Announcements – Page 12

Take Action: Tell Your Legislator to Vote NO on SB 1265

The California Legislature returns to the Capitol today to reconvene on bills. While CAI-CLAC has been successful at influencing and amending 2018 legislation, there is still work to be done on SB 1265.

The GOOD news: SB 1265 will be amended to delete the ability of someone to copy the signed envelopes, mitigating privacy and fraud concerns.

The BAD News: If passed, SB 1265 will increase costs to conduct an Association Board election due to unnecessary restrictions to serve. As written, the bill adds deadlines, notices and other requirements to the election process making it more complicated and more likely mistakes will happen – resulting in more litigation costs! There is simply no justification for government to impose higher costs to Homeowner Association members. We strongly believe that SB 1265 limits association’s ability to self-govern by mandating how we conduct community association elections.

Here’s how YOU can help!

Join us on Twitter this Wednesday, 8/8 at 12p.m. for our first ever #CLACCHAT on SB 1265 and help us make our concerns heard! CAI-CLAC will be hosting and sharing several tweets. You’re welcome to comment with your concerns or simply retweet our posts.
Vote NO on SB 1265. Simply send our pre-drafted letter to your legislator by clicking here: caiclac.com/current-campaigns.
Share this information with your community! Feel free to forward this email or copy the information provided to distribute to your own email lists. You can also invite your community to our twitter chat and include the graphic below.

Thank you for helping make an impact. The more opposition we generate, the more influence we will have. So, please join us and make your voice heard!

Rental Restrictions

By Mary M. Howell, Esq. & David A. Kline, Esq

In 2011 the California legislature enacted SB 150, a bill championed by the California Association of Realtors, intended to deprive association owners of the ability to restrict rentals within their communities. This bill added section 4740 (formerly 1360.2) to the Civil Code. Owners within a common interest development are free to amend their CC&Rs to restrict rentals when it is reasonable to do so.

Since January 1, 2012, this right has been severely abridged. However, the law does not affect rental provisions that became effective before January 1, 2012.

The statute provides:

• Any amendments to CC&Rs which would prohibit rentals of dwellings within the development are effective only as to (a) owners who purchased after the amendment was recorded, and (b) prior owners who consent to be bound by the amendment.

• The amendment does not apply to commercial common interest developments. They may continue to enact rental restrictions without regard for the provisions of the new law.

• While it is not absolutely clear, it appears that only “prohibitions” are outlawed; lesser restrictions, such as 30-day minimums or requirements that only the entire dwelling may be rented, appear to be permitted under the law.

• The law includes a requirement that, prior to renting or leasing a dwelling, an owner “shall provide the association verification of the date the owner acquired title to the [dwelling] and the name and contact information of the prospective tenant or the tenant’s representative.”

• Because a new rental prohibition would create classes of owners with different rights, it may be cumbersome to enforce. It would also, in effect, delay the benefit of the restriction or the amelioration of the harm addressed by the restriction until every current homeowner opposed to the restriction sold his or her interest. This could undermine the stability of the community, rather than promote stability as covenants and restrictions are intended to do.

Certain types of rental restrictions are common, and some have found support in case law:

• In Colony Hill v. Ghamaty, a court of appeal upheld the application of a “single family residential use” restriction to prohibit room rentals (a “mini dorm”).

• In Mission Shores Association v. Pheil, the court approved the propriety of a CC&R provision which required a minimum 30-day rental period. (In the same case, the court also approved a portion of the amendment which allowed the association to evict a violating tenant.)

• In Fourth La Costa v. Seith, the court approved an amendment which required all leases to be in writing, and contain language binding tenants to the governing documents.

• While there are few reported cases, it would also appear that “occupancy restrictions” (that is, restrictions on the number of occupants who may reside in a dwelling), are also appropriate, provided such restrictions do not violate anti- discrimination guidelines. The usual acceptable number is 2 residents per bedroom plus 1.

• Restrictions based on “familial status” are hard to enforce, if the basis for enforcement is that the residents aren’t related “by blood or marriage.” Case law in the last 25 years makes it clear that a “family” consists of persons living together in the normal familial sense—sharing all rooms, sharing the responsibility for maintaining, paying the rent, etc. If (as the court in Colony Hill made clear) the use is not familial, but commercial (as when roommates are sought by advertisement, and certain portions of the homes are “off limits” to the residents), it is appropriate to conclude these are not “single family” uses.

Conclusion

If your community is serious about restricting rentals, it is wise to evaluate whether and how to proceed in light of Civil Code section 4740.

Rental restrictions should be contained in the CC&Rs, not in the rules; CC&Rs are entitled to a presumption of reasonableness under Nahrstedt, making them far easier to enforce in court actions. Further, since CC&Rs (not rules) are recorded, they provide actual and constructive notice to owners (that is, an owner is bound by the CC&Rs whether he knew about them at the time of purchase or not).

For more information on rentals, see also:

Home Sweet HOA

For the seventh time in 13 years, Americans living in homeowners associations and condominiums say they’re overwhelmingly satisfied in their communities:

85% of residents rate their overall community association experience as positive (63%) or neutral (22%).

84% say members of their elected governing board “absolutely” or “for the most part” serve the best interests of their communities.

73% say their community managers provide value and support to residents and their associations.

90% say their association’s rules protect and enhance property values (62%) or have a neutral effect (28%); only 4% say the rules harm property values.

These findings objectively refute the unfounded and unsubstantiated myth that the community association model of governance is failing to serve the best interests of Americans who choose to live in common-interest communities.

Results from almost identical national surveys conducted in 2005, 2007, 2009, 2012, 2014, 2016, and 2018 are strikingly consistent and rarely vary a standard margin error for national, demographically representative surveys.

Source: https://www.caionline.org/PressReleases/Statistical%20Information/HOMEsweetHOA_2018.pdf

California Supreme Court Limits the Ability to Hire Independent Contractors

On April 30, 2018, the California Supreme Court clarified and narrowed the test for determining whether a worker is properly classified as an independent contractor by a hiring entity in Dynamex Operations W. v. Superior Court, (2018) 4 Cal.5^th 903. The Court concluded that the correct test to determine whether a worker is properly classified as an independent contractor is the “ABC Test” requiring the employer to establish each of the three factors (ABC factors) as follows:

(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work and in fact;

(B) The worker performs work that is outside the usual course of the hiring entity’s business; and

(C) The worker is customarily engaged in an independently established trade, occupation, or business.

Prior to this decision, there were various factors and tests an employer could use to make the classification decision. Not anymore. The Court held that “[t]he hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor….” In adopting the ABC Test as the sole test to determine the correct classification of workers, the Court narrowed the meaning of “to suffer or permit to work” definition of the term “employ.” As the Court noted in its decision, “the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenues and millions of workers of the labor protections to which they are entitled.” Employers and hiring entities including association and management entities must carefully examine whether their current or prospective independent contractors meet all of the ABC factors before classifying workers as independent contractors. Now more than ever, it is best to classify a worker as an employee rather than an independent contractor.

Take Action: Tell Your Legislator to Vote NO on SB 721

CAI-CLAC is asking for your help to contact your Assembly Member today and ask them to vote NO on SB 721. Fill out the form to send an email and use this call script to tell them over the phone.
Click this link for the campaign action page

SB 721 (Hill)
Contractors: Deck and Balconies: Inspections
OPPOSED

SB 721 would require mandatory inspections and maintenance of walkways, balconies and elevated structures in a multi-residence structure.

• Associations are non-profit entities governed by a Board of Directors elected by members who are owners of separate interests within the Association. The Board is responsible for developing and budgeting for deferred maintenance.

• SB 721 makes no accommodation for Associations that have recently performed the required maintenance and would ultimately result in an unnecessary cost to the Association.

• SB 721 would prioritize deferred maintenance projects by statute regardless of the budget concerns or other needs of the community, which could result in the need for a special assessment to be placed on the members of the Association.

• Many condominiums are seen as affordable housing for first time homebuyers. SB 721 will greatly increase the cost of this housing option
Associations governed by the Davis-Stirling Act should be exempt from SB 721.

Email your Assembly Member TODAY and ask them to vote no on this bad bill for homeowners. Don’t know who your Assembly Member is? Simply find your community in the call script.

SCRIPT
Hello, my name is _________________. I’m calling from _(City)_ and I live in _(Name of Association)_.

I’m calling because I oppose SB 721, because it will create unnecessary costs to me and my neighbor.

I request Assembly Member _________ to vote no.
Thank you.

Document Production Issues

By Mary M. Howell, Esq.

Civil Code Section 5200

The references to financial documents in section 5200(a) can be translated from the legalese as follows:

5200(a)(1) entitles an owner to “any financial document required to be provided to a member in Article 7 (commencing with §5300) or in sections 5565 and 5810.” The documents required to be produced by section 5300 et seq. are the annual budget and reserve study (§5300), and insurance and loan information (ibid.) The document required by section 5565 is the summary of association reserves. The document required to be provided by section 5810 is notice of any expiration of insurance policies.

5200(a)(2) entitles an owner to “any financial document required to be provided in Article 2 (commencing with §4525) of Chapter 4.”

“Article 2, commencing with section 4525” requires the production to an owner in connection with a pending sale of the owner’s dwelling of the items listed in section 5235 (viz., all governing documents [that is, Articles, Bylaws, CC&Rs, Rules], a statement if the age restrictions deviate from the Unruh Act, the section 5300 documents listed above, a statement of the amount of regular and special assessments, unpaid assessments on a requesting owner’s property, notices of violation on a requesting owner’s property, a copy of a construction defects list generated pursuant to section 6000, if any, other specified information regarding construction defects, a statement as to whether a change in the assessment structure is pending, rental restrictions and minutes for the last 12 months.

Section 5200(a)(3) requires production of “interim financial statements which contain a balance sheet, and income and expense statement, a budget comparison, and/or a general ledger…”

PRACTICE TIP: Your governing documents may be broader than the statute. Check.

Items commonly requested which are NOT required to be produced in response to an owner request include:

Correspondence
A request to identify “each and every document which pertains to …”
A “report” not otherwise prepared or submitted in final form to the board
Lists of vendors
Records of disciplinary actions (usually requested by an owner subject to discipline who demands records for actions “similar” to an owner’s alleged violation)

PRACTICE TIP: Regarding manager salary information, the Code does require production of employee contracts (though it allows for redaction of personal information.) If the manager is actually an employee of the association, the contract is required to be produced. If the manager is, instead, an employee of the management company, salary information and contract details are not required to be produced (though an owner can make an educated guess based on a copy of the management company contract and/or the budget, both of which ARE required to be produced…)

Mechanics of Production

On site or elsewhere?

Section 5205(c): “The association shall make the specified association records available for inspection and copying in the association’s business office within the …development.”

Section 5205(d): “If the association does not have a business office within the development, the association shall make the specified … records available for inspection and copying at a place agreed to by the requesting party and the association.”

PRACTICE TIP: It’s not a bad idea to have a staff person or director or manager present to inspect the inspection…

Section 5205(e): “If the association and the requesting member cannot agree upon a place…or if the requesting member submits a written request directly to the association for copies of specifically identified records, the association may satisfy the requirement …by delivering copies of the …records to the member…”

Who gets to do the copying? Owner or agent (such as attorney) authorized by the owner in writing. Civil Code section 5205(b).
What costs can be passed through?

Staff Search and Copy Time

Section 5205(f) allows “the direct and actual cost of copying and mailing…” (and the association shall inform the owner, and the owner shall agree to pay, before copying [and sending] the documents.” It’s clear that the association may pass through the contracted (management company) cost for these actions; it’s not at all clear whether the association can charge an owner for the probable cost to have association employees perform these same tasks.

Attorney Time to Redact Records

“…an amount not in excess of …$10 … per hour, and not to exceed …$200…per written request…” section 5205(g)

Can you require a form to be used? We recommend you DO develop a form and require use. DSCIDA does not say “yes, you can” or “no, you can’t” but from a corporate housekeeping point of view, it allows for better record production and for tracking costs.
Can you elect to email the documents? Not unless the owner consents to email (and the format must be non-alterable, e.g., pdf). Section 5205(h)
Can’t meet the deadline? Send a letter or email outlining what you HAVE done, and when the owner may reasonably expect the remaining documents. If you decline to produce documents, state why (e.g., privileged, not on the section 5200 list)

Duplicative/Abusive Requests

Keep a list (or copies) of documents you have produced to the owner. While everyone loses paperwork once in a while, asking for the same documents three months in a row is probably abusive. A refusal to re-copy and send documents should probably be written (or reviewed) by counsel.

Directors’ Right of Inspection

Corporations Code section 8334 says the director “shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind …” Despite the language, “absolute” may not be so absolute. Thus, in Chantiles v. Lake Forest II Master Association, the court refused to give a director access to ballots containing information on how other owners had voted. The court noted that certain public policies, such as an owner’s reasonable expectation of privacy, may outweigh a director’s right to view documents.

PRACTICE TIP: Sometimes directors go rogue, and the rest of the board may worry about access to highly sensitive documents, fearing that the documents may be used against the association. While it’s tempting to just declare documents “off limit”, this is a sensitive area, and legal counsel should be sought before routinely denying a sitting director access to such documents. A court order may be advisable, and/or creation of a subcommittee (particularly when the director has sued or threatened to sue the association).

Membership Lists

Both the Corporations Code and the DSCIDA require production of a membership list. Unlike other documents required to be produced, the requesting owner must state the purpose for which the list is requested, and it must be for a purpose “reasonably related to the [requester’s] interests as an [owner.]” Things such as recalls and elections are clearly related to the owner’s interests, while commercial purposes are not. What falls in between are things such as advising fellow owners about an issue outside the association (construction, non-association political campaigns) which is arguably of interest to many if not all associations. Check your governing documents, and consider adopting a policy to define “reasonably related” purposes. Further, if the association chooses to deny access, and the requesting owner challenges those reasons, it is up to the association to prove the requesting member would have abused access to the membership list. Civil Code section 5225.

DSCIDA allows owners to “opt out” of the sharing of address information, BUT the association is still required to communicate in an alternative fashion. See Civil Code section 5220.

Penalties for Violation

Homeowner

The owner may bring a court action, in small claims court or superior court, to enforce the owner’s inspection/copying rights. If the owner wins, the court SHALL award the member costs, including “reasonable attorney’s fees” AND a civil penalty of up to $500 ” for the denial of each separate written request…”

Does that mean for each separate line item on a multiple item request? Possibly, although the decision in Wittenberg v. Beachwalk Homeowners Association (which concerned election violations) suggests that the amounts should be capped for each written request as a whole–another good reason to insist on a form.

Association

In a challenge based on production, the winning association can recover “costs” ONLY if the court finds the owner’s action to be “frivolous, unreasonable or without foundation.” Civil Code section 5235. That’s bad enough, but when you consider that the court usually defines “costs” as NOT including attorneys fees, the association may find itself losing even when it wins.

Assessment Collection & California’s Expanding Fair Debt Collection Law: Davidson v. Seterus, Inc.

By Elisa M. Perez, Esq.

Collecting assessments is one of the main ongoing tasks for any association. Although community association attorneys are clearly required to comply with the various state and federal fair debt collection laws, whether management companies have the same duty to comply with these laws is not quite as clear.

Under the federal Fair Debt Collection Practices Act (FDCPA), a company that handles collecting money on an account that is not in default is considered to fall outside the definition of “debt collector” for purposes of the FDCPA. However, a recent decision from the California Court of Appeal has now expanded the definition of “debt collector” under California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) to include mortgage servicers. As mortgage servicers act to handle debts that are not yet in default like management companies, the potential for community association managers and management companies to be sued under the Rosenthal Act just became a lot greater.

The decision issued in Davidson v. Seterus, Inc. on March 13, 2018, held that mortgage servicers can be “debt collectors” under the Rosenthal Act. In this case, Edward Davidson brought a class action lawsuit against Seterus, Inc., a mortgage service company, and its parent company, International Business Machines Corporation (IBM). Davidson alleged that he and other class members were victims of Seterus’s unlawful collection practices because Seterus had threatened him with foreclosure of his home, threatened to report negative credit information to credit bureaus and harassed him with numerous threatening phone calls, causing him emotional distress and damages. The trial court dismissed Davidson’s complaint with prejudice, concluding that Seterus and IBM were not “debt collectors” because foreclosure on a mortgage is not debt collection and a mortgage lender or mortgage servicer is not a “debt collector” for purposes of the FDCPA.

The Court of Appeal reversed the trial court’s ruling noting that California’s Rosenthal Act was meant to have a broader definition of “debt collector” than that provided in the FDCPA. It held that there is nothing in the Rosenthal Act which would exclude mortgage servicers from liability under the act. In its decision, the Court stated that “the Rosenthal Act is a civil statute enacted for the protection of the public,” and that “the statute should be construed broadly in favor of protecting the public.”

The decision in this case is significant as mortgage servicers are not usually considered debt collectors because they act to service repayment of a debt that is not yet in default. The reasoning of the Court of Appeal here could be used to argue that a community association’s management company should be liable for the same type of collection activities that Seterus engaged in to recover money from Davidson. As this decision places more weight on the alleged harassment than on whether the debt owed by Davidson was actually past due or in default, it may signal a shift in how debt collection cases in California will be decided in the future. Managers and management companies may want to reconsider any practices that involve reporting information to credit bureaus or telephoning delinquent homeowners about assessment debt, as such practices may be considered harassing to the delinquent homeowner.

PRACTICE TIP:
Keep in mind that although liens must be approved in open session, homeowners do have privacy rights under federal and state fair debt collection laws. Therefore, it is best to conduct all discussions involving delinquent accounts in executive session.

Common Issues Inspectors of Elections Must Address

An association’s appointed inspectors of elections have a fundamental role to play in association elections – everything from determining the memberships entitled to vote and addressing challenges in connection with the right to vote to tabulating the results of an election. Civil Code section 5110(c) outlines the scope of an inspector’s duties, and includes both a list of specific responsibilities for which an inspector is responsible, along with a “catch-all” provision providing that an inspector perform any other acts that may be proper to conduct the election with fairness. In performing all of these duties, questions and issues inevitably arise that the inspectors must consider and address. Some of the more common issues inspectors come across is addressing mismatched names on the membership list when compared to the information on the upper left corner of the outer envelope; unsigned outer envelopes; and unclear voting choices on the ballot.

In an attempt to help inspectors address some of these questions, we prepared a Checklist of Issues for Inspectors of Election to Consider. This checklist is by no means exhaustive of all issues that may arise, but includes some of the more common situations we have seen. This checklist is best utilized if the inspectors review the checklist before opening the ballots and mark how the inspectors will address each of the potential issues should they arise. By making these determinations before opening ballots, the inspectors can help ensure neutrality and fairness when it comes to addressing membership and voting issues that may arise.

Here are two additional reminders to help elections run smoothly:

An association should have one or three inspectors – not two or four; and
Inspectors of elections must be independent third parties as described in Civil Code section 5110(b). Section 5110(b) provides that “an independent third party may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the association for any compensable services other than serving as an inspector of elections.”

Surveillance Cameras: Quick Tips

While associations are not generally liable for the criminal acts of third parties, they have a duty similar to that of a landlord to take reasonable precautions to protect residents from foreseeable crime within the community. In some cases, prior instances of crime or other factors that make it reasonably foreseeable that future criminal acts might occur can result in liability unless the association takes reasonable precautions to prevent such crime. Unfortunately, some of the actions commonly taken to prevent crime also have the potential to create liability for an association. One of these actions that might create liability if handled improperly is the installation and use of surveillance cameras.

Location is important. To avoid claims of invasion of privacy, an association should only use cameras in portions of the common area where residents have no reasonable expectation of privacy (e.g., not in restrooms or areas commonly used for changing). Further, no cameras should be positioned in a manner that captures any portion of an owner’s fenced in yard or the interior of a home. Signage should be clearly posted in all areas under surveillance so persons in that area are aware of the presence of cameras.

A clear and comprehensive policy for the use of the cameras should be adopted – preferably before the installation of the cameras to prevent claims of improper use and to minimize potential liability. Surveillance camera policies should include information on how long data is kept, and who, when and under what conditions the video will be reviewed. If the cameras are to be used as part of a monitored closed circuit TV system, clear notice should be given that the cameras are under periodic but not constant monitoring.

If video taken from the cameras will be monitored by management personnel or board members, it is prudent to include in the surveillance camera policy strict parameters for when footage will be reviewed. This can help guard against claims that a board member or manager is using the system to harass or spy on neighbors, or for some other improper purpose.

Sometimes the use of surveillance cameras will not be enough to deter crime. To help minimize the risk of liability should crime still occur, an association should provide periodic written notices to the residents and owners of the community, warning them that the surveillance cameras do not and cannot guarantee their personal safety and reminding them that they are responsible for their own safety and the protection of their property. If this notice is not provided, some owners and other residents may misconstrue the presence of cameras as a guarantee of safety or assume the association is responsible for their safety and security.

Finally, it is important to know that if an incident occurs, the association may have an obligation to preserve and release the video to law enforcement or other third parties. Additionally, in certain circumstances, an association may be drawn into criminal or civil proceedings if an incident has occurred which was or may have been captured on the association’s surveillance cameras.

This article provides a brief overview on some of the issues involved with surveillance cameras. For more information on this matter or assistance preparing a surveillance camera policy that is appropriate for your association, please contact your association’s legal counsel.

Douglas W. Grinnell of Epsten, APC Announces Retirement

Douglas W. Grinnell, Shareholder and co-founder of Epsten, APC (“EG&H”) has announced that he will be retiring effective May 11, 2018.

Doug has been an active trial attorney since 1979 and partnered with Jon Epsten in 1984 to begin what is today Epsten, APC. Since that time, Doug has been responsible for numerous, multi-million dollar jury verdicts and settlements, has handled hundreds of construction defect cases in California; and, in 1996, received the Outstanding Trial Lawyer Award.

Although Jon Epsten, EG&H founder, and Susan Hawks McClintic, Co-Managing Shareholder see Doug’s retirement as “the end of an era,” they are proud to work with the finest community association lawyers in Southern California and will continue offering the best in innovative, practical and efficient legal counsel to community associations.

Supported by the firm’s attorneys and their unique, multidisciplinary skills, Epsten, APC and its attorneys remain actively involved in California community association industry organizations and are proud to support and contribute to many legislation action committees.

For the complete press release, click here.