Adams Kessler's Davis-Stirling Condo Law

QUESTION: Our CC&Rs say the board can raise our yearly dues. However, our rules were changed to state that our dues cannot be raised above our current $36. The board raised our dues in violation of the rules. Does the board have to reimburse homeowners for the increased money ($11), as what they did was illegal?

ANSWER: The board did not do anything illegal nor does it need to refund the assessment. The restriction in your rules is void for two reasons: (i) rules must be consistent with the CC&Rs (Civ. Code §1357.110) and (ii) the Davis-Stirling Act gives boards the power to raise annual assessments by 20% and impose special assessments up to 5% despite anything to the contrary in your rules (Civ. Code §1366(b)).

QUESTION: If a member is delinquent, can we suspend their right to attend board meetings?

ANSWER: Not really. Boards can suspend “privileges” such as use of the recreational facilities, but the right to attend meetings is not the same as using the swimming pool. Meeting attendance is a right conferred by the Davis-Stirling Act: “Any member of the association may attend meetings of the board…, except when the board adjourns to, or meets solely in, executive session…” Civ. Code §1363.05(b). The statute makes an exception for executive sessions but not for delinquent owners.

On December 28, 2011, the Federal National Mortgage Association (Fannie Mae) announced new condominium insurance requirements. The changes are effective for mortgage loans with application dates on or after January 1, 2012.

Fannie Mae is the nation’s largest player in the secondary mortgage market. It is related to but operates differently than the FHA. Instead of insuring loans, it buys FHA insured loans from lenders. Accordingly, any change in Fannie Mae policies can significantly impact the housing market in California.

Walls-In Coverage. Fannie Mae is eliminating “walls-in” insurance coverage terminology. In addition, it is changing HO-6 coverage from no less than 20% of the unit’s appraised value to an amount sufficient to repair the condominium to its condition prior to a loss whether the claim is paid by the association’s property insurance, by the homeowners HO-6 policy or some combination of both. Does this mean HOAs need to insure the improvements in a unit? That is unclear. What about owner upgrades (hardwood floors, granite counter-tops, walnut cabinets, etc.)? It seems unlikely that HOA property insurers will want to be responsible for any and all improvements & betterments in a member’s unit. These problems need to be resolved before the market can fully recover.

Selling Guide. In addition, Fannie Mae is updating its Selling Guide to permit master or blanket insurance policies that combine insurance coverage for multiple condominiums or other residential or substantially residential projects that are unaffiliated as long as the coverage meets certain specific criteria. See Fannie Mae Servicing Guide Announcement SVC-2011-23.

RECOMMENDATION: If associations want to maximize the marketability of units in their developments, boards should talk to their insurance brokers about Fannie Mae’s requirements and determine whether any changes need to be made to their current insurance coverage. Because Fannie Mae’s requirements may conflict with CC&R provisions, boards should include legal counsel in their evaluation.

Thank you to Clifford Treese of Association Information Services, Inc. for his assistance with this update.

QUESTION: Under the new law regarding conference calls, our president believes we cannot have meetings with call-in by the board members without allowing members to speak during the meeting. Is this true?

ANSWER: The new law does not change how meetings are conducted. The revised Open Meeting Act allows directors to call into the meeting via teleconference if at least one member of the board is at a physical location where homeowners can attend. Civ. Code §1363.05(k)(2)(B). Your president may think that new rights are being conferred because of language that is a little misleading: “Participation…constitutes presence at that meeting as long as all board members…are able to hear one another and members of the association speaking on matters before the board.” Civ. Code §1363.05(k)(2)(B). The italicized language is not giving members the right to speak on matters as they are raised during the course of the meeting, it is referring to the Open Forum. Board members attending via conference phone must be able to hear homeowners who are addressing the board during the Open Forum portion of the meeting (and owners must be able to hear the board as it conducts the meeting).

QUESTION: Can the board issue fines for not having dogs on a leash?

ANSWER: Yes, provided (i) the violation and fines are in the governing documents and (ii) due process is given.
-Adrian J. Adams, Esq

QUESTION: The board recently prohibited smoking on patios (our tenants enjoy an occasional cigar). Do my tenants have to abide by this rule even though my lease agreement was signed before the rule was adopted?

ANSWER: Yes, the rule applies to your tenants. The lease agreement between you and your tenant affects rights and obligations between you and your tenant, not the association. You can’t agree with your tenant to impair the rights of a third party, i.e., the association. The board has the right to adopt rules regardless of anything to the contrary in your lease agreement.

Example. If, for example, loose dogs in the common areas were causing problems, the board could adopt a rule that all dogs be on a leash. Existing pet owners (including tenants) could not exempt themselves from the rule because their dogs “ran free” before the rule was adopted.

Nuisance & Safety Issues. For many, cigar smoke is even more offensive than cigarettes. The nuisance provision found in most CC&Rs allows associations to define what activities are a nuisance and then restrict those activities. In addition, there are safety concerns by owners subjected to second-hand smoke, which is widely recognized as carcinogenic. Accordingly, associations can ban smoking even though patios are “exclusive use” common areas. Your tenants will need to forgo their occasional cigar.

QUESTION: Our association announces not only the winners of the elections but the vote count. That seems an unnecessary embarrassment to candidates. Couldn’t we meet the letter of the law by having the specific count available to all members in the office and only announce the winners’ names?

ANSWER: The vote count can be embarrassing to losing candidates but it still needs to be announced. Refusing to do so may create suspicion that the election was somehow rigged. When municipal, state and federal elections are held, the vote count is always published. The Davis-Stirling Act requires that:

The tabulated results of the election shall be promptly reported to the board of directors of the association and shall be recorded in the minutes of the next meeting of the board of directors and shall be available for review by members of the association. Within 15 days of the election, the board shall publicize the tabulated results of the election in a communication directed to all members. Civil Code §1363.03(g)

The sentence above highlighted in red states that boards “shall” publicize the tabulated results. I think you have to publish the vote count even though it may be embarrassing.

Humor. Adrian, I had to email and let you know that I was roaring with laughter while reading this week’s newsletter! Thanks for the comic relief at the absurdity of this business!!! -Barbara P.

Pet Cemetery #1. What happens if the owner of the pet wants to be buried alongside their pet when they die?

RESPONSE: Homeowner dues for eternity.

Pet Cemetery #2. This is THE BEST reading in town. I am HOWLING over the pet burial. -Helene S.

Pet Cemetery #3. After nearly forty years in this industry, this is a new one. Now, I’ll bet there be will some large age-restricted property that will take up this idea and sell plots right on the common! “Offset increase in dues any way we can.” Jim M.

Pet Cemetery #4. I’ve got one to top your pet cemetery. About 5 years ago one of our board members gave permission to the daughter of a homeowner who passed away to bury her ashes in our common area by all the rose bushes the deceased owner had planted. -Mary S.

RESPONSE: “Earth to earth, ashes to ashes, dust to dust.” -Book of Common Prayer (Church of England, 1662). I bet the roses are beautiful.

Controversy #1. Thanks for the humorous questions and answers. I will introduce a motion at our next BOD meeting that requires all to stand when the president arrives. We need a few laughs in the HOA business. -Norm H.

Controversy #2. A wonderfully humorous (and informative) newsletter to read as I review communications from home owners (or is it homeowners?). -John C.

Controversy #3. Don’t forget the perennial issue of “Homeowners” versus “Owners” Association. And is it plural “Owners” or possessive “Owners’”? This stuff is important! -William R.

RESPONSE: Who would have thought?

Inspectors of Election. I read with interest your always-fascinating and informative newsletter. A management company which provides services for compensation to an association does not qualify as an “independent inspector” unless specifically authorized by the Election Rules. Many associations might not have adopted such a specific rule. I would encourage your readers who are not sure about their arrangements to consult with counsel to avoid unpleasant surprises. -Phillip M.

Gym Waiver. I can see an exception to a liability waiver for an exercise room accident. The association has a duty of adequate maintenance of equipment. If negligence were found, the tenant could win. -William H.

Spouses Not on Title. Our HOA bans spouses not on title from attending the annual meeting. As you can guess, its just the tip of the iceberg when it comes to problems caused by the current board’s attitude. -Jean R.

YEAR-END MESSAGE

I’m laying down my pen for the holidays and spending Christmas with family.

Thank you to everyone for the outstanding feedback you’ve given over this past year. Without you the newsletter and Davis-Stirling website would not be what it is today.

I appreciate all the business you sent us in 2011 and look forward to providing legal services to our clients in 2012.

May you and your families have a Merry Christmas, Happy Hanukkah and a healthy and prosperous New Year!

-Adrian J. Adams, Esq

QUESTION: Is there a legal ruling regarding burial of pet remains in the common areas of an association?

ANSWER: Wow. That’s a new one! I suppose a pet could be buried in the common areas if 67% of the membership approved an exclusive easement per Civil Code §1363.07. But I see potential problems. Does the owner receive the spot in perpetuity or only for as long as he/she resides in the development? Who maintains the grave site (and the vandalism that inevitably occurs)? If the grave is permanent, there should be a recorded covenant with the owner so all future owners of the unit are obligated to maintain the site. If the pet is dug up and goes with the owner when the owner moves (or dies), then a written agreement will suffice.

Pet Cemetery. What happens when everyone wants to bury their pets in the common area? Will the pet cemetery affect property values? I keep thinking of Stephen King’s novel.

Some associations require those who use their common exercise facilities to sign a “hold harmless” agreement or “waiver of liability.” Such agreements were recently held to be valid and enforceable in a landlord-tenant case.

In Lewis Operating Corp. v. Superior Court, a tenant suffered personal injuries while using a treadmill in a common area exercise facility/health club amenity in the apartment complex. The tenant filed a lawsuit, which the landlord argued was without merit because the tenant had signed an agreement to waive all negligence claims arising from the tenant’s use of the health club facilities. The court agreed with the landlord and upheld the waiver:

We conclude that where a landlord chooses to enhance its offering by providing an on-site health club or exercise facility . . . there is no reason why the landlord may not protect itself by requiring the tenant, as a condition of use of the amenity, to execute the same waiver or release of liability that could lawfully be required by the operator of a separate, stand-alone health club or exercise facility.

Gary Kessler, Esq. Adams Kessler PLC

RECOMMENDATION: Although this case arose within the landlord-tenant context, courts often utilize similar standards when deciding analogous cases involving homeowner associations. Accordingly, boards may wish to consult with legal counsel about whether something similar would be appropriate for their association. To read the case in its entirety, see Lewis Operating Corp. v. Superior Court.

QUESTION: I have yet to find a set of governing documents where the office of president is defined as the “board president.” All governing documents state that the association has a “president” and the board has a “chair(man).” While the association president’s duties frequently include serving as chair(man) at board meetings, the “board” & the officers, including president, are two different entities. Why do professionals keep referring to the “association president” as the “board president”???

ANSWER: You’re right, most refer to the office as “board president.” Even worse, almost no one has the courtesy anymore to address the person as “Madam President” or “Mr. President” and rise when they enter the room. It is quite distressing. The same problem occurs with assessments. Most refer to them as “dues” while purists insist on “assessments.” I’ve seen members come to blows over the issue.

More Controversy. Then there is the controversy over CC&Rs. Some look with disdain on those who call their governing documents “CC&Rs” instead of the more formal “Declaration” (as in Declaration of Covenants, Conditions and Restrictions). And, there is the contentious “homeowners” versus the archaic “titleholders” dispute. And who could forget the hullabaloo over “homeowner associations” verses “homeowners associations”? Is it singular or plural? It makes me want to pick up a sign and join the Occupy Movement.

QUESTION: I am the spouse of an owner. Am I allowed to attend board meetings?

ANSWER: Unless your governing documents state otherwise, only owners (thus, “members”) have a legal right to attend board meetings. Civ. Code §1363.05. Having said that, I have never seen a board adopt a rule excluding spouses from board meetings. A misbehaving spouse can be excluded for disruptive behavior and that is entirely proper. However, a blanket rule banning all non-owner spouses would be a bit much.

OUTVOTED

QUESTION: I live in a 4-unit building. We are all on the board but when it comes to voting the majority always wins. It seems the other three always out-vote me and I have to comply with what they want.

ANSWER: I don’t know how to say this, but that’s how democracies work. Have you thought about voting with your feet?

QUESTION: According to the Davis-Stirling Act, three inspectors are appointed in handling and tabulating election ballots. We have already appointed three inspectors at our last board meeting. The members can mail their ballots to the management company (main inspector) or hand deliver to our association mailbox where it will be collected by our operations manager. Does this make the operations manager an inspector?

ANSWER: Actually, the statute calls for either one or three Inspectors. Civ. Code §1363.03(c)(1). Having ballots delivered to the manager does not make him/her an Inspector. The Davis-Stirling Act allows Inspectors of Election to specify locations where ballots (in sealed envelopes) may be mailed or hand-delivered. Civ. Code §1363.03(e)(2). At the designated meeting date and time, the envelopes are then opened in front of everyone and counted by the Inspector. Civ. Code §1363.03(f).

Adrian J. Adams, Esq

Earlier this week, the Court of Appeal in Salehi v Surfside III Condominium Owners Association decided in favor of an association where an owner filed a lawsuit containing ten claims against an association and on the eve of trial dismissed eight of those claims.

$250,000 in Legal Fees. Ms. Salehi sued her association alleging it had failed to maintain the common areas, failed to maintain an adequate reserve fund, and failed to disclose maintenance and financial problems. The association spent approximately $250,000 defending against her claims. Three days before trial, Salehi dismissed eight of her ten claims. The association subsequently sought recovery of the legal fees it incurred defending against Salehi’s dismissed causes of action.

Gary Kessler, Esq. Adams Kessler PLC

Before Litigating. The trial court denied the association’s request but the court of appeal reversed. The appellate court found that the association was entitled to recover attorneys fees from Salehi, reasoning that a party suing to enforce the CC&Rs must get their “ducks in a row” both procedurally and substantively before filing suit. Since Salehi had done neither, she did not prevail on a “practical level” and the matter was sent back to the trial court for a determination and award of reasonable attorney fees to the association. To read the case in its entirety, see Salehi v Surfside III.

Stealing Money? Another case decided earlier this year involved alleged defamation during an election campaign. Prior board president Veronica Cabrera accused board member Mohammed Alam (who was running for reelection) of mismanagement of the association’s finances. In response, Alam accused Cabrera (who was campaigning for Alam’s opponent) of defrauding the association and stealing money. Cabrera sued for defamation. Alam filed an anti-SLAPP motion which was denied. The Court of Appeal reversed.

Public Forum. The court held that HOA meetings constitute a “public forum” and the statements against her were an issue of interest to the membership. Moreover, Cabrera was a “public figure” in her association because she had voluntarily injected herself into the election. Because she was a public figure, a higher standard of proof was applied to the alleged defamation, i.e., Cabrera had to show that Alam made the statements knowing they were false and that he made them with malice. The court found that Cabrera failed to produce any evidence to meet that standard. Accordingly, her claim for defamation was dismissed. Cabrera v. Alam.

This case also involved alleged defamation, conflicts of interest and a petition to recall the board.

Balcony Maintenance. The association’s newly elected board hired a new manager and new legal counsel. The board asked for a legal opinion about maintenance and repair of balconies and shingle siding. The attorney determined that the association was responsible, not individual owners. This was inconsistent with the HOA’s prior practice and benefited board members with balconies.

Conflict of Interest. Homeowner Susan Ivie objected to the new interpretation because not all units had balconies, the HOA had no reserves to pay these new expenses, and board members had a conflict of interest because they benefited from the legal opinion. Ivie circulated a petition to recall the new board and was sued. The court granted Ivie’s anti-SLAPP motion dismissing the case. The board appealed. The Court of Appeal found that Ms. Ivie’s conduct in criticizing the board’s actions was protected. Country Side Villa HOA v. Ivie.

This case involved a 1987 Mitsubishi van which was inoperable and did not move from Yan Sui’s parking space from 2003 to 2007. In December 2006, the HOA amended its rules to prohibit all disabled, inoperable vehicles. In January 2007, the board president placed a warning sticker on the windshield notifying Sui that his vehicle was in violation and would be towed. In February the van was towed.

Throw in Kitchen Sink. Sui sued for trespass, intentional infliction of emotional distress, violation of due process, conversion, discrimination, libel, fraud, and breach of contract. The only thing he left out was an ADA claim for reasonable accommodation because the vehicle was disabled. The association demurred and the court sustained it without leave to amend, thereby ending the lawsuit. Sui appealed.

Just Like a Pet. Among the arguments made by Sui was that his children had a “strong bond” with the van–it was part of their family, “just like a pet.” The court was not persuaded. It found nothing unreasonable about prohibiting disabled vehicles and the “association was perfectly reasonable in prohibiting this unsightly intrusion upon the aesthetics of their common interest development.” See Sui v. Price.

Washer/Dryer #1. Thanks for the picture of the washer, we had one when I was a kid. -Margaret H.

Washer/Dryer #2. Great coverage of the issues. Even further, new complexes often have floor drains for mechanical failures or backups so water does not flood into adjacent units. To convert a complex raises the insurance premiums of the master policy. We looked into this, to meet Code was costly. -Joseph L.

Washer/Dryer #3. I think you meant “if the developer did not design the building to include washers and dryers” in your answer. -Amy T.

RESPONSE: Yes I did. The “not” fell out during the rinse cycle.

Washer/Dryer #4. Our HOA was built without washers and dryers 40 years ago. My wife was adamant about installing them so I paid for larger drain lines from the unit above. Dryer venting was direct to the outside. I pushed the idea that anyone could install washers and dryers provided they replaced and up-sized the drain lines and the venting was properly handled including fire protection of the exhaust. I think it is well worth the effort. -Mike G.

Washer/Dryer #5. Thanks for the thoughtful, thorough and interesting piece on “Washers & Dryers” in HOAs. This issue is much more prevalent than most people think. I know of at least two large HOAs where the installation of washers and dryers in select units created two classes of owners because of master water-metering. The vast majority, who must pay via coin-operated machines to do their laundry in a communal laundry room, and the “privileged” few with laundry facilities in their own units, who get to do their laundry “for free.” And don’t even get me started on the water damage caused by overflowing drains. -Phillip M.

Washer/Dryer #6. Love your responses from questions. On the issue of washers and dryers, we’re in a 100-year-old (next year) historic building with 8-inch concrete walls and working around them becomes quite a problem in and of itself. -Don M.

Washer/Dryer #7. Buildings that are not designed for clothes washers often have communal laundry rooms with coin-operated machines for residents to use. Associations rely on the income from those machines to offset utility costs. Owners who install their own washers and dryers deprive the association of income from the communal machines (which raises the cost for everyone else). In addition, I believe residents are apt to use their own machines more frequently and thus increase their use of “free” water. Why should other owners have to bear the increased costs? I would love to have my own washer but my building does not permit such installations. I knew that when I purchased and therefore live by the rules!!!! -Diana S.

Broken Glass. We had a similar situation with bees (Africanized?) in the attic of a home which was clearly the responsibility of the homeowner – who ignored our letter. I advised the board to kill the bees and fight with the homeowners later before a swarm attacked someone. My argument was the HOA had the money to do it now whereas the homeowner may be in financial straits and regardless of potential liability may simply not do anything. -David A.

Small HOAs #1. Your most recent newsletter is the first time I have heard anybody – besides our board – comment on the fact that the legislature totally ignores or refuses to consider the effect some of their laws have on small associations. Even the org of managers doesn’t speak up. THANK YOU. Perhaps the message will reverberate. -Arnold R.

Small HOAs #2. Some clarifications on small HOAs; there are 3 exemptions from the reserve study requirements:

• Commercial or industrial CIDs. Civ. Code §1373.
• Those without common area. Civ. Code §1365.5(h).
• If the total replacement costs are less than 50% of the annual gross budget. Civ. Code §1365.5(e).

Example: if the annual gross budget was $75,000, if the HOA could replace all of its major common area components for less than $37,500 they would not be required to have a reserve study, as outlined in §1365, et al. A number of small HOA’s may fall under that exemption. This, of course, was its purpose. -Scott Clements, Reserve Studies Inc.

Speed Bumps. Cars were speeding down our private street, which had young children who played on it. I suggested that speed bumps be installed to slow cars down. We have over 400 units in our complex with a huge monthly budget and the cost for the speed bumps was only $300. The board denied my request. One of the board members stated that the board is insured for one million dollars so if anyone is injured or killed by a speeder and the board is sued for lack of action, they were covered. So why spend the money? -Marc S.

RESPONSE: I would hate to defend that statement to a jury. The attitude of “what do we care if someone gets killed, we have insurance” would likely result in punitive damages against the directors. Juries like to punish defendants who have a reckless disregard for public safety. Since punitive damages are not covered by insurance, your penny-pinching director could be paying out of his own pocket.

-Adrian J. Adams, Esq

QUESTION: Can an HOA prevent an owner from installing a clothes washer and dryer without first obtaining a study advising that such installation would damage the plumbing or other common interests?

ANSWER: I understand the desire by owners to add modern conveniences to their units. A washer and dryer not only makes life easier, it increases property values. Unfortunately, if the developer did not design the building to include washers and dryers, installing them at a later date can be problematic. This is especially true for condo conversions.

Water & Electrical. Running electrical and water lines through the walls to a new washer/dryer is usually not a problem, provided the vendors are licensed and insured and everything is done to Code. The problem is water usage. Most condominium developments are master metered for water. That means everyone else in the association pays via their regular assessments for the increased water usage by the owner with the clothes washer. In my experience, owners are not very charitable on this issue–they don’t like paying out of their pockets for someone else’s higher water consumption.

Drain Lines. The biggest obstacle is the building’s drain line. The sudden force and volume of water into a drain pipe during the wash cycles can overload the line and lead to backups in other units. When developers build multi-unit developments, they calculate normal water flow and only install lines needed to handle those flows per applicable building codes. Clothes washers need larger lines due to the larger flow and turbulence of the water plus the sudsing effect of the detergent. Even if existing lines can handle the load of one washer, can it handle additional washers in the stack? If not, can the board approve one washer but deny all others in the stack? To handle the increased load, a larger drain line may need to be installed from the washer through the building to the sewer. That means opening the walls in the units below the new washer. This can be costly and disruptive.

Dryer Vent. Venting the clothes dryer can also be problematic. Dryer exhaust lines cannot, under any circumstances, vent into the common area walls, ceiling or floors spaces. Doing so puts moisture into those spaces that can lead to dry rot that destroys the wood structure and mold that can create health issues. It also puts lint into the space which can lead to a fire. If the dryer vents to the outside (as it should) there is a limit on the hose length (no more than 25′) because of lint accumulation in the line and back pressure buildup. Where venting to the outside is not possible, a special indoor dryer vent can be used but they have their own problems. Every time a load is dried, a gallon of water or more is released into the unit, creating excessive humidity with possible condensation and mold.

Noise and Vibration. Once the washer and dryer are installed, noise and vibrations can radiate through walls and floors into surrounding units. The problem may be minor or it may be significant depending on how the building was constructed. Sometimes the problem can be cured with a thick rubber mat under each machine.

Owner’s Duty. The duty is not the board’s to commission and pay for a feasibility study. The obligation falls to the owner who wants to alter common area electrical and water lines, drains, and install venting. Even if the project is feasible, there is no obligation by the board to approve it. Every one of the problems I described can, in most circumstances, be overcome–it’s only a matter of money. In older condominium developments and especially condo conversions, the cost will generally outweigh the benefit.

QUESTION: Our managing agent says the number of ballots returned establishes the quorum for an annual meeting and cites Civil Code §1363.03(b) as her authority. I say §1363.03(b) ONLY applies to the following situations: elections regarding assessments, election and removal of members of the board, amendments to the governing documents, or the grant of exclusive use of common area. I say §1363.03(b) does not apply to any other situation. If we need a quorum to approve minutes, only physical bodies and proxies count toward a quorum. Who is correct?

ANSWER: Your managing agent.

QUESTION: A homeowner on the 3rd floor whose bedroom window overlooks our back yard has a broken window that is all taped together. If pieces of glass fall and injure someone in the yard, who is financially responsible for medical bills–the homeowner or the HOA?

ANSWER: Regardless of who is responsible for repairing the window, the association could get dragged into litigation if the board fails to act.

Owner Duty. If your CC&Rs make owners responsible for repairing windows, boards have the power (and duty) to enforce the CC&Rs. That means boards have the authority to compel owners to make repairs. If directors sit on their hands and do nothing despite having knowledge of potential injury or death to persons from falling glass, they can expect to be named in any litigation that might result from those injuries.

HOA Duty. If the CC&Rs make the HOA responsible for repairing windows, the board needs to have the glass replaced regardless of who broke it. Once the window has been repaired the board can seek reimbursement from the person responsible for the damage.

RECOMMENDATION: Your board should seek an opinion from legal counsel on who is responsible for replacing the glass and then take appropriate action to ensure repairs are made.

ANSWER: Unfortunately, California’s Legislature has not taken into account the burdens their laws impose on small associations. If your association’s gross income is below $75,000, you don’t need a CPA review of your annual financial statement. All other requirements of the Davis-Stirling Act–disclosures, reserve studies, election procedures, etc., apply.

-Adrian J. Adams, Esq

QUESTION: Because litigation matters are reserved for private executive session meetings, does the board have any liability if it informs the membership of litigation involving the association?

ANSWER: If done properly, there is no liability. The Court of Appeals dealt with this issue in Healy v. Tuscany Hills.

Summary of Case. In this 2006 case, homeowner Gloria Healy sued Tuscany Hills claiming the Association had defamed her when it informed the membership that her refusal to allow access through her property for weed abatement resulted in increased costs to the Association. Healy alleged she suffered loss of reputation, shame, mortification and hurt feelings in the amount of $250,000. She also sought punitive damages. The offending letter stated in part:

Dear Affected Tuscany Hills Member: . . . Please be advised that the [the Association is in litigation because it is performing] weed abatement at an additional cost to the Association, primarily because . . . ingress and egress . . . is being prohibited by the owner of 6 Villa Scencero.

Decision. Healy won her lawsuit at the trial level and the association appealed. The Court of Appeals reversed the lower court decision. The Court determined that the allegedly defamatory statements came within what is known as the “litigation privilege” when the letter expressly referred to litigation arising from Healy’s refusal to allow ingress and egress for weed abatement.

Litigation Privilege. The litigation privilege is a type of immunity given to statements in connection to litigation. The protections are found in Civil Code §47(b) and Code Civ. Proc. §425.16 which are construed broadly to protect the right of litigants to the utmost freedom of access to the courts without the fear of being harassed subsequently by derivative tort actions. Thus, a communication is absolutely immune from any tort liability if it has some relation to judicial proceedings. Healy v. Tuscany Hills.

RECOMMENDATION: Members have an interest in knowing about litigation involving their association and boards should keep them informed. However before anything is released, legal counsel should review and approve the wording of the disclosure. In addition, disclosure is a board function, not the right of individual directors.

QUESTION: Our condo development has 36 units–1/3 of the units are on the 1st floor with wood flooring. Our CC&Rs require a vote to amend so that 2nd & 3rd floor units can install wood floors. It seems unfair and possibly illegal to allow 1st floor units to have wood floors and not the 2nd & 3rd floors.

ANSWER: There is nothing illegal with the arrangement. Hardwood floors can create a great deal of nuisance noise, hence the restriction on wood floors on upper floors. The first floor has no restriction because it is on the ground floor with no one underneath to disturb.

Amending CC&Rs. This kind of arrangement is typical in older sets of CC&Rs. Since most owners today want the beauty of hardwood and tile floors (and the increased property values that go with them), many associations have amended their CC&Rs to allow for the installation of hard-surfaced floors, provided they meet certain noise insulation criteria.

RECOMMENDATION: Before allowing hard-surfaced floors, associations must take into account how their condos are constructed, the weight of the tile, the noise insulation levels desired, and which areas in a unit can have hard surfaces–typically, areas over bedrooms must remain carpeted. Boards should work with an architect or acoustical engineer to develop proper standards. Once standards have been prepared, legal counsel should prepare language for the CC&R amendment.

HOA Rules. HOAs need not rely on local ordinances to address excessive barking. Associations can adopt their own definitions for nuisance barking and establish fines appropriate to their own associations. For sample definitions see nuisance barking.

FHA Certification #1. Why would a high-end complex need FHA certification?

RESPONSE: If the market values of condominiums in your complex are over $729,750 (the loan limits for FHA), there is no need for FHA certification.

FHA Certification #2. “You Know Who” or “He Who Must Not Be Named”. . . I literally laughed out loud! -A.S.

FHA Certification #3. Our bylaws are 30 years old. No one has a signed copy and I understand there is no legal requirement for signed bylaws. We’ve been told that signed bylaws are now one of the requirements for FHA approval. Should the current board sign our bylaws and give them to the FHA?

ANSWER: According to Scott Iden of US Approvals LLC, the Department of Housing and Urban Development (HUD), which oversees the FHA, has always required a signed set of bylaws. It has been his experience that if the board authorizes the president to sign the bylaws, it should satisfy the FHA. The authorization to sign the bylaws should be in recorded in the board’s minutes.

Assignment of Rents. Does the Davis-Stirling Act address the issue of assignment of rents you discussed in your newsletter?

RESPONSE: The DSA does not mention assignment of rents. If an association wants authority to collect rental income from a delinquent owner’s tenant, the association’s CC&Rs need to be amended. It would be nice if California’s legislature enacted a statute similar to Utah’s Title 57, Chapter 8, Section 53. Thank you to Scott Iden for information about Utah’s statute.

Board Email #1. I’m so glad I signed up for your newsletter. It has made me aware of many new aspects of condo living, which is becoming increasingly more complicated. One wonders if the legislators who have put unfair restrictions on HOAs could survive with the same rules in their day-to-day business. As an HOA President who works the night shift, I depend on email to get small business done with other board members. The internet is a valuable tool for our HOA. -Lew S.

RESPONSE: The HOA industry’s best defense against onerous regulation is to educate our legislators. To that end, all associations should be annually contributing money to CAI-CLAC via a line item in their HOA budget–even if it’s only a few hundred dollars.

Board Email #2. The new restrictions on board email communication has the biggest impact on 3-member boards as any discussion between 2 directors is a majority. Our solution will be to post daily, each week day (5 separate posts in the common area) of a executive session meeting. This will give us the freedom to continue our discussions. -Joseph L.

Medieval Times. Are you going to Medieval Times or do you work there part time? -Sandi S.

RESPONSE: I work there full time now. It looked like a good career move.

-Adrian J. Adams, Esq

QUESTION: In about 5% of my associations, recruiting a quorum of board members is no longer possible. A Berkeley professor who lived in one of my HOAs suggested a lottery in which members would be drafted to serve as a director. He said it was done in medieval times in Italian city-states where every male citizen was subject to being drafted to sit on the city council. Do you have any thoughts on this?

ANSWER: Women might object to the “every male citizen” part but it may come to that. With the legislature annually increasing the burden on associations, it becomes ever more difficult to find volunteers to serve on boards. Your solution sounds plausible if your bylaws are amended to require it (and the HOA throws in a free helmet). I am curious to know if it’s been tried by any HOAs in the United States. Perhaps some of our readers will know the answer.

Board Emails #2. Don’t we need to apply just a tad of common sense to this issue? Surely, it’s OK to discuss and handle routine business matters by email. -Jim S.

Board Emails #3. It seems that most HOA boards operate in accordance with the law and in a positive manner towards their members. It is the few who want to skirt the laws and take advantage of their members that cause restrictive laws to be passed by the Legislature. -E.C.

Board Emails #4. If a board is worried about delegating too much authority to the president, they can form an Executive Committee (Corp. Code §7212) with two or more directors, but less than the entire board, to handle issues between board meetings. The board should carefully craft the purpose and authority of the Committee so it can do what is intended and not run amok. -Richard Neuland, Esq.

Minority of Directors. The amended Act allows for fewer than a majority of directors to discuss or comment on an item of business so long as the email exchange does not become a “series” of emails involving a majority of the board.

Majority of Directors. A majority of directors can also email each other, provided their emails do not involve an “item of business.” The amended Act defines “meeting” as:

A congregation of a majority of the members of the board at the same time and place to hear, discuss, or deliberate upon any item of business that is within the authority of the board. (Civil Code §1363.05(k)(2)(A))

An “item of business” is then defined to mean:

any action within the authority of the board, except those actions that the board has validly delegated to any other person or persons, managing agent, officer of the association, or committee of the board comprising less than a majority of the directors. (Civil Code §1363.05(k)(1), emphasis added.)

To be an “item of business” the matter must be an “action” within the authority of the board. Use of the word “action” twice in the amendment suggests that the purpose of the communication must be to propose an action or consider taking an action. If the necessity of this nexus between the communication and a possible or proposed plan of action is correct, then a majority of directors can exchange emails without violating the Open Meeting Act, depending on the exchange.

For example, a majority of directors can discuss the implications of the changes in the Davis-Stirling Act or talk about the deteriorating quality of food at the clubhouse restaurant without violating the communication constraints imposed by amended Civil Code §1363.05. These kinds of discussions are not at the level of an item of business and no action is being proposed.

Thank you to Curtis C. Sproul, Esq. of Sproul Trost LLP for his input on this aspect of the amended Open Meeting Act.

Congratulations on the well deserved award. I enjoy reading your newsletter–it is well formatted and visually appealing. -Joe G.

Congratulations on receiving the Silver Award for the Davis-Stirling website. In my opinion the decision of the International Academy of Visual Arts and W³ Awards to select you as the recipient merely confirms what has clearly been your place as the premier website for information about homeowner associations in California. I view your selection as one that enhances the credibility and importance of the actual award. -Bond S.

Congrats on the honors. They are well deserved! -Jim

RESPONSE: Thank you to these and the many others who sent a congratulatory note. This past week we added Android tablets to the list of mobile devices (iPhones, iPads, Blackberries and Android phones). We will add more devices as the marketplace shakes out winners and losers in the mobile device wars. I will announce them as we add them.

-Adrian J. Adams, Esq

am pleased to announce that Adams Kessler PLC has been awarded the “Silver Award” from the International Academy of Visual Arts and W³ Awards for our Davis-Stirling Mobile App. The W³ Awards are internationally recognized and honor creative excellence for outstanding websites, web video and mobile apps.

App Description. Our Mobile App gives users instant access to a fully indexed Davis-Stirling Act as well as our website’s forms and commentary regarding budgets, reserves, elections, recalls, board meetings, the Open Meeting Act, etc. The App allows board members, managers and homeowners to look up information with the stroke of a finger.

Free Download. The App can be downloaded onto iPhones, iPads, Android phones and Blackberries. If you have not already done so, you should give it a try. -Adrian Adams

An interesting ruling was issued on Friday. It is a lower court decision so it cannot be cited for authority but it addresses the issue of whether owners can be charged a fee related to their renters. In the case of Ken Watts v. Oak Shores Community Association, the five-week bench trial resulted in a well-reasoned decision that members who rent-out their properties can be charged a fee for the burden their renters put on the association. As was noted in the court’s decision, Oak Shores fully justified its fees.

RECOMMENDATION: As long as an HOA can show that fees related to renters are reasonable and merited (and not pulled out of thin air) this case demonstrates that such fees can survive a legal challenge. Boards should be cautioned not to levy fees on renters “just because.” They should consult with legal counsel to evaluate if the association has a legitimate basis for such fees.

QUESTION: Civil Code 1367.1(k) states “upon written request by an owner identifying a secondary address for purposes of collection notices, the association shall send additional copies of any notices required by this section to the secondary address provided.” Would this include billing statements and or late statements?

ANSWER: Some may argue that billing statements and late statements do not qualify as “collection notices” but why take the chance? Which is less expensive, a postage stamp or a year of litigation? Whenever in doubt, give notice. (Thank you to Richard Witkin, Esq. for feedback on this question.)

I’m sorry I could not print all the emails I received on this issue. Following is a sampling. -Adrian

Director Emails #1. Surely SB 563 must be one of the most ludicrous pieces of bureaucratic legislation produced. In this day and age and its modern means of communication, boards are now no longer permitted to use one of the more efficient means of communication in a busy world. This is absurd. If a member wishes to make some urgent alteration to their property, the email system is a wonderfully quick answer to their problem, rather than waiting for a formal board meeting. In Mr Bumble’s immortal words, “The law is an ass.” -Peter A.

RESPONSE: I agree, at times it can be. It points up the importance of supporting CAI’s Legislative Action Committee. Community associations need a strong lobby to counteract corrosive legislation pushed by the California Association of Realtors and proposed legislation by hostile “consumer advocates” wanting to cripple collection efforts HOAs need to stay financially afloat.

Director Emails #2. I have to honestly say, the restriction on board discussions by email is absolutely anal. We are currently undergoing replacement of a large hot tub. It had been a 3-month ordeal as we must deal with our city’s Health & Building Departments. This project, as with our recent window replacement project and reroofing project, requires massive email communications between the board, contractors, the project manager & our property manager to make decisions. If we can no longer do this, we will be posting meeting notices daily. -Joseph L.

RESPONSE: Administrative and oversight tasks can still be handled via emails if delegated to the president and/or manager. Once delegated, the president and manager can make decisions and retain the right of email consultation with directors. The new statute specifically exempts delegated matters from meeting requirements:

“Item of business” means any action within the authority of the board, except those actions that the board has validly delegated to any other person or persons, managing agent, officer of the association, or committee of the board comprising less than a majority of the directors. (Civil Code §1363.05(k)(1))

Director Emails #3. Changes to the Open Meeting Act underscore the need for policy governance in every common interest development so work can get done between board meetings. Every community manager makes daily decisions that affect the association(s) they serve, but there are certain limits to our levels of authority, and there should be. That being said, it appears that with these changes to the law boards will need to either wait to conduct business at scheduled meetings or expand the decision making authority of their managers. Since the former may not always be possible, the best way to accomplish the latter is for boards to develop policies for managers to follow when they need to ask the board but can’t. -Dirk F., Manager

RESPONSE: I agree. The unintended consequence of SB 563 is that boards will have no choice but to delegate more authority to their president, manager, officers and committees so as to keep business flowing between meetings. Boards will need to work with management and legal counsel to develop policies that describe the parameters of the delegated decision-making authority.

Director Emails #4. If the president, vice president and treasurer were to discuss via email a financial matter in their roles as officers, would this constitute an illegal board meeting? -Jenson C.

RESPONSE: Matters delegated to officers can be discussed without violating the Act. Civil Code §1363.05(k)(1).

Director Emails #5. What does this new law mean regarding maintenance situations? Our board meets once a month. Can we vote to allow board members to conduct business electronically in an emergency situation. -Jean S.

RESPONSE: You can’t vote to bypass the new restrictions. However, you have the following options: (i) delegate authority to the president and/or manager to handle maintenance issues between meetings, (ii) address emergency issues via email unanimous written consent, and (iii) call special meetings of the board.

Director Emails #6. I am stunned and angered by the new legislation.  All of us work. We don’t have time for phone calls, letter writing and additional meetings to conduct our business in a timely manner. This is so dictatorial that I find it offensive that HOAs have to endure so many restrictions that it becomes almost impossible to be responsible and pro-active board members. Whoever churns out this stuff has no idea what havoc and frustrations they are thrusting on HOAs. This is wrong, unjust and just plain unacceptable. If you think I am angry, you are correct. -Dawn B.

RESPONSE: For some reason, the Legislature thinks that volunteer board members are equivalent to full-time paid city council members with a bevy of staff at their beck and call and large budgets.

RECOMMENDATION: Other law firms may have a different interpretation of what boards can and cannot do once the new restrictions take effect January 1, 2012. Boards should consult with legal counsel on how best to implement the changes.

-Adrian J. Adams, Esq

QUESTION: According to the new law, boards can no longer make decisions by email. Can we still discuss business by email but not vote by email?

ANSWER: Not anymore. Starting January 1, boards cannot discuss board business or make decisions via email unless it is an emergency.

No Discussions. Changes to the Open Meeting Act state that boards of directors “shall not conduct a meeting via a series of electronic transmissions, including, but not limited to, electronic mail.” (Civil Code §1363.05(j)(2)(A)). A “meeting” is then defined to include hearing, discussing or deliberation by a majority of the board on any item of business within the authority of the board (Civil Code §1363.05(k)(2)(A)).

Emergency Meetings. Emergency meetings are exempted from the prohibition against email discussions and votes. An “emergency meeting” is defined as one where

there are circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board, and which of necessity make it impracticable to provide notice as required by this section. (Civil Code §1363.05(g)).

Email. “Electronic transmissions may be used as a method of conducting an emergency meeting if all members of the board, individually or collectively, consent in writing to that action . . .” (Civil Code §1363.05(j)(2)(B)).

Teleconference. If one or more directors refuses to consent to an action via email, the president or any two directors may convene an emergency meeting (Civil Code §1363.05(g)) where directors physically gather in a single location or meet via teleconference. (Civil Code §1363.05(k)(2)(B)). Once a quorum is present, the proposed emergency action can be approved by a majority of directors present. Assuming a five member board, if four directors attend, three must agree to the proposed action; if three directors attend, two must agree.

Minutes. If a paper document is prepared, circulated and signed, it must be made part of the minutes of the next open meeting of the board. If the consent was done by email, the email describing the emergency action together with the email approvals by each of the directors must be printed and filed with the meeting minutes. (Civil Code §1363.05(j)(2)(B)). Only the signed consent needs to be filed with the minutes–not the discussion. As with regular meeting minutes, the minutes should reflect the action taken by the board, not a transcript of the discussion.

Starting January 1, 2012, a majority of the members of the board, in different locations, may attend board meetings electronically. For open meetings of the board, notice of the electronic conference must identify at least one physical location so that members of the association may attend. At least one member of the board must be present at that location. Participation by board members in an electronic conference constitutes presence at that meeting as long as all board members participating in the meeting are able to hear one another as well as members of the association who wish to speak on matters before the board (i.e., Open Forum). Civil Code §1363.05(k)(2)(B).

QUESTION: Is there anything prohibiting an association from giving meeting minutes to renters? Is it a good or bad idea?

ANSWER: There is nothing in the Davis-Stirling Act that either prohibits renters from or entitles them to receiving minutes (or any other HOA records). I see no harm in providing minutes to renters. As residents, renters may have an interest in participating in the affairs of the association (I’m referring to business affairs) and want to contribute by joining a committee.

If a renter becomes disruptive, the courtesy of providing minutes can be withdrawn. One caveat–some associations have no requirement that directors be members of the association. In those situations, renters can be elected to the board of directors. Once elected, they would be entitled to the minutes, books and records of the association as would any other director.

Robert’s Rules. Thanks for mentioning the new 11th edition of RONR. My wife and I, both members of the National Association of Parliamentarians, just returned from the biennial convention in Florida, where the new edition was officially released. There is an “In Brief” edition of RONR, with an 11th edition updating. It is much more suitable for persons who just want to know and use good parliamentary procedure, without getting into the nitty-gritty details that seldom come up. It is available, along with the full version, through this link to the NAP Online Store. -Bob Hall, NAP Webmaster, just retired.

Speed Bumps. We’re in a 55+ community and considered speed bumps about 10 years ago. We wound up with humps which are gentler but serve the same purpose. We didn’t think that the bumps used in shopping centers were appropriate here and the humps have worked out very well. -Steve K.

Speed Bumps. Speed bumps are silent policemen for communities. Good bad or indifferent, they work. You slow down or risk tearing up your car, jarring your kidneys and cracking your teeth. Speed humps with a gradual rise and fall that slow vehicles are easier on everyone and do the job just fine. I feel the speed bumps are a necessary evil in some communities and it is fitting they be used, especially if the community has young kids that use the streets. -Jack S.

Plumbing Repairs. Because our building is 35 years old, we assume a plumbing drain problem inside a unit extends to the entire line. So instead of repairing the immediate problem, we replace the line serving the unit and the units above and below. We allocate $8,000 per year for unidentified plumbing work in the Reserve Study. We attack the problem from the outside of the building wherever possible to minimize the inconvenience of repairs inside units. This almost always requires removal and replacement of stucco, but it is no worse than cabinet, drywall, painting inside the unit. It is much easier to coordinate work on the outside which means it gets done sooner. This policy has virtually eliminated weekend plumbing emergencies. -Mike G.

-Adrian J. Adams, Esq

QUESTION: Can the board install a new component (speed bumps) from reserves? If I understand correctly, it can’t come from reserves since it is a new component which will alter the appearance of the complex, and it can’t come from the operating fund either.

ANSWER: By definition, the installation of speed bumps would be a capital improvement, i.e., the addition of a component that did not previously exist. As such, a fair argument could be made that speed bumps cannot be funded from reserves since reserve monies are set aside for existing common area components.

Contrary Argument. However, the streets themselves are existing reserve items and adding safety features to streets such as reflectors, additional striping, signage and the like are elements of streets that legitimately fall within the discretion of the board of directors. If the cost is relatively minor, it could justifiably come from street reserves. If the cost is significant, it would likely require a special assessment to pay for the improvements. If a safety concern can reasonably be demonstrated and the cost to install is a small percentage of the street funds, I suspect a judge would side with the board on using reserve funds for that purpose.

RECOMMENDATION: Since this issue is open to debate, boards should discuss with legal counsel how best to balance any safety and cost concerns related to reserve expenditures.

ROBERT’S RULES OF ORDER

The 11th edition of Roberts’ Rules of Order became available this week. The Davis-Stirling Act requires that membership meetings (such as Annual Meetings) be conducted in accordance with a recognized system of parliamentary procedure. Civil Code §1363(d). Board meetings, on the other hand, are not required to use parliamentary procedures. Even so, most boards use a relaxed or less formal version of Robert’s Rules to conduct their meetings.

While there are 120 changes in the 11th edition, few will impact HOA meetings. Attached is a “cheat sheet” to the new Robert’s Rules. One change is notable; the former method of asking a question, “Point of Information,” has been renamed “Request for Information,” in hopes that members will understand they should use it to request information, not provide information.

Thanks goes to Jim Slaughter, an attorney with Forman Rossabi Black, PA who practices association law in N. Carolina and is Past President of the American College of Parliamentary Lawyers, for alerting me to this update.

UNFINISHED BUSINESS

QUESTION: Davis-Stirling requires members to be given meeting agendas at least four days prior to the meeting. If some items are not addressed in the meeting, should the minutes reflect that?

ANSWER: Yes, any unfinished business should be noted as such in the minutes, otherwise there will be disconnect between the published agenda and the minutes. Unfinished agenda items can be marked “carried over to next meeting” or noted in some fashion to show that they were not addressed in the meeting and will be on the agenda for the next meeting. If an agenda item was taken up by the board for discussion and a motion was made but not voted on, the matter should be marked as “tabled.”

Minutes. While reading your minutes commentary, I am reminded of a saying of my law professor many moons ago about appropriate brevity: “Appropriate length is like the skirts on Broadway–short enough to be interesting and long enough to cover the subject.” Karl L.

Legislature. You mentioned the legislative session ended September 9th. When does the next session begin?  Is the public allowed to observe? Is notice with an agenda posted in a prominent location for citizens to view? -Paige B.

RESPONSE: I checked with our legislative guru Skip Daum for answers:

When does the next session begin?
The second half of the biennial session convenes 1/4/12.
Is the public allowed to observe?
Always… either in person or at www.calchannel.com
Is notice with an agenda posted for citizens to view?
Yes: www.senate.ca.gov and www.assembly.ca.gov

LA Times. The discussion I had with the LA Times “Readers Rep” in 2005 got me nowhere. I think having their authors billed as HOA specialists is akin to having a self-proclaimed racist writing a column on fair housing. Sure, they are somewhat familiar with the issues but their take on them is biased and does not serve the public well. -Marla H.

-Adrian J. Adams, Esq