Condo Law in California

QUESTION: I have an owner asking for a copy of the entire insurance policy. Is the association obligated to provide it?

ANSWER: Yes, the policy should be available for inspection and copying. Although insurance policies are not mentioned in the inspection provisions of the Davis-Stirling Act, they fall under the category of executed contracts not otherwise privileged under law. Civil Code 1365.2(a)(1)(D). In addition to inspection rights, associations are required to annually disclose information insurance coverage.

TEMPORARY
DUES INCREASE

QUESTION: Can a board raise the monthly assessment for a fixed time period, i.e., twenty four months? How binding would this sunset clause be on future boards?

ANSWER: Provided the increase is within the 20% limit, a board can raise the dues for a fixed period. Even though the board promises to make the increase temporary, that promise is not binding on future boards. Subsequent boards can take into account the needs and economic realities in the years that follow. The next board might decide to discontinue the increase earlier than planned or continue it for additional years.

PRESIDENT’S COLUMN
DURING ELECTION

QUESTION: Is there any restriction on a president from writing a monthly column in the association’s newsletter if he is running for election? It would seem if he stuck to general matters there should be no problem.

ANSWER: If the president sticks to reporting general matters, he can continue writing the column. However, “if any candidate or member advocating a point of view is provided access to association . . . newsletters . . . during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view.” Civil Code 1363(a)(1).

ELECTION BIOS

QUESTION: We just had an election and my association refused to mail out my qualifications. They said they didn’t have to and went ahead with the election and, of course, all the incumbents won.

ANSWER: Associations are not required to publish candidate qualifications. If they do, bios should be devoid of campaign statements, otherwise it opens the door to demands for equal access at the association’s expense. You could have requested a copy of the membership list and made your own campaign mailings.

CC&R AMENDMENT
VOTING

QUESTION: Our association is revising our CC&Rs. In an attempt to reach our 75% requirement, we were wondering if there is any time limit on how long the polls may remain open as we try to involve all of the membership in the voting process?

ANSWER: As you will soon discover, a 75% approval requirement is almost impossible to reach due to owner apathy. As the date for counting ballots gets closer, the board can extend the deadline as-needed until enough owners have voted to make it worthwhile to open the ballots. There is no limit on how many extensions may be given. As noted in last week’s newsletter, if the vote is less than 75% but more than 50%, the association can petition the court to approve the amendment/revision. If you have not already done so, you should also amend your amendment provision to a more reasonable 55% or 51%.

POSTING MINUTES
WITH ATTACHMENTS

QUESTION: When our secretary posts the board minutes, does he have to include all the attachments?

ANSWER: Since there is no requirement that minutes actually be posted, the secretary can post minutes without attachments. As provided for in Civil Code 1363.05(d), minutes, minutes proposed for adoption that are marked to indicate draft status, or a summary of the minutes must be made available to members within 30 days of the meeting. If the minutes actually have attachments that are filed in the association’s minute books, members can review and copy those attachments.

FEEDBACK

Attacks Against Boards. I’m so frustrated by the continued attacks on board members, most of whom are trying to do their best! Owners need to pull their weight. It is so easy for owners to sit back and make demands of their boards, but often these owners don’t stop to think that they are as much involved in their association as the board members.

Don’t expect a few volunteer owners to be able to support the entire community. If owners are unhappy they should stand up and be counted, put some energy into the community. There are times when litigation may be inevitable, but owners who can’t get their own way and then sue are suing themselves and their neighbors. There are many other ways to resolve a problem, litigation should be the last resort. -Diana S.

RESPONSE: I agree. Owners who are unhappy should run for the board, not file lawsuits. Lawsuits are ugly, unpredictable and expensive. It’s like setting yourself on fire so you can see in the dark while you search for the truth.

QUESTION: During the nomination phase of an election should a nominee indicate the role they wish to serve, such as president, treasurer or secretary? Is the officer designation decided by the number of votes highest to lowest or by agreement?

ANSWER: Unless your governing documents state otherwise, candidates cannot run for a particular office. Typically, the membership elects directors, not officers. Once elected to the board, directors decide among themselves which office each person will hold. Therefore, it does not matter that a person campaigns for President and gets the highest number of membership votes. He/she does not have a “right” to be President. The other directors might make the person a “director at large.”

HOW MANY NOMINATIONS?

QUESTION: Is the nominee process limited to just one submission per owner?

ANSWER: No, but there is a limit on the number of nominations an owner can make. “When more than one person is to be elected to . . . a board of directors . . . no one may nominate more than one person for the office, if an objection is made, until every member wishing to nominate has had an opportunity to do so. In no event may a member nominate more persons than there are places to fill.” (Robert’s Rules of Order, 10th Edition, Section 46, p. 418.) In addition, the nominees should accept their nomination before being listed as a candidate on the ballot. It should be noted that candidates can nominate themselves to run for the board.

BROWN ACT

QUESTION. A non-lawyer advised our board that the Brown Act supersedes the Davis-Stirling Act. Is that true?

ANSWER: No, it’s not true. The Brown Act regulates the meetings of public legislative bodies and local public agencies. It does not apply to private community associations. The legislature could have included homeowners associations in the Brown Act but it didn’t. Instead, it created a less complicated “Open Meetings Act” that applies specifically to homeowners associations. Civil Code 1363.05.

AMENDMENT TO RESTRICT
DUES INCREASES

QUESTION: We have a new neighbor who is causing huge problems. His newest campaign is to modify the CC&Rs to include the following: “Any assessment and any increase in the dues in excess of the Consumer Price Index (CPI) must be approved by 51% of the homeowners.”

ANSWER: His efforts are understandable but misguided. Even if he is successful, the amendment will be void. Assessment increases and voting requirements are set by statute. Regardless of anything to the contrary in the governing documents, boards may increase regular assessments up to 20% and levy special assessments up to 5% without membership approval. Anything more requires owner approval, which is defined as approval by a majority of votes at a meeting with more than 50% of the owners in attendance. Civil Code 1366(b).

LAW STUDENT PRESIDENT

QUESTION: Our board president is a law student who thinks he knows everything about everything. We want legal advice about our CC&Rs but he opposes it since he thinks his advice is sterling. What do we do in a case like this?

ANSWER: There is an old adage that you get what you pay for. Relying on a lawyer-to-be for legal work certainly saves money. However, if problems arise because the board relied on his unauthorized practice of law, the costs could easily exceed the monies saved. If you’re really tight on money, let your law student do all the legal research and put his opinions in writing for review by your association’s legal counsel. If counsel signs off on his opinions, you save money. If he doesn’t . . .

AMENDING CC&Rs VIA
THE COURTS

QUESTION: Our CC&Rs require 2/3 approval to make any changes. The Davis-Stirling Act requires 50% + 1. Does that override the CC&Rs? If so, what are the procedures for changes based on the Act?

ANSWER: The provision in the Davis-Stirling Act you refer to may be used if you amend/restate your CC&Rs and cannot reach the 2/3 approval required by your CC&Rs. If more than 50% of the membership  approve the changes and you meet other conditions required by the statute, your association’s attorney can file a petition with the court for judicial approval. Although no attorney can guarantee an outcome, it has been our experience that most petitions are granted.

NEW FEDERAL
LEAD PAINT LAW

On April 22, 2010, a new federal law takes effect which directly affects residences and common areas in homeowners associations built before 1978. It is the EPA Lead Based Paint Renovation, Repair and Painting Program Rule. To find out more about it (and the large potential fines for violators), read the latest article in Kessler’s Condo Court.

QUESTION: Our president resigned. Does the vice president assume the presidency or just until a fifth person is brought onto the board and the board votes on a president?

ANSWER: The vice president becomes the acting president until such time as the board elects a new president. The board can select new officers at any time or it can wait until it adds a fifth director to the board.

LOSS ASSESSMENT
INSURANCE

QUESTION: In spite of the fact that we hold title as condo owners, insurance companies will not write “loss assessment” policies for us because our units are detached. Do we have another option?

ANSWER: A condominium is a condominium, whether attached or detached. Unfortunately, it is common for detached condominium units to be misidentified and for insurance agents to treat them as single family residences. The problem can be resolved by providing the agent with a copy of the CC&Rs showing the language identifying units as condominiums. If necessary, you can provide the condominium plan as well.

ROBERT’S RULES OF ORDER

QUESTION: If it is not stated in the bylaws, does the association need to follow Robert’s Rules of Order?

ANSWER: Unless the governing document state otherwise, there is no requirement that board meetings operate under Robert’s Rules of Order or any other parliamentary procedure.

Membership Meetings. Annual and special meetings of the membership, however, must be conducted in accordance with a recognized system of parliamentary procedure. Civil Code §1363(d). Although Robert’s Rules of Order is the most widely used system, others may be used.

BOARD MEETING AGENDA

QUESTION: If there are multiple items to be discussed under a category on our agenda (e.g., the Monitoring Committee), do we have to list each individual item or can the agenda just show “Monitoring Committee”?

ANSWER: All items scheduled for discussion should be listed. If you plan to discuss and vote on particular issues, the membership needs to be alerted so they can attend. By itself, “Monitoring Committee” has no meaning. If the board plans to vote on the installation of security cameras in the common areas, listing that as an agenda item is much more meaningful.

FOUR DAYS MEETING NOTICE

QUESTION: What is the proper method of calculating the required four days notice to members for board meetings?

ANSWER: Unless the governing documents require longer notice, members must be given notice of the time and place of board meetings at least four (4) days prior to the meeting.  Civil Code §1363.05(f). If the board meeting is scheduled for 6:00 p.m. on Friday, notice should be posted by no later than 6:00 p.m. on Monday.

Calendar Days. Calendar days are used since the statute does not state business days. That means Saturdays and Sundays are counted. If the board’s meeting is on Thursday at 6:00 p.m., notice should be posted by no later than 6:00 p.m. Sunday. The statute does not exclude holidays, which means they are counted as well. If President’s Day, Martin Luther King Day or any other holiday happens to fall inside the four-day period, the holiday is counted as a normal calendar day.

NO ANNUAL MEETING

QUESTION: If the election procedures for an association indicate that the term of the board is one year, and then the board proceeds not to call an election in time for a new board to take office after that one year period, does the old board stay in power absent a new election? If so, what recourse do the owners have if there was no new election?

ANSWER: Yes, the board stays in power. If the board fails or refuses to hold an annual membership meeting within 15 months of the association’s last regular meeting, owners can bring an action against the board in superior court. In such cases, the court may summarily order the meeting. Corp. Code §7510(c).

FEEDBACK

Power-Hungry Boards. Litigious owners are oftentimes driven to action because of a power-hungry board that has overstepped its authority and/or a complacent board that refuses to carry out its fiduciary duty to enforce its governing documents. -Mike H.

RESPONSE: Truly bad boards are the exception, not the rule. When they occur, however, such boards should be removed from office at the earliest opportunity. This should be done politically whenever possible; the courts should be a last resort.

Ruinous Litigation. We are involved in ruinous litigation in our tiny HOA. Why would anyone want to buy into an HOA? Most are probably okay but as we’ve seen you just need one bad actor and you have a catastrophe. I warn away everyone I know. -Lois W.

RESPONSE: It’s one of those unwritten rules of the universe that every association gets at least one bad apple, whether on the board or off. Large associations are able to absorb the cost of a dysfunctional owner but in small associations their behavior can be catastrophic.

QUESTION: An owner installed hardwood floors in his 3rd-floor unit in direct violation of the rules. He was notified before, during and after installation. The owner thumbed his nose at the HOA. He was fined and the HOA hired an attorney to enforce the rules. Only after the HOA filed suit did he remove the flooring.

ANSWER: Some owners love to play chicken. They violate the rules and dare the association to do something about it. We had a similar situation where the board gave the owner warnings before, during and after the floor installation. We took the violation to binding arbitration and the owner was ordered to remove the floors and pay the association’s legal fees. To everyone’s relief, he sold his unit and moved.

Second Story Ordered Removed. An even more dramatic example came down two weeks ago from the Court of Appeal. It involved an owner who thumbed his nose at an association’s height restrictions when he added a second story to his house. See Gary Kessler’s “Condo Court” for details.

CC&R AMENDMENT
WITHOUT LEGAL INPUT

QUESTION: Our board opted to amend our CC&Rs to require the association to carry “studs out” insurance. Is it necessary to hire an attorney or can we just write what we intend and take it to the county and record it?

ANSWER: The board can prepare the language on its own but it runs the risk that the language may create unintended consequences that an experienced attorney would spot. Moreover, the board cannot draft the language and then record it; the amendment must first be approved by the membership using secret balloting. Finally, the amendment must be in proper format for recording purposes and properly certified, otherwise it will be rejected by the Recorder’s Office. Avoiding legal fees is a good idea when it makes sense. I’m not sure this is one of those times.

REQUIRING OWNERS TO
CARRY INSURANCE

QUESTION: Can owners be made to purchase H06 policies? Can docs be amended to include this requirement?

ANSWER: Yes, CC&Rs can be amended to require owners to carry insurance. The requirement can extend to tenants as well.

Renter’s Policy. Renters can be required to carry an HO4 policy which protects a tenant’s personal property against loss and limits exposure to personal liability claims. Protecting the tenant against loss protects the association.

Owner’s Policy. Owners should be required to carry an HO6 policy (“Homeowners 6″ or “Condominium Unit Owner Policy”). Without it, they are exposed to loss and are more likely to sue the association. Moreover, the secondary mortgage market is now requiring protection for  owners. Owners’ insurance should cover the following:

1.  Personal Property Coverage that insures unit contents such as clothing and furniture.

2.  Personal Liability Protection which pays for bodily injury and property damage.

3.  Loss of Use Protection that pays for extra expenses (hotel, restaurants, etc.) while the owner’s home is uninhabitable because of damage.

4.  Loss Assessment Coverage that covers the owner’s portion of special assessments levied by the association resulting from insured losses.

5.  Real Property Coverage that insures those portions of the premises not insured by the association’s master policy.

RECOMMENDATION: Associations should amend their CC&Rs to require both owners and tenants to carry insurance. To avoid potential liability, the amendment should also relieve the association of enforcement requirements related to the amendment. In addition, boards should regularly publish reminders that owners and tenants need to carry their own insurance.

Thank you to Margot Crowl Brick of the Frank Crowl Co. and Timothy Cline, President of the Timothy Cline Insurance Agency for their input on this issue.

LEGAL FEES CLAUSE

QUESTION: Our CC&Rs are silent on the issue of attorneys’ fees. To discourage lawsuits, should we amend our CC&Rs to allow the award of attorneys’ fees if a matter goes to litigation?

ANSWER: Attorneys’ fees clauses are double-edged swords. While the provision allows an association to recover legal fees, it often becomes the driving force behind litigation. For example, each side might spend $50-100,000 litigating a matter that has a disputed value of $12,000. When that happens, settlement becomes almost impossible. The plaintiff wants $12,000 in damages PLUS another $100,000 to cover his legal expenses. The defendant might agree to pay $7,000 to make the litigation go away but will never pay plaintiff’s legal fees (nor will the insurance carrier). That means each side will spend another $50-75,000 taking the matter to trial just to get a shot at recovering their legal fees.

Eliminating Fee Awards. If each side had to bear its own legal fees each time a matter was litigated, they would be forced to weigh the costs before jumping in. This would slow down the filing of lawsuits. Once in litigation, legal fees would also speed settlement since neither side wants to spend a non-recoverable $100,000 over a $12,000 dispute. Unfortunately, putting the brakes on litigation would require amending the Davis-Stirling Act. Currently Civil Code §1354(c) provides:

In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.

It is unlikely the legislature will ever eliminate this provision, which means legal fees will continue to encourage litigation because plaintiffs always think they have a winning case and will recover legal fees. And, legal fees will continue to impede settlements when expenses spin out of control. It also means that owners who live in litigious associations will inevitably face higher dues for insurance premiums and potential special assessments for legal fees.

FEEDBACK

Legal Fees – Peer Pressure. It seems that special assessments for legal fees would result in peer pressure against owners who repeatedly sue the association since everyone will know who caused the problem. -David A.

RESPONSE: For some people, peer pressure has no effect. They don’t mind isolating themselves from their neighbors–some delight in it. Chronically litigious owners are not suited for community association living. They would be happier living with unabomber Ted Kaczynski in a remote cabin in Montana, except that making their neighbors miserable makes them even happier.