Agenda Setting: Who, When, and How?

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By Jillian M. Wright, Esq. & Dea C. Franck, Esq.

Setting the agenda for a board meeting is an important parliamentary protocol as the agenda establishes what will be discussed at the upcoming meeting. Though an agenda is required by the California Civil Code, California law does not specify how to set the agenda and association governing documents are often silent on the issue.

California’s Open Meeting Act (“Act”) (Civ. Code §4900 et seq.) was established with the intent of increasing transparency of the conduct of board business in common interest developments in an effort to keep owners involved and aware of board business. The Act prohibits boards from discussing or acting on an item of board business outside of a board meeting (Civ. Code §4910(a)). Civil Code section 4930 also prohibits boards from discussing any board business which was not previously placed on the agenda prior to the meeting with some exceptions outlined in Civil Code section 4930 (b) through (d) and discussed below.  Thus, agendas are more than just a loose guide for meetings; they restrict what boards can discuss and act on. If an item of business is not on the agenda, then generally a board cannot act on that item unless certain criteria are met.

Agenda Setting Protocols – Determining The Who, When and How

Who May Set and Place Items on the Agenda?

Your association’s governing documents may expressly provide who may place items on board meeting agendas and how. However, if your association’s governing documents are silent on these issues, your board should consider adopting an agenda setting protocol. Such a protocol should provide which director sets the agenda (generally we see board presidents handling this task), who may place an item of business on the agenda, how that is accomplished, and any requisite deadlines.

Regarding who may place an item of business on the agenda, California law does not provide any guidance on this issue. However, Corporations Code section 7211(a)(1) states that meetings of the board may be called by the board president, vice president, secretary, or any two directors. If the Corporations Code gives these individuals the power to call a board meeting, then by analogy the board president, vice president, secretary, or any two directors should have the power to place an item on the agenda for that meeting. Therefore, we generally recommend that agenda setting protocols provide that the board president, vice president, secretary or two or more directors may place items of board business on the board meeting agenda. Non-board member owners should not be given the power to place matters on the agenda.

Agenda item requests may be emailed to the association’s community manager or the designated board member responsible for setting the agenda. Whatever method is used to set the agenda, be careful not to violate the Open Meeting Act by having a quorum of the board discussing or debating what to place on the agenda. Simply emailing a request for an item to be added to the agenda does not violate the Open Meeting Act.

When Must the Agenda be Finalized and Posted?

Agendas must be included with the notice of the meeting. Associations must give general notice of the meeting at least four days before a regular (open) session board meeting and at least two days before an executive session board meeting. (Civ. Code §4920). In order to meet these deadlines, the board adopted protocol should provide that requests for items to be added to the proposed agenda be sent to the person designated to prepare the agenda at least 24-48 hours prior to when the notice and agenda will be posted.

How Can Agenda Items be Added to an Agenda at a Meeting?

There are some instances where a board can add an agenda item at a meeting:

  1. If the board determines that an emergency situation exists (i.e., there are circumstances that could not have been reasonably foreseen by the board, which require immediate attention and possible action by the board which make it impracticable to provide requisite notice), then the board may add that emergency issue to that meeting’s agenda by a vote of the majority of the board. (Civ. Code §4930(d)(1).)
  2. If the board determines that there is a need to take immediate action on issue and that need for action came to the attention of the board after the agenda was posted, the board may, by a vote of two-thirds of the directors present at the meeting (or if less than two-thirds of the total membership of the board is present at the meeting, then my unanimous vote of the directors present), add that item to that meeting’s agenda. (Civ. Code §4930(d)(2).)
  3. If the item appeared on the agenda for a prior meeting that occurred not more than 30 days before the date of the current meeting and at that prior meeting action on that item was continued to the current meeting. (Civ. Code §4930(d)(3).)

If the proposed agenda item does not meet one of the above, then that item cannot be added to the agenda at the meeting. However, the board can direct the community manager or director designated to set the next meeting agenda to add that item to the agenda for that future meeting.

If the proposed agenda items meet a Civil Code section 4930 exception, then the board should first vote to add the item to the agenda. Once the board votes to add the item to the agenda, then further board discussion and action may be taken on the agenda item.

In sum, if your governing documents do not address the who and how of setting board meeting agendas, your board should consider adopting a protocol in order to clearly provide a procedure as to how board meeting agendas are handled.

Be forward-thinking and consider preparing and adopting such a protocol to prevent future unnecessary strife amongst board members. Please contact our office if your association needs assistance in preparing an agenda setting protocol.

AB 3182 Q&A

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On September 28, 2020, Governor Gavin Newsom signed into law Assembly Bill 3182 (“AB 3182”). AB 3182, among other things, amends Civil Code section 4740 and adds new Civil Code section 4741. AB 3182 may substantially change the way in which community associations address rentals. These changes take effect on January 1, 2021.

The ultimate effects of AB 3182 are currently unknown and the community association legal community is grappling with how to interpret this new law and its impacts.

Our firm, however, endeavors to provide timely information on such important legal matters impacting community associations so we are sending this update now although the full implications of this new law are presently unknown.

As such, we have prepared the below Q&A as an educational tool only. Please note:

  • Nothing below should be construed as legal advice.
  • Discussions surrounding AB 3182 are ongoing and as our understanding of this new law evolves the answers below are subject to change.
  • Contact your community association’s legal counsel for further information.

Q1.  If my community association has a minimum rental period of 30 days or less in its governing documents, what must we do in light of the new law?

A. Nothing. A minimum rental period of 30 days or less does not violate the new law. Section 4741(c) specifically states, “This section does not prohibit a common interest development from adopting and enforcing a provision in a governing document that prohibits transient or short-term rental of a separate property interest for a period of 30 days or less.”

Q2. If my community association has a minimum rental period of more than 30 days in its governing documents, does the new law require us to amend our governing documents?

A. Section 4741(c) is ambiguous on this point. The community association legal community is currently split as to how to interpret this provision. The most conservative reading of subsection (c) is that minimum rental periods longer than thirty (30) days are unenforceable. If your community association’s governing documents contain a provision which has a minimal rental period longer than 30 days, please contact your legal counsel for additional guidance.

Q3. What if my community association has a rental cap of less than 25% of the separate interests?

A. If your community association’s governing documents place a limit on the total number of separate interests that may be rented at one time, and the limit is less than 25% of all separate interests, then that governing document must be amended to comply with the new law. If the document is not amended, the rental cap would be completely unenforceable.

Q4. What if my community association has a rental cap of 25% or more of the separate interests?

A. If your community association’s governing documents place a limit on the total number of separate interests that may be rented at one time, and the limit is 25% or more of all separate interests, then that governing document complies with the new law and no amendment is necessary.

Q5. If my community association has a percentage rental cap, does a rented ADU or JADU count towards the rental cap?

A. No. The rental cap refers to “separate interests” which section 4741(d) makes clear does not include ADUs or JADUs. This means that if an owner resides in either the primary residence, ADU, or JADU none of these may be counted as rented or leased for purposes of the community association’s rental cap (Civil Code section 4741(e)).

Q6. If my community association’s CC&Rs do not comply with the new law, do we have to amend the CC&Rs?

A. Amending the CC&Rs is the most conservative approach. However, there is a split in the legal community as to whether adopting a rule to comply with the new law would suffice (see question 9 below for further discussion on this point). Please contact your legal counsel for additional guidance.

Q7. If my community association must amend its CC&Rs in light of the new law, does that amendment require a membership vote, or can our board record a CC&R amendment without the consent of the members?

A. If our firm prepared your community association’s restated CC&Rs, it is possible those documents already include language that permit a board to record CC&R amendments to comply with the new law without the consent of members. However, in the absence of such language in your CC&Rs giving the board the power to make amendments, we believe the members would have to vote to approve the CC&R amendments.

Q8. If a membership vote is held to approve CC&R amendments, what happens if the members and/or lenders (if required) reject amendments to the CC&Rs to conform with the new law?

A. Under certain circumstances a community association may seek court approval of those proposed amendments through Civil Code section 4275 or Corporations Code section 7515 based on the actual outcome of the vote (although, seeking court approval might not be necessary). Civil Code section 4741(g) states, “A common interest development that willfully violates this section shall be liable to the applicant or other party for actual damages, and shall pay a civil penalty to the applicant or other party in an amount not to exceed one thousand dollars ($1,000).” If a community association puts the matter up for a vote of the members and the members do not approve it, arguably the association will not have willfully violated the law. If a community association does not seek judicial approval of the amendment, see #9 below for a possible option.

Q9. Could my community association simply adopt rules that comply with the new law instead of amending the CC&Rs?

A. It’s unclear. It would appear that existing rental provisions which violate the new law would become unenforceable under the new law. There is an argument that the board could simply enact a rule to clean up the existing provisions to regulate rentals in compliance with the new law, however, section 4741(g) states that an amendment is required. We believe boards should attempt a membership vote to approve any required CC&R amendments. Then, if that fails, boards could enact rules that comply with the new law. Whether a rule is sufficient to comply with the law is questionable. There is a body of law that suggests that members must vote on the issue of rental restrictions, so a rule might not be sufficient (and the association could not enact new rental restrictions without member consent). Further, existing law (Civil Code section 4740(a)) might make those new rental restrictions inapplicable to existing members.

Q10.  If members approve amendments to conform with the law, which members are bound by the amended provisions?

A. It’s unclear. The answer to this question may depend upon whether language in the current document “prohibits” or “unreasonably restricts” rentals in violation of either Civil Code section 4740 or 4741. If an existing rental provision (e.g., a cap of 25% or less) is construed as either a prohibition or an unreasonable restriction, it would be unenforceable and an amendment would be necessary to conform to the new law. In that case, it is possible the amendment may only apply to new purchasers after adoption of the amendment. Hopefully, the Legislature will adopt clean-up legislation next year to address this issue. In the meantime, please contact your legal counsel for additional guidance.

AB 3182 (Rental Restrictions) Chaptered!

By Dea C. Franck, Esq.

Today Governor Gavin Newsom signed into law Assembly Bill 3182 (“AB 3182”) which will become effective January 1, 2021.

Among other things, AB 3182 amends Civil Code section 4740 and adds a new section 4741 to the Civil Code. The new section 4741 provides that an owner of a separate interest in a common interest development (“CID”) will not be subject to a governing document provision that prohibits, has the effect of prohibiting, or unreasonably restricts the renting or leasing of a separate interest, accessory dwelling units (“ADU”), or junior accessory dwelling unit (“JADUs”) to a renter, tenant or lessee. section 4741 will allow CIDs to adopt or enforce governing document provisions which prohibit transient occupancy or short term rentals of separate interests for 30 days or less. However, section 4741 will prohibit CIDs from:

  • Adopting or enforcing a governing document provision that restricts the rental or lease of separate interests in the community to less than 25% of the separate interests regardless of when the provision was adopted (adopting or enforcing governing document provisions authorizing a higher percentage of separate interests to be rented or leased are allowed).
  • Treating ADUs and JADUs as separate interests.
  • Counting a residence as being occupied by a tenant, if the separate interest, ADU or JADU is also occupied by the owner.

Section 4741 will require CIDs to comply with the new law on and after January 1, 2021, regardless of what their governing documents provide. However, CIDs are required to amend their governing documents to conform to the requirements of this new law no later than December 31, 2021. This new law does not provide an exception to the membership approval requirements for any CC&R amendments necessary to comply with this new law. Section 4741 also states that a CID which “willfully violates” this law, including the governing document amendment requirements, shall be liable to the applicant or other party for actual damages and shall pay a civil penalty to the applicant or other party in an amount not to exceed $1,000.

In addition to the above, AB 3182 also requires local agencies to magisterially approve an application for a building permit within a residential or mixed use zone to create one ADU and one JADU per lot so long as certain building requirements are met. Moreover, AB 3182 provides that if a local agency has not acted upon a completed application for the creation of an ADU and/or a JADU within sixty (60) days, the application is deemed approved.

AB 3182 may cause sweeping changes to your community. Please consult with your community’s legal counsel for additional guidance regarding how AB 3182 may affect your community and what your community needs to do to comply.

 

Keywords: ADU, JADU

Request To Inspect and/or Copy Association Records (Civ. Code § 5200, et seq.)

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By Rian W. Jones, Esq.

Homeowners associations are routinely faced with members and directors who request the right to inspect association records.  There are penalties prescribed for an association’s wrongful failure to timely and fully comply with the request.  While the Davis-Stirling Common Interest Development Act (“Act”) and the Corporations Code set forth specific requirements and procedures for responding to a request to inspect and copy association records, there are exceptions and limitations spelled out in the Code and in case law.  If there is litigation or potential litigation associated with the request, the association is well advised to immediately seek counsel from its attorneys before acting on any such request.

The following is a summary of the applicable code sections and procedures.

Documents Subject to Inspection

Absent different provisions in the governing documents, only “association records” may be inspected and copied.  The Act defines “association records” (Civ. Code §5200) as follows:

  • Financial documents (a summary of the association’s reserves, the reserve study, insurance and loan information, notices of expiration of insurance policies (if any), documents required to be produced in response to a seller’s request pursuant to section 5235, including notices of hearings for uncured violations (if any), a copy of construction defect notices (if any), notices of pending assessment changes (if any), the annual budget report, and financial statement reviews (if any));
  • Interim financial statement containing a balance sheet, income and expense statement, a budget comparison and/or a general ledger;
  • Executed contracts that are not privileged ;
  • Written board approval of vendor or contractor proposals or invoices;
  • State and federal tax returns ;
  • Reserve account balances and records of payments made from reserve accounts;
  • Agendas and minutes of meetings of the members, the board and committees appointed by the board, excluding minutes and other information from executive sessions of the board;
  • Membership lists, including name, property address, mailing address, and email address (but not records and/or information for members who have opted out pursuant to Civ. Code §5220). Note that a request for membership list requires a statement of the purpose for which the list is proposed to be used by the requester. (Civ. Code §5225.);
  • Association check registers;
  • The governing documents;
  • Reserve studies;
  • Enhanced association records. “Enhanced association records” means invoices, receipt and cancelled checks for payments made by the association, purchase orders approved by the association, credit card statements for credit cards of the association, statements for services rendered and reimbursement requests submitted to the association; and
  • Association election materials. “Association election materials” means returned ballots, signed voter envelopes, the voter list (including name, voting power, and either the physical address of the voter’s separate interest, the parcel number or both. The mailing address for the ballot must also be listed if it differs from the physical address of the voter’s separate interest or if only the parcel number is used.), proxies, and the candidate registration list. Signed voter envelopes may be inspected by may not be copied.

If there is a challenge to an election, members may also request to inspect ballots. (Civ. Code §5125.)

Time Limits for Keeping Records

The association must maintain records for the current fiscal year, plus two previous years. However, minutes of member board meetings, and meetings of committees with decision-making authority (such as architectural committees) must be kept permanently. (Civ. Code §5210(a).)

Time Limits for Providing Records

The association must produce records prepared during the current fiscal year within 10 business days following receipt of a written request. (Civ. Code §5210(b)(1).)

The association must produce any records prepared during the previous two years within 30 calendar days of a written request. (Civ. Code §5210(b)(2).)

Minutes (or a summary or proposed draft minutes) of board meetings must be produced within 30 days of the meeting. (Civ. Code §4950.)  Minutes of committees with decision-making authority (such as architectural committees) must be made available with 15 calendar days following approval of the minutes by the committee.

Membership lists must be produced within five days, unless the association elects to provide a reasonable alternative, such as agreeing to transmit the requester’s communication to the members directly. (Corp. Code § 8330.)

Withholding or Redacting Records

The association may withhold or redact information from a document if information in a document is likely to lead to identity theft of an individual or to any fraud in connection with the association such as:

  • Documents that are privileged or confidential (subject to attorney-client privilege, litigation, or confidential settlement agreements);
  • A release that is likely to compromise the privacy of a member;
  • Information that contains disciplinary actions taken against other members;
  • Collection activities or payment plans of other members, or any personal identification Information (i.e., social security number, tax identification number, driver’s license number, credit card number, bank account number or bank routing number);
  • Minutes and other information from an executive session;
  • Personal records;
  • Interior architectural plans of individual homes or units, including security features (Civ. Code §5215(a)).

If information is withheld or redacted, the association must provide a written explanation of why the information is being withheld or redacted. (Civ. Code §5200.) The association may charge a fee for the cost of redacting enhanced association records, in any amount not in excess of $10 per hour, and not to exceed $200 total per written request., . (Civ. Code §5205(g).)

Note that the association may not withhold or redact information concerning compensation paid to employees, vendors, or contractors (except as provided by the attorney-client privilege). However, information regarding compensation paid to employees shall be set forth by job classification or title, not by the employee’s name, social security number, or other personal information. (Civ. Code §5215(b).)  Note that where an association contracts with an outside management company to provide management services, the manager and other related employees are the employees of the management company, not the association.

Member/Owner Rights To Inspect

A member or any member’s designated representative may inspect an association’s records.  (Civ. Code § 5205(a).)  Records and minutes may only be inspected for a purpose reasonably related to the member’s interest as a member. (Civil Code section 5200(a)(9).)

A member also has a right to request the email addresses of other members who have not opted out. (See Worldmark, The Club v. Wyndham Resort Dev. Corp. (2010) 187 Cal.App.4th 1017; the Court held that “address” was broad enough to include e-mail addresses if the corporation routinely used email addresses to communicate with its members.)

Director Rights

A director has the “absolute” right, at any reasonable time, to inspect and copy all books, records, and documents of the association. (Corp. Code §8334.) This “absolute right” is subject to a director’s fiduciary duty to act in the best of interests of the association to restrain directors from exercising these rights for personal gain, or to further interests contrary to the interests of the association. (Corp. Code §7231(a).)

The courts have carved out exceptions to this “absolute” right.  The individual privacy rights of members of the association trump the director’s right to inspect ballots cast in an election.  “We hold that homeowners association members have a constitutional privacy right in their voting decisions, even when conducted by proxy ballot. A homeowners association director’s statutory right to inspect the records of the association must be balanced against this privacy right”. (Chantilles v. Lake Forest II Master Homeowners Association (1995) 37 Cal.App.4th 914, 926.)

A director who is a party to litigation with the association does not have the right to inspect records in order to “advance the director’s personal interest in obtaining damages against the corporation.” (Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385, 1391.)  “Although corporate directors have an ‘absolute right’ to ‘inspect and copy all [corporate] books, records and documents of every kind’ (Corp. Code §1602), including documents protected by the attorney-client privilege, we conclude that a corporate director does not have the right to access documents covered by the attorney-client privilege that were generated in defense of a suit for damages that the director filed against the corporation.” (Id. at 1387.)

A director does not have the right to inspect records if that director’s stated purpose for inspecting those records is to breach his fiduciary duty (e.g., by disclosing attorney-client privileged documents).  The absolute right, however, is subject to exceptions and may be denied where a disgruntled director announces his or her intention to violate his or her fiduciary duties to the corporation. (Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1852.)

Documents May Be Inspected In Person, Copied, or Produced Electronically

In-Person Inspection:  Inspection or copying of records may be done at the association’s business office within the association or at a place agreed to by the requesting member and the association. (Civ. Code §5205(c) and (d).)

Paper Copies:  If a written request is made, the association may deliver copies to the member in lieu of an inspection. (Civ. Code §5205(e).)

Electronic Copies: The member requesting the inspection can request that he/she receive records by electronic transmission or machine-readable storage media so long as the records can be transmitted in a redacted format that does not allow the records to be altered. The association can charge for this cost. (Civ. Code §5205(h).)

Costs Associated With A Request For Documents

Copying and Mailing: The association may bill the requesting member for the actual cost of copying and mailing. The association shall inform the member of the actual amount and this must be paid prior to copying and mailing. (Civ. Code §5205(f).)

Redacting:  The association may bill the member requesting an enhanced record up to $10.00 per hour, not to exceed $200.00 per written request, for the time involved in redacting an enhanced record. The member making the request must agree to pay these costs before the redaction is done. (Civ. Code §5205(g).)

Remedy For Failure to Produce Records

If the association fails to comply with a valid request from a member to produce association records, the member has the right to sue the association to force compliance.  That member may hire an attorney and sue the association in Superior Court to obtain a mandatory injunction ordering the association to produce the records.  If the member prevails in this lawsuit and the court finds that the association unreasonably withheld the records, the court must award the member his/her reasonable costs and expenses, including attorney’s fees, and may assess a $500 penalty for each denial of a written request to inspect/copy records.  (Civ. Code §5235(a).)  If the association prevails, it is not entitled to recover its attorneys fees and can only recover its costs of litigation if the court finds the member’s lawsuit to be frivolous, unreasonable or without foundation. (Civ. Code §5235(c); see also Retzloff v. Moulton Parkway Residents’ Association (2017) 14 Cal.App.5th 742.)

The member may also elect to bring suit in small claims court and the small claims court has jurisdiction to issue a mandatory injunction ordering the association to produce the records as well as award the statutory penalty ($500) for each denial of a written request, up to the jurisdictional limits of the court ($10,000).  No attorneys fees are awarded in a small claims case, but the court can award other reasonable costs such as filing fees and costs of serving the summons and complaint.  (Civ. Code §5235(b).)

Is it Smoky in Here? What associations can do to address smoking in common areas and inside units.

By Rhonda R. Adato, Esq.
(As published in The Law Journal by CACM, Summer 2020)

Associations are often faced with the question of how to deal with smokers and the secondhand smoke they create. If secondhand smoke drifts from a residence or common area into a neighbor’s home, is that a nuisance? Or do residents generally have a right to enjoy a cigarette in peace? How can associations deal with this issue in a fair, even-handed way, and what legal tools do they have at their disposal?

First, the facts. According to the Center for Disease Control’s (“CDC”) website, cigarette smoking is the leading cause of preventable disease and death in the United States, accounting for more than 480,000 deaths every year. In 2018, nearly 14 of every 100 U.S. adults, aged 18 years or older, smoked cigarettes. However, cigarette smoking has significantly declined in recent years: smoking is down from 20.9% of American adults in 2005 to 13.7% in 2018.

Statistics also suggest that cigarette smoking is generational: current cigarette smoking is lowest among those aged 18 to 24 years old, at 8.4%.

So what does this mean for associations? Smoking rates are declining in the U.S. Research conducted in recent years has also brought the harmful effects of tobacco smoke to light, and local, state and federal governments have made a concerted effort to inform the public of these harmful effects. However, smokers are still out there. As a result, non-smokers appear to be increasingly less tolerant of smokers because they are more aware than ever of the harmful effects of secondhand tobacco smoke. Non-smoking residents are now demanding that association boards take action.

Is an association obligated to respond? As a general matter, associations are required to enforce nuisance provisions set forth in their CC&Rs. Secondhand tobacco smoke traveling into a residence can be reasonably interpreted to be a nuisance. Associations should enforce their CC&Rs, as appropriate, against owners when secondhand smoke from their residence constitutes a nuisance to other residents.

An association can face steep penalties for failing to enforce its CC&Rs. By way of example, in Chauncey v. Bella Palermo Homeowners Association et al, (2013) Orange County Superior Court Case No. 30-2011-00461681, the defendant association’s CC&Rs included a standard nuisance provision. Plaintiff homeowners complained to the association about their neighbors’ incessant smoking, which caused secondhand smoke to constantly enter their unit and aggravated their son’s asthma. Plaintiffs filed suit against both the neighbors and the association, alleging in part that the association failed to enforce the CC&Rs nuisance provision. The jury found that the association breached its CC&Rs. Plaintiffs were awarded damages and the association was required to pay plaintiffs’ attorneys’ fees.

There are challenges, however, associated with enforcing a nuisance provision. What is or is not a nuisance is a subjective standard. After all, what is a nuisance to one person may not be a nuisance to another. Further, it may be difficult for an association to determine if smoke is really transferring, or where the smoke is coming from. For that reason, an outright ban on smoking may be easier to administer, since it is an objective standard.

But do associations have authority to enact an outright ban against smoking tobacco in the community? And will a court uphold such a ban as enforceable? Unfortunately, we are not aware of a published California case regarding enacting a total smoking ban. However, in Birke v. Oakwood Worldwide et al. (2009) 169 Cal.App.4th 1540, a residential apartment complex banned smoking in all indoor common areas and indoor units, but permitted smoking in all outdoor common areas. The plaintiff, a resident with asthma, sued the apartment complex, alleging that the failure to abate the tobacco smoke in the outdoor common areas was a nuisance. The trial court granted the apartment complex’s demurrer to plaintiff’s first amended complaint without leave to amend. Plaintiff appealed. The appellate court ruled that plaintiff alleged a valid nuisance claim. Birke is helpful for California associations who wish to prohibit smoking. It underlines the concept that landlords may have an affirmative obligation to mitigate/address secondhand smoke as part of their existing “duty to take reasonable steps to maintain its premises in a reasonably safe condition.” Community associations are not landlords per se, but California courts have treated them like landlords in cases such as Frances T. v. Village Green Owners Assn. (1986) 42 Cal. 3d 490.

Case law from other states is also helpful, although not controlling in California. In the Colorado case Christiansen v. Heritage Hills 1 Condo. Owners Ass’n, Case No. 06CV1256 (Colo. Dist. Ct. Nov. 7, 2006), the defendant association amended its CC&Rs to ban smoking within the boundaries of the project. The court evaluated the ban under the standard of whether the association’s actions were reasonable, made in good faith, and not arbitrary or capricious (which is very similar to the California business judgment rule standard). The court found that the structure of the association’s building allowed smoke to migrate, and that residents had tried other means of mitigating the smell. The court also noted that the smoking ban was reasonably investigated and passed by 3 out

of 4 owners after trying other options to solve the issue. The court further stated that the Colorado legislature had recently passed bills regulating secondhand smoke, and that citizens do not have a fundamental right to smoke. As such, the ban neither violated public policy nor infringed on any of the owners’ fundamental rights. The court additionally held that the plaintiff smoker’s actions negatively affected the remainder of the community. Hopefully, a California court ruling on a community-wide smoking ban would apply similar reasoning as in Christiansen.

So what options does an association have to address smoking? As stated above, an association should enforce any nuisance provision set forth in its CC&Rs. We also believe associations are on firm ground to ban smoking in common areas. Associations typically have the right to control their common areas.

An association’s governing documents may additionally grant it authority to take action in the interest of protecting the health and safety of residents. The tide of public opinion is also turning against tobacco, meaning fewer homeowners may challenge such a ban.

Note that a community-wide ban on smoking is riskier than just banning smoking in common areas. While an association might be heralded for being health conscious and innovative, it also risks being a test case in the California courts regarding the enforce-ability of such a ban. However, some associations may be willing to take that risk. Associations should keep in mind that banning smoking in the entire community should most likely be done via a CC&Rs amendment, rather than an operating rule change. Adopting a ban within residences via an operating rule change might result in a challenge from a homeowner on the grounds that the rule is unreasonable and exceeds the board’s authority. Associations can also mitigate the risk of a homeowner challenge by implementing a grandfathering provision. That is, by drafting a community-wide ban to only apply to members who buy their homes in the community after the CC&Rs amendment has been recorded.

That way, all new members will be on record notice of the ban, and existing owners will be less likely to raise a challenge. However, a grandfathering provision will not resolve any nuisance claims resulting from any smoke transmission between residences, and might even make such claims more likely since all new owners will presumably be non-smokers.

In sum, associations should tread carefully and consult their legal counsel no matter which course of action they choose. Tobacco smoking may also decrease with time since younger people tend to smoke less, statistically. However, associations may face a new set of challenges in coming years. A November 6, 2019 NPR article reported that the proportion of high school students vaping nicotine has grown to 1 in 4. Young people have moved on to a newer, hipper trend: vaping and e-cigarettes. There is much less research regarding the harmful effects of these devices than traditional tobacco cigarettes, including their secondhand smoke effects, and the legislature has been slow to address the trend. Community associations’ next challenge might be regulating the negative effects of these devices rather than traditional tobacco cigarettes.

About the Author
Rhonda R. Adato is an Associate attorney at the law firm of Epsten, APC, where she handles transactional matters. She is based in Epsten’s San Diego office and joined the firm in August, 2018.

Perpetual Calendar of Board Duties

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By Carrie M. Timko, Esq.

For a board to be sure that it carries out its duties in a timely manner, it needs to know not only what duties are required of it, but also when those duties must be performed. We have prepared a checklist that each board can use to assist it in determining those duties, but it is ultimately up to the board to make sure that it performs those duties in a timely manner. The use of a “perpetual” calendar with reminders of upcoming and current duties will help the board ensure that it doesn’t miss any deadlines.

At the conclusion of this article is an example of monthly reminders of various deadlines. We have set this up as if the association in question has a fiscal year that begins on March 1 and an annual meeting that is supposed to be held in June. This is just a simple 2-column table with the months of the year in the left column and the specific duty, date due within the month (if applicable) and the applicable statute or governing document authority for the duty (if applicable).

Three key duties are triggered in relation to the timing of an association’s fiscal year. First, both the annual budget report (Civil Code §5300), and the annual policy statement (Civil Code §5310) must be sent out between 30 and 90 days before the end of the fiscal year. You will note that we have identified the earliest and latest date for the budget mailing. It also shows an adjustment if the year happens to be a leap year. The next dates triggered by the fiscal year are the due dates for the state and federal tax returns. Finally, the deadline for preparing and mailing the annual audit or review of the association’s finances is 120 days after the close of the fiscal year (Civil Code §5305). Due to months with 28, 29, 30 or 31 days, 120 days after the close of the fiscal year may or may not be exactly four months later.

You will also note that we have included reminders in advance of the various deadlines. If you are going to get the budget and other disclosure information out to owners between 30 and 90 days before the end of the fiscal year, you will have to start working on the budget and get it approved enough in advance to get it copied and mailed. Likewise, if you are going to have the tax return and audit/review prepared on time, you are going to have to have an accountant selected enough in advance so the work can be done. A similar principle applies to updating the reserve study. You will have to select a person to perform the reserve study at least every three years (Civil Code §5550(a)). The board is required to review and to consider and make necessary adjustments in other years (Civil Code §5550(a)), but it is probably better to have a reserve consultant prepare your updates. For things like the reserve study, we have selected an arbitrary date when it must be done and put in reminders before that.

There are other periodic duties that are included, such as a monthly inspection of all bank statements, quarterly reconciliations, and the actual revenue and expenses compared to the budget in both the operating and reserve accounts (Civil Code §5500).

There are some key mailing addresses that rarely come into play, but they can be important if you are not aware of them. For example, most associations are not taxed on their separately-owned common area lots, but they still have assessor’s parcel numbers that can be, and in some counties, are used to generate tax bills. Occasionally we have found associations that are taxed (usually in error) or that become subject to some minor assessment that they never discover, if the address on file with the assessor’s office is a long-outdated address of the developer or a management company that the association had many years ago. Thus, at least once a year, you should take a look at the addresses that are used for infrequently received mail and make the addresses current. In many cases, it is better to have a permanent post office box that someone checks periodically for such notices. You should check not only tax bill addresses, but also the address used by the Secretary of State for sending corporate notices, in particular the Statement of Information by Domestic Nonstock Corporation (Form SI-100) that every incorporated association must file every two years. Form SI-100 is due in the anniversary month, i.e., the month in which the association was incorporated.

Whether an association is incorporated or not, it must also file a Statement of Information by a Common Interest Development (Secretary of State Form SI-CID at bpd.cdn.sos.ca.gov/corp/pdf/so/corpua_cid.pdf). Incorporated associations must file Form SI-CID every two years during the anniversary month of incorporation, and unincorporated associations must file it by July of odd-numbered years (Civil Code §5405). To see what California homeowner associations are required to file by law, see the Franchise Tax Board Form 1028 at https://www.ftb.ca.gov/forms/misc/1028.html.  If you fail to file these forms on time and pay the filing fees, the Secretary of State can suspend the corporation, which legally handcuffs you and prevents you from levying or collecting assessments, filing liens, filing a lawsuit or defending the association, if it is sued, creating valid contracts, etc. It is a very bad position to be in, as the only thing a suspended corporation may do is take the actions needed to lift a suspension.

Another important item is the expiration of contracts, particularly those that have automatic renewal provisions if you don’t cancel the contract at the proper time. Thus, you need to docket not only the expiration date, but also any deadline in advance of that date for sending a notice to terminate. It is a good idea in all reminders to give yourself at least one month’s prior notice before you have to do anything and always look ahead one month or more to see what is coming up on the perpetual calendar.

If You Change Management Companies or the Company Moves

In view of the above factors, be sure to change the address with the County Assessor on all common area tax bills. Normally you will not or should not have property tax bills, but if you don’t do this for every common area parcel, and there is some fixed fee that is levied for some reason, you could have your common area parcels sold at a tax sale, and it will be an expensive and an incredible mess to fix. Also change the address for the agent for service of process (frequently someone at the management company) on Form SI-100 to prevent your corporation from being suspended.

Other Possible Items to Insert in the Calendar

  • Docket Vendor Contract Expirations and Termination Notice Dates (such as landscaping, pool, and management contracts). Many automatic renewal clauses require giving notice at least 30 to 60 days before the automatic renewal date, if you want to terminate the contract.
  • Prepare Reserve Study and annual update – include the year that the 3-yr. full study is due (e.g., years evenly divisible by 3, or years leaving a remainder of one or two when divided by three, etc.).
  • Check with vendors for price increases before the new fiscal year.
  • Reset clocks and timers for daylight savings time: 2nd Sunday in March and 1st Sunday in November.
  • Replace batteries in battery-operated smoke alarms that are the association’s responsibility (pick a date when something else is needed like the start of the fiscal year or the spring or fall time change).
  • Define major objectives for the next fiscal year.
  • Renew the annual pool permit.
  • Inspect fire extinguishers and hoses annually.
  • Test fire sprinkler and alarms annually.
  • There is no rule for the format you must use for the calendar. However, we hope that by using some form of calendar customized to your association, you will be prepared to carry out all of your duties and responsibilities in a timely manner. A sample perpetual calendar follows below.

Sample Perpetual Calendar1

Month Deadlines – Upcoming Deadlines – Check Next Month, too
At or Before Each Board Meeting
  • Provide Board Meeting Notices & Agendas by “general delivery” (Civil Code §4045) before each board meeting (Civil Code §4920).
  • Review the Latest Statements from the financial institutions where the HOA has its operating and reserve accounts: Monthly or when each comes in (Civil Code §5500).
  • Review Reconciliation of Operating & Reserve accounts (Civil Code § 5500).
  • Review current year’s actual operating revenues and expenses compared to the current year’s budget (Civil Code § 5500).
  • Review income & expense statement for operating & reserve accounts (Civil Code § 5500).
  • Review check register, monthly general ledger, and delinquent assessment receivable reports (Civil Code § 5500).
February (Previous fiscal year)
  • Annual Meeting: Review election rules and determine if any amendments are required.  Proposed amendments that are not required by law must be submitted for member comment no less than 28 days prior to adoption. (Civil Code § 4360.)  The election rules may not be amended any less than 90 days before the election of directors. (Civil Code § 5105(h).)   Annual meeting date: June 13.
  • Annual Meeting: Provide by General Notice or Delivery (Civil Code § 4045) (unless Individual Notice or Delivery (Civil Code §§ 4040) is requested by a member, in such case Individual Delivery will be required) of the procedure and deadline for submitting a nomination at least 30 days before any deadline for submitting a nomination (Civil Code § 5115(a)).   This must be done no less than 90 days before annual meeting (Civil Code § 5115(a)-(c)).  This notice may also include a statement regarding a member’s right to IDR before disqualification as a candidate (Civil Code § 5105(e)).
  • Annual Meeting: Appoint Nominating Committee (if required; review bylaws and election rules).
March
  • March 1 – New Fiscal Year Begins
  • March 152 – 4th “Quarterly” Estimated Tax Due
  • Select Accountant and Send Accountant Information for Annual Audit/Review; Check with accountant to see if an annual surplus funds resolution needs to be voted on at the annual meeting and obtain accountant’s language (See June 13 anniversary ± time allowed by Bylaws)
  • Annual Meeting: Appoint election inspector(s) before the Notice of the Annual Meeting is sent (Civil Code §5110).
  • Annual Meeting: Upon deadline for submission of candidate nominations, determine whether any candidate should be disqualified from running for the Board in accordance with the election rules.  Notification of candidate disqualification and notice of the opportunity for IDR should ideally go out before the Notice of Annual Meeting is sent, which includes the candidate list. (Civil Code §§ 5105(e), 5900.)
  • Annual Meeting: Send out Notice of Annual Meeting (by General Delivery, unless Individual Delivery is requested), including the list of candidates; date, time and physical address of meeting location; and where and when ballots are to be returned by mail or handed to inspector of elections; no earlier than the deadline for nominations or 90 days before annual meeting (Corporations Code § 7511), and no later than 30 days before mailing the ballot. (Civil Code § 5115(b).).
  • Annual Meeting: Prepare voter list and allow verification of voter information.  This voter list must be made available at least 30 days before mailing the ballots.  Correct any errors on the voter list no more than 2 business days after receiving notice of any error, and prior to mailing the ballot. (Civil Code § 5105(a)(7).)
  • Check items in “At or Before Each Board Meeting” above
April
  • Annual Meeting: If not done in March, send out Notice of Annual Meeting (by General Delivery, unless Individual Delivery is requested), including the list of candidates; date, time and physical address of meeting location; and where and when ballots are to be returned by mail or handed to inspector of elections; no earlier than the deadline for nominations or 90 days before annual meeting (Corporations Code § 7511), and no later than 30 days before mailing the ballot. (Civil Code § 5115(b).)
  • Annual Meeting: If Notice of Annual Meeting was sent in March, no less than 30 days after such Notice was provided, prepare and mail ballots with voting instructions (plus annual surplus funds resolution from accountant, only if applicable), and election rules* at least 30 days before Annual Meeting (Civil Code §§ 5115(g)(4), 5115(c)).  *Election rules can be posted via website in lieu of physical mailing only if the following language is included on the ballot in 12-point font: “The rules governing this election may be found here (www…)”.
  • Annual Meeting: Most HOAs don’t prepare and send proxies any longer (check bylaws). If not done, and you do use proxies, be sure the proxy meets bylaw and Civil Code § 5130 requirements.
  • Check items in “At or Before Each Board Meeting” above
May
  • May 15 – Deadline to file federal tax return (15th day of the 3rd month after FY ends for IRS Form 1120-H, but check with CPA). Usually State returns are required too (usually both FTB Form 100 and 199). California return is usually due on the 15th day of the 5th month after end of FY. See July 15)
  • Pool Contract Expires August 1. Nonrenewal/Termination Notice Required by June 1 (60 days)
  • Annual Meeting: If Notice of Annual Meeting was sent in April, no less than 30 days after such Notice was sent, prepare and mail ballots with voting instructions (plus annual surplus funds resolution from accountant, only if applicable), and election rules* at least 30 days before Annual Meeting (Civil Code §§ 5115(g)(4), 5115(c)).  *Election rules can be posted via website in lieu of physical mailing only if the following language is included on the ballot in 12-point font: “The rules governing this election may be found here (www…)”.
  • Annual Meeting: Most HOAs don’t prepare and send proxies any longer (check bylaws). If not done, and you do use proxies, be sure the proxy meets bylaw and Civil Code § 5130 requirements.
  • Check items in “At or Before Each Board Meeting” above
June
  • June 1 (60 days before August 1) 60-day Nonrenewal/Termination Notice Required before August 1 Pool Contract Expiration
  • June 13 – Anniversary of First Annual Meeting – Hold Annual Meeting ± time allowed by Bylaws), elect board, (be sure you check with accountant to see if annual tax resolution regarding surplus funds is needed and get proper language.)  Voting deadline may not be any sooner than 30 days after the ballot was mailed (Civil Code § 5120).
  • June 153 – 1st “Quarterly” Estimated Tax Due
  • June 28 or 29 (leap year dependent)-Deadline for mailing annual Audit/Review information (120 days after FY End) (Civil Code § 5305).
  • Check items in “At or Before Each Board Meeting” above
July
  • July 15 – Deadline to file CA tax returns (15th day of the 5th month after end of FY, but check with CPA). Usually Federal form is required earlier (See May 15). Usually needs FTB Form 100 and Form 199 too, but check with CPA.
  • July-Landscaping Contract Expires Oct. 1 annually. 30-day Nonrenewal/ Termination Notice Required by Sept. 1 (30 days)
  • Check items in “At or Before Each Board Meeting” above
August
  • July-Landscaping Contract Expires Oct. 1 annually. 30-day Nonrenewal/ Termination Notice Required by September 1 (30 days)
  • August 154 – 2nd “Quarterly” Estimated Tax Due
  • August 22 (12:01 am) – Property and General Liability Insurance expires
  • August 22 (12:01 am) – D&O Insurance expires
  • August 22 (12:01 am) – Umbrella Insurance Policy expires
  • August 23 (Even Years) – 8/23/86 Anniversary Date of Corporation. Must file both Statement of Information by Domestic Nonstock Corporation (Form SI-100) and Statement of Information for Common Interest Development (Form SI-CID) this month. Note: At the same time SI-100 is due, it is a good idea to check the County Assessor’s records to be sure that the Association’s mailing address is correct. If it is not and you change management companies, or they change addresses, and then the County levies some flat fee, you could lose your common area property, because you never got the bill.
  • Check items in “At or Before Each Board Meeting” above
September
  • September 1: 30-day Nonrenewal/Termination Notice Required on Landscaping Contract expiring Oct. 1 annually.
  • Reserve Study Consultant – Get Bids. See “Reserve Study” in January and Reserve Information required at least 30 days before new fiscal year (March 1) in the Annual Budget Report and Annual Policy Statement
  • September 27 (12:01 am). Workers Compensation Insurance expires
  • Check items in “At or Before Each Board Meeting” above
October
  • Start Preparing Annual Budget Report, Annual Policy Statement and any non-mandatory disclosures. Review checklist of all items to include – Review & Update Reserve Study – Check with vendors about increases for budgeting. Add other non-mandatory information or disclosures owners should know (e.g., location of gas and water shutoffs for emergencies). Latest date: January 28 (or 29 in leap years) (Civil Code §§ 5300 & 5310 – trump contrary provisions in governing documents)
  • For mandatory disclosure in Annual Policy Statement – Any contract or other transaction in which any Director has a material financial interest? (Corp. Code § 8322)
  • Check items in “At or Before Each Board Meeting” above
November
  • November 155 – 3rd “Quarterly” Estimated Tax Due
  • November 30 (December 1 in leap years) – (December 1 in leap years – Earliest date to deliver by Individual Delivery (Civil Code §§ 4040 & 5320) Annual Budget Report, Annual Policy Statement and any non-mandatory disclosures – 90 days before fiscal year begins). Latest date: January 28 (or 29 in leap year).
  • Start Preparing Annual Budget Report, Annual Policy Statement and any non-mandatory disclosures. Review checklist of all items to include – Review & Update Reserve Study – Check with vendors about increases for budgeting. Add other non-mandatory information or disclosures owners should know (e.g., location of gas and water shutoffs for emergencies). Latest date: January 28 (or 29 in leap year) (Civil Code §§ 5300 & 5310 – trump contrary provisions in governing documents).
  • For mandatory disclosure in Annual Policy Statement – Any contract or other transaction in which any Director has a material financial interest? (Corp. Code § 8322).
  • Check items in “At or Before Each Board Meeting” above
December
  • If not done previously, approve Annual Budget Report, Annual Policy Statement and any other mandatory or optional disclosures. Review Civil Code §§ 5300 & 5310 for all items to include. Include latest Reserve Study or annual update. Include disclosure of any contract or other transaction in which any Director has a material financial interest (Corp. Code § 8322). Include adjustments for any vendors’ increases. Latest date: January 28 or 29 (leap year)
  • December 1 in leap years – Earliest date to deliver by “Individual Delivery” (Civil Code §§4040 & 5320) Annual Budget Report, Annual Policy Statement and any non-mandatory disclosures – 90 days before fiscal year begins). Latest date: January 28 (or 29 in leap year) (Civil Code §§5300 & 5310 trump contrary provisions in governing documents).
  • Check items in “At or Before Each Board Meeting” above
January
  • If not done previously, approve Annual Budget Report, Annual Policy Statement and any other mandatory or optional disclosures. Review Civil Code §§ 5300 & 5310 for all items to include. Include latest Reserve Study or annual update. Include disclosure of any contract or other transaction in which any Director has a material financial interest (Corp. Code §8322). Include adjustments for any vendors’ increases. Latest date: January 28 or 29 (leap year)
  • January 29 (30 in leap year) – Deadline to deliver by Individual Delivery (Civil Code §§4040 & 5320) Annual Budget and Disclosure Package (30 days before fiscal year begins) Annual Budget Report, Annual Policy Statement and any non-mandatory disclosures (Civil Code §§5300 & 5310 trump contrary provisions in governing documents)
  • Check correct HOA mailing addresses for all common area tax bills, Corp. Agent for service of process (Secy. of State Forms SI-100 and SI-CID) and other notices to Association
  • Reserve Study – New Study due in years divisible by 3 with a remainder of 1 (e.g., 2014, 2017, etc.). Must be updated annually in other years
  • Review and Update Perpetual Calendar for next fiscal year
  • Check items in “At or Before Each Board Meeting” above
February
  • February 156 – 4th “Quarterly” Estimated Tax Due
  • February 28 (29 in leap year) – Fiscal Year Ends
  • See Annual Meeting Requirements for February (previous fiscal year) above.
  • Check items in “At or Before Each Board Meeting” above

 

1 IMPORTANT NOTE: We have set up this sample calendar as if the association in question has a fiscal year that begins on March 1 and an annual meeting that is supposed to be held in June. Your association’s fiscal year and annual meeting timing may differ, resulting in necessary changes to this sample. Please consult legal counsel to verify that the dates you use are appropriate for your community. Also see IRS Publication 509 regarding tax calendar issues.
2 See footnote 1.
3 Check with your accountant whether you are required to file estimated tax payments and when they are due. If you do, these are typically due on the 15th day of the 4th, 6th, and 9th months of your tax year and on the 15th day of the 1st month after your tax year ends. This is for a fiscal year ending February 28 or 29. CA estimated payments dates may be different. Verify state and federal due dates with your accountant.
4 See footnote 1.
5 See footnote 1.
6 See footnote 1.

SB 323 and SB 754: Elections as of January 1, 2020

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This new law makes many changes to election laws, director qualification and records inspection and affects Civil Code §§ 5100, 5105, 5110, 5115, 5125, 5145, 5200 and 5910.  These changes include all of the following:

Timing and Distribution of Materials for Elections:

An election for the board of directors must be held at the end of each director’s expiring term and at minimum every four years.

  • At Least 90 Days Before the Election: Amend election rules (Section 5105(h))
  • 30 Days Before Deadline to Submit Nominees for a Director Seat: Give general notice of procedures and deadline for submitting a nomination for a Director seat (Section 5115(a)).
  • 30 Days Before Ballots are Distributed: Give membership general notice of the following (Section 5115(b)(1)-(4)):
    • The date, time and physical address where ballots are to be returned by mail or handed to inspector of elections.
    • The date, time, and location of the meeting at which ballots will be counted.
    • A list of all candidates who will appear on the ballot.
    • Prepare the candidate registration list and voter list and allow members to verify the accuracy of their information on both lists. (Section 5105(a)(7)). Any reported errors on the voter list must be corrected by the Inspector of Election within two business days.
  • 30 Days Before Election: Inspector of Election must deliver, or cause to be delivered, the following to each member (Section 5105(g)(4)):
    • The ballot(s).
    • A copy of the election operating rules. Election operating rules may also be delivered by posting them on internet website and providing members the website on the ballot together with the phrase, in at least 12-point font: “The rules governing this election may be found here:___.”

Association Ability to Disqualify a Nominee for the Board:

An Association’s bylaws or election operating rules may only disqualify a nominee for the following reasons:

  • Nominee, if elected, would be serving on a Board at the same time as another person who holds a joint ownership interest in the same separate interest as the nominee and the other person is also a nominee for the current election or an incumbent director;
  • Nominee has been a member of the Association for less than one (1) year;
  • A nominee discloses, or the association is aware or becomes aware of, a past criminal conviction that would, if the nominee was elected, either prevent the association from purchasing the fidelity bond coverage required by Section 5806 or terminate the association’s existing fidelity bond coverage;
  • Nominee is not current in payment of regular and special assessments (does not include nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party). (If an Association requires a nominee be current in their payments, then it must also require a director be current in their payments.)  The nominee may not be disqualified for failure to be current in payment of regular and special assessments if either the following circumstances is true:
    • The person has paid the regular or special assessment under protest pursuant to Section 5658; or
    • The person has entered into a payment plan pursuant to Section 5665.

A nominee must be disqualified for not being a member of the Association at the time of the nomination.

An association shall not disqualify a person from nomination if the person has not been provided the opportunity to engage in internal dispute resolution.

If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of being nominated as a candidate.

Election Operating Rules Must Include:

  • A prohibition on denying a ballot to a member for any reason other than not being a member at the time when ballots are distributed;
  • A prohibition on denying a ballot to a person with general power of attorney for a member; and
  • A requirement the inspector or inspectors of elections deliver, or cause to be delivered, at least 30 days before an election, to each member both of the ballot and a copy of the election rules. Delivery of the election operating rules may be accomplished by posting the election operating rules to an internet website and including the corresponding internet website address on the ballot together with the phrase, in at least 12-point font: “The rules governing this election may be found here:” or Individual delivery.

Association Records:

  • Membership lists subject to inspection by members now include members’ email addresses.
  • “Association election materials” has been added to the definition of association records which must be retained by the Association. These materials include the returned ballots, signed voter envelopes (signed voter envelopes may be inspected but may not be copied), the voter list, voters to whom ballots were to be sent, proxies, and the candidate registration list.
  • The voter list must include the voter’s name, voting power, and either (a) the voter’s physical address of their separate interest, (b) the parcel number, or (c) both. The voter’s mailing address must also be listed if only the parcel number is used.

Inspector of Elections:

The inspector of elections may not be a person, business entity, or subdivision of a business entity that is employed or under contract to the association for any compensable services.  The election rules may no longer make an exception.

Election by Acclamation for Associations of 6,000 or More Units:

When the number of director nominees at the close of the nomination period is not more than the number of vacant director positions on the board, the director nominees may be considered elected by acclamation if all of the following is true:

  • The Association includes 6,000 or more units;
  • The association provided individual notice of the election and the procedure for nominating candidates at least 30 days before the close of nominations; and
  • The association permits all candidates to run if nominated, except those disqualified for not being a member of the association at the time of the nomination and those disqualified for other reasons specified in Civil Code Section 5100.

Legal Actions:

  • Existing law authorizes a member of an association to bring a civil action for declaratory or equitable relief for a violation of the election law requirements by the association within one year from the date the cause of action accrues. This new law sets the time limit to file the action at one year from the date that the inspector of elections notifies the board and membership of the election results or the date the cause of action accrues, whichever is later.
  • The new law requires the court, if a member establishes by a preponderance of the evidence that election provisions or operating rules were not complied with, to void the election results unless the association establishes, by a preponderance of the evidence, that the association’s noncompliance with the election provisions or operating rules did not affect the election results.
  • An association may not file a civil action regarding a dispute in which the member has requested dispute resolution unless the association has complied with internal dispute resolution procedures.

Records to Keep

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By Karyn A. Larko, Esq.

There are few laws that say exactly what records a community association should keep and for how long.  Some of these laws are clear and some are not. For this reason, much of this article is based on the author’s experience and opinions, with input from experts in other legal and financial disciplines. Please note, there are undoubtedly some categories of records not addressed in this article that may be as important as those addressed below.

Member Meeting, Board Meeting and Committee Meeting Minutes

An association’s minutes constitute the official record of its acts. Both incorporated and unincorporated associations must keep minutes and must allow members to inspect them (see Corp. Code § 8320 and § 8333; Civ. Code § 4950 (board meetings), § 5200 and § 5210).  The original minutes should be kept forever, including minutes of membership meetings, regular board meetings and executive sessions (kept separately from regular board meeting minutes). The same applies to minutes of any committee that is empowered to exercise any board powers. If you don’t have originals, keep what you do have, signed or unsigned.

Ballots, Outer Balloting Envelopes and Proxies

The law provides direction on the retention of candidate registration lists, voter lists, ballots, proxies, sign-in sheets, signed voter envelopes and other election records. For Board elections and member votes to amend the governing documents, increase regular assessments, impose special assessments, and grant the exclusive use of common area, Civil Code sections 5105, 5125, 5200 and 5210 require that candidate registration lists, voter lists, ballots, signed voter envelopes, proxies and sign-in sheets be stored by the inspector(s) of elections or at a location designated by the inspector(s) for one year from the date the cause of action accrues.  This can be a challenging date to identify.  Depending on the nature of the claim, the date of the cause of action can be prior to the date the ballots are opened and counted, the day the ballots are opened and accounted, or a later date. Thereafter, these records must be held by the association until a total of three fiscal years have elapsed.  (For example, if an association’s fiscal year is January through December and the election is held in June 2020, these records must be retained until January 2023.)

Remember to note the election results in the relevant meeting minutes (see Corp. Code § 8325).

Contracts

Civil Code sections 5200 and 5210, which became effective January 1, 2014, require associations to make executed contracts that are not privileged under law available to the owners (which is the same as saying they must “retain” these records) for the current and prior two fiscal years.  Having said this, an association should not destroy these documents at the end of this period.

California has a 4-year statute of limitations for lawsuits arising out of contracts or other written documents (Code Civ. Proc. § 337).  Therefore, even if you signed a contract more than four years ago, you should keep the document for at least 4 years after the contractual relationship ended.  For example, if you have an automatically renewing management or landscape maintenance contract, you should keep that contract for at least 4 years from the date the contract was terminated.

To keep track of contracts, you should keep a file or notebook containing all active contracts and a separate file for contracts that have expired or have otherwise been terminated.

Records Related to Taxes

Civil Code sections 5200 and 5210 also require associations to make many tax related records available to owners for the current and prior two fiscal years.  (The tax-related records subject to section 5200 include, without limitation, state and federal tax returns, invoices, statements, receipts, canceled checks, approved purchase orders, reimbursement requests and credit card statements.)  However, an association should not destroy these records at the end of this period.

We are informed that the IRS generally has a 3-year rule and that the California Franchise Tax Board has a 4-year rule for conducting tax audits (absent fraud). However, if a claim of loss from worthless securities is made or a deduction is taken for a bad debt, the statute of limitations (i.e., the timeframe within which the IRS can challenge the claim or deduction) is 7 years.  Furthermore, there is no limit on when these agencies can pursue a claim if a tax return wasn’t filed. We have had clients whose corporate status was suspended for allegedly not filing a tax return more than fifteen years before. If the IRS has no record of a tax return or the tax payments, it will be impossible to show that you filed or paid the taxes without the return and the canceled checks.  Using this knowledge, it would be wise to keep all original financial documents for at least 4 years after filing the tax return (7 years if the return included a bad debt deduction or claim of loss) and to keep the tax returns and any tax payment checks forever.

If the Franchise Tax Board has no record that you filed or paid taxes and you do not have the records to prove otherwise, your corporation can be suspended.  The state will not revive the corporation or allow you to terminate the existing corporation unless and until the Franchise Tax Board acknowledges that all returns have been filed and taxes paid.

A few publications from the IRS provide additional guidance on the retention of tax related records. Publication 17 (2014) “Your Federal Income Tax” and Publication 583, “Starting a Business and Keeping Records,” are both available on request or can be accessed and printed from the Internet at http://www.IRS.gov. Also, an article in Smart Money Magazine[1], citing an H&R Block tax specialist, gives suggestions for individuals.  The specialist suggests keeping all tax-related items for seven years. It should be noted that the suggestions for what not to keep seem more applicable to individuals than businesses.

Since we are not tax attorneys, our best advice is that you obtain the advice of your association’s CPA or a tax attorney before discarding any tax related records.

Employee Related Records

For associations with employees, retaining payroll and employment records is more difficult to address. There are different statutes of limitations for state and federal wage claims, age and sex discrimination claims, and benefit claims, etc.  Some run from the date of the first breach and others from the date of the last violation. Depending on the claim raised, you may need time cards, hourly rates and annual salary data paid to different employees, evaluations and other personnel file records, and employee manuals and amendments.  You should probably retain the records on an employee for at least six years after the employee’s employment with the association ends.  Certainly, you should retain all records for current employees for at least six years and you should retain all personnel file information including benefit information for at least six years after the employer/employee relationship is terminated.

Unfortunately, it is far more difficult to say how long you should keep these records to defend against claims that current employees might raise in the future.

When you discard employee records, be sure to shred them to prevent both identity theft and the access of personal and confidential information by unauthorized persons.

Association Records Subject to Owner Inspection Pursuant to California Law

Civil Code section 5200 specifically identifies a number of other association records that must be made available to owners for inspection (and therefore, must be retained) for the current and prior 2 fiscal years.  Excluding minutes, contracts and tax related documents, which we addressed separately, these records include: (1) all governing documents; (2) documents required pursuant to Civil Code sections 4525, 5300, 5305, 5310 and 5565; (3) interim financial statements which include a balance sheet, income and expense statement, budget comparison or a general ledger; (4) written board approval of contracts or vendor bills; (5) reserve account records and records of payments made from reserve accounts; (6) the agendas for membership meetings, board meetings and meetings of committees established by the board pursuant to Corporations Code section 7212; (7) membership lists; and, (8) check registers.

The retention period required by Civil Code section 5200 is the minimum retention period.  These records should be kept longer if another rule or category applies that mandates a longer retention period.

Legal Documents

Legal documents, especially those that are not recorded in the official records of the county the association is located in, including settlement and mediation agreements, releases and maintenance agreements should be retained indefinitely – or at least until the association’s legal counsel confirms that it is safe to destroy them.

Any time there is a dispute involving the association and either a claim is made or a lawsuit is threatened, all documents pertaining to that matter must be preserved until litigation has concluded or the matter has otherwise been fully resolved, and legal counsel has confirmed that is safe to destroy them.  Additionally, all electronically saved communications, documents and video related to that dispute must be preserved, including without limitation, all emails, facsimiles, website and blog postings, voice-mail and text messages.

Other Association Records

There are records that an association is not required by law to retain, but we recommend doing so (at least for a substantial period of time) as a matter of good practice.

Annual audits or reviews are among the most important association financial records. These documents, which typically come in a small booklet, summarize an entire fiscal year.  It seems reasonable to keep them indefinitely.

You should maintain an inventory list, at least for items having a significant value.  This list should include a description of each item purchased, the purchase date, the amount paid and the check number. If you have a casualty loss, you will need to provide the association’s insurance carrier with a copy of the applicable purchase invoice(s) or canceled check(s).  Accordingly, you should keep these documents for as long as you own the property.

If you have an uncollected judgment, it is good for an initial 10 year period and can be renewed for an additional 10 year period.  Judgments and recorded abstracts of judgment can pop up years later, usually when a former owner wants to pay off the judgment to obtain new credit.  While a copy of these documents may be available in court files or attorney records, they may have been archived or even destroyed.  Even if they can be obtained, it may take some time to obtain them from storage.  Therefore, it is wise to keep these records while the judgment is valid.

Liability claims and certain property casualty claims can arise years after the incident(s) leading to such claims occurred and the association may have changed carriers one or more times in in the interim. The association will need to find the applicable insurance carrier to obtain insurance defense. A file should be kept for each insurance carrier and its policy(ies).  Each year’s declarations page, as well as any changes and endorsements that take effect during the life of the policy, should be added to the file.

Most associations keep a file for each owner’s property containing all correspondence and other records relating to that property or its owners. If an owner changes, routine correspondence can be archived and probably discarded following the general guidelines at the end of this article. However, for the reasons described below, you should probably retain indefinitely those documents relating to the property itself, such as architectural applications and recorded maintenance and indemnity agreements.

If architectural applications and approvals are discarded, it becomes impossible for the association to confirm which lot alterations had been approved. It also become impossible to confirm which improvements had been owner rather than developer constructed.

There is another benefit to retaining architectural decisions. Prior architectural decisions can provide guidance to architectural committees and boards by providing a record of what alterations did and did not work in the past and why. These records can also assist an association in the event an owner challenges its approval for denial of a proposed alteration. (Courts have allowed associations to change their minds based on the lessons of experience.)

Civil Code section 4765 requires architectural decisions to be in writing, and if a proposed change is disapproved, the written decision must explain why. Although you may keep the originals in separate files for each separate interest, you may find it more helpful to have at least a summary of each decision well-indexed in one or more files or notebooks. The summary should identify the improvements proposed and the reasons why they were or were not approved. This summary should also identify any regrets or complaints that followed an approval.

A general rule would be to say that, apart from the discussion above, most records can be discarded after five years, with the exception of employee benefit data/records, which must be kept for six years. However, even a five-year guideline cannot be applied categorically, and once a unique document is discarded, it is gone forever. If you are in doubt, you probably should err on the side of keeping the document, or at least get specific advice from someone with special expertise in the area that may be affected by the disposal before deciding whether to discard it.

Effective Record Retention

Records seem to disappear over the years. Thus, it is a good idea to consider using either a professional document storage company or a commercial self-storage unit just for your association’s records.  You should also develop a numbering system for the boxes and keep an index of what is in each box so that you can readily find documents many years later.

Records that you plan to keep forever should probably be kept with like documents in date order to make locating them easier (e.g., tax returns). It also makes sense to keep all records in the association’s active files that are to be kept forever in a separate drawer or banker’s box marked “KEEP FOREVER” to reduce the risk of them being inadvertently discarded. If you do not separate out these records at the time of their creation or receipt, they will become commingled with other records that may later be inadvertently discarded.  Waiting until you are ready to discard records to separate out those that should be kept will likely be significantly more difficult and time consuming than filing them separately in the first place.

If you have large quantities of documents that you think you should keep, but you don’t have the room, you may consider storing the records in computer form, either with software data files or scanned images. While this will take far less physical space than paper, it is important that you develop a plan on how you will access the documents in the future. Just as floppy disk drives have disappeared, making it difficult to pull data stored on such disks, it is important to realize that technology commonly used today may become obsolete or fail.  Therefore, unless you are using the most common software and hardware available now to store your records, know that it may not be readable in 10 to 15 years.  In fact, even using the most common software and hardware available now will not ensure that you will be able to access your electronically stored records a decade or so from now.  Additionally, hackers, ransomware, malware and viruses have all become commonplace. As a result, the security and protection of electronically stored records is becoming increasingly challenging. Built in storage redundancy, frequent document backups, and the use of current virus and malware protection software can significantly reduce the risk of loss. However, these measures are not foolproof.  For these reasons, keeping paper records may still be the safest option.

 

[1] April 2000 edition, page 88.

ADU Q&A after AB 670

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By Jacquelyn E. Quinn, Esq.

Can my association prohibit Accessory Dwelling Units (“ADU”) or Junior Accessory Dwelling Units (“JADU”) construction?

If your association is a planned development, no.

If your association is a condominium project, for now, yes.

On January 1, 2020, Civil Code section 4751 (a new provision of the Common Interest Development Act) will take effect and will prohibit planned development associations from effectively prohibiting or “unreasonably” restricting the construction or use of an ADU or JADU on a lot zoned for single-family residential use. By contrast, condominium associations are permitted to prohibit the construction of an ADU or JADU.

Therefore, any restriction in the CC&Rs, rules and regulations, or any other governing document, of a planned development will be superseded by Section 4751. For example, a requirement that garages must be used solely to park vehicles and may not be kept in a manner that interferes with the ability to park vehicles will no longer provide grounds for prohibiting the conversion of a garage to an ADU.

If you have any questions concerning whether your association is a planned development please contact your legal counsel.

What is an ADU?

An ADU is defined by California Government Code section 65852.2(j)(1) as an attached or detached residential dwelling unit located on the same legal lot as the proposed or existing single-family residence, which provides complete independent living facilities for one or more persons. An ADU must have permanent provisions for living, sleeping, eating, cooking, and sanitation.

A detached ADU is most commonly a separately constructed structure in a back or side yard. An attached ADU is often times an addition to the primary dwelling. Garages, carports or existing accessory structures (e.g., pool houses or work sheds) located on the same legal lot as a single-family may also be converted to an ADU. In addition, an efficiency unit and a manufactured (i.e., mobile home) are also included in the definition of an ADU.

What is a JADU?

A JADU is defined by California Government Code section 65852.22 as a unit that is contained entirely within a proposed or existing primary single-family structure. A JADU must not exceed five hundred (500) square feet. In addition, a JADU must include a separate entrance from the main entrance to the primary dwelling.

A JADU must include an efficiency kitchen, including a cooking facility with appliances and food preparation counter and storage cabinets that are of reasonable size in relation to the size of the JADU. A JADU may also include separate sanitation facilities (i.e., a bathroom), or may share sanitation facilities with the primary dwelling.

What sorts of restrictions can a Board enforce against ADU construction?

Civil Code section 4751 allows an association to place “reasonable restrictions” on ADUs and JADUs. For purposes of section 4751, a “reasonable restriction” is one that does not unreasonably increase the cost to construct an ADU or JADU, or effectively prohibit the construction of, or extinguish the ability to otherwise construct, an ADU or JADU consistent with Government Code sections 65852.2 or 65852.22.

The new law offers little guidance as to what sort of restrictions are “reasonable,” but the law does not require an association to follow the same exact standards that the city or county has adopted concerning ADUs or junior ADUs. In our view, that leaves open the option for an association to adopt its own “reasonable restrictions” that may differ from or be more restrictive than those of local agencies.

Such “reasonable restrictions” may include requirements related to aesthetics and design of the new unit, submitting and receiving approval of an architectural application, size of the new unit, use of shared facilities in the community, and parking.

Can ADUs and JADUs be rented?

Yes. The Legislature’s stated intent when adopting Section 4751 was to permit the rental of ADUs for a period of more than 30 days (e.g., no short-term rentals). Civil Code section 4741 also prohibits associations from prohibiting or unreasonably restricting the rental or leasing of any ADU or JADU. Associations with rental restrictions in its CC&Rs may impose the same rental restrictions on ADUs as long as those restrictions comply with section 4741.

Also, effective January 1, 2020, local agencies may no longer impose a requirement that an ADU or primary dwelling be owner-occupied. Therefore, a situation may arise where both the primary dwelling and ADU are occupied by non-owner residents. However, a requirement that either the primary dwelling or JADU be owner-occupied is still permitted.

Can ADUs be sold separately from the primary dwelling?

Generally, no. Under the vast majority of circumstances, an ADU must never be sold separately from the primary dwelling. However, local agencies may adopt an ordinance that allows a very limited and narrow exemption to this prohibition. When a property (both ADU and primary dwelling) is built or developed by a qualified non-profit corporation to be sold to qualified low-income buyers for purposes of owner-occupancy only, a local agency may adopt an ordinance that allows the ADU to be sold or conveyed separately from the primary dwelling. As a condition of the sale, the buyers of both dwellings must enter into a recorded tenancy in common agreement with provisions that ensure the property will be preserved as low-income

housing and will be owner-occupied. This very limited exemption should not impact established communities.

What kind of size restrictions can be imposed on ADUs?

Local agencies may establish minimum and maximum unit size requirements for both attached and detached ADUs. However, beginning January 1, 2020, local agencies may not establish a minimum square footage requirement that prohibits an efficiency unit or a maximum square footage requirement that is less than eight hundred and fifty (850) square feet, or one-thousand (1,000) square feet for an ADU that provides more than one (1) bedroom.

In addition, any other size requirement set by a local agency, (or size based up on a percentage of the primary dwelling, floor area ratio, open space, and minimum lot size) must allow for at least an eight hundred (800) square foot ADU that is at least sixteen (16) feet in height with four (4) foot side and rear year setbacks.

By definition, JADUs must not exceed five hundred (500) square feet.

What parking requirements may be imposed on ADUs?

Parking is a challenge for many associations even without ADU construction and may require specific inquires to determine the best solutions.

Local agencies are permitted to require one off-street parking space per ADU or per bedroom, whichever is less. These spaces may be provided as tandem parking on a driveway.

However, a local agency may not impose parking requirements for an ADU when (1) the ADU is located with one-half mile walking distance of public transit; (2) the ADU is located within an architecturally and historically significant historic district; (3) the ADU is part of the primary residence or a permitted accessory structure; (4) on-street parking permits are required but not offered to the ADU occupant; and (5) a car share vehicle is located within one block of the ADU.

In addition, starting January 1, 2020, a local agency may not require that off-street parking lost by conversion of a garage or carport to an ADU or JADU be replaced.

If your association is located within the coastal zone it is possible the city’s local coastal program land use plan specifies parking requirements that differ from the government code and may require replacement of off-street parking lost by conversion of a garage or carport to ensure compliance with the provisions of the California Coast Act of 1976. Please review your city’s local ADU and JADU ordinances.

What are the next steps to manage ADU and JADU requests?

Section 4751 allows associations to adopt “reasonable restrictions” concerning ADU and JADU construction. If your association is a planned development, we recommend you contact your legal counsel to discuss options and prepare ADU guidelines. Once ADU guidelines have been prepared the Board will need to provide general notice of the proposed guidelines and allow for member comment pursuant to Civil Code section 4360.

Election Process Timeline (Effective January 1, 2020)

Now that SB 323 has passed… What do you need to do and when?

Your election process just got a lot more complicated – and, the truth is, calculating your important dates and deadlines to adhere to the new laws effective January 1st, is like trying to hit a moving target.
To assist our clients (beyond attending our Legal Symposium), we have compiled an Election Process Timeline to help you understand the laws,identify when you need to start planning your next election and to help you set your Association’s own election deadlines.

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