (or late charges or interest) before the assessment balance.  This argument is based on the provision in Civil Code section 5665 that requires the association to provide the standards for payment plans, if any exist, when an owner requests a meeting to discuss a payment plan.  As the argument goes, the waiver of the partial payment priority can be part of the payment plan standards permitted by section 5665.  However, the court in Doskocz v. ALS put an end to that argument, holding that waivers of the payment priority are void (i.e., not valid or enforceable) because they are against the public policy behind the statutorily mandated priority of protecting owners against collection abuses.

As for the second issue (recording a Notice of Default), Civil Code section 5720, also part of Davis-Stirling, prohibits foreclosures before the delinquent assessment balance is at least $1,800 or more than one year old.  The nagging question was whether recording a Notice of Default, before the $1,800 or one-year threshold was met, violated this prohibition.  This question is important because the Notice of Sale (and, hence, the foreclosure sale) cannot be issued until at least 90 days after the Notice of Default is recorded, and having to wait for that threshold to be satisfied before recording the Notice of Default could result in substantial delay in holding the foreclosure sale.  On the one hand, the Notice of Default is a prerequisite to the foreclosure sale and part of the foreclosure process; on the other hand, the foreclosure sale cannot proceed until the Notice of Sale is issued, and the Notice of Default by itself arguably does not effectuate the foreclosure.  The court in Doskocz v. ALS answered the question, finding that the steps in the foreclosure process, including recording a Notice of Default, and not just the foreclosure sale itself, are included in the statutory prohibition, requiring that the $1,800 or one-year threshold be met before the Notice of Default is recorded.

 

TERM LIMITS FOR HOA BOARDS (March 2024)

As we all remember, in 2019 with SB 323 (effective 2020), the Legislature took it upon itself to limit the permitted qualifications of candidates for a community association’s Board of Directors.  The list of permitted qualifications, found in Civil Code section 5105, did not include term limits.  It was debatable whether term limits were a candidate qualification or an inherent characteristic of the Board position, creating doubt as to whether term limits were enforceable.  The consensus of the legal community was that SB 323 rendered term limits unenforceable.  

Interestingly, in 2021 with SB 432 (effective 2022), the Legislature added term limits to the list of permitted qualification, but only in Civil Code section 5100, which governs elections by affirmation, and not section 5105 governing Board elections in general.  Ironically, term limits were technically enforceable only in elections by affirmation and not elections by ballot.  The Legislature has remedied this irony by amending section 5105 in 2023 (effective 2024) to add term limits to the list of permitted qualifications in Board elections generally.  Consequently, term limits are now clearly enforceable.

 

NEW REQUIREMENTS FOR HANDLING HOA FINANCES (December 2018)

Pursuant to Senate Bill 2912, which the Governor signed in September, the Davis-Stirling Common Interest Development Act has been amended to add new requirements effective January 1, 2019 for handling association finances.  The new requirements are as follows:

  • Unless the governing documents impose more stringent standards, the Board must review, on a monthly basis, (1) a current reconciliation of the operating accounts, (2) a current reconciliation of the reserve accounts, (3) the current year’s actual operating revenues and expenses compared to the current year’s budget, (4) the latest account statements for the operating and reserve accounts, (5) an income and expense statement for the operating and reserve accounts, and (6) the check register, monthly general ledger, and delinquent assessment receivable reports.  This requirement may be met when every individual member of the board, or a subcommittee of the board consisting of the treasurer and at least one other board member, reviews the documents and statements independent of a Board meeting, so long as the review is ratified at the board meeting subsequent to the review and that ratification is reflected in the minutes of that meeting.
  • Transfers of greater than $10,000 or 5 percent of an association’s total combined reserve and operating account deposits, whichever is lower, cannot be made from the reserve or operating accounts without prior written Board approval.  As written, this requirement seems to apply to “internal” transfers from one of the association’s accounts to another.
  • Unless the governing documents require greater coverage amounts, associations must maintain fidelity bond coverage for its directors, officers, employees, and, if applicable, managing agent or management company in an amount that is at least the combined amount of the reserves and total assessments for three months. The fidelity bond must include computer fraud and funds transfer fraud.

Please do not hesitate to contact us if you have any questions about these requirements or how to satisfy them.

 

NEW HOA DISCLOSURE REQUIREMENTS (January 2018)

Effective January 1, 2018, new disclosure requirements added to the Davis-Stirling Common Interest Development Act include the following:

  • The annual budget report distributed or made available to the members now includes a new component.  In addition to the previously required items, it must include a copy of the “Charges For Documents Provided As Required By Section 4525,” the form given to owners or prospective purchasers listing the documents that the association is required to provide upon the request of an owner selling a unit, or the purchaser when authorized by the owner, with the cost of each document listed on the form in the column entitled “Fee for Document.” 
  • That form must now also include statutorily prescribed language advising that (1) the seller can provide the purchaser, ant no cost, any of the documents that the seller has, and (2) a seller is not required to purchase all of the listed documents.

Compliance with these new requirements should be any easy task by simply adding the new statutory language to the form, with the charge for each document already filled in, and including the form in the annual disclosure packets.

 

PESTICIDE NOTICE (January 2017)

A new statute was added to the Davis Stirling Common Interest Development Act this year.  It requires that the Association provide notice to certain unit owners and tenants when the Association has pesticides applied to the common area or a separate interest by an unlicensed pest control operator.  The content of the notice, the required recipients, and the method and timing of the notice’s delivery are prescribed by the statute and can vary depending on the circumstances.  Whenever an Association uses an unlicensed operator to apply pesticides, the Association should consult legal counsel to ensure compliance with this new statute.

 

UNIT OWNER INFORMATION (December 2016)

Starting January 1, 2017, newly enacted Civil Code section 4041 will require unit owners to annually provide to the association written notice of (1) the address or addresses to which notices from the association are to be delivered, (2) an alternate or secondary address to which notices from the association are to be delivered, (3) the name and address of owner’s legal representative, if any, including any person with power of attorney or other person who can be contacted in the event of the owner’s extended absence; and (4) whether the separate interest is owner-occupied, is rented out, if the parcel is developed but vacant, or if the parcel is undeveloped land.  The association will be required to solicit these annual notices of each owner and enter the data into its books and records, at least 30 days prior to making its own required annual disclosures.  If an owner fails to provide the notices, the Association should send notices to the unit’s address.

Associations should send the solicitation sufficiently in advance of the deadline for the Association’s annual disclosures to receive the owners’ notices in time to enter the information 30 days before sending the annual disclosures.

 

POLICING DESCIRMINATION PERPETRATED BY OTHERS (October 2016)

New HUD anti-discrimination regulations have significant ramifications for community associations and landlords.  Under the new regulations, community associations may be liable for discriminatory harassment perpetrated by third parties.  The federal Fair Housing Act prohibits discrimination in connection with housing and housing-related services because of race, color, national origin, religion, sex, disability, and familial status.  The wide range of discriminatory practices include, among other things, making discriminatory statements, refusing to rent or sell, denying access to services, setting different terms or conditions, refusing to make reasonable modifications or accommodations, discriminating in residential real estate-related transactions, and retaliating.

HUD considers harassment to also be a discriminatory practice and has adopted regulations, effective October 14, 2016 and codified at 24 CFR section 100, to formalize standards for assessing claims of harassment under the Fair Housing Act.  These new regulations provide, among other things, that in addition to being liable for one’s own conduct and that of one’s agents and employees, a person is liable for failing to take prompt action to correct and end a discriminatory housing practice by a third party, when the person knew or should have known of the discriminatory conduct and had the power to correct it. 

Accordingly, community associations may be liable for the discriminatory conduct of others if the Association has, under the governing documents or the law, the power to take action against the third party’s discriminatory conduct.

Landlords too may be liable for the discriminatory conduct of others if the landlord has the power to take action against the third party’s discriminatory conduct.  Landlord’s already have the duty to protect the covenant of quiet enjoyment by controlling, to the extent that the landlord has the power, disturbances to any of their tenants.  The new regulations present another layer when it comes to discriminatory harassment.

Associations and Landlords should consult their legal counsel upon becoming aware of discrimination perpetrated on the property, whether by their own personnel, the management company, or a third party.

Other highlights of the new regulations include the following:

  • Harassment can be written, verbal, or other conduct, and does not require physical contact.
  • A single incident of harassment can constitute a discriminatory housing practice.
  • An employer’s defense to liability for harassment by a supervisor in the work environment does not apply to violations of the Fair Housing Act.  In work place harassment cases, an employer may, depending on the circumstances, have a defense if the employer exercised reasonable care and was not negligent in permitting the supervisor’s conduct to occur.  These defenses are not available in the fair housing context.

 

THE AIRBNB PROBLEM (August 2016)

Short term/vacation rentals, through AirBnB and otherwise, have plagued many communities in recent times.  Some common interest developments have amended their governing documents to prohibit these problematic rentals.  For developments that have not done so and for other communities, one way to combat this problem is the local zoning laws.  For example, in a recent case (Chen v. Kraft), a resident was renting out a spare bedroom on a short term basis through AirBnB.  The property was in an R-1 residential zone within the City of Los Angeles.  Under the Los Angeles Zoning Code, bed and breakfasts and transient occupancies are not permitted in R-1 zones.  Accordingly, the court found the short term rentals to be illegal.

 

DOES THE BUSINESS JUDGMENT RULE GOT YOUR DIRECTORS’ BACKS? (July 2016)

The law protects members of a community association’s board of directors from courts interfering with their exercise of business judgment in making decisions for the association.  The rule of law is known as the business judgment rule and is codified in Corporations Code section 7231.   This protection is available only under certain circumstances.  To qualify, the director must perform his/her duties “in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances."  Reasonable diligence must be exercised.  As the California Court of Appeal recently characterized this requirement, “a director must act on an informed basis, be reasonably diligent, and exercise care in order to rely on the business judgment rule.”  Palm Springs Villas II Homeowners Association, Inc. v. Parth (2016) 248 Cal.App.4th 268.  Bottom line, directors must do their homework to avail themselves of the protection offered by the business judgment rule.

 

NEW HOA DISCLOSURE REQUIREMENT (March 2016)

Beginning July 1, 2016, Civil Code section 5300 of the Davis-Stirling Common Interest Development Act will require Associations of condominium projects (but not other types of common interest developments) to include in their annual disclosures a statement describing the development’s status as a Federal Housing Administration (FHA) approved condominium project and a federal Department of Veterans Affairs (VA) approved condominium project, including whether the development is an approved condominium project. The statement must be in at least 10-point font and on a separate piece of paper for each the FHA approval status and the VA approval status.  The statutorily required language is as follows:

For the FHA approval status:

“Certification by the Federal Housing Administration may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest.

This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the Federal Housing Administration.”

For the VA approval status:

“Certification by the federal Department of Veterans Affairs may provide benefits to members of an association, including an improvement in an owner's ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest.

This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the federal Department of Veterans Affairs.”

 

NO TRIVIAL EVICTION ALLOWED (March 2016)

Not every uncured tenant default qualifies as a valid ground for eviction.  Code of Civil Procedure section 1161 defines unlawful detainer to include staying in possession of the leased premises after the tenant breaches the lease and being served with a three-day notice to cure or quit.  However, the courts have interpreted that statute as requiring a material breach to warrant eviction.  In other words, the lease may be terminated and the tenant evicted only if the breach is substantial and not merely technical or trivial.  In a recent case, Boston LLC v. Juarez, the Second District Court of Appeal recently clarified that this requirement applies even if the lease contains a forfeiture clause that explicitly states that any breach by the tenant allows the landlord to declare a forfeiture of the lease and terminate the tenant’s right to possession of the leased premises.

 

NUTS AND BOLTS OF CONSTRUCTION CONTRACTS (December 2014)

While each construction contract must be customized for the particular circumstances and details of the project, there are key terms that should be considered for most construction contracts.  The following is a thumbnail list of some of them (please note that this list is not exhaustive, and each item has its own details):                 

1.   Scope of the project.  Owners will want to add that the contractor shall furnish and transport all necessary labor, materials, and equipment and complete the project in a first class and workmanlike manner, free of mechanics liens and defects, with minimal disturbance, to the owner’s satisfaction, and in strict compliance with the plans, industry standards, and applicable law.  

2.   Who (contractor or owner) will obtain and pay for any needed permits.  

3.   Permissible work hours and days.

4.   Work schedule, including commencement and completion dates of the project as a whole and of each phase if the project is to be conducted in phases.  Contractors will want an exemption for delays that are beyond their control.

5.  In multi-unit complexes and if warranted by the duration of the project, the contractor’s periodic reports on the progress with notice to each unit to be affected by the next phase. 

6.   Owners may want a daily or weekly penalty for the contractor’s failure to complete the project on time.  Contractors may want reciprocation by means of a bonus for early completion.

7.   The contractor’s acknowledgment that the construction plans are sufficiently complete and detailed to permit the contractor to complete the project for the contract price.

8.   Performance and payment bonds, if the contract price warrants the cost of the premiums, and who pays for them.

9.   The contractor’s fee structure (e.g., fixed price, cost plus fee, or guaranteed maximum) with a specific schedule for progress payments.

10. Conditional lien releases with each payment request, followed by unconditional lien releases after each payment.

11. The owner’s retention of a portion (typically 10 percent) of each payment until full completion of the project. 

12. The contractor’s assignment of all manufacturers’ warranties.

13. If any sub-contractors or suppliers are not paid timely, the owner’s right to subtract the unpaid amount from the amount owed to the contractor and/or make payments by checks payable jointly to the contractor and the subcontractor or supplier.

14. The owner’s right to terminate the contract if the Contractor does not comply with the construction schedule, fails to supply sufficient materials or workers for a specified period of time, or does not in good faith carry out the terms of the contract.

15. The contractor’s warranty.

16. The contractor’s insurance.

17. All sub-contractors must be licensed and insured, and the sub-contracts should incorporate the contract and explicitly name Owner as a third party beneficiary.

18. In multi-unit complexes, Contractor’s proper treatment of residents and direct reporting to management of problems with them.

19. Indemnity by the contractor.

 

IS IT RAINING CATS OR DOGS? (November 2014)

Wherever there are no-pet rules or pet restrictions, there seem to be an unusual number of residents needing service animals, often to facilitate therapy for purported mental disabilities like depression.  Can the no-pet rules or pet restrictions be enforced in such cases?

The anti-discrimination laws protect persons with either physical or mental disabilities.  Mental disabilities include, without limitation, any mental condition that limits a major life activity or that requires special education or related services.  Depression can qualify as a mental disability.  Discrimination includes, among other actions, “refusal to make reasonable accommodations in rules, policies, practices, or services when those accommodations may be necessary to afford a disabled person equal opportunity to use and enjoy a dwelling.”  Such rules include no-pet and limited-pet rules, and such policies include pet deposits and restricted pet areas.

Whether allowing a service animal is a reasonable accommodation must be evaluated on a case-by-case basis.  Circumstances that can warrant it can include, but are by no means limited to, the owner’s depression and related symptoms improving after getting the animal (e.g., the owner having a brighter affect and being more social) or the owner no longer sitting around the house brooding but instead paying attention to the animal’s needs (e.g., having to go outside to take the animal for walks and rides).  The animal need not qualify as a service animal, and there is no requirement that the animal be specially trained to alleviate the disabilities if special skills are not needed to help ameliorate the owner’s disabilities.  Sometimes, the innate qualities of an animal alone, such as a dog’s friendliness and ability to interact with humans, make it therapeutic.

If there is skepticism about the alleged disability or the reasonableness of allowing a pet as an accommodation, it is incumbent on the landlord or community association to request documentation or open a dialogue.  An open dialogue would be part of an interactive process in which each party seeks and shares information.  Once the landlord/association knows of the desire for an accommodation, the landlord/association has the burden and the obligation to request any additional information needed to evaluate the disability and the need for a service animal.

When presented with requests to allow service or companion animals that are otherwise prohibited, management should first evaluate whether sufficient information has been provided to determine whether there is a disability and whether the requested animal is needed as a reasonable accommodation for it.  If management does not have sufficient information, management should ask for the additional information needed.  Care should be exercised to ensure that the information being requested is genuinely needed for evaluating the disability and accommodation.  Requesting medical records is problematic because much of the information, which is private, may be irrelevant to justifying the need for the animal.  If the needed information cannot be obtained from another reliable source (e.g., the treating physician or psychologist/psychiatrist refuses to provide the needed information in a letter), management can suggest, but not require, that the tenant/occupant provide medical records with any irrelevant information redacted.  Once all the needed information is received, any doubts should be resolved by erring on the side of caution and allowing the animal, given the favor that the anti-discrimination laws give to disabled persons, the cost of defending a discrimination lawsuit, and the potential liability if a court or jury disagrees with the decision to disallow the animal.  If management determines that there is a disability but the animal is not a reasonable accommodation, management should engage in a dialogue with the resident to explore other possible accommodations, if any.

 

THE POWER BEHIND OPERATING RULES (December 2013)

Boards have discretion in enacting operating rules.  A rule enacted by the Board is valid and enforceable as long as it is reasonable (as measured by the effect on the development as a whole, not an individual homeowner), within the board’s authority, not inconsistent with the governing documents, and adopted in good faith and in compliance with the statutory procedure.  A rule is reasonable if it is rationally related to the protection, preservation and proper operation of the development and the purposes of the Association as set forth in the governing instruments, as well as fair and nondiscriminatory.  By contrast, an unreasonable  rule is one that is arbitrary and capricious, violates the law or a fundamental public policy or imposes an undue burden on property.  Boards have this broad discretion because when a unit owner purchases a unit, knowing of the association’s discretionary power, the owner accepts the risk that the power may be used in a way that benefits the community as a whole but harms the individual.  A prospective homeowner who purchases property in a common interest development should be aware that new rules and regulations may be adopted by the association either through the board’s rulemaking power or through the association’s amendment powers. 

The board’s discretion is fettered not only by the requirement that the rule be reasonable, but also by the homeowners’ right to challenge the adopted rule, at least to the extent that

Under section 1357.140, subdivision (b), a homeowner may challenge an adopted rule by requesting a special membership meeting to dispute it, within 30 days of notification of the rule change. Due to an admitted lack of any record on whether this procedure was invoked or litigated here, we decline to apply any waiver principles from it, as respondent's brief now suggests. (See Fourth La Costa, supra, 159 Cal.App.4th at p. 585 [waiver rule].)

 

THE NEW DAVIS-STIRLING COMMON INTEREST DEVELOPMENT ACT (January 2013)

Effective January 1, 2014, the new and improved Davis-Stirling Common Interest Development Act will replace the current one, which was first enacted in 1985 and has been evolving ever since then.  The new legislation, Assembly Bill No. 805, primarily re‑organizes Davis-Stirling to be more intuitive and user friendly.  Instead of being found at Civil Code sections 1350 through 1378, the new Davis-Stirling statutes will be Civil Code sections 4000 through 6150, and the old ones will be repealed.  Associations need not be concerned about the change in section numbers because section 4235 of the new Davis-Stirling expressly permits the old section numbers stated in governing documents to be changed to the new ones simply by Board resolution, without approval of the members.

In addition to the re-organization, the new Davis-Stirling contains a few substantive changes.  However, under new section 4010, an action taken or a document prepared (other than a governing document) before January 1, 2014 will remain valid if the document or action was proper under the old Davis-Stirling. 

The next few newsletters will explore some of the substantive changes.  For this installment in the series, we look at 

the following (with the new section numbers in parentheses):

  • A document required to be delivered to the Association must be delivered to the person designated by the Association.  If no person has been designated, the document must be delivered to the President or Secretary.  The permitted methods of delivery include electronic means (e.g., e-mail and facsimile) and personal delivery, if the association has assented to those methods.  (4035)
  • The permitted methods for distributing documents to the membership include – in addition to the previously permitted methods of mail, overnight delivery, and electronic means if the recipient has consented in writing – (1) inclusion in a billing statement, newsletter, or other document that is delivered by one of the permitted methods; (2) posting the printed document in a designated, prominent location that is accessible to all members; or (3) inclusion in the Association’s television programming if the association broadcasts television programming for that purpose.  However, if a member requests to receive general notices by individual delivery, the document must be delivered by mail, overnight delivery, or electronic means if the member has given written consent to electronic delivery.  (4045)

 

PROTECTION FOR ASSOCIATIONS AGAINST TRICKY LENDERS (October 2012)

On September 7, 2012, the Governor signed into law Assembly Bill No. 2273, adding Section 2924.1 to the California Civil Code. Now, when a mortgage lender forecloses on property in a common interest development, the transfer of title to the purchaser (the Trustee’s Deed Upon Sale in a non-judicial foreclosure) must be recorded within 30 days after the sale. Previously, there was no requirement that the deed be recorded. Consequently, the purchaser, who often is the lender itself, was able to conceal the sale from the homeowners association and, thereby, avoid responsibility for paying the assessments as the new owner. The new law helps safeguard against this practice.

Further enhancing this safeguard is a second feature of Assembly Bill No. 2273, which amended Civil Code section 2924b as it concerns homeowners associations' requests that copies of Notices of Default and Trustee's Deeds Upon Sale be mailed to the association. As before, associations may record such requests, and if an association does so before the Notice of Default is recorded, the trustee or lender must mail the Notice of Default and Trustee’s Deed to the association. However, under the old law, the deadline for mailing these documents was 15 days after the Trustee’s Deed was recorded. If the Trustee’s Deed was not recorded, whether to conceal the sale or for some other reason, there was no requirement to mail the documents, further depriving the association of another opportunity to learn of the sale. Now, section 2924b, as amended by A.B. 2273, requires that the documents be mailed within 15 days after the trustee's sale.

The failure to comply with either of these requirements – recording the Deed within 30 days or mailing the Notice of Default and Trustee’s Deed to the association within 15 days – does not invalidate the sale or affect the purchaser’s title to the foreclosed property. However, to the extent that the failure to comply with either requirement causes the association to suffer or incur a loss (e.g., inability to collect assessments), the association may have a cause of action against the trustee and/or the lender.

 

RENT SKIMMER OR INNOCENT ASSOCIATION (August 2012)

In this era of high delinquency rates and association foreclosures, associations acquiring units encumbered by a senior mortgage should be weary of potential rent skimming issues. As unfair and counter-intuitive as it seems, when an association acquires a unit that has a senior mortgage, using any rent received during the first year after acquiring the unit, for any purpose other than paying amounts due on the mortgage, is “rent skimming,” even though the association otherwise has no obligation to pay the mortgage. Civ. Code § 890(a)(1).

Rent skimming is declared to be unlawful. Civ. Code § 891(f). However, the circumstances under which it is actionable are limited. Civ. Code §§ 891 & 892. The circumstances applicable to associations in most cases involve a lawsuit brought by a lender, a lawsuit brought by a tenant, and criminal prosecution.

A mortgage lender may sue a person who has committed “multiple acts of rent skimming,” whether or not the person has become contractually bound to pay the mortgage. Civ. Code § 891(c). The phrase “multiple acts of rent skimming” is statutorily defined to mean “knowingly and willfully rent skimming with respect to each of five or more parcels of residential real property acquired within any two-year period.” Civ. Code § 890(b).

A tenant may sue a person who has engaged in rent skimming if the mortgage lender forecloses, and the tenant is required to move. Civ. Code § 891(d). Multiple acts of rent skimming are not required for a tenant to sue, and a tenant may sue even if the association received rent from only the unit the tenant occupies.

Criminal prosecution for rent skimming requires “multiple acts of rent skimming,” like liability to a mortgage lender. Civ. Code § 892(a). One court has held that an owner can be prosecuted if rent is received and used intentionally with knowledge that the mortgage is not being paid, even with an innocent motive, no evil intent, and ignorance that it is illegal. People v. Bell (1996) 45 Cal.App.4th 1030, 1042-1043.

The potentially liable or prosecuted persons, in addition to the association itself, include the officers, the directors, and anyone who authorizes rent skimming or who, being in a position of control, fails to prevent another from rent skimming. Civ. Code § 890(c).

There are multiple benefits to foreclosing on units even though rents received in the first year are supposed to be applied to amounts due on the mortgages. Those benefits include demonstrating that the Association takes collections seriously, removing “deadbeat” owners who otherwise would continue to plague the association while the mortgage lenders take a long time to foreclose themselves, being able to keep the rents collected after the first year if the senior mortgage lender does not foreclose in that time (as has seemed to be the case in the last few years), and enabling the association to evict “deadbeat” tenants.

After acquiring a unit that is already occupied by a tenant or before renting out a vacant unit, associations should consult legal counsel to strategize on addressing the rent skimming issues.

 

ASSOCIATIONS CAN SUE OWNERS’ BROKERS (June 2012)

In a very recent case, the Second District Court of Appeal held that a homeowners association can sue the unit owners’ real estate brokers when the brokers’ misconduct pertains to damage to the common area or separate interest that the association is obligated to maintain or repair, even though the association did not hire the brokers (i.e., the brokers owed a duty to the owners, not the association). This result can have broader application, enabling community associations to sue third parties, with whom the association has no contractual or other relationship, for their misconduct “pertaining” to damage to the common area or a separate interest that the association is obligated to maintain or repair.

The case was Glen Oaks Estates Homeowners Association v. Re/Max Premier Properties, Inc. (2012) 203 Cal.App.4th 913. That case involved a slope failure along a common area slope and driveway, resulting in the Association becoming embroiled in lawsuits against other parties and incurring $3 million in repair expenses.

The Association sued the brokers, who jointly represented the owners and developers in the original sale of the units, alleging that the brokers advised the developers to lower the monthly HOA dues so that the parcels would not fall out of escrow and then intentionally provided a false budget and deceptively low monthly dues statement to the owners; failed to provide the required public report to the purchasing owners and to inform them that a public report was required; and failed to warn the owners that the soil reports, used as the basis for the construction of the common roadway and common area slopes, might not be legitimate, despite having information constituting undeniable bases for questioning the reliability or validity of the soil reports (e.g., the brokers received material information that the soils engineer may not have been validly licensed and did not have errors and omissions insurance; some of the soil reports lacked a signature and/or seal of an engineer or geologist; the body of one or more soil reports referenced testing, investigation, and grading of a different property; and the body of one or more soil reports referenced a nonexistent report).

The brokers contended that the Association has no standing to sue them because they owed a duty to the owners, not the Association. Relying on Civil Code section 1368.3, the court disagreed and held that the Association has standing to sue the brokers even though the Association was not a party to the sales/purchases of the units. Under section 1368.3, a community association has standing to institute litigation in its own name, as the real party in interest and without joining with it the individual owners, in matters pertaining to damage to the common area, damage to a separate interest that the association is obligated to maintain or repair, and damage to a separate interest that arises out of, or is integrally related to, damage to the common area or a separate interest that the association is obligated to maintain or repair. The court found that the matter of the brokers’ misconduct pertained to damage to the common area (i.e., the failed slope and driveway), giving the Association standing to sue the brokers.

 

REDEMPTION AFTER FORECLOSURE (March 2012)

When a community association forecloses on a separate interest/unit, the owner has a right of redemption within 90 days after the foreclosure sale.  Code of Civ. Proc. § 729.035.   If the owner redeems the unit, the foreclosure sale is canceled.   Code of Civ. Proc. § 729.080(d). This right of redemption has ramifications for the association if the association is the purchaser at the foreclosure sale.

The association is not entitled to possession of the unit until after the 90-day redemption period, but the association is entitled to the rents and profits from the unit, or the value of use and occupancy of the unit, during the 90-day redemption period.  Code of Civ. Proc. § 729.090(a). 

Although the association is not entitled to possession during the redemption period, it has the right to enter the unit during reasonable hours to repair and maintain the premises. Code of Civ. Proc. § 729.090(c).  The association may do so without notifying the owner, unless the owner is living in the unit.  Barry v. OC Residential Properties, LLC (2011) 194 Cal.App.4th 861, 868.  As a general rule, the association may make such repairs as are reasonably necessary for the preservation of the property, but not permanent improvements or things beyond what is proper to keep the premises in necessary repair.  Id. at 871.

To redeem the unit, the owner must pay the redemption price, which includes (1) the purchase price that the association paid at the foreclosure sale; (2) the amount of any assessments or taxes and reasonable amounts for fire insurance, maintenance, upkeep, and repair of improvements on the property, even if performed by an unlicensed contractor; (3) any amount paid by the association on a prior obligation secured by the unit (e.g., the mortgage) to the extent that the payment was necessary to protect the association’s interest; and (4) interest on these amounts.  Code of Civ. Proc. § 729.060(b); Barry v. OC Residential Properties, supra, 194 Cal.App.4th at 870.  However, the redemption price is reduced by any rents and profits from the unit paid to the association or the value of the use and occupation of the unit to the association.  Code of Civ. Proc. § 729.060(c).

If there is a dispute over the proper amount of the redemption price, the owner may petition the court for an order determining the redemption price, provided that the petition is filed before the expiration of the redemption period, and the owner deposits the undisputed amount with the foreclosure trustee. Code of Civ. Proc. § 729.070(a). If the owner does so, the court determines the amount required to redeem the property based upon affidavit or other evidence satisfactory to the court. Code of Civ. Proc. § 729.070(f). In that determination, the owner has the burden of proof. Code of Civ. Proc. § 729.070 (e).

 

SOLAR POWER VERSUS ASSOCIATION REGULATORY POWER (November 2011)

In a recent case last month, Teroso Del Valle Master Homeowners Association v. Griffin, the Second District Court of Appeal upheld a homeowners association’s power to regulate homeowners’ installation of solar energy systems.  Although under California law associations cannot prohibit the installation or use of solar energy systems, associations may impose reasonable restrictions on them. 

To be reasonable, the restrictions must either (i) not significantly increase the cost of the system proposed by the homeowner or significantly decrease its efficiency or performance or (ii) allow for an alternative system of comparable cost, efficiency, and energy conservation benefits.  (For a solar water or swimming pool heating system, “significantly” means an increase in cost of more than 20 percent or decrease in efficiency by more than 20 percent, as originally specified and proposed; for a photovoltaic system, “significantly” means an increase in cost of more than $2,000 over the cost as originally specified and proposed, or a decrease in efficiency of more than 20 percent as originally specified and proposed.) 

An application for approval of a solar energy system must be processed and approved/denied in the same manner as an application for any modification or alteration to the common area or units (e.g., by an established architectural control committee in accordance with adopted architectural standards). The approval or denial must be in writing. If an application is not denied in writing within 60 days after it is received, it is deemed approved, unless the delay is the result of a reasonable request for additional information.

The association’s restrictions may take into account not only health and safety considerations, but also aesthetics. When the association’s governing documents do not prohibit all solar energy systems, but rather permit systems that are comparable in cost and performance and are aesthetically acceptable, the solar system regulations are enforceable.

 

BOARD BUSINESS WILL NEVER BE THE SAME: CHANGES IN MEETING PROCEDURES
(October 2011)


The California Legislature has further amended the Davis-Stirling Common Interest Development Act to impose restrictions on how association boards of directors conduct business. The changes enacted through Senate Bill 563 will take effect on January 1, 2012 and include the following: 

Members must be given notice of the time and place of all open board meetings at least four days before the meeting (unless the bylaws provide for a longer period of notice), even if the time and place are fixed by the bylaws. Members must be given notice of the time and place of all executive session board meetings at least two days before the meeting, even though the members are not entitled to attend. The only exception to these notice requirements is for emergency meetings. The notices for both open and executive session meetings must contain the agenda for the meeting. 

Notices of board meetings may be given to members electronically if the member consents. 

The notice of open board meetings held by teleconference must identify at least one physical location so that members may attend. At least one board member must be present at that location. 

The board may not take action on any item of business outside of a meeting; boards no longer will be able to take action by unanimous written consent in lieu of a meeting. 

The board cannot conduct meetings, open or executive session, via a series of electronic transmissions (e.g., electronic mail), except for emergency meetings if all board members consent in writing to the action taken and if the written consents are filed with the minutes of the meeting. 

At special meetings of the members, the board may present for action only matters that were stated in the notice of the meeting. 

Agendas for executive session board meetings are no longer excluded from the records that members can request from the association.

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