By Karyn A. Larko, Esq. ** This article was published on CACM’s The Law Journal– Fall 2024 Issue.
Updates on The Corporate Transparency Act as of 8/26/2024
*This article is an update to the version The Corporate Transparency Act (Updated on 2/1/2024)
The CTA & Community Associations
As a reminder, in an effort to enhance corporate transparency and combat money laundering, tax fraud, and other illicit activity, Congress passed The Corporate Transparency Act (CTA) back in 2021. The CTA will be enforced by the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury. FinCEN published the Small Entity Compliance Guide (Guide)[1] to help small entities comply with the requirements of the Beneficial Ownership Information Reporting Rule (Reporting Rule) issued on September 30, 2022.[2] Although the CTA applies to many types of small business entities, this article addresses movement towards potential exemptions and some of the most frequently asked questions about how the CTA currently applies to common interest developments (CIDs).
Movement Towards Potential Exemptions
CAI’s Lawsuit:
As you may be aware, on March 1, 2024, a federal court ruled the Corporate Transparency Act (CTA) unconstitutional, and the federal government appealed the decision on March 11, 2024. In June 2024, the Community Associations Institute (CAI) Board of Trustees approved filing a lawsuit to exempt common interest developments from the Corporate Transparency Act. Click here for more information about CAI’s lawsuit.[3]
CAI is pursuing this case in the U.S. District Court for the Eastern District of Virginia because CAI is incorporated in the District of Columbia and headquartered in Virginia. Additionally, the Eastern district is known for having a rapid docket process that allows it to hear cases more quickly than other federal courts and offers the potential for a faster resolution. However, CAI National cautions common interest developments should be prepared to comply with the CTA and file the required beneficial ownership information by December 31, 2024 if the lawsuit is not resolved or the law has not been amended. While CAI is actively pursuing legal action to seek an exemption, it urges common interest developments to prepare to comply to avoid potential penalties and ensure they meet all legal requirements. More information can be found on CAI’s CTA FAQ page [4].
H.R. 9045:
The Corporate Transparency Act exempts non-profits that hold an IRS non-profit tax determination. Common interest developments are generally incorporated as a local state non-profit corporation [5]; however, they usually do not have an IRS non-profit tax determination (i.e., 501c).
On July 15, 2024, H.R. 9045 was introduced seeking to exempt common interest developments from the requirements of the Corporate Transparency Act. CAI requests concerned individuals contact their Member of Congress urging them to support H.R. 9045 [6], even if they have done so already about the Corporate Transparency Act.
H.R. 9045 is in the first stage of the legislative process. It will typically be considered by committee, then if approved in committee, sent on to the House as a whole to approve.
Application to Common Interest Developments
While CAI’s lawsuit and H.R. 9045 provide hope that there might be an exemption from CTA requirements for common interest developments in the future, it is difficult to anticipate how near that future is. Common interest developments boards should take the time now to become educated on the requirements and to prepare for compliance in case an exemption is not obtained before the filing deadline at the end of this year. Unless and until an exemption is made for CIDs, CIDs will need to comply with the annual filing requirements. For answers to frequently asked questions about the CTA filing requirements, read our article on The Corporate Transparency Act (Updated on 2/1/2024) [7].
[1] FinCEN’s Small Entity Compliance Guide, December 2023, Version 1.1 can be found at: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
[2] Beneficial Ownership Information Reporting Rule, Title 31, Section 1010.380 of the Code of Federal Regulations.
[3] https://www.caionline.org/Advocacy/Priorities/CTA/Pages/landing.aspx
[4] https://www.caionline.org/Advocacy/Priorities/CTA/Documents/FAQ%20FINAL.pdf
[5] https://www.caionline.org/Advocacy/Priorities/CTA/Pages/default.aspx
[6] https://www.votervoice.net/CAI/Campaigns/116499/Respond
[7] https://www.epsten.com/the-corporate-transparency-act/
City of Carlsbad Bans Smoking in Multiunit Residences – Including Some of Yours!
Senior Attorney
858.527.0111
Email
Practices: Community Association Counsel | Commercial CID
Share this article:
The City of Carlsbad recently approved a new ordinance that, beginning January 1, 2025, will ban all smoking and vaping of any kind anywhere on the premises of a multiunit residential development located within the City of Carlsbad, including inside private dwellings, on private balconies, decks, garages, patios and common areas of a common interest development.
While it is certainly a win for residential communities desiring a smoke free environment, the ordinance requires associations subject to the ordinance to take specific steps and impose certain enforcement measures to ensure a level of compliance with this ordinance on or before January 1, 2025.
Applies to Multiunit Residential Developments in Carlsbad Only
This new ordinance applies only to multiunit residential development associations located within the City of Carlsbad.
What is a multiunit residential development? A “multiunit residential development” includes a property containing three or more units, including condominium and planned development common interest developments. Exceptions include mobile home parks, single-family homes designed as free-standing units which are separate (detached) from any other unit, and most single-family homes with an accessory dwelling unit and/or junior accessory dwelling unit on the lot.
Therefore, if your association includes units or single-family homes that are attached in any way (i.e., shared walls), they are likely subject to this ordinance.
What Type of Smoking is Banned?
The ordinance defines “smoking” as inhaling, exhaling, or burning, any tobacco, nicotine, cannabis or plant product, or other substance, whether natural or synthetic; (2) carrying any lighted, heated or activated tobacco, nicotine, marijuana, or plant product, or other substance, whether natural or synthetic, intended for inhalation; or (3) using an “electronic smoking device.”
An “electronic smoking device” is defined to include any device that may be used to deliver any aerosolized or vaporized substance to the person inhaling from the device, including an e-cigarette, e-cigar, e-pipe, vape pen, or e-hookah.
Again, the ban is broad and appears to encompass all smoking and vaping of any kind.
Where is Smoking Banned?
- In private dwellings and any associated exclusive-use area;
- Private balconies;
- Porches;
- Decks;
- Patios;
- Common areas (except those designated as smoking areas).
Designated Smoking Areas
An association is not required to have or create designated smoking areas under this ordinance, but if it has, or wishes to create these areas, they must meet the following conditions:
- An unenclosed area;
- Be at least 25 feet away from any (1) doorway, window, opening or other vent into an enclosed area; (2) enclosed or unenclosed recreation area such as a tennis court, swimming pool and picnic area; or (3) enclosed or unenclosed area primarily used by children such as a playground;
- Have a clearly marked perimeter;
- Be identified by conspicuous signs showing it is a designated smoking area;
- Have receptacles designed for and primarily used for disposal of smoking waste and that are maintained free of smoking-related litter, including cigarette butts; and
- Must not overlap with any area in which smoking is otherwise prohibited by applicable law.
Actions for Associations to Take
Associations subject to this ordinance must do the following:
- Notice: On or before January 1, 2025, provide written notice to all unit owners stating: (1) smoking is prohibited in units, including balconies, porches, decks or patios, as of January 1, 2025 and (2) smoking is prohibited in all common areas, expect in specifically designated smoking areas as of January 1, 2025.
- Common Area Signage: On or before January 1, 2025, post and maintain clear and unambiguous “No Smoking” signs at entrances and exits of common areas, in sufficient numbers and locations, and in conspicuous places to make it obvious to a reasonable person that smoking is prohibited.
- Violations: Beginning January 1, 2025, when an association has knowledge of a violation, it must take reasonable steps to investigate and enforce the regulation, including written notice to the resident of the violation, a request to cease and desist, potential action if the violation is not corrected (i.e., hearing, possible fines, enforcement of ordinance, etc.), and resources provided by the city to assist with nicotine dependence.
- CC&R Amendments: Beginning January 1, 2025, any new or amended CC&Rs must include specific provisions prohibiting smoking in a unit or common areas, other than a designated smoking area. This does not create an obligation for an association to amend its CC&Rs, but any CC&Rs recorded, amended or restated by an association subject to this law after January 1, 2025 must include these provisions.
- Ban Smoking Items in Common Areas: Beginning January 1, 2025, prohibit the presence of ashtrays, ashcans or other receptacles designed for or primarily used for disposal of smoking waste within the common area, unless area is designated as a smoking area.
It is also worth noting that unit owners who lease their unit have certain notice and lease requirements they must also comply with under this ordinance. However, the ordinance does not place any obligation on the association to ensure owners’ renting their units comply with these requirements.
Penalties for Failing to Comply
Some good news…if an association fully complies with the requirements placed on it under this ordinance, an owner or occupant will not have a private right of action against an association for any damages suffered due to another occupant’s breach of the smoking ban. The ordinance isn’t necessarily clear on what damages may be placed on an association that fails to comply with those requirements, but best not to find out.
If an occupant violates the ordinance, a court will award damages as follows:
- Actual damages suffered based on proof (i.e., medical expenses, lost rent, loss of use, etc.); or
- Statutory damages in the amount of $500 per each violation per day of a continuing violation.
- A court may also award exemplary damages when the violator is found guilty of oppression, fraud, malice, retaliation or conscious disregard for public health.
The ordinance allows for private enforcement. Meaning an association, landlords and occupants may take legal action against violators on behalf of the general public and themselves. Due to limited resources, it was stated that the city’s Police Department and Code Enforcement will not be responsible for enforcement. Contact us for more information.
Dos and Don’ts When Regulating Political Campaign Signs
By Kieran J. Purcell, Esq.
As political races heat up, you may notice more political signs in the community, which leads to questions such as: Can homeowners display political signs? If so, where can they post them? Perhaps most importantly, how soon after the election can we make them take down their signs?
You may find answers to these questions in your association’s governing documents, the California Civil Code, and local ordinances. The bad news is that you may not like the answers.
News flash: An association has the authority to restrict the placement of political signs in the common areas, while owners are generally permitted to display them on their separate interest property. Typically, an association’s CC&Rs grant the board of directors exclusive control over the common areas, including the placement of signs. Some CC&Rs may state that no signs are allowed to be displayed in the common area without permission from the board.
Nevertheless, some CC&Rs allow specific signage. For example, placing one (1) sign that follows customary and reasonable dimensions promoting a condominium for sale or lease.
Consequently, does this mean a board has no say in determining whether an owner may put political signs in the common area? Additionally, if an owner does place a political sign in the common area but fails to remove it promptly the association can remove it, correct? The answer to the first question is NO, and the answer to the second question is YES. To learn more about this, read Civil Code Section 4710.
Summarizing Civil Code Section 4710 “in a nutshell,” a homeowner may post political sign(s) not larger than nine (9) square feet made of statutorily permitted materials in or on his or her separate interest property. However, Civil Code Section 4710 does not grant a homeowner the right to post signs in the common area.
Supplemental Read >> Learn more about political signs, implications, and what associations can do about it here!
How long can a political sign be displayed before and after an election?
While CC&Rs rarely address time limitations for signs, many cities and counties have ordinances that specify time ranges during which political signs may be posted; for example, ninety (90) days before and ten (10) days after an election. It would be reasonable for an association to adopt a rule with similar time limitations for owners to post political signs within their association. Civil Code Section 4710 permits an association to restrict posting noncommercial signs on an owner’s separate interest property if it violates any applicable laws. Therefore, if an association would like to impose time limitations, an association may want to consider adopting rules that align with the time limitations set out in local ordinances with the help of legal counsel.
Okay, we have to let someone post a political sign. But just one! Right?
Maybe. Civil Code Section 4710(a) says governing documents may not prohibit noncommercial signs, posters, flags, or banners, all plural. Unless prohibiting the sign(s) serve(s) to protect public health or safety or if the posting or display violates a local, state, or federal law. For instance, (a) if an owner were to display an excessive number of flags near the street, obstructing drivers’ view of other vehicles, (b) if the city mandates a permit for a flagpole of a specific height and the owner has no permit, or (c) if the city imposes restrictions on the number of signs allowed on private property at any given time.
Needless to say, it is essential to carefully review an association’s CC&Rs before drafting or revising rules governing signs’ displayed in your communities and properties. If we can assist you in this process, please do not hesitate to contact us.
Have you signed up for our upcoming 2024 Community Association Legal Symposium this Fall? Click here for more information or to register.
Political Signs – What Can an HOA Do About Them?
By Kieran J. Purcell, Esq.
As with real estate, what an association can do about political signs is a matter of location, location, location.
Continue reading Political Signs – What Can an HOA Do About Them?
Navigating a Small Claims Lawsuit: A Guide to Defending the Case
Any board member or manager within a community association can tell you about their experience with an unhappy association member. But what happens when that member takes legal action against the association in Small Claims Court?
The first thing a community association needs to know is the differences between a Small Claims Court claim and a civil action in Superior Court. It is often said that the advantages of Small Claims Court are that it is cheaper and faster than a limited or unlimited action in Superior Court. Here are some ways in which Small Claims Court differs from Superior Court:
- Litigants must represent themselves, and they cannot be represented by an attorney (subject to specific exceptions);
- As of January 1, 2024, the jurisdictional limit for cases brought by an individual is $12,500, while corporations can only seek up to $6,250;
- The filing fee for a San Diego Small Claims complaint is generally $30-$100 as opposed to $435 in Superior Court;
- If the plaintiff loses, they cannot appeal the case (unless the defendant counterclaims and wins), but a defendant who loses can appeal the case;
- Generally, litigants may receive a Small Claims hearing date sooner than in Superior Court.
When a community association is served with a Small Claims complaint, the association may need to act quickly. Below is a helpful checklist of steps to consider taking when a community association is served with a Small Claims complaint:
- Contact the association’s legal counsel and provide them with a copy of the Small Claims complaint;
- Submit a copy of the complaint to the community association’s insurance carrier(s);
- Review the complaint and all attachments carefully;
- Schedule and notice a special board meeting to discuss the complaint and the association’s response, or, depending on the Small Claims hearing date, add the complaint to the agenda for the next meeting. Depending on the timing and circumstances, holding an emergency board meeting may be necessary;
- Calendar all applicable deadlines and due dates, including the date of the hearing, as failing to comply with applicable deadlines can result in an adverse judgment against the association;
- Look at the date, time, and location of the hearing. If no association representatives are available to attend the hearing, the association may need to request to postpone the hearing;
- Review what the aggrieved member, referred to as the “plaintiff,” is asking the Court for and consider whether to offer a settlement to the member in exchange for a dismissal of the complaint;
- Prepare the community association’s response, including substantive arguments to respond to the Small Claims complaint. Be sure to submit all exhibits that support the association’s defense in advance of any applicable deadlines. While the Association’s legal counsel cannot appear at the hearing, counsel can help review and prepare the Association representatives to defend the Association in Small Claims Court.
Additionally, because the community association is not a person, it is important for the community association to complete and file an “Authorization to Appear on Behalf of Party” form, commonly known as an SC-109 form, with the Small Claims Court. This form must be completed by the board member or manager who intends to represent the association at the hearing.
Finally, it is important to remember that although a community association may have a good defense strategy, Small Claims Court sometimes favors member plaintiffs (the underdogs). Therefore, it is important to ensure that the community association is prepared and has a well-crafted response to a member’s Small Claims complaint. Helpful resources and more information can be found on the Judicial Branch of California’s website or by contacting a Small Claims advisor at (858) 634-1777 for San Diego County, (951) 274-4499 for Riverside County, or (213) 974-9759 for Los Angeles County. And remember that your friendly community association counsel is only a call away.
Forming Association Committees
** This article was published on CAI’s San Diego Community Insider– Summer 2024 Issue.
All Things Enforcement: Board Basics (Part 2) on Rules and Enforcement
All Things Enforcement:
Follow Up to June 27, 2024 Board Basics (Part 2) webinar on Rules and Enforcement
Authors
 |
 |
| Susan M. Hawks McClintic, Esq. CCAL | Rhonda R. Goldblatt, Esq. |
Continue reading All Things Enforcement: Board Basics (Part 2) on Rules and Enforcement
Pickleball and Associations
Pickleball is one of the fastest growing sports in the United States. It offers a plethora of benefits and adds significant value to associations, in the ways described in this article. By introducing pickleball, associations can enhance the quality of life for their residents, foster community spirit, and boost property values. The sport’s accessibility, social benefits, and health advantages make it an ideal addition to any residential community.
First and foremost, pickleball is highly accessible and inclusive. It combines elements of tennis, badminton, and ping-pong, and it is played on a smaller court with a lower net, making it less physically demanding than other racket sports. This accessibility allows individuals of all ages and fitness levels to participate, from children to seniors. The ease of learning the game ensures that new players can quickly pick up the basics and start enjoying themselves, which encourages widespread participation within the community. Additionally, the relatively low cost of equipment—primarily a paddle and a few balls—makes it an affordable option for all residents.
The social benefits of pickleball are substantial. The sport naturally lends itself to doubles play, promoting teamwork and interaction among players. By providing a shared interest and a gathering place, pickleball courts can help break down social barriers and foster new friendships among neighbors. Regularly scheduled games or tournaments can create a sense of tradition and camaraderie within the community, enhancing the overall social fabric. These interactions are particularly valuable in an association setting, where fostering a strong sense of community can lead to a more harmonious living environment.
Health benefits are another significant advantage of incorporating pickleball into a community. The game provides a full-body workout, improving cardiovascular health, coordination, balance, and agility. Regular physical activity is crucial for maintaining a healthy lifestyle, and pickleball offers an enjoyable way to achieve this. For older adults, in particular, the sport provides a low-impact exercise option that can help improve mobility and reduce the risk of chronic diseases. The social nature of the game also contributes to mental well-being, reducing stress and promoting a positive outlook.
From an economic perspective, the installation of pickleball courts can enhance property values within the community. Prospective homeowners often look for amenities that support an active and engaging lifestyle, and the presence of pickleball courts can be a significant selling point. Well-maintained recreational facilities reflect positively on the community, suggesting that the association is invested in providing a high quality of life for its residents. This perception can make properties more attractive to potential buyers, thereby increasing demand and property values.
Furthermore, pickleball can serve as a versatile amenity in community event planning. Association boards can organize clinics, leagues, and tournaments, providing structured opportunities for residents to engage with the sport. These events can attract participation from various demographic groups within the community, promoting inclusivity and ensuring that everyone feels welcome to join in the fun.
The Arguments Against Pickleball
On the other hand, while pickleball has gained popularity for its accessibility and social benefits, there are reasons some people argue it should be banned from community associations, primarily due to noise and other nuisance related complaints. Some of those reasons may be compelling.
The primary issue with pickleball in communities is the noise generated during play. The distinct “pop” sound of the ball hitting the paddle can be surprisingly loud and persistent to some residents. Given that pickleball games often last 60-90 minutes and are usually played as doubles, the noise can become a disruption to some. Residents living near pickleball courts often report disturbances, especially when games are played early in the morning or late into the evening. It is reasonable to argue that such noise disturbances may lead to stress, interrupted sleep, and a general decline in the quality of life for nearby residents.
Additionally, the noise nuisance can exacerbate tensions within a community. Disputes over pickleball noise can lead to conflicts between resident players and non-players, fostering division rather than unity. The very presence of pickleball courts can become a contentious issue at association meetings, consuming valuable time and resources that could be better spent addressing other community concerns.
Moreover, the nuisance extends beyond noise. Increased traffic and parking congestion around pickleball courts can disrupt the normal flow of the community. The solution to all of these problems is thoughtful rule-making with lots of input from the community. Enacting reasonable, concise operating rules, including putting in place limits on hours of play, types of paddles allowed to be used, and guest use of courts can significantly (and at no cost to the association) eliminate most potential issues or concerns.
Conclusion
In conclusion, the incorporation of pickleball by an association into a community offers numerous benefits that enhance the overall living experience for residents. Its accessibility and affordability make it an inclusive sport suitable for all ages, while its social and health benefits contribute to a stronger, healthier community. Economically, the presence of pickleball courts can boost property values and attract prospective homeowners. By fostering community spirit and providing a versatile recreational amenity, pickleball may prove to be a valuable addition to a community, promoting a vibrant, active, and cohesive living environment. While some boards may be tempted to ban pickleball outright, all of the benefits discussed above may certainly outweigh the potential for complaints regarding the noise nuisances pickleball allegedly creates.
The decision about whether or not to permit pickleball is not a one size fits all solution and should be considered by each board on a community-by-community basis. To avoid as many issues and complaints as possible, and rather than banning pickleball completely, boards should perform a reasonable inquiry into the benefits and possible detriments of adding pickleball to their communities. To perform such an inquiry, a board should consult with its management team, legal counsel, and other relevant experts to determine whether permitting pickleball is within the best interest of the association. If the board determines that pickleball is a worthwhile investment for their association, the association should follow an open, input-driven rule-making process to help ensure that pickleball play remains in harmony with the community. If the board decides that pickleball should not be allowed in the community, the board should work closely with legal counsel on the implementation of its ban.
The Importance of Having All the Facts at the Outset of Representing a Client in Litigation
In the intricate and high-stakes world of litigation, thorough preparation is a cornerstone of effective legal representation. Central to this preparation is the necessity of gathering absolutely all the facts about a situation at the outset. This comprehensive understanding is crucial for several reasons: it informs the development of a robust legal strategy, ensures ethical conduct, enhances the credibility of the attorney, and ultimately increases the likelihood of a successful outcome for the client.
Developing a Robust Legal Strategy
A well-informed legal strategy is built on a foundation of complete and accurate facts. At the outset of representing a client, obtaining all necessary information allows an attorney to assess the strengths and weaknesses of the case comprehensively. To initiate the fact-finding process in a new case, the client must promptly share with the attorney all of the facts about the dispute, regardless of how old, indirectly related, or seemingly insignificant those facts may be. When in doubt err on the side of overinclusion, and let your attorney determine whether a fact is or is not relevant.
This initial fact-finding phase is essential for identifying the key legal issues, potential defenses, and the most compelling arguments to present. It enables the attorney to foresee possible challenges or weaknesses of the case and to plan accordingly, avoiding certain pitfalls that could arise from unforeseen evidence or aspects of the case.
Moreover, a detailed understanding of the facts aids in the effective allocation of resources to litigate the case. It helps the legal team decide where to focus investigative efforts, which expert witnesses to consult, and what evidence needs to be meticulously scrutinized or gathered. By having a clear picture from the beginning, an attorney can work more efficiently and strategically, ensuring that no critical detail is overlooked.
Ensuring Ethical Conduct
Ethical considerations are paramount in legal practice. An attorney is ethically bound to represent their client zealously while also maintaining integrity and honesty. Having all the facts of the case at the outset ensures that the attorney can provide candid advice to the client, outlining both the strengths and weaknesses of the case. This transparency is vital for managing the client’s expectations and for making informed decisions about whether to pursue litigation, negotiate a settlement, or explore alternative dispute resolution methods.
Additionally, complete knowledge of the facts prevents ethical breaches such as the inadvertent presentation of false or misleading information to the court. It also safeguards the attorney against potential conflicts of interest and ensures the attorney’s compliance with the duty of candor towards the tribunal.
Enhancing Credibility
An attorney’s credibility is a critical asset in litigation. Judges and juries are more likely to be persuaded by an attorney who demonstrates thorough knowledge of the case and presents well-substantiated arguments. Complete mastery of the facts at the outset allows the attorney to argue more confidently and persuasively. It also minimizes the risk of being caught off-guard by opposing counsel, which could undermine the attorney’s credibility and, by extension, the client’s position.
When an attorney is well-prepared and knowledgeable, it fosters trust not only with the court but with the client as well. Clients are more likely to have confidence in their legal representation when they see that their attorney has a deep understanding of their case and is prepared to advocate effectively on their behalf.
Increasing Likelihood of a Successful Outcome
Ultimately, the goal of litigation is to achieve a favorable outcome for the client. Having all the facts at the outset significantly enhances the chances of success. It allows the attorney to craft a coherent and compelling narrative, anticipate and counter opposing arguments, and present evidence in the most favorable light. Comprehensive preparation reduces the likelihood of surprises during the litigation process, such as unexpected testimony or newly discovered evidence that could adversely affect the case.
Conclusion
The importance of having all the facts at the outset of representing a client in litigation cannot be overstated. It is fundamental to developing a sound legal strategy, ensuring ethical conduct, enhancing the attorney’s credibility, and increasing the likelihood of a successful outcome. Thorough fact-finding at the beginning of a case sets the stage for effective advocacy and is a hallmark of professional and competent legal representation.