Rapkin Gitlin & Beaumont

2009 NEW LAW UPDATE

by Jeffrey A. Beaumont, Esq. and Jasmine M. Termain, Esq. 

            The following is a brief summary of recently enacted, pending and failed legislation and decided case law which will impact common interest developments by affecting how they are operated.

ENACTED LEGISLATION

I.          AB 83 (Feuer) – Torts: Personal Injury Immunity/Good Samaritan Bill

            Effective immediately, this bill reverses the recent California Supreme Court decision in Van Horn v. Watson.  The bill extends the law protecting “Good Samaritans” to include any person who renders emergency medical or nonmedical care or assistance at the scene of an emergency.  This bill encourages individuals to act as “Good Samaritans” and voluntarily help others in peril.  This bill is codified in Section 1799.102 of the California Health and Safety Code. 

II.          AB 313 (Fletcher) – Common Interest Development: Assessments

            Effective January 1, 2010, this bill prohibits an association from levying assessments on individual units based on the taxable value of the individual unit, unless the association’s CC&Rs already provided for such a practice.  Furthermore, this bill provides an exemption for association’s that are required to pay taxes for individual units within the community.  This bill is codified in Section 1366.4 of the California Civil Code.

III.         AB 927 (Calderon) – Common Interest Developments: Construction Defects

            Effective January 1, 2010, this bill extends the expiration date of the Calderon Act (currently codified in Civil Code Section 1375) to July 1, 2017.  The Calderon Act outlines the procedural rules and practices that an association must follow prior to filing a construction defect lawsuit against a developer, builder or contractor. This bill is codified in Section 1375 of the California Civil Code.

IV.        AB 1020 (Emmerson) – Public Swimming Pools: Anti-Entrapment Devices and Systems

            Effective January 1, 2010, this bill requires existing “public” swimming pools, which includes common area pools and spas, to be equipped with anti-entrapment devices or systems that meet federal guidelines (commonly known as The Virginia Graeme Baker Pool and Spa Safety Act).  Associations that installed safety devices prior to January 1, 2010 must file a statement with the local department of environmental health regarding its prior safety modifications, by September 30, 2010.  This bill provides, until January 1, 2014, that local agencies can charge fees to applicants, to the extent such fee is necessary to defray the actual costs of the certification program.  As such, associations can anticipate having to pay a fee in order to fill out and obtain its certificate of compliance, which will be required henceforth.  Violations of this bill will be considered misdemeanors. As such, it is important that all associations, if they have not done so already, promptly ensure any common area pools and spas are compliant with all safety requirements and furthermore that all associations endeavor to obtain the necessary compliance certifications by the applicable deadlines. This bill is codified in Section 18942, 116064.1 and 116064.2 of the California Health and Safety Code.

1. AB 1061 (Lieu) – Common Interest Developments: Water-Efficient Landscapes
2.       Effective January 1, 2010, this bill is aimed at promoting water conservation. Accordingly, it provides that any provisions of an association’s CC&Rs which preclude or otherwise have the effect of cooling an individual’s attempts to implement a water-conscious landscape plan shall be considered void and unenforceable. For associations that have otherwise water-intensive landscape aesthetics throughout the community, this bill may preclude a board’s ability to deny landscape plans which conform with the requirements of this bill. This bill is codified in Section 1353.8 of the California Civil Code. 

VI.        AB 899 (Torres) – Common Interest Developments: Disclosures to Members

            Effective January 1, 2010, this bill will require associations to provide an annual documents disclosure index to its members.  Also, this bill establishes that associations that provide documents via email or other electronic means (e.g. posting on community website, by fax, or other similar ways) will have satisfied the requirements for production of documents. At the conclusion of this summary, please see an attached example of the newly required index summary. 

            This bill further revises the Assessment and Reserve Funding Disclosure Summary (“Summary”).  The Summary contains specified information regarding an association’s assessments and reserves including the estimated amount required in the reserve fund at the end of the next five years and the projected reserve cash fund in each of those years.  This bill is codified in Sections 1350.7, 1365.2.5 and 1363.005 of the California Civil Code. 

VII.       SB 407 (Padilla) – Property Transfers: Plumbing Fixtures Replacement

            Effective January 1, 2010, this bill mandates all high-water usage toilets and showerheads in commercial and residential properties built prior to 1994 must be replaced with more environmentally conscious fixtures. The bill provides for a graduate ascension to personal water conservation.  After January 1, 2014, the bill requires building departments to inspect a unit’s plumbing fixtures prior to the issuance of any permits, even if unrelated to plumbing, if it is a major remodel.  By 2017, all homes with high-water usage toilets and showerheads must replace said fixtures.  There is a 2 year extension for condominiums and multi-family dwellings.  There is a carve-out for registered historical properties.  This is important for associations and owners alike because boards will need to budget in the coming years for any required plumbing updates for common area facilities (e.g. club houses, rec rooms, etc.).  This bill is codified in Section 1102.155, and Article 1.4 (commencing with Section 1101.1) to Chapter 2 of Title 4 of Part 4 of Division 2 of the California Civil Code. 

PENDING LEGISLATION

I.          SB 259 (Benoit) – Common Interest Developments: Elections

            If enacted, this bill would provide that if a court voids an election, that the court cannot also void actions taken by the challenged board, unless the court finds their actions were also contrary to law or the association’s governing documents.  Existing law provides that, upon a finding that certain election procedures were not followed, a court may void any results of the election, including subsequent board actions regardless of whether they were otherwise legal and within the bounds of the community’s governing documents. 

FAILED LEGISLATION 

I.                    AB 473 (Blumenfield) – Solid Waste Recycling: Multifamily Dwellings

            This bill would have required associations with more than 5 units to arrange for recycling services and handling of solid waste.  The Governor elected to veto this bill because it could place costly requirements directly on communities.  Additionally, the Governor noted that local governments already have the authority to mandate the action envisioned by this bill and thus state authority was not necessary. 

II.          AB 1328 (Salas) – Common Interest Developments: Contracts

            This bill would have provided that, notwithstanding any provision of the governing documents to the contrary, associations could not enter into contracts for water or energy programs that exceed 5 years. The Governor elected to veto this bill, noting that the bill could potentially expose members to long-term negative consequences brought about by board mistakes and not reflect a will of the majority of members.

III.         AB 985 (De La Torre) – Real Property: Restrictive Covenants

            This bill would have required a title company, real estate agent, escrow company or association to record a restrictive covenant modification document (RCM) in order to remove an unenforceable covenant in violation of rights protected by the Fair Employment and Housing Act.  The Governor elected to veto this bill because existing law already allows an owner of a property with restrictive covenants such as this to record an RCM form in order to remove any unenforceable covenants.

CASE LAW*

Ariz v. Beverly Glen Homeowners Association, Inc.

(2009) Not Officially Published – May Not be Cited – 2009 WL 1068230 (Cal.App.2 Dist.)

           An unrelated dispute involving a member of the association’s board of directors (Ariz) and a neighbor escalated into an effort by the neighbor to recall the director from the board.  Accordingly, the neighbor circulated letters in the community which helped  obtain the requisite number of signatures to call a special meeting and seek the director’s recall from the board.  The director sued the neighbor and the association for defamation.  The director’s claim was defeated by the association’s anti-SLAPP motion.  Because the board was required by law and the association’s governing documents to call the special meeting upon a showing of the necessary signatures, the board was required to act without discretion. Based on the fact that the board had to call the meeting and because the meeting involved discussion of a recall election, the court held it met the threshold of protected speech in a public forum.  While the court held the individual members may be liable for defamation, because the association did not distribute the letters, and absent a showing of malice by the association towards the director, the association was not liable for defamation.

Ashcraft v. Villas West II of Willowridge Homeowners Association, Inc.

(2009) 129 S.Ct. 1527

            The United States Supreme Court upheld an Indiana state court ruling that an association’s “no-lease” covenant did not violate the Federal Fair Housing Act (“FHA”) because the provision was not arbitrary and was based on legitimate economic concerns.  To establish a violation under the FHA, a plaintiff must demonstrate that a policy or practice actually has a significant adverse impact on a protected class.  The defendant must demonstrate that its policy or practice has a demonstrable relationship to a legitimate, non-discriminatory interest. As such, associations with “no-lease” provisions, or restrictions on the number of rentals in a community, respond to challenges based on the legitimate, non-discriminatory purpose.  While this opinion upheld the concept of “no-lease” provisions, it did not address the specifics within such provisions or within similar provisions (e.g. rental caps).  As such, the legality of rental caps remains an unlitigated issue.

Calemine v. Jared Court Homeowners Association, Inc.

(2009) Not Officially Published – May Not be Cited – 2009 WL 377281 (Cal.App.2 Dist.)

           A condominium complex suffered long-term water intrusion problems. In relation to these issues, the association had previously filed, and settled, two successive lawsuits and used the proceeds to attempt repairs.  Several years after the initial repairs, the water intrusion reappeared. Based on the advice of counsel and the opinion of a contractor who previously performed repairs, the association decided not to attempt further repairs.  A homeowner whose home suffered water intrusion sued to compel further repairs.  The court ruled that the board’s decision was a valid exercise of discretion protected by the “business judgment rule.”  This case is important because it demonstrates that even board inaction can be protected by the business judgment rule so long as it was reasonable, made in good faith after investigation, and with the best interest of the members.

Carolyn v. Orange Park Community Association

(2009) 177 Cal.App.4th 1090

             The association had a recreational trail system located within its common areas which were connected to a larger system of trails maintained by other associations and/or government entities.  While all the trails had long been accessible to anyone, even non-residents, for safety purposes, the association installed barriers at its trail entry points to prevent vehicle access. A non-resident disabled person who wanted to use an association’s trail system via horse drawn carriage filed a lawsuit against the association, citing the Americans with Disabilities Act (“ADA”) and the California Disabled Persons Act (“CDPA”).  The court ruled that the association’s trails were not considered public accommodations and thus not subject to the ADA or CDPA.  The association’s trails were not open to the public simply because the association did not actively exclude members of the public.  However, there are circumstances where recreational common areas within an association may be classified as a public accommodation.  An example would be a swimming pool that is open to the public (e.g., for swim lessons or competitions) rather than being for the exclusive use of members.  In addition, an association may be subject to federal and state fair housing laws in connection with common areas and a resident’s disability. 

Coronado v. Cobblestone Village Community Rentals

(2009) 163 Cal.App.4th 831

            Cobblestone Village is an apartment community.  A disabled tenant who required wheelchair access filed a lawsuit against the owner of the complex and the management company for violation of the Unruh Civil Rights Act (UCRA) and the California Disabled Persons Act (“CDPA”) because they had failed to install a permanent concrete ramp to help facilitate his access between his car and the community.  The community did have a ramp to access the manager’s office.   The court held that the residential portions of the complex were not a public accommodation under the UCRA or CDPA.  Therefore, the owner and manager were not required by law to install a wheelchair accessible ramp.  This is an important decision for associations because it clearly provides that while parts of an association’s common area may be accessible to the public, only those parts open to the public  are subject to the UCRA, CDPA and American’s with Disabilities Act.  Accordingly, associations with public-access common areas are cautioned to take care and ensure those areas are equipped to ensure access by disabled persons.

Ekstrom v. Marquesa at Monarch Beach Homeowners Association

(2008) 168 Cal.App.4th 1111**

            Individual homeowners within the association whose views had been blocked by palm trees brought an action against the association for declaratory and injunctive relief to compel the association to comply with the CC&Rs.  The CC&Rs contained a provision that trees were to be trimmed to a certain level. Despite the contrary language in the CC&Rs, the association’s board refused to enforce the provision specifically against palm trees because to do so would kill the trees. The court held that the association could not be granted deference in interpreting a straightforward and unambiguous CC&R provision.  Associations must take note that while board decisions are afforded protection under the business judgment rule, they are only afforded such protection so long as the decision is within the scope of the CC&Rs.

Gabriel v. Canyon Haven Homeowners Association

(2009) Not Officially Published – May Not be Cited – 2009 WL 190710 (Cal.App.4 Dist.)

           After being notified of necessary repairs to the surface of his balcony and failing to make said repairs, the association effectuated the repairs and imposed a special individual assessment against the homeowner for the repair costs.  The homeowner sued the association claiming the association had breached the CC&Rs and then moved for a summary judgment.  By so moving, the homeowner essentially alleged there were no triable issues of fact and that, as a matter of law, the association had breached its duties.  His motion was overruled and the association prevailed on the basis that the plain reading of the CC&Rs established the balcony surface was the homeowner’s responsibility.  While the association prevailed in this case, it highlights the fact that courts will typically review governing documents by their plain meaning.  Accordingly, associations are cautioned against splitting hairs and inserting analysis which is not otherwise supported by the plain meaning in their governing documents.

Gray v. McCormick

(2008) 167 Cal. App. 4^th 1019

            The association’s CC&Rs provided certain homeowners with exclusive easements.  The owners of Lot 6 had an exclusive easement over certain parts of Lot 3. Upon learning of plans to construct a driveway over their easement area, by the owners of Lot 3, the owners of Lot 6 sued to preclude said plans on the basis that their exclusive easement rights served to exclude everyone, including the owner of Lot 3. The owners of Lot 6 claimed such an interpretation would effectuate a transfer of title.  Ultimately the court held an exclusive easement is permitted and does not effectuate a transfer of title. Associations that have exclusive easement areas within their bounds should take note that in such an instance, it too can be excluded by the easement holder.

 Irish Beach Clusterhomes Association Board of Governors v. Farrell

(2009) Not Officially Published – May Not be Cited

            A developer (and resident) of a community established and created an association, but did not follow all required duties and protocols for over 17 years.  Rather, the developer acted on behalf of the community during this time.  After a fire in the community broke out, disputes between the members regarding the repair of the community started and lawsuits ensued.  The courts declined to award attorneys’ fees to the prevailing party because the “Board of Governors” was not a legal entity, and thus not entitled to an award in a lawsuit.  Essentially, associations can be parties to a lawsuit, but not their boards, because a board is not a legal entity.

Jones Ranch Homeowners Ass’n. v. Degnan

(2008) Not Officially Published – May Not be Cited – 2008 WL 5049757 (Cal. App. 1d.)

            Comprised of large lots which could accommodate large-scale parties, a homeowner within the association had numerous large-scale parties which typically caused issues (e.g. access, damage, etc.) for the community.  In order to avoid these issues, the association sought an amendment to its CC&Rs which would better regulate and address such issues.  After passage of the amendment, the homeowner advised the association of his intention to hold an event which would have otherwise likely violated the amendment.  Acting on this information, the association sued, and won, to preclude the homeowner’s event.  The defendant prevailed on one of his legal theories with respect to excessive fines.  Accordingly, both parties claimed they had prevailed and were entitled to an award of attorneys’ fees.  The court awarded the association payment of its legal fees on the basis of Civil Code Section 1354, and accordingly limited the award to 80%.  Courts are entitled to impose and determine what constitutes “reasonable” attorneys’ fees and costs.                                         

Kim v. Weston

(2008) Not Officially Published – May Not be Cited – 2009 WL 5254047 (Cal. App. 2d.)

            This case is about a lawsuit involving neighboring condominium owners and their dispute regarding liability for damages caused by, and related to, termites.  Over a period of years, plaintiff pleaded with defendant for an agreement and access to fumigate their adjoining termite infested units.  Despite repeated pleas, and reports from numerous termite experts which indicated fumigation was the only appropriate remedy, defendant simply refused to fumigate and grant access to her unit.  Plaintiff sued, and won, on the basis of nuisance, negligence and emotional distress. Defendants appealed and argued that, like an association board, she should not be obligated to accept fumigation (see, Lambden v La Jolla Shores Condominium Homeowners Assn.) and thus should have prevailed. The court denied extending a board’s business judgment protection to an individual and held that the defendant was liable for the emotional distress award.  This is an important case for owners within associations to know and understand that their actions with respect to termite treatment must be reasonable, in good faith and failure to properly address a termite infestation could subject them, personally, to liability. 

Martin v. Bridgeport Community Association, Inc.

(2009) 173 Cal.App.4th 1024

           Non-owner residents sued an association over an alleged agreement by the association to adjust the lot line to their residence.  The residents had a power of attorney and assignment of rights agreement from the record owners of the property. Based on the agreement, the non-owner residents sued the association for enforcement of the lot line adjustment agreement.  The court determined that non-owners lack standing to sue an association and seek enforcement of the CC&Rs.  Absent an actual transfer of rights, no agreement, assignment, or power of attorney will operate to transfer said rights (e.g. the right to enforce governing documents, right to enforce the Davis-Stirling Act, etc.) that are inextricably tied to actual ownership of real property. 

Nelson v. Avondale Homeowners Association

(2009) 172 Cal.App.4th 857

            A homeowner within an association with a covenant prohibiting operation of a home-based business was operating his homeopathic and religious counseling practice from his home. The association tried enforcement measures, such as restricting the homeowners’ guest’s access privileges and imposing fines.  The homeowner sued the association based on his disability (Epstein-Barr syndrome) which essentially kept him house-bound and for religious discrimination.  The court held that the association’s covenant against operating a home business was enforceable and that the association’s manner of enforcing the covenant, by excluding the owner’s customers, was not arbitrary or capricious.

Pacific Ranch Homeowners Ass’n. v. Murry

(2008) Not Officially Published – May Not be Cited – 2008 WL 5205964 (Cal.App. 4d.)

            A homeowner installed a hot tub on his patio without architectural approval.  Upon learning of the improvement, the association requested he submit an application for its review.  After the homeowner appeared non-responsive, the association filed a lawsuit for declaratory relief, breach of its CC&Rs and nuisance.  Prior to the trial, the association dismissed all but its declaratory relief cause of action.  The homeowner claimed he was entitled to a jury trial.  The court held that a person has no right to a jury trial when the only issue is for equitable relief.  This case serves as an important reminder to associations that an effective strategy in litigation can be to forego certain types of remedies in order to preclude a jury trial. 

Palacio Del Mar Homeowners Association v. McMahon

(2009) 174 Cal.App.4th 1386

            The association obtained a $40,000 judgment against the owner for his frivolous anti-SLAPP lawsuit.  In trying to satisfy the judgment, the association sought an internet domain name (American Homeowners Resource Center website) the owner’s wife had an interest in be turned over and sold at a public auction.  The court held that judgment creditors, such as the association, are not entitled to possession and control of property.  Rather, they are only entitled to money and/or proceeds from the sale of property.  In addition, the court held that the property was not properly available to satisfy the judgment because the domain name was owned by the owner’s wife, who was not a party to the action.

Saunders Construction v. Cerda

(2009) 175 Cal.App.4th 430

            A general contractor (Saunders) hired an unlicensed subcontractor (Humberto) to install drywall for a contract price that included labor and materials.  Despite the general contractor having paid the subcontractor, the subcontractor failed to pay his employees.  Accordingly, his employees filed a labor claim against the general contractor.  The court held that a general contractor was liable for the unpaid wages of its unlicensed subcontractor’s workers.  Although this case involved a general contractor and its subcontractors, associations who hire unlicensed contractors can be deemed a “general contractor” and the unlicensed contractors as “subcontractors”.  Therefore, associations must hire licensed contractors.  If they do not, associations could be liable for wage claims filed by employees of the unlicensed contractor.

Whispering Ridge Homeowners Ass’n. v. Chaudry

(2009) Not Officially Published – May Not be Cited – 2009 WL 1037712 (Cal. App. 4d)

            An association sued a homeowner for landscaping violations and won.  In connection with its various awards for attorneys’ fees, the trial court eventually repealed the writs of execution based on technicalities.  The association failed to appeal the trial court’s repeals of its writs and instead filed new writs of execution.  After filing its new writs of execution, the homeowner appealed on the basis that the trial court could not issue new writs because the prior ones were repealed and the time to appeal had since expired.  The homeowner’s appeal was overruled on the basis that while the original writs of execution had been repealed, that, in and of itself, did not defeat the issuance of the judgment. Because the underlying judgment was valid, the association could obtain new writs of execution.

Zaragoza v. Ibarra

(2009) 174 Cal. App. 4^th 1012

            An unlicensed contractor’s employee who suffered injury in falling off a ladder sued the homeowner for negligence.  Based on Ramirez v. Nelson, because the employee had not worked at least 52 hours for the homeowner nor earned $100 the preceding 90-days, the homeowner was not liable for workers’ compensation damages.  The court held that absent a showing of negligence on the homeowners part, the employee was not entitled to any damages.  This case underscores the importance for associations to maintain workers’ compensation policies.  It further highlights the need for homeowners to maintain a homeowner’s insurance policy because such a policy typically contains a workers’ compensation coverage endorsement.

* Both “published” and “unpublished” decisions are covered.  Unpublished decisions cannot be relied on as they are not law, but they do provide essential guidance as to how some courts view various association related matters.

** Denotes a case that was published in late 2008 (November or December) 

MISCELLANEOUS

            As of December 2008, the Federal National Mortgage Association (FNMA), or “Fannie Mae,” now considers any bank-owned (REO) condominiums within associations to be “owner occupied” for purposes of its owner-occupancy ratio requirements, so long as the bank-owned property is currently for sale and not leased. This “clarification” in FNMA policy is in response to the current market conditions which have resulted in a sharp escalation in the number of REO properties within HOAs; under the prior policy, REO properties were arguably not owner-occupied, and were therefore calculated against the owner-occupancy ratio causing many loans to be denied for lack of FNMA backing.  (In order for a mortgage lender to package and sell a loan for a property in an established condominium project consisting of attached condominium units to FNMA, FNMA requires that the condominium project maintain 51% owner-occupancy ratio.)

DISCLOSURE OF DOCUMENTS INDEX

Item	Civil Code Reference
Assessment and Reserve Funding Disclosure Summary (form)	1365.25
Pro Forma Operating Budget or Pro Forma Operating Budget Summary	1365(a)
Assessment Collection Policy	1365(e) and (1367.1(a)
Notice/Assessments and Foreclosure (form)	1365.1
Insurance Coverage Summary	1365(f)
Board Minutes Access	1363.05(e)
Alternative Dispute Resolution (ADR) Rights (summary)	1369.590
Internal Dispute Resolution (IDR) Rights (summary)	1363.850
Architectural Changes Notice	1378(c)
Secondary Address Notification Request	1367.1(k)
Monetary Penalties Schedule	1363(g)
Reserve Funding Plan (summary)	1365(b)
Review of Financial Statement	1365(c)
Annual Update of Reserve Study	1365(a)

Assessment and Reserve Funding Disclosure Summary For the Fiscal Year Ending _____

 (1)   The regular assessment per ownership interest is $_____ per ____.

 Note: If assessments vary by the size or type of ownership interest, the assessment applicable to this ownership interest may be found on page _____ of the attached summary.

 (2)   Additional regular or special assessments that have already been scheduled to be imposed or charged, regardless of the purpose, if they have been approved by the board and/or members:

 Purpose of the assessment:

Amount per ownership interest per month or year (If assessments are variable, see note immediately below):

Date assessment will be due:

Total:

Note: If assessments vary by the size or type of ownership interest, the assessment applicable to this ownership interest may be found on page ____ of the attached report.

 (3)   Based upon the most recent reserve study and other information available to the board of directors, will currently projected reserve account balances be sufficient at the end of each year to meet the association’s obligation for repair and/or replacement of major components during the next 30 years?

 Yes _____ No _____

 (4)   If the answer to (3) is no, what additional assessments or other contributions to reserves would be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years that have not yet been approved by the board or the members?

 Amount per ownership interest per month or year:

Approximate date assessment will be due:

Total:

 (5)   All major components are included in the reserve study and are included in its calculations.

 (6)   Based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5, the estimated amount required in the reserve fund at the end of the current fiscal year is $____, based in whole or in part on the last reserve study or update prepared by ____ as of ____ (month), ____ (year). The projected reserve fund cash balance at the end of the current fiscal year is $____, resulting in reserves being ____ percent funded at this date. If an alternate, but generally accepted, method of calculation is also used, the required reserve amount is $____. (See attached explanation)

 (7)   Based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5 of the Civil Code, the estimated amount required in the reserve fund at the end of each of the next five budget years is $______, and the projected reserve fund cash balance in each of those years, taking into account only assessments already approved and other known revenues, is $______, leaving the reserve at ______ percent funding. If the reserve funding plan approved by the association is implemented, the projected reserve fund cash balance in each of those years will be $______, leaving the reserve at ______ percent funding. Note: The financial representations set forth in this summary are based on the best estimates of the preparer at that time. The estimates are subject to change. At the time this summary was prepared, the assumed long-term before-tax interest rate earned on reserve funds was ____ percent per year, and the assumed long-term inflation rate to be applied to major component repair and replacement costs was ____ percent per year.

 (b) For the purposes of preparing a summary pursuant to this section: 

(1) “Estimated remaining useful life” means the time reasonably calculated to remain before a major component will require replacement.

(2) “Major component” has the meaning used in Section 1365.5. Components with an estimated remaining useful life of more than 30 years may be included in a study as a capital asset or disregarded from the reserve calculation, so long as the decision is revealed in the reserve study report and reported in the Assessment and Reserve Funding Disclosure Summary.

(3) The form set out in subdivision (a) shall accompany each pro forma operating budget or summary thereof that is delivered pursuant to this article. The form may be supplemented or modified to clarify the information delivered, so long as the minimum information set out in subdivision (a) is provided.

(4) For the purpose of the report and summary, the amount of reserves needed to be accumulated for a component at a given time shall be computed as the current cost of replacement or repair multiplied by the number of years the component has been in service divided by the useful life of the component. This shall not be construed to require the board to fund reserves in accordance with this calculation.

 

 

           

 

           

By, Jasmine Termain, Esq. of Rapkin, Gitlin & Beaumont

Two bills, SB 1733, the Clean Energy, Jobs and American Power Act and HR 2454, the American Clean Energy and Security Act are pending before the United States Senate and House of Representatives respectively. If passed, these bills could have significant impacts on both state and homeowners associations’ oversight of solar panel installations.

SB 1733 is aimed at, among other laudable goals, providing a comprehensive global client change solution. Similarly, HR 2454 addresses the issue of global climate change and seeks to impose a federal standard for the installation and maintenance of solar panels. While similar in goals, these two bills approach the end result by radically different means. Presently, if approved, HR 2454 would mandate a federal standard for solar panel installation. This mandate would serve as a de facto undoing of state and more importantly, homeowners association CC&Rs which may address this issue. Less aggressive in its approach, SB 1733 has similar provisions but specifically excludes installation of solar panels within homeowners associations.

While the debate rages with respect to whether or not global warming is man-made or not, it is important to understand the legislative impact that laws seeking to address this important issue may create for homeowners associations and its members. SB 1733 and HR 2454 are still in their respective committees and have yet to pass either the full Senate or House for approval by the President.

 

 

The Hopeful Effect of SB1511:

Notification of Trustee’s Deeds of Sale

By Jeffrey A. Beaumont, Esq.

 

            On September 28, 2008, Governor Arnold Schwarzenegger signed Senate Bill 1511 (“SB1511”) into law, amending California Civil Code Section 2924b as of January 1, 2009.  A copy of Section 2924b is attached to this article.  SB1511 requires banks and financial institutions to provide homeowners associations with a copy of a trustee’s deed upon sale (“trustee’s deed”) within fifteen (15) business days of its recordation.  CAI, through the California Legislative Action Committee, supported SB1511.

            Homeowners associations frequently experience significant delays in receiving notification of a foreclosure, causing additional delays in the collection of much needed assessments and in gaining compliance by owners for violations of the governing documents (most markedly regarding maintenance violations).  In recent times, associations have been hard hit by the housing and financial market crisis with an increased number of owners becoming delinquent in the payment of assessments.  Knowing when an owner is foreclosed upon not only changes from whom an association seeks payment of assessments but also affects the legal remedies that may be utilized by an association against the foreclosed owner.

            In an effort to permit more rapid notification of foreclosures to homeowners associations, SB1511 requires banks to provide copies of trustee’s deeds upon sale to an association that has recorded a proper notice with the County Recorder’s Office.  California Civil Code Section 2924b requires that the notice include the following provisions: (1) the name and address of the residence owner; (2) the name of the mortgagee; (3) the date of recordation of the mortgage; (4) the book and page where the mortgage was recorded; and (5) the person to whom the trustee’s deed should be sent, among other items.   The various counties have different recordation requirements and costs for such a request. 

            At first glance, many industry professionals thought that SB1511 allowed the recording of a “blanket” notice, generally permitting a single request to be recorded listing all properties in the association.  This is true where: (1) permitted by the County Recorder; and (2) practical.  Regarding the practicality of “blanket” notices, small communities will find it much more efficient and affordable to meet the requirements of SB1511 while recording a “blanket” notice.  This especially the case since the name and mortgage information of each owner must be listed on the notice.  However, in larger communities meeting the requirements of SB1511 in a “blanket” notice will be extremely time consuming and expensive.  Therefore, in these communities I strongly recommend that separate notices be recorded against units in collections and/or believed to be in foreclosure.

            With foreclosures increasing exponentially every day, Boards should discuss recording a request for trustee’s deed for all residences in the association to ensure continuity of operation and collection of assessments.  By recording the request, it may assist the association in avoiding extreme assessment losses and in avoiding misinformation as to the owner of a given residence.  However, the size of the community will dictate the method and procedure for recording notices.

Any association with a pool or spa that has not already investigated whether its pools and spas are compliant with the Act should sent its members a letter advising of the new law, indicating the Board is investigating the matter, include a disclaimer that the pools and spas many not be compliant and use of same is at the member=s own risk, and finally outline the Board will take appropriate steps once it knows where it stands.  Such association=s should also post notices around the pool areas to further enforce the Association=s message and disclaimer of liability.  Once it is established if an association has a pool or spa drain that requires retrofitting, the association should state the process to make the repairs necessary. 

Prior to taking any such action, Boards are strongly advised to seek legal counsel to help evaluate the association=s exposure to liability and decide on the best course of action for its members. 

 

Know Your Rights: The Ability to Retain Cumis Counsel 

       Did you know that in certain situations, a conflict of interest between the insurance company and the homeowners’ association (HOA) may require the insurance company to provide independent counsel to the HOA? 

An HOA has a right to independent Cumis counsel where a conflict of interest exists with its insurance company. 

Cal. Civ. Code section 2860(a) states that if an insurance policy imposes a duty to defend upon a liability insurer and a conflict of interest arises, that insurer must provide independent counsel to represent the insured at the insurer’s expense, unless the insured signs a written waiver. This independent counsel is known as Cumis counsel based on the 1984 case codifying the requirement. (San Diego Fed. Credit Union v. Cumis Ins. Soc, 162 Cal. App. 3d 358 (Ct. App. 1984)). According to James 3 Corp. v. Truck Ins. Exchange, 91 Cal. App. 4th 1093 (Ct. App. 2001), Cumis counsel is required only if the conflict of interest is significant and actual, not merely theoretical or potential.

        In the usual situation, the insurance company and insured share a single, common interest of minimizing or avoiding liability, and dual representation by counsel is beneficial to both. However, various circumstances may create a conflict of interest requiring a liability insurer to provide independent Cumis counsel to the insured, including: 

1)         The insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim. (Civ. Code section 2860(b));

2)         The insurer insures several insureds who have conflicting claims against each other;

3)         The insurer has filed suit against the insured, whether or not the suit is related to the lawsuit the insurer is obligated to defend;

4)         The insurer pursues settlement in excess of policy limits without the insured’s consent and leaving the insured exposed to claims by third parties;

5)         Any other situation where an attorney representing the interests of both the insurer and insured finds that his/her representation of the one is rendered less effective by reason of his/her representation of the other. 

The liability insurer’s duty to defend by appointing independent counsel for the insured arises where the insured shows that the underlying claim may fall within the policy’s coverage provisions. However, where the coverage dispute has nothing to do with the issues being litigated in the underlying action or if the damages are only partially covered by the policy, then there is no conflict of interest requiring the insurer to provide independent counsel for the insured. (Civ. Code section 2860(b))).

The insurance company may limit selection of independent counsel by setting forth minimum qualifications. 

While the insured has a right to select the independent counsel to represent him or her, the insurance contract may contain a provision which sets forth the method of selecting that counsel, including certain minimum qualifications. Civ. Code section 2860(a), (c). The California Practice Guide on Insurance Litigation Chapter 7B-K notes:

The insurer may supply the insured with a list of “independent” counsel experienced in defense work. Unless the policy provides otherwise, the insured is not obligated to accept anyone on that list. But before looking elsewhere, the insured should carefully screen the names on the list. The “plus” is that the insurer is likely to include names of truly experienced defense counsel and there will be no dispute about fair rates. The “minus” is that some defense counsel are so closely aligned with that insurer that it may be difficult for them to give their primary loyalties to the insured and ignore the insurer’s interests if a conflict should arise. 

The insurance company has a duty to pay independent counsel. 

       The insurance company is obligated to pay fees and costs incurred by independent counsel selected by the insured, limited by the usual fees the insurance company pays attorneys retained in the defense of similar actions in the community. Civ. Code section 2860(c).

The insured may waive his right to select independent counsel. 

       The insured has the option, but is not required to select independent counsel. Rather, the insured may elect to waive his right to select independent counsel, and instead authorize his insurer to select a defense attorney to represent him in the lawsuit. Civ. Code section 2860(e).

Understanding the Virginia Graeme Baker Pool and Spa Safety Act

By Jeffrey A. Beaumont, Esq. and Jasmine M. Termain, Esq. of Rapkin, Gitlin & Beaumont

             There has been much discussion as of late regarding the Virginia Graeme Baker Pool and Spa Safety Act (”Act”).  Many questions have been raised as to its content and applicability to California and associations.  This article seeks to eliminate some of the confusion related to the Act, and answers the many questions we’ve seen regarding how the Act will impact associations.

            The Act is a federal law that takes effect December 20, 2008.  It requires owners of “public” pools (also refers to spas throughout the entire article) with submerged suction drains to retrofit the drains in order to limit and prevent drowning deaths caused by people becoming ensnared in a pool’s drain. 

              Significantly, the Act defines “public” to include multi-family residential dwelling common areas and their associations. Therefore, the Act applies to associations.

             The Act further applies to fully submerged pool drains. If an association has a surface skimming pool or spa drain, or a pool with certain types of multiple submerged drains, the pool or spa is likely in compliance with the Act. All associations with common area pools and spas are strongly encouraged to thoroughly investigate their drainage systems to evaluate whether they are in compliance. Federal enforcement of the Act falls under the United States Consumer Product Safety Commission (”CPSC”). 

             Many state agencies and pool vendors have expressed serious confusion as to whether or not the Act applies in California.  Some claim the Act does not apply because parts of the Act indicate it is “elective” or because it is a federal law and does not specifically state it will preempt state laws.  Associations should take careful note that the CPSC and California Department of Public Health have both published their official positions and have both unequivocally and uniformly stated that the Act does apply in California.  We confirmed this position in a phone call to Glenn Takeoka, REHS Chief of the Environmental Health Services Section.             

            The California Department of Public Health, Environmental Health Services Section is the state agency responsible for pool safety oversight throughout California.  As such, its official position that the Act applies should be treated as the correct and final interpretation that the Act applies to California.  Furthermore, the CPSC’s own interpretation memorandum (dated June 18, 2008), which responded to public comment on whether or not the Act applies to states, notes that the Act establishes a “minimum” safety standard.  In discussing the Act with a local pool safety expert, he indicated the current California requirements are not as strict as the Act and, therefore, all applicable pools within California will need to be properly retrofitted in order to be in compliance.  

            Having clearly established the Act applies within California, the next question becomes what should an association do next?  We strongly recommend that Boards retain a licensed and insured pool contractor to evaluate the need to repair drains and otherwise comply with the Act.  Should an association not be able to properly retrofit its pool drain, it is required to permanently disable the pool until the drain can become properly retrofitted.  The Act contains very specific technical specifications and requirements.  Accordingly, associations are strongly encouraged to contact their pool professional as soon as possible to allow enough time to adequately comply with the Act.           

            What happens if an association violates the Act?  The Act provides that both civil and criminal penalties can be imposed for violations (see, 15 U.S.C. 2070(a)). While an association in violation of the Act can be subject to penalties, the actual potential penalties for failing to comply are not yet firmly established. Currently, people who knowingly commit a violation of the Consumer Product Safety Act are faced with up to a $1.85 million penalty per violation (see, 15 U.S.C. 2069(a)(1)).  Clearly, the potential for civil and criminal penalties evidences the legislature’s strong commitment to seeing to it the Act is complied with.  Nevertheless, like complying with all laws, it is imperative that associations comply with the Act to avoid exposure to significant civil and criminal liability. 

            What can an association do if it does not have enough money in its budget for the repairs?  Many associations will find themselves having to pay for these unexpected, and unbudgeted costs to bring their pools and spas into conformance with the Act.  In this instance, an association without adequate reserves can consider levying an emergency special assessment in order to pay for the repair costs. Prior to passing an emergency special assessment, the Board must first obtain an estimate for the repair costs. Pursuant to Civil Code Section 1366, subsection (b), Boards may levy an emergency special assessment, without the members’ approval, if necessary to address a threat to personal safety or if necessary to pay an extraordinary expense that could not have reasonably been anticipated at the time the Board prepared and distributed the budget.  Boards are encouraged to review their CC&Rs and seek legal counsel to determine the viability and procedure for levying an emergency special assessment.  

This bill is codified in Title XIV, Section 1404, of the United States Code, and is commonly known as the Virginia Graeme Baker Pool and Spa Safety Act.  The text of the Act can be viewed online at: http://www.cpsc.gov/pssa.pdf.

 2008 NEW LAW UPDATE

by Jeffrey A. Beaumont, Esq. and Jasmine M. Termain, Esq.

 

            The following is a brief summary of recently enacted and failed legislation and decided case law which will have a significant impact on common interest developments by affecting how they are operated, including modifying assessment procedures, transfer fees, Board and manager education, Board meetings, association liability, and management contracts. 

ENACTED LEGISLATION 

I.          Virginia Graeme Baker Pool and Spa Safety Act

            Effective December 20, 2008, this is a federal law that will require all “public” pools and spas (which includes multi-family residential dwellings and their associations) with submerged suction drains to retrofit drains with certain safety precautions in order to limit and prevent drowning deaths caused by people becoming ensnared in a pool’s suction drain.  Should an association not be able to properly retrofit their pool drain, it must be permanently disabled until the drain can be properly conforming.  The potential penalties for failing to comply are not yet established, but associations with pools and spas are strongly encouraged to immediately look into this matter in order to have adequate time to effectuate any changes.  This bill is codified in Section 1404 of the Virginia Graeme Baker Pool and Spa Safety Act (Federal Law).

  II.          SB 1399 (Simitian) – Solar Panels and Existing Trees

            Effective January 1, 2009, this bill will remove the possibility for criminal conviction in disputes between neighbors regarding solar panels and pre-existing vegetation.  The neighbors with pre-existing trees are shielded from such convictions in this matter.  This bill is codified in Section 25981, 25984, 25985, 25982.1, and 25983 of the California Public Resources Code. 

III.         SB 1137 (Perata) – Residential Mortgage Loans & Foreclosure Procedures

            Effective immediately, this bill is subject to expire in 2013 unless otherwise extended and establishes that legal owners acquiring title to vacant residential property through a foreclosure process will be required to maintain the land.  Maintenance includes removing excessive foliage growth, trespassers or squatters, excessive mosquitoes and standing water, and other matters deemed to cause a public health hazard.  Should the legal owner fail to so maintain, they can be subject to civil penalties up to $1,000 per day after being provided both a notice of the pending penalty and an opportunity for a hearing to oppose the penalty.  The overseeing agency can take into account the owner’s good faith efforts to maintain, can establish different compliance periods for different maintenance obligations, and any fines so collected will be directed towards the local nuisance abatement program.  Also important, this law will not supersede any local ordinances, so negligent owners will not be subject to a double penalty.  This bill is codified in Section 2929.3 of the California Civil Code. 

IV.        SB 1511 (Ducheny) – Foreclosures: Notice to the Association of the Successor in     Interest Following Sale

            Effective January 1, 2009, this bill provides that an association can record a legal request that the trustee handling a trustee’s sale for a property in the association’s community mail to the association the name and information for the party that acquires the property upon foreclosure of said property.  This bill attempts to bridge the inefficiencies of the prior law which did not require this new owner information to be provided and would often leave associations without payment of its assessments for many months after the foreclosure process.  This bill is codified in Section 2924(b) of the California Civil Code and is commonly known as the “Association Solvency Act.”

 V.        AB 2846 (Feuer) – Assessment Disputes

            Effective immediately, this bill provides that owners with disputes regarding assessments owed may pay such assessments under protest and simultaneously file a small claims action (so long as the amount in dispute does not exceed the small claims jurisdictional limit).  This bill is codified in Section 1365.1 and 1376.6 of the California Civil Code. 

FAILED LEGISLATION 

I.                     AB 567 (Saldana) – Common Interest Development Bureau

This bill would have created the CID Bureau, at a cost of $40 million to associations and their members, to regulate associations.  The Governor elected to veto this bill on the basis that it would add an unnecessary layer of bureaucracy to the oversight and regulation of associations. 

II.                   AB 952( Mullin) – Payment Plans for Assessments

This bill would have mandated boards to accept payment plans when an owner could prove a need for such.  The Governor elected to veto this bill on the basis that it would likely be over burdensome for boards and also would take away the authority of boards to know and understand the unique needs of their communities and mandate a single solution for all. 

III.                  AB 2559 (Mullin) – Rental Restrictions

This bill would have significantly limited associations from adopting rental restrictions.  The Governor elected to veto this bill on the basis that an association’s CC&Rs are a contract between the parties and that if subsequent members elect to change their CC&Rs they should be able to do, especially as it relates to imposing rental restrictions. 

IV.               AB 2806 (Karnette) – Board Member Education Requirements

This bill would have required association board members to disclose whether or not they have taken any education courses on common interest developments.  The Governor elected to veto this bill on the basis that the current law provides board candidates access to their association’s available media outlets and permits them to disclose their qualifications for serving, so additional regulations are unnecessary. 

CASE LAW

Bruni v. Didion

     (2008) 160 Cal. App. 4^th 1272 

            A home builders warranty providing that all disputes related to the home must be arbitrated is an unconscionable, and therefore unenforceable, clause because it not only provides a far greater protection for the builder than the buyer, but it also violates a reasonable buyer’s expectations. 

Camacho, et al v. Bridgeport Financial, Inc.

     (2008) D.C. CV-04-00478-CRB/MEJ 

            In a Fair Debt Collections Practices Act (FDCPA) case, the Act establishes the awarding of reasonable attorneys fees and costs are mandatory when a debtor prevails in establishing the debt collector violated the Act’s policies.  Further, the court clarified the calculation of “reasonable” attorneys fees should be based not only on the location where the forum (case) is located, but also factor fees charged by similar attorneys of like experience, skill and reputation and within the same time frame.  Finally, in calculating the awarding of costs, the presumptive method a court must start with is the ‘lodestar’ method, not a flat fee method.     

Christian v. Flora

     (2008) 164 Cal. App. 4^th 539 

            For any subdivision parcels that are resubdivided by a subsequent parcel map that is properly recorded, said newly recorded parcel map will be deemed to have amended the provisions of any previously recorded parcel map.  Essentially there can only be one final recorded map.  If there are previous recorded maps, they are incorporated into the newly recorded maps.  Easements previously recorded and not affirmatively included in the newly recorded parcel map shall survive and be included in the newly recorded map via incorporation.   

Crestmar Owners Association v. Stapakis

   (2007) 157 Cal. App. 4^th 1223*        

    After 25 years of not having a proper deed and title to two parking spaces, which should have been deeded to the association, the title owner of the parking spaces demanded back-rent for the association’s use of said spaces.  Upon its receipt of the demand letter, only then did the association file a lawsuit to quiet title to the parking spaces.  The court held, when enforcement of a CC&R is tied to a specific time, the statute of limitations to enforcing said provision begins when the first adverse action against it is filed.  Basically, the four year statute of limitations (which would have ended in the early 1980s) to have the two parking spaces turned over to the association did not commence until the association filed its suit in 2004 seeking to quite title.   

Darnell & Scrivner v. Meadows Del Mar Homeowners Association

   (2008) 2008 Cal. App. Unpub. LEXIS 4189 (Unpublished opinion-not law)  

            An association that previously approved architectural plans and then revoked said approval was sued by its architects.  The association claimed that because its architectural review process is statutorily required it should be considered a quasi-governmental process that involves matters of public interest, and thus its anti-SLAPP motion should be granted pursuant to Civil Code Section 425.6.  The court held that an anti- SLAPP motion must be based on a petitioner’s exercise of their rights to free speech, and an architectural review of one house does not fit this requirement.  Also required is the fact that there is no adequate remedy at law for the underlying claim and that its impact covers a large enough group of people so as to involve the “public.” 

Devonwood Condominium Owners Association v. Farmers Insurance Exchange,

   (2008) 162 Cal. App. 4^th 1498 

            An association and insurance company (Farmers) utilized the “appraisal” clause in its liability policy for fire damage.  The appraisal panel established the amount of loss, but did not address whether or not Farmers was liable for the coverage.  The trial court affirmed the appraisal award and also held Farmers liable.  Farmers appealed based on fact that while it did not dispute the amount of appraisal award, it did retain its right to litigate whether or not it was responsible for the coverage.  The appeals court agreed with Farmers, and held, an appraisal award only establishes the amount of loss and does not also establish whether or not the insurance company is liable for said loss.    

Fourth La Costa Condominium Owners Association v. Seith

   (2008) 159 Cal. App. 4^th 563 

            When amending CC&Rs, an association may elect to amend its CC&Rs by the mailing of a secret ballot.  The court held that indicating a signature on the Return Receipt would be considered an approval to amend the CC&Rs unless the ballot is otherwise mailed back was proper and binding.  The court further held that owners challenging a provision of the CC&Rs must show it lacks reasonableness which is defined as it being arbitrary or capricious, violating the law or fundamental public policy or otherwise imposing an undue burden on the property.  Short of an owner proving these elements, a provision of the CC&Rs will be deemed reasonable.  

Garretson v. Post

   (2007) 156 Cal. App. 4^th 1508*

             The court ruled that a defendant’s special motion to strike a non-judicial foreclosure cause of action filed under Code of Civil Procedure 425.16 (commonly known as an “anti-SLAPP” motion) did not fall under the anti-SLAPP provisions and accordingly dismissed her motion to strike. The court reasoned that a non-judicial foreclosure based on a defaulted promissory note was merely a transaction between a debtor and creditor and did not involve any constitutionally protected activities as is required under Code of Civil Procedure 425.16. 

Golden Rain Foundation v. Franz

     (2008) 163 Cal. App. 4^th 1141 

            Leisure World Seal Beach, which had originally been operated and managed under the auspices of a stock cooperative, and not a common interest development, was nonetheless found to have the necessary characteristics required for it to fall under the authority of the Davis-Stirling Common Interest Development Act (“Act”).  Specifically, the court held it was organized like a common interest development in that: (1) each member received rights to a separate interest; (2) each member took share to a portion of a common interest; (3) it had recorded documents; and (4) it had a trust agreement which was functionally similar to CC&Rs, all of which rendered it an “association” and subject to the Act.    

Harvey v. The Landing Homeowners Association

     (2008) 162 Cal. App. 4^th 809 

            A Board that dedicated a 120 foot attic space to the appurtenant units as “exclusive use common area” was found to have performed reasonable investigation in good faith, and with the best interests of the Association’s members and therefore its decision was subject to judicial deference and protected by the business judgment rule.  Just because some of the directors that made the dedication were also owners of benefitted units did not render the decision impermissible because of them being “interested directors.”  As such, when a Board has certain interested members, so long as a majority of dis-interested Board members vote to approve a decision after a full disclosure of the vote, the court will not interfere and will defer to sound board decisions.   

Mission Shores Association v. Pheil

     (2008) 166 Cal. App. 4^th 789 

            The appeals court upheld trial court’s granting of a petition to reduce the percentage of member approval, pursuant to Civil Code 1356.  The amendment proposed to require leases of homes within the community to be over 30-days and would also provide the association with authority to evict tenants for CC&R violations.   The court found the 30-day minimum lease requirement was a reasonable amendment to the CC&Rs in order to ensure a residential community is not used for hotel-like or transient purposes.   The court further found it is reasonable to provide an association with landlord-like remedies (e.g. eviction rights) should members renting their units fail to ensure their tenants are not in violation of the association’s CC&Rs.  The defendant’s argument that the ruling should be stricken because it did not obtain any mortgagee’s approval was found unpersuasive given these amendments did not impair the underlying mortgages on the properties, nor their rights.   

Olson v. Automobile Club of Southern California

     (2008) 42 Cal. App. 4^th 1142 

            Civil Code Section 1025.1 only provides for a judge to award attorneys fees to the prevailing party, and does not provide for the awarding of expert witness fees or other similar costs not included in the plain language of the statue.   

Pacific Hills Homeowners Association v. Prun

     (2008) 160 Cal. App. 4^th 1557 

            Civil Code Section 336(b), which provides for a 5 year statute of limitations applies to lawsuits based on a violation of recorded instruments governing uses of real property, also applies to unrecorded Rules and Regulations.  While not a holding of the case, associations should note their failure to diligently, persistently, and consistently seek enforcement of their governing documents may result, if such an action is taken to court, in a successful laches defense.  Laches essentially states the association’s case can be dismissed because of its failure to be diligent in its efforts to enforce the violation.   

Peters & Freedman LLP v McMahon

   (2008) 2008 WL 391190 (Currently an unpublished opinion awaiting citation by court) 

            Association’s law firm filed suit against homeowners (McMahons) for libel for allegedly defamatory statements posted on the McMahon’s website about the law firm.  In response, the McMahons filed an anti-SLAPP motion to strike the law firm’s suit claiming their website postings were protected activity under Code of Civil Procedure Section 425.16 and thus subject to special protections.  In an anti-SLAPP motion, the filing party bears the initial burden to demonstrate their action is based on protected activity. If the filing party can prove protected activity, then the burden shifts to the responding party to prove regardless of the activity being protected, they will likely prevail on their claim.  The court held that the McMahon’s statements were not of “public” interest and denied their anti-SLAPP motion.  

Richeson v. Helal

     (2007) 158 Cal. App. 4^th 268* 

            A city’s “police power” is an expansive public policy doctrine that permits a city to regulate zoning and uses, and change such zoning and uses, as it deems necessary.  As such, any zoning or use agreements entered into by a city or other governmental body will contain an inherent right to modify said agreements in their exercise of police power.  Essentially, police power is not static and contracts that potentially limit the exercise of police power are unenforceable as to that limitation. 

Siena Court Homeowners Association v. Green Valley Corporation

   (2008) 164 Cal. App. 4^th 1416           

            An association had a joint maintenance agreement with a neighboring association.  The neighboring association owned the underlying property at issue.  The association was, by virtue of its joint maintenance agreement, required to perform the maintenance of underlying property at issue.  Litigation over the property arose and the maintenance association did not seek to join the case until after the statue of limitations had run.  They sought to join as an “indispensible” party after the statute of limitations had run and the court denied their motion to intervene in the lawsuit.  Basically, associations with management agreements beware when there is a lawsuit on property that is jointly maintained and ensure, prior to the end of any statute of limitations, your rights are protected and represented in a lawsuit if the outcome of same may affect your rights to a settlement.

Village Northridge Homeowners Association v. State Farm Fire and Casualty Company

     (2007) 69 Cal. Rptr. 3^rd 551 (This case has been granted review by the California Supreme Court and is cited at 74 Cal. Rptr. 3d 453.) 

            When two parties, as part of a settlement, sign a waiver of claims agreement said agreement can be rescinded when the underlying dispute between the parties is based on an insurance contract, and not a personal injury claim.  Additionally, a money-based settlement is not required to be returned in order to litigate the rescission of the waiver.  These principals apply only to insurance related contracts.  

Washington Mutual Bank v. Blechman

   (2007) 157 Cal. App. 4^th 662* 

            A homeowner sought to set aside a trustee’s sale in foreclosure.  In his motion to set aside, the homeowner did not include the seller and the trustee.  The court opined that a seller and a trustee in such a case are considered indispensable parties and failure to include them as parties to the lawsuit subjected the entire suit to dismissal and thus dismissed the claim for failure to file suit against all indispensible parties.   

* Denotes a case that was published in late 2007 (November or December)

The Art of Delivery: Mail, Posting, or Personal Delivery?

Document and Notice Delivery to Members

By Jeffrey A. Beaumont, Esq. 

            A number of provisions of the Davis-Stirling Common Interest Development Act, governing the operation and management of homeowners associations in California, require the distribution of various documents and notices to the membership.  The precise manner in which those documents are distributed is of utmost importance.  Failure to comply with the manner of distribution of a given document has wide-ranging effects, from the invalidation of the document to monetary sanctions against the association.  The following is a checklist of the legal requirements for the distribution of key documents to the membership.

             Alternative Dispute Resolution – Civil Code Section 1369.530 requires that the association and members submit certain disputes to alternative dispute resolution, notice of which shall be served via personal delivery, first class mail, express mail, facsimile transmission, or other means that will provide actual notice.

             Amendment to the Governing Documents – Civil Code Section 1355 requires that they be distributed by first class mail postage prepaid or by personal delivery. 

            Association Records and Books – Civil Code Section 1365.2 requires that association records and financial statements be distributed to members, upon their request, via first class mail, only if the member requests delivery of the documents. 

            Ballots and Other Voting Materials – Civil Code Section 1363.03 requires ballots and other voting materials to be distributed to members via first class mail or personal delivery. 

            Board Meeting Notices and Agendas – Civil Code Section 1363.05 requires that notice and the agenda of Board meetings be posted in a prominent place in the common area of the association and sent by mail only to those members who have requested notification of Board meetings by mail.  The association may also distribute such notice and agenda of Board meetings by personal delivery and/or inclusion in the association newsletter. 

            Disciplinary Action – Civil Code Section 1363(h) requires that notice of a Board meeting at which the Board will decide whether to impose disciplinary action must be distributed to the member to be disciplined by first class mail or personal delivery.  The same method of delivery applies to notice of the Board’s decision to impose disciplinary action. 

            Fine Policy – Civil Code Section 1363 requires that fine policies be distributed by first class mail or by personal delivery. 

            Liens – Civil Code Section 1367.1 requires that a pre-lien letter be sent to a delinquent member via certified mail.  Further, a copy of a notice of assessment lien recorded against a member’s residence must be sent via certified mail to every person whose name appears as an owner of record. 

            Membership Meetings – Corporations Code Section 7511 requires notice of membership meetings to be distributed via personal delivery, electronic transmission (only if the member has previously agreed to such manner of transmission), or by mail to the last address appearing on the association’s books for that member. 

            Operating Rules – Civil Code Section 1357.130 requires that written notice of the rules, including the text, be distribute by at least one of the following methods: personal delivery, first class mail postage prepaid, electronic distribution (if the member has previously agreed to such manner of delivery), publication in a document that is circulated primarily to the association’s members (e.g. the association newsletter), television programming to the members, or with a billing statement. 

            Pro Forma Operating Budget – Civil Code Section 1365(d) requires that the pro forma operating budget be distributed to members, who request same, via first class mail. 

            Temporary Relocation of Owners – Civil Code Section 1364 requires associations to maintain common area, which occasionally requires the temporary vacation of owners from their separate interests.  Notice must be given to an owner that he/she must temporarily vacate his/her residence via (1) personal delivery to the occupants and first class mail to the owner of the residence or (2) first class mail to both the occupants and the owner of the residence, if different than the occupant. 

            Termination or Suspension of Memberships – Corporations Code Section 7341 requires notice to be given to a member regarding his/her membership termination or suspension via first class mail or registered mail. 

In other words: 

Document/Notice	Manner 1		Manner 2	Legal Authority
Alternative Dispute Resolution	Personal delivery OR First class mail OR Express mail OR Facsimile transmission			Civil Code Section 1369.520
Governing Document Amendment	First class mail postage prepaid	OR	Personal delivery	Civil Code Section 1355
Records and Books	First class mail only			Civil Code Section 1365.2
Ballots and Voting Materials	First class mail	OR	Personal delivery	Civil Code Section 1363.03
Board Meetings and Agenda	Posting in Common Area	AND	First class mail to owners who have requested receipt by mail	Civil Code Section 1363.05
Disciplinary Action	First class mail	OR	Personal delivery	Civil Code Section 1363(h)
Fine Policy	First class mail	OR	Personal delivery	Civil Code Section 1363
Liens and Pre-Lien Letters	Certified mail			Civil Code Section 1367.1
Membership Meetings	Personal delivery OR First class mail OR Electronic distribution (prior agreement by owner for same)
Operating Rules	Personal delivery OR First class mail OR Electronic distribution (prior agreement by owner for same) OR circulated documents OR television programming OR with billing statement			Civil Code Section 1357.130
Operating Budget	First class mail only			Civil Code Section 1365(d)
Relocation of Owners	To occupant – personal delivery or first class mail	AND	To owner – first class mail	Civil Code Section 1364
Termination or Suspension of Membership	First class mail	OR	Registered mail	Corporations Code Section 7341

 

            It should be noted that “personal delivery” is defined by the California Code of Civil Procedure as being the actual physical service of a given document to the person to be served.  See, e.g., Code of Civil Procedure Section 415.10.   Accordingly, dropping notices off at an owner’s doorstep or in an owner’s mailbox is arguably a violation of the “personal delivery” requirements for the documents requiring personal delivery.  Delivery by dropping at doorsteps or mailboxes does not constitute the required “actual physical service” of the document for purposes of personal delivery.  As such, associations must weigh the exposure to liability that may arise by dropping notices off at doorsteps or mailboxes (if “personal delivery” is required) against the cost to engage in a mailing or other method of delivery as authorized by the pertinent Code section. 

            The foregoing is a summary of some of the many distribution requirements for homeowners associations.  We hope that this article assists you in navigating through the complexities associated with delivering legal notices and documents.