Epsten, APC

By Susan M. Hawks McClintic, Esq.

The new law effective January 1, 2019, which will likely have the greatest impact on most community associations is AB 2912 addressing association finances.

AB 2912 adds or amends Civil Code sections 5380, 5500, 5501, 5502 and 5806.  These new laws add the following requirements:

1. Associations must maintain fidelity bond/insurance coverage in a minimum amount equal to or exceeding current reserves, plus three months of assessments. The association’s fidelity bond/insurance must include computer fraud and funds transfer fraud. If the association uses a managing agent or management company, the association’s fidelity bond coverage shall additionally include dishonest acts by that person or entity and its employees.
2. Any transfers greater than $10,000 or 5% of an association’s total combined reserve and operating account deposits, whichever is lower, are prohibited without prior written approval from the board.
3. The board must review various financial documents and statements on at least a monthly basis rather than quarterly. These documents and statements include the check register, monthly general ledger, and delinquent assessment receivable reports. This review requirement may be met when every member of the board, or a subcommittee of the board including the treasurer and at least one other board member, reviews these documents and statements independent of a board meeting if the review is ratified at the board meeting subsequent to the review and that ratification is reflected in the minutes of that meeting.

By Susan M. Hawks McClintic, Esq.

*As published in Quorum Magazine, March 2017

Attorney Susan Hawks McClintic from the law firm of Epsten, APC presented “What You Need to Know About Short Term Rentals” at CAI-CV’s February 10, 2017 Educational Program Luncheon and Mini Trade Show.  The following is a summary of the portion of the presentation regarding what to consider about short term rentals and your community association’s governing documents.

Do you know your community and what it wants?

The Los Angeles Times reported in “Coachella by the numbers: a breakdown of the festival’s $700-million impact” (April 22, 2016) that an estimated 9,000 renters were expected to stay in Airbnb homes during the 2016 Coachella and Stagecoach Music Festivals, which was double the amount of people from 2015.  Consequently, real estate sales outlets are marketing to investment home buyers the profitability of renting out their residences as short term rental properties.  Promotions include the lucrative rental income possibilities during the Coachella Valley festival season.  And more and more of those investment home buyers are purchasing real estate here for the very purpose of increasing income by renting out their residences as short term rental properties.  An impact of this trend is that long term single family rental properties are becoming more and more scarce.

As these music festivals and other events grow in popularity and frequency and the market of available short term rental properties increases, the frequency and variety of issues/problems for local community associations related to short term rentals will surge.  Consequently, the time is now for Coachella Valley community associations to “take the temperature” of their community to determine whether prohibiting or allowing short term rentals is in the best interests of their community as a whole.  Some fundamental questions to ask to arrive at an answer are:  What is the make-up of the membership in the community? – Long term residents, Snowbirds, Rentalpreneurs? What are the common complaints the board of directors or the community manager are hearing from your membership? What do the majority of the homeowners in the community want?

Once the will of the community is known, the next step is to review the association’s governing documents to confirm that the language in these documents gives the community the ability to effectuate the community’s goals regarding short term rentals.  No matter whether the community wants to eliminate, restrict, or allow short term rentals, the governing documents should at a minimum contain language which gives the association the needed tools to lessen any negative impacts of short term rentals upon the community.  If your own association’s governing documents are lacking in this department it may be time to amend them.

Do your CC&Rs allow, prohibit or restrict short term rentals?

Community associations need the authority to allow, restrict, or prohibit short term rentals.  The document which grants the association this authority is the CC&Rs.  CC&Rs can allow short term rentals either by express language or silence.  Conversely, prohibitions or restrictions of short term rentals must be expressly written into the CC&Rs.  Unfortunately, not all CC&Rs contain clear, express language (i.e. “no owner shall rent their unit/lot/dwelling for less than thirty (30) consecutive days).  Most commonly associations are forced to rely on older documents containing broad prohibitions such as “each separate interest shall be used for residential purposes only” or “the separate interests shall not be used for transient or hotel occupancy purposes.”  But what does “residential purposes” or “transient or hotel occupancy purposes” mean?  The first place to look for a definition is the rules and regulations.  If the rules and regulations fail to offer any guidance, the association can adopt a rule that provides a definition.  Another option is to define what a transient use is or what a residential purpose isn’t by looking at the city’s municipal code regarding short term rentals and occupancy.  A strong argument can be made that if a homeowner needs to obtain a business license or permit from the city and/or pay transient occupancy tax to the city, then the residence is not being used for a residential purpose and is actually being used in a manner that is akin to a hotel or business use.

Do your CC&Rs Have Sufficient Nuisance Provisions?

Nuisance and/or harassment CC&Rs provisions are important tools an association has to lessen the negative impacts short term rentals can have in a community.  Be sure, however, that the language of these provisions is broad enough to cover those impacts.  To make this determination you need to examine the typical issues/problems your association experiences with short term rentals. For example, noise complaints, trash issues, or trespassing problems.  Next, does the language of your CC&Rs nuisance and harassment provisions cast a wide enough net to cover these common complaints?  If the answer is “no,” then amending your nuisance and/or harassment provisions is in order.  An example of a broad nuisance provision is: “No one may engage in any type of harassment, illegal, noxious or offensive activity towards any owners, residents, association representatives, management representative, board members and/or vendors working in the community.”

Do you know your rules and regulations?

If your CC&Rs do not outright prohibit short term rentals, but rather allow them with or without restrictions , then your association needs to determine whether it should adopt rules to further regulate them.  However, there is a caveat.  Rules and regulations do not have the same presumption of reasonableness that is accorded to recorded covenants.  You are probably thinking, “Ok, so what?” If rules and regulations are unreasonable that means they are not valid and, therefore, unenforceable.  In order to have a chance of overcoming judicial challenge, the association must adopt rules that are reasonable and not arbitrary and capricious.  What is “reasonable” you ask? Who knows?  We do know what is considered “unreasonable.”  A rule is unreasonable if it is (1) wholly arbitrary; (2) a violation of fundamental public policy; and (3) imposes a burden on the use of the affected land that far outweighs the benefit. Sui v. Price (2011) 196 CA4th 933.  Besides making sure that the rules and regulations you adopt are reasonable, you also need to make sure that the CC&Rs give the association the authority to implement rules over the entire community and not just the common area.  If your association’s CC&Rs contain limited rule making authority, any rule the association adopts regulating an owner’s use of their residence will be unenforceable.

Does your fine schedule contain appropriate fine amounts?

Are the fine amounts in your fine schedule high enough to deter behavior that would violate the short term rental restrictions/prohibitions?  Remember that fines should be used as a deterrent rather punitively.  The purpose of fines is not to make money for the association.  However, to be a deterrent the fine amounts must be reasonably high because if the fine amounts are too low, then a landlord homeowner will consider the payment of a fine as the cost of doing business.  So what fine amount is high enough to be considered reasonable, yet also be an effective deterrent?  A strong argument can be made to support the idea that the fine amount should be the equivalent amount a homeowner would have received if they rented out their house in violation of the prohibition or restriction.  A deterrent is something that discourages or restrains someone from acting.  If a fine would prohibit an owner from making any sort of profit from renting out their home in violation of the governing documents, that is a great deterrent.  Consequently, if a homeowner can rent out their house during Coachella for $5,000 a weekend, then the association should consider writing into its fine schedule language that states “a violation of the short term rental prohibition [or restriction] may result in a fine of up to $5,000 per violation.”

Do your rules and regulations have adequate lease and leasing requirements?

If your governing documents allow or even restrict short term rentals, then it may be helpful for your association’s rules to have lease and leasing requirements.  These requirements provide the association the information it needs from the landlord homeowners regarding their tenants to be able to enforce its governing documents and protect the interests of the other residents.

Some lease and leasing requirements include:

• Lease agreement must be in writing
• The landlord homeowner must notify the association of the following information in writing at least a certain number of days before the lease begins:
  • The names and contact information of all tenants
  • The make, model and license plate number of all tenants’ vehicles
• Copies of the lease must be provided to the association
• The association must be provided with the address and telephone number where the landlord homeowner can be reached
• Landlord must provide tenants with copies of the governing documents

Do your governing documents prohibit the advertising of short term rentals?

Does your association want to prohibit homeowners from advertising their homes as short term rentals?  Know that unless your governing documents specifically state that short term rental advertising is a violation of the governing documents, then advertising is only circumstantial evidence of a violation.  Having a specific fine amount for violating the advertisement prohibition that is high enough to deter homeowner landlords from violating this prohibition is also prudent.

Keep in mind that prohibiting advertising can be an administrative burden as it takes time for community managers to monitor the many various rental websites.  However, an association can always request that other homeowners help monitor these websites if they so choose as long as the homeowner can send screen shots or print outs of the prohibited advertisement to the association.

Do your rules and regulations sufficiently address parking issues?

Does your association have parking issues during the festivals?  If the answer is “yes,” then your association may want to consider implementing parking restrictions/prohibitions in an effort to combat those issues.  Just remember that the parking restrictions/prohibitions must apply to all residents in the community equally and not just the homeowners who are renting their homes out to short term renters. For example, if your community experiences increased traffic congestion and disruptive, late night noise during the music festivals, then adopting a rule which prohibits all parking on the community streets during the music festivals may be in order.

The issues that come with having short term rentals in one’s community are not going away any time soon.  Association communities will to continue to have to grapple with the problems that short term rentals bring.  However, if your association is pro-active in making sure that the governing documents contain the appropriate definitions, restrictions and requirements, your association should have the tools it needs to address most problems that accompany short term rentals.

By Susan M. Hawks McClintic, Esq.

Beginning January 1, 2017, a common interest development association or its authorized agent must provide notice to an owner and any tenant if a pesticide is to be applied to a separate interest or common area without using a licensed pest control operator.  Under certain circumstances, notice will also be required to owners and any tenants of separate interests adjacent to the area of application of the pesticide.

This new law is adopted as part of the Davis-Stirling Common Interest Development Act as Civil Code section 4777.  Landlords and licensed pest control operators are already subject to these notice requirements which will be extended to include common interest development associations.  The primary purpose of this new law is to apply the same notice requirements to pesticide applications by unlicensed pest control operators.

The definition of what constitutes a pesticide is very broad.  “Pesticide” for purposes of this law includes any substance that is intended to be used to control, destroy, repel or mitigate any pest or organism, including antimicrobial pesticides.  Spraying a can of pesticide purchased at a local store should be treated as a pesticide application for purposes of these notice requirements.

This law has a list of information that must be included in the notice such as the pests to be controlled, the name and brand of the pesticide and the approximate date, time and frequency of the application.  The law also requires specific wording of a cautionary statement regarding pesticides that must be included in the notice.

If the pesticide application will be to a separate interest, at least 48 hours’ prior individual notice must be given to the owner and any tenant of that separate interest.  If the application will be performed by broadcast applications (spread over an area greater than two square feet) or using total release foggers or aerosol sprays, the owner and any tenant in an adjacent separate interest that could reasonably be impacted by the pesticide must also receive the notice.

If the pesticide application will be to a common area, if practicable, notice must be posted in a conspicuous place in or around the common area in which the pesticide is to be applied.  If posting notice isn’t practicable, individual notice must be given to the owner and any tenant of a separate interest that is adjacent to the common area.

After receipt of the notice, an owner or tenant can agree to an immediate pesticide application.

If the pest poses an imminent threat to health and safety, the notice may be posted after the pesticide application.

A copy of the written notice provided to any owner and tenant must be attached to the minutes of the board meeting immediately following the application of the pesticide.

As you can see, these notice requirements are very detailed and must be carefully followed.  In my opinion, the simplest and best solution for most associations is to always use licensed pest control operators to apply any pesticides.