Mar 03

Service animals and comfort animals are not the same. A “service animal” is one specially trained to assist the disabled retrieve objects, open doors, guide the blind, etc. A “companion” animal has no special training but provides emotional support to relieve anxiety and depression.

Widely Abused. Both service and companion animals are invaluable to the disabled. Unfortunately, the perfectly fit have abused disability rights to get around pet restrictions. The subterfuge starts by persuading their doctor to write a letter that the disallowed animal is necessary to their patients health. The person then goes on the internet and pays a certificate mill to “certify” that their dog is a service animal. For a few dollars more, they can receive special dog tags and other paraphernalia for their newly minted service animal. And voila, their pet is exempt from the association’s restrictions. A recent case in Florida addressed this practice.

Florida Case. The Sun Harbor HOA prohibited dogs. One member, Vincent Bonura, invited his fiancee to move in with him and she brought her dog in violation of the association’s restriction. The association sent a violation letter and Bonura lied about having a dog. He later admitted to it but then claimed it was a registered service animal necessary for his fiancee’s disability. He provided the association with a certificate he purchased on the internet.

The association was skeptical and requested evidence that his fiancee suffered from a handicap and asked what special training the dog had received to accommodate her handicap. Bonura ignored the board and litigation ensued. At trial, the fiancee’s newly hired psychiatrist testified that he believed the dog helped her anxiety and depression. When the court ruled for Bonura, the association appealed.

Reversal. The court of appeals reversed. The justices noted that federal courts have long recognized that,

[T]he duty to make a reasonable accommodation does not simply spring from the fact that the handicapped person wants such an accommodation made. Defendants must instead have been given an opportunity to make a final decision with respect to Plaintiffs’ request, which necessarily includes the ability to conduct a meaningful review of the requested accommodation to determine if such an accommodation is required by law.

The court found that Bounura had refused to comply with the association’s request for reasonable documentation of his fiancee’s disability and the need for a service dog. Even more problematic for Bonura, testimony failed to establish that his fiancee suffered from a disability.

Reviewing the record, there was no competent, substantial evidence indicating any substantial limitation on one or more of Ms. Vidoni’s major life activities. In fact, the testimony indicated Ms. Vidoni was able to travel and work without the dog. Along those same lines, the evidence also failed to establish the necessity of the accommodation. Ms. Vidoni admitted that she was not as dependent on the dog as she had been originally and she could be independent of the dog at times including for work. (Sun Harbor v. Bonura.)

RECOMMENDATION: Even though Florida HOAs are allowed to prohibit pets, California has effectively ended the practice. Even so, California allows for reasonable pet restrictions (weight limitations, number limitations, etc.). When faced with a request for accommodation for a nonconforming pet, associations should consult legal counsel.

PAINT COLORS

QUESTION: Our HOA requires homeowners receive approval from an architectural committee before painting their homes. The committee does not have any standards for reviewing paint colors. Can they deny a color simply because they dont like it?

ANSWER: Yes they can reject a paint color simply because they don’t like it. That is precisely why an architectural committee exists–to make aesthetic decisions about what is appropriate for the community and what is not.

Another important function of the Association is to preserve the aesthetic quality and property values within the community. (Cohen v. Kite Hill.)

Maintaining a consistent and harmonious neighborhood character, one that is architecturally and artistically pleasing, confers a benefit on the homeowners by maintaining the value of their properties. (Dolan-King v. Rancho Santa Fe.)

Written Standards. Not having written standards, however, is a problem. It leads to discord and potential litigation because members jump to the conclusion that they are somehow being discriminated against if their request is denied. If the committee were to adopt written standards, applicants would know what colors to choose from and would submit a conforming color, thereby avoiding rejection.

Disapproval Requirements. Per the Davis-Stirling Act, any decision by the architectural committee must be in writing. If a proposed change is disapproved, the committee’s decision must include both an explanation of why the proposed change is disapproved and a description of the procedure for reconsideration of the decision.

RECOMMENDATION: All associations should adopt clearly defined architectural standards. Once adopted, enforcement of those standards must be in good faith and not arbitrary or capricious.

DIRECTOR SEMINAR

I will be participating in Monarch Management’s 17th Annual Directors Seminar entitled “Law and Order.”

The event will follow the format of the courtroom drama television show with the founder of the Monarch Group John Handel serving as the presiding judge. Board members will be given real-life fact patterns and discuss enforcement, hearings, penalties and how to avoid litigation.

The event will be held from 8:30 a.m. to 3:30 p.m. on March 15, 2013 at Agua Caliente Casino Resort Spa in Rancho Mirage. Contact Zoe Lombard for more information and to reserve a seat.

FEEDBACK

Mary J. #1. Does Mary J. want to move? We have an opening coming up in our complex. -Esme G.

Mary J. #2. Mary J. is indeed a breath of fresh air. If homeowners would run for the board for the purpose of serving their community, not because they have an agenda or pet peeve, our terms of office would be filled with positive accomplishments. We need homeowners without strings attached, who want to feel good when they leave office, because they have done “good.” -Ruth W.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Feb 24

QUESTION I serve on the board of a townhome association. We have a potential buyer of a unit that is a limited liability company. If the LLC becomes an owner and the LLC has 50 members, will all 50 members have rights to use the common area facilities?

ANSWER: Good question. Because of the uncertainty and to avoid potential litigation over the issue, we address it when we restate CC&Rs and bylaws for our clients. We define who does and does not hold voting and common area usage rights for (i) those who merely hold a security interest in the property, (ii) tenants, (iii) trusts, (iv) corporations, (v) partnerships, and (vi) other ownership entities. Doing so eliminates the problem. Your association should consider doing the same. If you have questions, contact us.

NOTICE OF
RULE CHANGE

QUESTION: We are changing several rules. May we send only the rules that are changing to homeowners? Our manager says we must send out all the rules for the 30-day homeowner comment period, not just the ones being changed or added. I do not read Civil Code 1357.130 that way. Who is correct?

ANSWER: You’re correct. The statute only speaks to proposed changes not the entire package.

The board of directors shall provide written notice of a proposed rule change to the members at least 30 days before making the rule change. The notice shall include the text of the proposed rule change and a description of the purpose and effect of the proposed rule change. (Civ. Code 1357.130(a).)

Once the rule change has been approved by the board, notice of the approval must be given to the membership before the change can take effect. Ideally, changes are incorporated into the rule book and a full set is mailed or delivered to the membership. For some associations that can be quite costly. An alternative is to mail the changes to the membership and post a full set of revised rules on the association’s website.

MORE ON
ABSTENTIONS

In recent newsletters I’ve discussed director abstentions. The issue generated follow-up questions because of the confusion people have about this issue. James H. Stewart, PRP, also known as “Mister Parliamentarian” was kind enough to offer a further explanation.

Non-Vote. People get confused because Robert’s Rules and the law differ. An abstention is NOT A VOTE, IT DOES NOT COUNT-EVER. It is not a protest vote, it is not a negative vote, it does not “go with” any side. An abstention simply means that the person is not casting a vote on a motion (the reason why does not normally matter).

Under Robert’s Rules, abstentions are not counted or even taken (asked for) in normal circumstances. The only time abstentions are recorded is if a roll-call vote is taken. It is good practice to record an abstention in the minutes if the reason for the abstention is a conflict of interest, otherwise it should not be recorded. There is no right to have a director’s abstention recorded, as that would give a privilege not given to other directors.

Corporations Code. Under Robert’s Rules, votes are normally taken as the number present and voting, which means that abstentions are not counted and do not matter. Confusion occursbecause the Corporations Code has a requirement that a board must have the affirmative vote of a majority of those present to adopt a motion. (Corp. Code §7211(a)(8).) While an abstention does not count, in that scenario it has the same affect on the outcome as a negative vote. For example:

Present and Voting: 10 present, 5 yes votes, 4 no votes, 1 abstention = motion passes as a majority of the votes cast are yes (9 votes cast, 5 yes, 4 no).

Majority of Those Present: 10 present, 5 yes votes, 4 no votes, 1 abstention = motion fails, as a majority of those present is 6.

FEEDBACK

Clubhouse Wi-Fi: Even if the board has authority to install Wi-Fi in the clubhouse, are there any potential problems? -Irene M.

RESPONSE: Yes. If the association installs an “open” or unsecure Wi-Fi system, there are risks. First, anyone can piggyback onto the wireless signal to commit crimes. A hacker can access other users’ passwords, bank accounts, emails, etc. Or they can use it to download child porn (which will bring federal agents knocking).

If an association intends to set up Wi-Fi in the clubhouse, it should be careful to set up a secure network with appropriate firewalls and use restrictions. For more information, read security tips from the U.S. government’s “Computer Emergency Readiness Team” on wireless technology. The association should also add a disclaimer and a “terms of use” page to the sign-in process where users agree to hold the association harmless.

City Ordinances. You wrote that because HOAs and local governments each have their own jurisdictions and enforcement powers, they operate independently and the ordinances of one do not void the rules of the other. Already, owners are asking me how can this be, as they reference city anti-smoking ordinances. In SF, the ordinance is no smoking in internal common areas of condos/apartments. These owners say, based on your explanation of an HOA lifting leash rule, we could lift our own anti-smoking rule despite the city ordinance. Is there a distinction between some ordinances which are basic such as leashes vs Health & Safety codes? -Joseph L.

RESPONSE: Some people struggle with the concept of overlapping jurisdictions; they think that if the association doesn’t adopt city ordinances, the association is somehow breaking the law. Boards enforce HOA rules and cities enforce their own ordinances. Unless the ordinance states otherwise (see mobilehome laws below), an association is not obligated nor is it authorized to be the enforcement arm of the city. If an owner violates the city’s anti-smoking ordinance, someone notifies the city and the city orders the person to cease violating its ordinance. If the association’s CC&Rs have a provision that any violation of a local ordinance is deemed a violation of the nuisance provision of the CC&Rs then the association can go after the person, but it does so as a violation of the CC&Rs not as a violation of the ordinance.

Mobilehomes. If an HOA is a mobilehome park, the park is under the jurisdiction of the Department of Housing and Community Development. HCD’s health and safety regulations do not permit free-roaming pets in mobile home parks, including cats, although I bet few mobilehome parks observe that portion of the regulation. In my experience, HCD will levy fines against the mobilehome park as well as the individual depending upon the violation. -Shelly D.

RESPONSE: You are correct. Mobilehome parks, in addition to the Davis-Stirling Act, fall under “Mobilehome Residency” laws. As such, mobilehome park operators are required to inspect their parks for loose domestic animals. “Dogs or other domestic animals, and cats (domestic and feral) shall not roam at large (free) in the park. Lots and park areas are to be maintained reasonably clean of domestic animal waste.” (Mobilehome Park Inspection Operator Information Booklet, p. 6, ¶ 5.) The requirement is based on Title 25. Housing And Community Development, Mobilehome Parks and Installations Regulations §1114.

Rewarding. I think it’s very rewarding being on the board, not thankless at all. To think you have the trust of your fellow homeowners to make careful decisions for them is a reward in itself. I wish more good people would get involved. I personally love it! -Mary J.

RESPONSE: If I could clone you, I could make a fortune renting you out to HOA boards around the state.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Feb 10

QUESTIONWe live in a condo complex. One of our members has his unit filled to the ceiling with all kinds of debris, mostly combustible. According to our management company the HOA can do nothing to get him to clean up his unit and put it in a safe condition. Only after something happens in the unit, such as a fire, can anything be done. Is this correct?

ANSWER: No, you don’t have to wait for a fire. Addressing the issue, however, will be difficult and may require litigation depending on whether the person is a hoarder or merely a poor housekeeper.

Poor Housekeeping. The courts have already decided that associations cannot expect judicial relief if someone is merely a poor housekeeper. One association inspected an owner’s unit and found it in disarray. The board demanded that he cease using his downstairs bathroom for storage, clear his bed of all paper and books, remove boxes and papers stored in his unit, and remove all clothing he had not worn in the past five years. Books that were considered “standard reading material” could, however, remain in place. The matter ended up in court.

Although the association claimed the clutter was a fire hazard, the fire department disagreed and so did the court. The judge scolded the association for its “high-handed attempt to micromanage” the owner’s personal housekeeping. “Particularly galling” to the court was “the presumptuous attempt to lecture Cunningham about getting rid of his old clothes, the way he kept his own bedroom, and the kind of reading material he could have.” (Fountain Valley Chateau Blanc v. Dept. of V.A.) The lesson from the case is that the clutter in a unit must represent a true health and safety issue before an association can take action. Such is the case with hoarders.

Hoarders. Hoarding is a mental illness sometimes referred to as “Collyer Syndrome” after two brothers who lived in Harlem in the early 1900s. They were compulsive pack rats who collected junk for decades. Both were found dead in their 4-story brownstone surrounded by 140 tons of junk and debris. (See Wikipedia article.) As it was with the Collyer brothers, hoarding can be life-threatening not only to the hoarder but to other residents in a condominium development.

The debris in a hoarder’s unit will attract and breed roaches, ants, silverfish and rodents that then spread to the common areas and other units. In addition, the damp, unsanitary conditions become a breeding ground for mold and bacteria that migrate into common area walls and HVAC ducts. Finally, the mountains of debris in a hoarder’s unit become a fire hazard. If the association becomes aware of the problem and does nothing, it can be liable for damage to surrounding units and health injuries to other residents.

Inspecting the Unit. A board might learn of a hoarder’s presence when tracking down a water leak, looking for the source of insects or from complaints of foul odors. When such problems are traced to a particular unit, the association has a duty to investigate. All condominium CC&Rs have (or should have) an inspection provision allowing the association to enter a unit to inspect and repair the common areas surrounding a unit.

If the suspected hoarder grants access, the person making the inspection should be accompanied by a witness to guard against claims by the hoarder of harassment, theft, damage to property, etc. The witness can also help document (and testify to) the condition of the unit.

More often than not an inspection request will be denied. The person either knows he has an illness and wants to hide it or, worse, the sickness has reached a level where he is paranoid the association will steal his treasured possessions. If access is denied, a disciplinary hearing should be held and daily fines levied to encourage cooperation by the hoarder. If the hoarder continues to block access, a court order may be needed.

Public Agencies. If the inspection reveals health and safety hazards, the condition of the unit will need to be thoroughly documented (preferably with photographs). Demands can then be made to clean the unit. A hoarder’s sickness will often prevent him from complying with the demand. At that point, city/county health services and the fire department should be contacted. Public agency documentation of the conditions in the unit will be useful if subsequent litigation is warranted.

Case Law. A hoarding case in Tennessee is instructive. The grossly unsanitary conditions and extremely offensive odors in a unit in the Windsor Tower Condominiums created a nuisance and posed a threat to the health and safety of other owners. One witness who had been allowed in the unit testified that “the odor was so strong and offensive that he had to cover his mouth and nose because it caused him to gag.” There was testimony of “rotten food on floors and furniture, cabinets covered in rotting food, and a bathroom with a buildup of scum and urine.” In addition, mold was growing on windows, walls and curtains.

The association became concerned about the airborne bacteria and mold circulating from the hoarder’s unit into the building’s shared HVAC system. After protracted unsuccessful attempts to resolve the problem, the association filed suit. The CC&Rs had a provision that allowed the association to take possession of the unit and sell it. Accordingly, the board sought judicial sale of the condominium.

The court ruled for the association. It held that a forced sale of the unit was appropriate because of “Ms. Harris’s continual denial that any odor existed, the Association’s repeated and generous efforts over more than a year to help remedy the problem, Ms. Harris’s continuing failure to remedy the situation, and the gravity of the nuisance created by Ms. Harris and its impact on the other residents.” (4215 Harding Road HOA v. Harris.)

RECOMMENDATION: Our firm is currently working with two associations with hoarder problems. Because hoarding is an illness, associations cannot expect a quick, inexpensive solution when it discovers a hoarder in their midst. Accordingly, they should budget for extra legal expenses since court intervention will likely be needed to force resolution.

LOOKING FOR LAWYERS

Adams Kessler PLC is growing. We are expanding our team of talented attorneys in our Los Angeles office.

The ideal candidate will have 5-10 years’ experience in community association or real estate law. Litigation experience is a plus. We place a high value on writing skills and the ability to interact with people. Please contact Adrian Adams by email or at 310-945-0280.

FEEDBACK

Abstentions. We have directors who attend meetings with no knowledge of the topics being discussed because they do  not read their board packets. Can the rest of the board who are prepared to discuss and vote on issues ask the uninformed board member to abstain? -Bill C.

RESPONSE: Voting on issues without doing their due diligence can come back to bite directors who fail to take their duties seriously. Once elected or appointed to the board, directors become “fiduciaries” which requires a duty of due diligenceYou can always ask an uninformed director to abstain from voting but you can’t force him to abstain.

Cable TV. I thought the FCC banned bulk cable agreements. Didn’t you write an article about it in one of your newsletters? -Robert D.

RESPONSE: The FCC banned exclusivity provisions not bulk cable agreements. Exclusivity provisions prohibit members from using any other cable provider. The FCC deemed such restrictions anti-competitive and made them unenforceable. That means residents have the right to use another cable or satellite TV service if they so choose. Unfortunately, they still must pay for the service provided through the association even if they don’t use it. For more information, see Cable TV Exclusivity.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Feb 03

QUESTION: Can a board make owners use one company for cable/TV/phone, negotiate a contract (and rack up legal fees for review), and then add those costs to dues? Doesn’t each owner have the option of who should provide them with those services? And if the board can negotiate a contract for the entire project, doesn’t it have to go to a vote of the membership?

ANSWER: It depends on your governing documents. If they grant the authority to do so, your board can enter into bulk cable agreements without membership approval. Absent any authorizing language, however, the board must take it to a vote of the membership. This issue was litigated last year in Pennsylvania. The board of the River Park House OA entered into a contract with Comcast which required all residents to pay for cable so the entire association could obtain a substantial discount on the service fees. One of the members argued that (i) cable television was a luxury not a necessity, (ii) not everyone used the service and (iii) the board lacked authority to contract for the service. He refused to pay for the service and the association sued.

Proper Authority? The association argued that it had the best interest of its residents in mind when it contracted for the bulk rate. The court, however, was more interested in whether the association had the authority to do it. The court examined the association’s governing documents and found language authorizing the board to incur expenses related to “operations, health, maintenance and safety decisions.” The justices determined that cable television did not fit into any of those four categories. Although the board acted in good faith, it acted outside the scope of its authority and the court ruled against the association. (River Park House Owners Association v. Crumley 47 A.3d 870 (Pa. App. 2012).)

Necessity? One of the appellate judges dissented. He felt that “[i]n today’s real estate world, cable television and internet services are as much of a condominium necessity as general landscaping services and, therefore, the Council acted properly in levying the cable television minimum fees.”

COMMENT. I believe the result would be the same if bulk cable agreements were litigated here–a board would need authority either from the governing documents or by a vote of the membership before contracting for the service.

BOARD PROXIES

QUESTION: CC&Rs almost always state that only a member of the association can serve on the board of directors. However, I know of situations where board members have legal counsel draw up “power of attorney” documents that give a friend or family member the right to sit on the board, attend meetings, etc. Is that allowed?

ANSWER: No, it is not allowed. Directors cannot send anyone to attend board meetings and vote in their place–power of attorney or not. The Corporations Code is quite clear on this point:

“No director may vote at any meeting by proxy.” (Corp. Code §7211(c).)

Just as Nancy Pelosi cannot send a proxy to the House of Representatives in Washington D.C. to vote in her place, a director’s duty to personally attend board meetings and vote is nondelegable, i.e., it cannot be delegated or assigned to others. Doing so is incompatible with the deliberative nature of board meetings and a director’s fiduciary duty of due diligence. (Robert’s Rules, 11th ed., pp. 428-429.) If a director cannot attend a board meeting, he/she can attend electronically.

ETHICS FEEDBACK

Ethics Pledge #1. You seem to make a difference between an ethics policy and an ethics pledge. Aren’t they the same? -Robert J.

RESPONSE: An ethics policy, which I recommend, provides guidelines for how directors, committee members and managers should deal with situations involving conflicts of interest. An ethics pledge (the subject of last week’s newsletter) takes it a step further and requires directors to either sign or verbally pledge to follow the association’s ethics policy. One large association I represent has newly elected directors raise their right hand and take an oath of office before they can be seated. That is not the norm, most associations simply adopt an ethics policy.

Ethics Pledge #2. If we adopt an ethics policy now, won’t owners think we were acting improperly in the past? -Marilyn B.

RESPONSE: Ideally, they would applaud the board for establishing standards of conduct. But you’re right, no good deed goes unpunished and some will think the worst.

Ethics Pledge #3. My view of signing an ethics pledge or even having one is that it’s ridiculous. If you’re ethical you will be just that, signing or not, and if you’re not it doesn’t matter what you sign. -Gary S.

RESPONSE: I’m sure many will agree with you. Butin my experience, some directors are “ethically challenged” not because they are bad people but because their parents didnt take time to teach them the difference between right and wrong. It used to be we could count on our schools to fill that gap but not any more–they have enough trouble teaching kids how to read and write. Adopting an ethics policy helps directors know what they can and cannot do. They readily embrace the guidelines once they know what they are.

Ethics Pledge #4. Your article on an ethics pledge sparked some controversy in our association. Our board has rejected the concept of an ethics pledge as being extraneous and non-essential. Why in the world would a board member want to sign an ethics pledge in the first place? Any disciplinary action or legal action against a board member or the board as a whole is fully set forth in the bylaws. An ethics pledge gives no additional benefit to the membership–in my opinion. -R.B.

RESPONSE: Waiting for bad things to happen and then taking legal or disciplinary action is one way of handling ethics–wait until it breaks and then fix it. I prefer to avoid the problem altogether (if possible) by establishing ethics guidelines. It’s like flossing your teeth–it is not mandatory but it is a good practice.

Ethics Pledge #5. It’s funny how a code of ethics has become a hot topic all of a sudden. Is it just me, or does the fact that somebody refuses to sign a document stating they will abide by ethical behavior a slap in the face to every single person who put them into office? -Vicki M.

RESPONSE: I’m not sure I agree. Everyone who votes for their candidate for U.S. President seems pretty happy when they see him take the oath of office. HOA boards can, but don’t need to, take an ethics pledge. At a minimum, they should adopt an ethics policy.

BALLOT FEEDBACK

Handling Ballots #1. [On the issue of sending ballots to the management office to be held for the Inspector of Elections] Perhaps the real question is who has access to ballots? In our condo complex, members drop ballots into the mail slot in the onsite office door. Yet some believe that ballot tampering occurred in two ways:

1.  An onsite manager who was defrauding the HOA was rigging elections to prevent the election of directors he knew would ask too many questions.

2.  A director who was seeking re-election and had a key to the office “disappeared” the ballots of neighbors whom he believed had voted against him. -David S.

Handling Ballots #2. There is a problem with locked ballot boxes. If an owner casts two ballots, you won’t know which one was the first (and therefore the valid) ballot. We date stamp all envelopes when they come into our office. This can’t be done with a locked ballot box unless your front desk person, if there is one, date stamps all of the envelopes before they are inserted into the box. -Sue N.

Handling Ballots #3. I think the question was about handling the ballots, not opening them. We have the president of our association, who thinks he walks on water, up for re-election to the board sorting through the ballots before the election to see who voted and who didn’t. He walked into the office and took the ballot box into another office where the accountant was working and made his list. He did this twice. I this legal? -Sue T.

RESPONSE: Only one guy ever walked on water and he didn’t get re-elected; he got a crown of thorns. If your president wants to avoid a similar fate, he needs to avoid the appearance of impropriety. No board member should be going through ballot envelopes–especially not behind closed doors.

Abstentions: I can think of another instance when a board member should abstain from voting, and that is when they have no personal knowledge of the issue upon which they are voting. The example that first comes to mind is voting to approve meeting minutes when the member did not attend the subject meeting. Is this not the proper action for a board member in that situation? -Jerry F.

RESPONSE: That is a good example of when to abstain.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Jan 27

QUESTION: We have a board member who refuses to sign a rather benign ethics pledge. All the other board members signed it. This person voted to authorize the pledge but now refuses to sign it. What actions can the board or the membership take short of recalling this fool?

ANSWER: Adopting an ethics policy is something all boards should do. Even though directors cannot be forced to sign a pledge adopted by the board, the membership has a legitimate interest in knowing that a director refused to sign it. That means an article can be placed in the association’s newsletter listing which directors signed the pledge and which ones did not. Knowing which directors are ethically-challenged could affect members’ votes when it comes to recalls and reelections.

Bylaw Amendment. If you want to make ethics pledge mandatory, you need to amend your bylaws to make it a qualification for serving on the board. Then if nominees refuses to sign it, they cannot run for the board. Even if they mount a write-in campaign, they can be barred from serving regardless of the number of votes they might receive.

RECOMMENDATION: Boards should talk to legal counsel about drafting an ethics policy and appropriate language for a bylaw amendment.

HANDLING BALLOTS

QUESTION: A homeowner is under the impression that ballots cannot be handled by anyone other than the inspector of elections. We have them sent to the office but no one opens them until the day of the annual meeting. Is this okay or do all ballots have to be sent to the inspector at her home?

ANSWER: It is not uncommon to have the association’s management company or its onsite management office receive ballot envelopes on behalf of the inspector of elections. Some inspectors provide a locked ballot box which is placed in the management office. That way owners who want to hand deliver their ballots (in sealed envelopes), they can do so.

Designated Location. Because many inspectors operate with low overhead, they do not have an office outside of their home. For safety and security reasons, they do not want homeowners (who can get a little crazy at election time) showing up on their doorstep. Hence, they designate an alternative address as allowed by the Davis-Stirling Act:

The [ballot] envelope may be mailed or delivered by hand to a location specified by the inspector… (Civ. Code §1363.03(e)(2).)

Kept Unopened. If the ballots are mailed or delivered to the association’s management office, no person, including directors, employees or vendors, may open ballots prior to the time and place at which the ballots are counted and tabulated. That function is reserved to the inspector of elections who opens and counts them in public at a properly noticed open meeting of the board of directors or members. (Civ. Code §1363.03(f).)

COACHELLA VALLEY
BOARD MEMBER EVENT

On Wednesday, January 30, 2013, Adrian Adams will participate in Desert Resort Management’s annual “Board Member Event” at the Agua Caliente Casino Resort in Rancho Mirage. Speakers will include Larry Pothast, a nationally recognized expert in CID management, Esmael Adibi, a widely respected economic analyst and adviser, and County Supervisor John Benoit. See more about the speakers.

This is a great opportunity to learn about matters affecting homeowner associations in Coachella Valley. To attend, contact Jackie White at (760) 610-7708 or email her at RSVP@drminternet.com.

FEEDBACK

Tenants #1. I’m not sure I agree with your statement regarding whether or not a board has to allow a tenant to attend a hearing for a fine assessed against the owner, even though the fine is based on the tenant’s actions. -Greg M.

RESPONSE: An owner who is subject to disciplinary action has a right to defend himself. Since he was not present when the violation occurred, he has a right to bring a witness who was present—his tenant. Tenant’s are not automatically guilty just because they’re a tenant. In my opinion, refusing to allow the evidence would violate the owner’s procedural and substantive due process. I suspect a judge would agree.

Tenants #2. Only an owner (a “member”) has the right to attend board meetings. While it may be a good idea to allow a tenant to speak at a meeting, no one other than an owner has the right to attend. If an owner is to be fined for the actions of his tenant, it is appropriate for the board to present its evidence to the owner. The owner may then do his own investigation of his tenant’s actions. The board has no right to take any action against a tenant, only the owner may do that. -Robert B.

RESPONSE: It is true that only members have a “right” to attend disciplinary hearings but they also have a right to defend themselves. If they are restricted to repeating what their renter told them about the incident, the information is second-hand (called “hearsay”) and not as reliable as hearing it from the horse’s mouth. Allowing the tenant to attend gives the board an opportunity to ask questions and evaluate the truthfulness of the tenant’s testimony. Moreover, the mere process of going through a disciplinary hearing may be sufficient to cause a wayward tenant to follow the rules.

Abstentions #1
. Can you address the proper use of abstentions? Members of our board abstain when they don’t want to be on record as voting no. -Sandra S.

RESPONSE: All directors should cast votes on all issues put before them (including the president). That is why they are elected to the board. Failure to do so could be deemed a breach of their fiduciary duties. The only time they should not vote is when they have a conflict of interest, at which point they should recuse themselves from the discussion and from the vote.

Abstentions #2. I did not understand your comment that an abstention could be deemed a “no” vote. -Aaron C.

RESPONSE: “To abstain means not to vote at all.” (Robert’s Rules, 11th ed., p 45.) An abstention is a meaningless vote except that it can have the practical effect of a “no” vote since a motion may fail for lack of sufficient “yes” votes. Unless a greater number is called for in the articles or bylaws, a matter is deemed approved by the board if at any meeting at which a quorum is present at least a majority of the required quorum of directors votes in favor of the action. (Corp. Code §7211(a)8.) If five out of five directors attend a properly noticed meeting and two vote for a motion and the other three abstain, the motion fails (the same as if the three abstentions had voted no).


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Jan 20

QUESTION: If an owner is called into a hearing for the actions of a tenant, can the tenant join him at the hearing? Can the board refuse the tenant since the owner is the one being fined, not the tenant?

ANSWER: The board cannot prohibit the tenant from appearing with the owner. Even though the board will be fining the owner, the fines are because of the tenant’s behavior. Due process requires that the owner and tenant have a right to defend themselves. How can the tenant dispute evidence at the hearing if he is barred from attending?

DIRECTOR ABSTENTIONS

QUESTION: I have a question concerning abstentions at board meetings. We have seven board members. With six directors present at a recent meeting, three members voted yes, one voted no, one was absent and two abstained. Is the motion approved?

ANSWER: No, the motion is not approved. With six directors present, you needed a majority (four) to approve the motion. The two abstentions essentially acted as “no” votes since they were not “yes” votes. Because three is not a majority of six, the motion failed.

MORE ABSTENTIONS

QUESTION: We are a five member board with one vacancy. We are scheduled for a meeting when one of the four members will be out of the country, leaving three directors for the meeting. What happens if one of the directors abstains from voting on a issue–will the vote of just two directors carry the motion?

ANSWER: Yes the motion will carry. For a five-member board, a quorum is three. If three directors attend a properly noticed meeting, they can conduct business. To pass a motion they need a majority of quorum, i.e., two “yes” votes. It does not matter if the remaining vote is a “no” or an abstention; the motion carries two-to-one. This allows an association to function even when two directors are on vacation, sick or otherwise unavailable. This, of course, can lead to shenanigans. To avoid mischief, directors should attend all meetings even if only by telephone.

ORANGE COUNTY OFFICE

To better serve our growing Orange County client base, I am pleased to announce the opening of our new Irvine office.

     ADAMS KESSLER PLC
     18101 Von Karman Avenue
     Suite 330
     Irvine, CA 92612

For a list of all of our California offices, see offices. If your association needs legal assistance, you can call us toll free at (800) 464-2817 or e-mail us at info@adamskessler.com. We’re friendly, give us a call.

FEEDBACK

Squatters #1. We recently changed the key to our pool. To get a key you had to show ID that matched our owner list or a signed letter with picture ID of the owner. No ID, no key. Could you not change the building lock and require the same? -David A.

RESPONSE: Squatters, tenants and others can be denied keys to common area facilities as you described but not ingress and egress to their units. If they reside in a unit, you cannot block access. The trick is knowing who resides in a unit and who does not. If a person cannot show that he/she is a resident, you can deny them a key. That may lead to a legal confrontation but it will resolve occupancy issues.

Squatters #2. Your section on squatter’s rights was extremely helpful because we have a granddaughter and her boyfriend squatting in a deceased owner’s home. They live like animals and ignore requests to clean up their patio, etc.Attempts to contact other relatives have not been successful. It looks like we’ll have to wait until the lender forecloses and boots out the squatters. It’s too bad HOAs don’t have more rights and remedies in matters like this. -John A.

RESPONSE: Even though you can’t block access to the unit, you can suspend the granddaughter’s privileges (and her boyfriend’s). That may or may not be helpful depending on your association’s amenities.

Dogs #1. We prohibit dogs in all landscaping areas. We have had no challenge to this and those few who repeatedly violate the rules are called to a hearing and in some cases fined. -Joseph L.

Dogs #2. Are you seriously suggesting the use of tasers on owners and dogs??? SHAME SHAME SHAME! And no, I wouldn’t believe it was an attempt at humor. -Bryan S.

Dogs #3. Ha ha! I hope you mean tasering the owner and not the dog… The dog’s just doing its business. The owner had the choice to take the dog to the common area grass or not. -Kelly M.

RESPONSE: I agree with you, it’s not the poor creature’s fault. The dog doesnt know he can’t use the grass to do his business. The owner on the other hand…

Dogs #4. With all the talk about the distinction between hunting rifles and assault rifles it occurs to me that there is a difference between a dog as a companion and an assault dog. My next door neighbor has a dog that snarls viciously from a 2nd floor balcony at passing dogs on the sidewalk. Almost every night I can hear a growling confrontation in front of my building. An attack dog seems unnecessary and out of place in a condo. -D.H.

RESPONSE: Ditto your sentiments. Attack dogs and condos dont mix.

Religious Experience. Just wanted to wish you a happy new year and say that I read your column religiously. Thanks for all you do!! -Toni W.

Wonderful Person. You do a fabulous job of educating real estate agents in California. You are a wonderful person, keep up the good work!!! -Mary B.

RESPONSE: That’s what I keep telling my wife but she’s skeptical.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Jan 13

QUESTION: A longtime owner in her 80s recently died. Her son, a now and again resident and ne’er-do-well, is living in the unit. No maintenance fees have been paid since her death almost 6 months ago. The son is not on the deed and no probate has been filed. We are about to re-key the building. We will be giving keys to each owner of record. Our manager said we must give this squatter a key even though he has provided us with no documentation whatsoever because he is a “resident.” Do we have to give him a key?

ANSWER: Your manager is right. Both under the Davis-Stirling Act and landlord-tenant laws, an association cannot block access to the unit. As provided in the Davis-Stirling Act:

Except as otherwise provided in law, an order of the court…, an association may not deny an owner or occupant physical access to his or her separate interest, either by restricting access through the common areas to the owner’s separate interest, or by restricting access solely to the owner’s separate interest.(Civ. Code §1361.5.)

Landlord-Tenant. A similar provision can be found in landlord-tenant laws (Civ. Code 789.3(b)(1)) which includes penalties up to $100 per day if a landlord locks out a tenant. Even though your association does not own the unit, California courts have analogized associations to landlords and held them to the same standards. (Frances T v. Village Green.) If you re-key the building and refuse to provide a key to the ne’er-do-well, you would be locking him out of his mother’s unit. Whether or not he has a legal right to occupy the s unit is something for the courts to decide, not the board of directors.

Police & Courts. Calling the police to escort the son off the property is not an option since it is a civil matter not criminal and the police will refuse to get involved. Going to court to evict the son via an “unlawful detainer” action will also fail since the association is not the owner of the unit. In short, your HOA has all the liabilities of a landlord but none of the rights.

RECOMMENDATION: Your best bet is to lien the unit for delinquent assessments and foreclose. However, giving proper notice to the mother will be problematic (unless you know where she is buried). You will need to work with legal counsel to pursue the foreclosure.

NO DOGS ALLOWED!

QUESTION: Can the board make a rule not allowing dogs on common area grass?

ANSWER: I suppose they could but that would likely provoke a recall petition the next day. If someone were to challenge the rule in court, the board will have the burden to convince a judge the rule is reasonable. I would not bet the farm on that one. If the board is concerned about dogs relieving themselves on the grass, there are better ways to deal with the problem–fines, suspending privileges and tasers come to mind.

COST OF HOA
REMODEL PROJECTS

QUESTION: Are members of an association entitled to know the costs of a remodeling project or is this confidential?

ANSWER: If you mean your neighbor’s remodel project, no. If you mean the common areas, you have a right to review (i) contracts approved by the board for the remodel project, (ii) monthly financial statements that would reflect HOA expenditures, and (iii) financial records such as invoices and checks. (Civ. Code §1365.2(a)(2))

WHO CAN
CHANGE THE RULES?

QUESTION: Some owners insist that if we do not enact a rule they want, they will force the board to send a ballot to the membership for a vote. Can they force the board to place a rule change on a ballot or does it stop at the board level?

ANSWER: It stops at the board level. Only the board has the authority to adopt and amend rules. (Civ. Code §1357.130.) Members can, however, veto a rule if they follow the steps described in Civil Code §1357.140 but that is the extent of membership authority (unless the governing documents state otherwise). Although members can petition for a special meeting for any lawful purpose (Corp. Code §7510(e)), forcing a ballot to add or change rules is not within their authority. Indirectly, members can change the rules by electing board members who agree with their position.

MEMBERSHIP MEETING
MOTIONS

QUESTION: A ballot requesting a bylaw amendment is mailed to the membership prior to the annual meeting. At the annual meeting, ballots are counted and it is announced that the proposal failed. Can an amendment to the original proposal be offered at that time if a quorum is present?

ANSWER: If you mean revise the failed amendment and put it to a vote on the spot? No. The only thing you can do is have a show of hands on a recommendation to the board to send a revised amendment to the membership. If the board agrees, they can mail out a new amendment together with a ballot for approval. The reason the failed amendment cannot be revised and approved on the spot is that voting must be by secret ballot with a minimum 30-day voting period. (Civ. Code §1363.03(b)&(e))


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Dec 16

This was a busy year for legislation and case law. The most significant was the rewrite of the Davis-Stirling Act. To review all the new laws, see 2012 Summary with links to bills, code sections and cases.

I would like to say that no more regulations will be imposed on common interest developments next year but legislators are like drug addicts–they can’t help themselves. A number of new bills have already been introduced and are being tracked by Skip Daum on behalf of the Community Associations Institute. In addition, the CLRC is proposing clean-up legislation for the Davis-Stirling rewrite. I will report on all of the good, bad and ugly bills in future newsletters.

RENT RESTRICTION
ON INHERITED PROPERTY?

QUESTION: Our board will discuss rent restrictions at our next meeting. One restriction would be a 2-year restriction on leasing after purchase. The other, inherited property cannot be rented for two years. Does 1360.2(c) protect inherited property so my son could rent my home since he is not 55+ and cannot live in the community at this time (should I die today)?

ANSWER: A two-year restriction on buyers renting their units is a good restriction. I’ve been using one for almost twenty years which has been very effective in keeping rentals low. This particular form of restriction offers the same benefits of a rental cap without the problems associated with strict rental ceilings.

Benefits. The chief benefit is that it discourages investors from buying units since they would have to wait two years before they could turn the unit into a rental. As a result, your association gets buyers who want to make your community their home. Owner-occupants are more inclined to take care of their property, follow the rules and volunteer to serve on committees and boards. Investors and tenants, on the other hand, are not predisposed to take care of their property, follow the rules or volunteer their time to improve the community.

Noncontroversial. By restricting buyers rather than existing owners, the restriction satisfies Civil Code §1360.2 which prohibits the implementation of new rent restrictions against current members. Buyer restrictions give present owners the flexibility to rent their units should they need to. It has been my experience over the past twenty years that a two-year restriction on new owner leasing stabilizes the community and protects property values. It allows rentals to reach a natural level in the 5% to 7% range–a more than acceptable level for a community.

55+ Community. Your son’s ability to install tenants after you die (may that be in the distant future), will depend on how the restriction is written. I’ve drafted restrictions for associations where they made no exception for inherited properties. In those cases, the person inheriting the property would have to sell the property (or leave it empty for two years if he wanted to lease it out). I’ve had other associations adopt language that allowed inheritees to rent out the property. Most of my clients have opted for language that discourages the conversion of inherited property into rentals. Your membership will have to decide which of those options is best for your community.

RECOMMENDATION: Associations who want to keep renter populations low should consider adopting restrictions described above. Associations can contact us for more information.

NO BOARD,
NO ASSOCIATION?

QUESTION: If all quit, there is no board. It would appear there is no association. Nothing to ask permission for. Nothing more to do. We are no longer.

OBSERVATION: You wouldn’t stand a chance as a contestant on the Jeopardy game show–you’re supposed to put things in the form of a question. Let me restate what you said, “If everyone on the board resigns, does the association cease to exist?”

ANSWER: No, the association does not cease to exist. All of the association’s statutory and governing document duties remain. All that happened by your board’s mass resignation is that your association’s liabilities are now on an upward trajectory. Somebody better notify the association’s insurance carrier and then quickly sell and get out before unpleasant things hits the fan.

CAN BOARDS REMOVE COMPONENTS
FROM THE
RESERVE STUDY?

QUESTION: I’m on our board and we just completed reviewing our reserve study. There are items on the list with a life that equals or exceeds the estimated life of the buildings. We wanted them removed, but the analyst refused. Doesn’t our board have the authority to remove components?

ANSWER: Not really. That’s like asking an attorney to change his legal opinion because the board disagrees with it. Or telling a CPA to change his audit report because directors don’t like what he found. A reserve specialist is a professional who prepares a report based on his own observations and calculations–it’s his report to the board.

Adjustments. Accordingly, boards have no “right” to dictate changes to an independent professional’s report. However, adjustments can be made to draft opinions/reports by attorneys, CPAs and reserve specialists if the adjustments are reasonable and the professional agrees. For example if something is unclear or is missing and needs to be addressed by the professional, it can be included in the final report.

Funding. Although reserve specialists establish the list of major components, the board can choose not to fund particular items if it complies with Davis-Stirling disclosure requirements, i.e., the report must disclose:

Whether the board of directors of the association has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement. (Civil Code §1365(a)(3)(A))

Accordingly, a reserve study could list components in the inventory and then eliminate them from funding calculations with a note that funding was removed at the board’s request.

30-Year Plus Life. Including components in the Study with useful life of over 30 years with no funding creates a “marker” for future inclusion in the funding plan when the life expectancy falls below 30 years. This is especially important when it comes to plumbing systems since they are hidden in walls and frequently overlooked by boards–until they fail and large special assessments are needed.

Thank you to Scott Clements, RS, PRA, CMI of Reserve Studies Inc. and Robert M. Nordlund, PE, RS of Association Reserves, Inc. for their input on this question.

FEEDBACK

HOA Owned Unit. Regarding reserves on a unit owned by the association, the questioner in last week’s newsletter wanted to know if the value of the owned unit could be counted in the percent funded calculation. Civil Code section 1365.2.5(a)(6) says that only cash may be used to make the percent funded calculation. Not only is the association-owned unit not part of the percent funded calculation but it also is not part of the funding model. Any anticipated rental income from that unit, though, could be included as part of the reserve funding if it is the board’s decision to do this (and not to use the money to offset operating expenses).

As to the income tax issue upon sale of the unit, there are differences of opinion here. There are two different positions: if the association is going to file Form 1120H, then the gain on the sale of the association-owned unit is going to be subject to tax. However, if the association is going to file Form 1120 then, I believe, the gain is from a membership transaction and not subject to tax. -William Erlanger, CPA, Levy, Erlanger & Company, CPAs.

As the year draws to a close, our thoughts are filled with gratitude towards all of our clients who make our law firm possible. We want to take a moment and let you know how much we appreciate your business and look forward to working with you in 2013.

May you and your families have a beautiful holiday season and the new year be filled with peace, prosperity and happiness. Happy Holidays from all of us at Adams Kessler PLC: Aide Ontiveros, Karen Jacobs, Jasmine Fisher, Larry Stirling, Adrian Adams, Gary Kessler, Tina Chu and Azadeh Saghian.

Merry Christmas and
Happy New Year!


Adrian J. Adams, Esq.
Adams Kessler PLC

“Legal solutions through knowledge, insight and experience.” Our lawyers are friendly; if your association needs legal counsel, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Dec 09

QUESTION: The board wants to tent our entire building for termites. Is this a capital improvement that requires the entire association’s vote? If the cost is under 5% of the annual budget, is membership approval required since this is common area?

ANSWER: Termite tenting is not a capital improvement. It is a maintenance/pest control issue. The form of treatment,spot or tenting, is a business decision for the board to make, not the membership or the courts. Lamden v. La Jolla Shores. Regardless of whether the repairs are related to the common areas, the board can approve a special assessment on its own authority for up to 5% of the current year’s budgeted gross expenses. Civil Code §1366(b). If the cost is more than 5%, the board can impose a special assessment if the termite treatment is an emergency.

RESERVES FOR
HOA OWNED UNIT?

QUESTION: Our association has done a reserve study and now is taking the necessary steps to increase the reserves. The association owns one of the units free and clear and rents it out. The unit is worth over $500,000. Shouldn’t this count toward the reserve account?

ANSWER: The $500,000 estimated value of the unit can be included in the HOA’s balance sheet but not in its reserve funding calculations. Assuming the unit is a condominium, there is very little that needs to be reserved for inside the unit–carpet, cabinets and maybe painting. Depending on the size of your budget, most items in the unit will be addressed through routine annual maintenance.

Property Taxes & Insurance. Non-reserve items that are sometimes overlooked are the need to insure the unit and pay property taxes.

Separate Interest. If the unit was acquired through foreclosure, it will have a parcel number. In that case, property taxes must be paid and a separate general liability and property insurance policy purchased for the unit.

Common Area Unit. If the unit is part of the common areas, then property taxes are not an issue. That happens most often when a “manager’s unit” is created by the developer and included in the common areas. Accordingly, the unit is covered by the association’s insurance. However, boards should not assume it’s covered–they need to verify it.

Taxable Income. Rent money collected from the unit is subject to taxation as non-dues income. In addition, when the unit is sold the association will incur transaction costs and pay taxes on any gain on the sale. The gain on this asset sale produces “non exempt function” income, which is taxed at ordinary corporate rates. These rates go up to 35% for federal and 11% for California. There is also a “basis” for gain or loss issue to resolve when the unit is sold. Therefore, the net realizable value may be substantially less than $500,000.

Thank you to Donald Haney, CPA, MBA, MS(Tax) of haneyinc and Scott Clements, RS, PRA, CMI of Reserve Studies, Inc. for their input on this question.

NO QUORUM
FOR PAST FOUR YEARS

QUESTION: I have been a board member three times. The last four years our annual election was held by mail. We never had a quorum. Do we need a new election or can we count the original ballots at the next meeting?

ANSWER: Sorry, you cannot carry over ballots from year to year until you get enough to hold a meeting. Ballots count for the election for which they were noticed (and any adjournments of that year’s meeting). Consequently, you need to issue a new notice and new ballots for each annual election.

ELECTRONIC
CONSENT FORMS

QUESTION: I know that owners must sign a “consent form” before the association can electronically send documents. If we make these documents available on a website and only send owners an email notice that they are available, do we still need a signed consent form?

ANSWER: Documents can and should be posted on your website so owners can download them as-needed. However, whenever documents are required by statute to be distributed to the membership (budgets, year-end disclosures, annual financial statements, etc.) you will need an unrevoked consent on file if you want to either distribute them electronically or post them on the website in lieu of distributing them.

RELEASE OF
ASSOCIATION RECORDS

QUESTION: Our Reserve Study Committee needs to look at old records, especially ones our old management company turned over to the current one some 7 years ago. The current management rep told our board president he can’t let those out of the office. Don’t HOA records belong to the HOA and doesn’t the HOA have the power to say where and when the records are kept?

ANSWER: I’m not sure why you need 7-year old records to prepare a reserve study. What you need is a reserve specialist to (i) visually inspect your development’s major components, (ii) establish an estimated remaining useful life for each component the association is required to maintain, (iii) set a replacement cost for each component, (iv) calculate interest and inflationary offsets, (v) sprinkle a little pixie dust on it and produce a reserve study/funding plan that can be used by the board as a guide to properly fund the reserves. (See Reserves Menu.)

Records Oversight. When a managing agent is entrusted with the association’s records, industry practice is to NOT allow them out of the management office because they can be lost, damaged, destroyed or altered. Accordingly, neither board members nor committee members have the right to remove records from the management office. Only the board as a whole has the power to authorize the “borrowing” of original records. Even so, letting originals out of the office is a bad practice. The better practice is to allow records to be reviewed in the management office or to make copies. An exception is during litigation when original records need to be sent to the association’s legal counsel for review and possible production to opposing counsel.

FEEDBACK

Fines #1. In response to “Fine on Fines,” our HOA has wording in the fine schedule that all fines will continue monthly until the member is in compliance. Not another fine on top of a fine, but a way to keep homeowners accountable. -Kaye

RESPONSE: I agree. A daily, weekly or monthly fine imposed for a continuing violation is not a fine on a fine. Ongoing fines can be effective when used in a “carrot and stick” approach to the violation. In other words, fines accumulate daily but will be waived if the violation is cured in an appropriate time period set by the board. If the violation is not timely cured, the fines are not waived and the association then takes legal action to bring the person into compliance.

Conversion Charts. THANK YOU for your and your staff’s hard work! The double cross reference to the “new” to “old” Davis-Stirling Act is a godsend. I only hope our association board and property manager appreciate it as much as I. Thank you, again. -Bruce S.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” When your association needs legal assistance, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share
Dec 02

QUESTION: Is it legal to fine someone twice on the same violation if they refuse to pay the first fine and have remedied what the fine was for in the first place?

ANSWER: The imposition of monetary penalties requires due process, which must be done in accordance with the association’s published fine policy. I’ve never seen language in any governing document that allows a board to levy fines on unpaid fines or two fines on a single violationIf your board had a written, published policy that allowed for fines on fines, I suspect a court would find it unreasonable.

Board Options. If an owner refuses to pay a fine, boards have two options. The first is to take the person to small claims court for a judgment in the amount of the fine. This approach is not always successful–small claims judges are a bit unpredictable. The second option is to hold a hearing and find the person “not in good standing” and suspend their privileges and voting rights until the fines are paid.

RECOMMENDATION: Boards should have their association’s legal counsel review their governing documents and advise them on how best to levy and pursue monetary penalties.

DAVIS-STIRLING REWRITE
FULLY INDEXED

Thanks to my Office Administrator Laura Whipple, the rewritten Davis-Stirling Act has been divided into individual pages, reformatted and fully indexed with titles for easy reference.

In addition, page-to-page links have been added so you can easily move between “next” and “previous” sections in the new Act.

Laura is also adding internal statutory links to each page as well as cross-links between the old and new. The cross-linking should be completed in the next week or two. You can find the Rewrite Index on our website at Davis-Stirling Rewrite.

RESIGNATIONS
AND APPOINTMENTS

QUESTION: Our board president resigned because he sold his home and moved. He had more than one year remaining on his term. Our treasurer, who is up for election this year, resigned his seat and was appointed by fellow directors to fill the seat vacated by the president and assume the remaining year of his term. Is this allowed?

ANSWER: Yes, it’s allowed. The Corporations Code and most bylaws authorize the appointment of replacement directors whenever there is a vacancy on the board. There is nothing illegal or improper when a board appoints an existing director to fill the longer term of a resigning director. Term limits might preclude the appointment depending on how the restriction is worded.

FEEDBACK

Borrowed Reserves #1. Can a board use reserve funds designated for a particular line item in the reserve study for another reserve item if it needs attention immediately? If so, do funds have to be paid back?-Linda D.

RESPONSE: Monies can shift between line items in a reserve account. It is normal to make adjustments from year to year to reallocate funds to cover items that fail prematurely or cost less to repair than was anticipated. For example, if a boiler fails in year eight instead year ten as projected by the reserve study, funds can be shifted from other line items to cover the unexpected early expense. Or, if a pool heater replacement ends up costing half the projected cost, the left-over funds can be assigned to other reserve line items. Such reallocations are not unusual.

Major Expense. In the example I gave last week, the reserves were wiped out by a large unexpected, unreserved for item. The $400,000 expense I gave was not a minor adjustment–it was a complete depletion of the reserves. The unexpected and unreserved major expense is better addressed through an emergency special assessment. Or, in the alternative, “borrowing” from the reserves and using a combination of regular and special assessments to accelerate replenishment of the funds.

Consequences. An unplanned emptying of the reserve account will clearly have consequences. Per statute, the association will have published a reserve summary that showed $400,000 allocated for plumbing, painting and paving expenses–those expenses do not go away just because a roof emergency intervened. They will hit at some point with no monies to pay for them. Accordingly, the prudent course of action is to replenish the reserve funds. Some reserve specialists have weighed-in on this topic. See their responses below.

Borrowed Reserves #2. We keep track of the major repair and replacement components at the individual component level as part of estimating the overall obligation. But the investment portfolio is handled as a pool of money. There is no “roof” money or “painting” money. It would be like having a bank account for every line item of revenue and expense. What is really going on here is that associations levy assessments sufficient to perform its duties. The annual assessment level is designed to handle the year’s estimated routine operating expenses and to charge current owners a sufficient amount that covers the “annual wearing out cost” of common area major components that the association is contractually (CC&Rs) and legally (California law) obligated to maintain at an known and ascertainable standard. Acquiring and managing the investments is a mutually exclusive process from estimating what money you need to meet current and future cash flow requirements and deciding who pays for what when. It is a more technical conversation, but that is the essence of the matter. -Donald Haney, CPA, MBA, MS(Tax), haneyinc

Borrowed Reserves #3. Assuming monies are set aside for the items you mentioned, however, for some reason, the roof is not included in the reserve study, and therefore no monies had been set aside for their replacement, the monies in the reserve fund can still be used for replacement of the roof. It’s all one bucket of money and it can be used to replace components the association is obligated to repair, replace, maintain or restore. My rational is:

1.  Is the component the responsibility of the association?
2.  Is the component in need of replacement?

Assuming yes to each, why would an HOA have to borrow its own money to replace a component it is responsible to replace? The fact that the component was excluded from the reserve study [error by the preparer or believed to be 30+ remaining life] is irrelevant to the responsibility and needs of the association. The monies are set aside to maintain the facility, the reserve study is simply a tool to help identify and estimate the costs to do so. There will inevitably be costs to maintain a facility that are unforeseen, limiting the HOA’s available resources to the items specifically identified in a reserve study seems imprudent. -Scott Clements, RS, PRA, CMI, Reserve Studies Inc.

Borrowed Reserves #4. On the subject of reserves and borrowing, we define an appropriate reserve project as meeting the National Reserve Study Standards four-part test, meaning the component/project is:

1.  A common area maintenance responsibility,
2.  Life limited (expected to realistically occur in the future),
3.  Predictable (not randomly occurring), and
4.  Above a minimum threshold cost (often in the .5% to 1% of annual budget range).

There are three primary reasons why an association may be in a situation to overspend from reserves: the expense is higher than expected, the expense is earlier than expected, or the expense wasn’t anticipated. All three demonstrate the need to update the reserve study regularly, learning from experience to make the reserve component list better and more accurate each year, and helping board/management know the reserve contribution needs of the association.

Realistically, those reserve contribution needs of the association will likely increase the year after reserves have been overspent as the reserve strength of the association needs to be rebuilt! In those cases I believe a special assessment may be necessary due to cash flow issues, but I don’t believe a special assessment or “repay within 12 months” is automatically triggered. -Robert Nordlund, PE, RS, Association Reserves, Inc.

Alligators #1. How far do you go with the visual blight that an excess of signage creates? Do you warn against all wild mammals that could carry rabies – squirrels, raccoons, feral cats, bobcats, mountain lions, coyotes, etc? Do you warn of stray dogs that might be off lead? How about black widows, brown recluse, and bedbugs? This list goes on ad infinitum and ad nauseam. Someone needs to come up with a sign at the gate that says, “WARNING: There are things in life that can hurt you.” -Jim S.

RESPONSE: Don’t forget to include rabid lawyers.

Alligators #2. Regarding the article about the unfortunate episode of the alligator eating a human and a subsequent lawsuit: We don’t have any alligators but we have members of our HOA who have engaged in 2 verbal assaults and one physical assault on other members. Do we need to let the membership know about this pattern of behavior, both for the protection of individuals and the protection of the board? -Lolly S.

RESPONSE: Human alligators? Warnings should be plastered all over the common areas. But you better check with legal counsel on this one, he/she might not agree. (Problem residents are particularly difficult to deal with and your options are limited. You should get your association’s attorney involved. Personally, I would rather deal with real alligators than the two-legged kind–it’s a lot easier.)

Commercial Signage #1. Your November 18 Newsletter stated, “A homeowners association is not a governmental entity–it is a private organization with private restrictions, which means the First Amendment does not apply.” I thought federal law would always apply, even within the confines of a private organization. -Richard A.

RESPONSE: Not so. The First Amendment states that “Congress shall make no law….” Accordingly, the Bill of Rights protects citizens from governmental restrictions, not private ones. Thus, businesses and owners of private property can restrict the activities of others in their employ or on their property. That’s why an employer can fire someone for giving political speeches or handing out fliers in the workplace or posting racist or homophobic slurs on Facebook. When it comes to homeowners associations, they can adopt restrictions on signage in their developments and restrict speech in their meetings.

Commercial Signage #3 Our association of 647 detached homes does not allow any commercial signage except for real estate sale signs which are controlled. Our rules also state that “commercial vehicles” owned by residents or their guests may not be parked overnight in private driveways or in guest parking spots. -Tom M.


Adrian J. Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” When your association needs legal assistance, contact us at (800) 464-2817 or info@adamskessler.com.

Bookmark and Share