Articles: Community Association Law – Page 13

Mediation: Making the Effort to Make it Work

Your association has sent violation letter after violation letter to Member X, repeatedly called him to hearing, possibly levied fines and got absolutely nowhere. The violation’s still there and it’s eating at you and the rest of the board, manager and neighbors. You feel like Member X is thumbing his nose at the entire community. You’re at your wit’s end and maybe even anxious to file a lawsuit. OK, time to cool off, assess the options and focus on your goal of achieving compliance with the governing documents.

This is just one of many scenarios that may ultimately result in an association serving a member with a Request for Resolution under Civil Code Section 5925 et seq. Before an association can file a lawsuit regarding most violations, it must have “endeavored” to submit the dispute to alternative dispute resolution (ADR).

Webster’s Ninth New Collegiate Dictionary defines “endeavor” as follows: “to attempt (as the fulfillment of an obligation) by exertion of effort…to work with set purpose.” Does the endeavor begin with sending a Request for Resolution and end once Member X accepts the offer to mediate? It shouldn’t, and that’s where effective mediation preparation comes into play.

Purpose & Early Preparation

To best prepare, first determine what you expect and wish to accomplish at mediation. What is your set purpose? You might meet with the homeowner, reach an agreement, obtain compliance and avoid the time and expense of litigation. Even if an agreement isn’t reached, perhaps the process of community healing and consensus building may begin. However, if you firmly believe successful resolution of the dispute is unlikely without litigation and you’re only going to mediation because the statute requires it in your situation, mediation just might provide you with a good preview of the strategies and arguments the homeowner (or his attorney) will bring up in court. Hey, by the time you’re done, maybe a solution will present itself after all! These possible accomplishments are all important, so don’t they deserve a little exertion of effort?

Your mediation endeavor starts well in advance of sending a Request for Resolution. It begins with all of the association’s enforcement efforts leading up to that Request. Be consistent with enforcement efforts. The association should communicate with members regularly, clearly, and in writing regarding violation matters. Maintain a detailed and accurate violation chronology. Establish a clear “paper trail,” demonstrating consistent association efforts to spur compliance and showing association observance of its own published rules and enforcement policies.

If applicable, take, and continue to take, photographs of the violation and of neighboring lots or units. These photographs will be invaluable to a mediator and other participants, including the association’s attorney, so they may better understand the standards and expectations of your community. What is acceptable in one neighborhood may not be considered up to par in another. When addressing violation matters, act from the outset as if the issue will end up going to mediation or even trial. Your paper trail will be seen by the mediator or trial judge, so also keep that in mind when preparing written documentation. By keeping good records of violation enforcement activity, you’re taking an important step toward making disputes easier for mediators to understand and, hopefully, toward facilitating resolution.

The Mediator’s Role

Understanding the role of the mediator is also critical to effective preparation. Mediation is not trial, and the mediator does not act as a judge or make decisions based upon witness testimony or presentation of evidence. Evidentiary information can be useful to convince the other party that a real problem exists and to assist the mediator in understanding the issues, but a mediator cannot and will not order either side to do anything. The mediator will instead attempt to bring the parties to a mutually satisfactory resolution. He or she may help you acknowledge valid points made by the other party, and may also help the other party understand the association’s position.

The mediator may also help both sides explore reasonable alternatives, as well as potential risks and benefits of going to trial. Mediation is really a facilitated negotiation. Therefore, before mediation the board should attempt to identify and explore alternatives, and consider the potential risks of not reaching an agreement. By doing so, you’ll have a head start on the negotiation process and get in the mindset of dispute resolution. Mediation isn’t about winning or losing—it’s about finding a mutually acceptable solution.

Identifying Options

The ultimate decision makers at mediation are the parties themselves (i.e., the association and the homeowner) and not the mediator. So, to prepare for mediation, the board must discuss in advance the specific parameters within which it would be willing to settle a dispute. Any board members who will be attending should have authority from the entire board to enter into an agreement to resolve the matter in its entirety. One of the most difficult situations occurs when an agreement is about to be reached, but its terms are outside the scope of the participating board member’s settlement authority. Although it may be possible to reach an informal agreement, pending obtaining board approval of the terms, this does not achieve desired closure at the mediation table.

Although it is important that the mediator understand the nature of the dispute, it is equally (if not more) important that the other party understand it, too. Since an association’s primary goal is compliance with the governing documents, think about what the association might be willing to offer to achieve that goal. Every situation is different, but a mediator will often expect that each side give up something. Maybe this means offering a payment plan, a waiver or reduction of fines, an extension of time to complete work, or a simple apology. Of course, the association can only alter what it’s governing documents and the law allow. Think about what may have a high level of value to the homeowner, and a low cost to the association. Coming to mediation prepared to propose such low-cost alternatives makes you, as an association representative, part of the solution rather than part of the problem.

Finally, always keep in mind the goal of achieving compliance. As you endeavor to submit a dispute to mediation, make a concerted effort to identify alternative solutions, establish a scope of settlement authority, and be prepared to provide documentation that supports and justifies your expectations. Your efforts will help demonstrate unbiased credibility at the negotiation table and assist the mediator in facilitating clear, direct communication designed to reach a mutually agreeable solution.

Your association has sent violation letter after violation letter to Member X, repeatedly called him to hearing, possibly levied fines and got absolutely nowhere. The violation’s still there and it’s eating at you and the rest of the board, manager and neighbors. You feel like Member X is thumbing his nose at the entire community. You’re at your wit’s end and maybe even anxious to file a lawsuit. OK, time to cool off, assess the options and focus on your goal of achieving compliance with the governing documents.

This is just one of many scenarios that may ultimately result in an association serving a member with a Request for Resolution under Civil Code Section 5925 et seq. Before an association can file a lawsuit regarding most violations, it must have “endeavored” to submit the dispute to alternative dispute resolution (ADR).

Webster’s Ninth New Collegiate Dictionary defines “endeavor” as follows: “to attempt (as the fulfillment of an obligation) by exertion of effort…to work with set purpose.” Does the endeavor begin with sending a Request for Resolution and end once Member X accepts the offer to mediate? It shouldn’t, and that’s where effective mediation preparation comes into play.

Purpose & Early Preparation

To best prepare, first determine what you expect and wish to accomplish at mediation. What is your set purpose? You might meet with the homeowner, reach an agreement, obtain compliance and avoid the time and expense of litigation. Even if an agreement isn’t reached, perhaps the process of community healing and consensus building may begin. However, if you firmly believe successful resolution of the dispute is unlikely without litigation and you’re only going to mediation because the statute requires it in your situation, mediation just might provide you with a good preview of the strategies and arguments the homeowner (or his attorney) will bring up in court. Hey, by the time you’re done, maybe a solution will present itself after all! These possible accomplishments are all important, so don’t they deserve a little exertion of effort?

Your mediation endeavor starts well in advance of sending a Request for Resolution. It begins with all of the association’s enforcement efforts leading up to that Request. Be consistent with enforcement efforts. The association should communicate with members regularly, clearly, and in writing regarding violation matters. Maintain a detailed and accurate violation chronology. Establish a clear “paper trail,” demonstrating consistent association efforts to spur compliance and showing association observance of its own published rules and enforcement policies.

If applicable, take, and continue to take, photographs of the violation and of neighboring lots or units. These photographs will be invaluable to a mediator and other participants, including the association’s attorney, so they may better understand the standards and expectations of your community. What is acceptable in one neighborhood may not be considered up to par in another. When addressing violation matters, act from the outset as if the issue will end up going to mediation or even trial. Your paper trail will be seen by the mediator or trial judge, so also keep that in mind when preparing written documentation. By keeping good records of violation enforcement activity, you’re taking an important step toward making disputes easier for mediators to understand and, hopefully, toward facilitating resolution.

The Mediator’s Role

Understanding the role of the mediator is also critical to effective preparation. Mediation is not trial, and the mediator does not act as a judge or make decisions based upon witness testimony or presentation of evidence. Evidentiary information can be useful to convince the other party that a real problem exists and to assist the mediator in understanding the issues, but a mediator cannot and will not order either side to do anything. The mediator will instead attempt to bring the parties to a mutually satisfactory resolution. He or she may help you acknowledge valid points made by the other party, and may also help the other party understand the association’s position.

The mediator may also help both sides explore reasonable alternatives, as well as potential risks and benefits of going to trial. Mediation is really a facilitated negotiation. Therefore, before mediation the board should attempt to identify and explore alternatives, and consider the potential risks of not reaching an agreement. By doing so, you’ll have a head start on the negotiation process and get in the mindset of dispute resolution. Mediation isn’t about winning or losing—it’s about finding a mutually acceptable solution.

Identifying Options

The ultimate decision makers at mediation are the parties themselves (i.e., the association and the homeowner) and not the mediator. So, to prepare for mediation, the board must discuss in advance the specific parameters within which it would be willing to settle a dispute. Any board members who will be attending should have authority from the entire board to enter into an agreement to resolve the matter in its entirety. One of the most difficult situations occurs when an agreement is about to be reached, but its terms are outside the scope of the participating board member’s settlement authority. Although it may be possible to reach an informal agreement, pending obtaining board approval of the terms, this does not achieve desired closure at the mediation table.

Although it is important that the mediator understand the nature of the dispute, it is equally (if not more) important that the other party understand it, too. Since an association’s primary goal is compliance with the governing documents, think about what the association might be willing to offer to achieve that goal. Every situation is different, but a mediator will often expect that each side give up something. Maybe this means offering a payment plan, a waiver or reduction of fines, an extension of time to complete work, or a simple apology. Of course, the association can only alter what it’s governing documents and the law allow. Think about what may have a high level of value to the homeowner, and a low cost to the association. Coming to mediation prepared to propose such low-cost alternatives makes you, as an association representative, part of the solution rather than part of the problem.

Finally, always keep in mind the goal of achieving compliance. As you endeavor to submit a dispute to mediation, make a concerted effort to identify alternative solutions, establish a scope of settlement authority, and be prepared to provide documentation that supports and justifies your expectations. Your efforts will help demonstrate unbiased credibility at the negotiation table and assist the mediator in facilitating clear, direct communication designed to reach a mutually agreeable solution.

Condominium Plan: Understanding This Often Overlooked Governing Document

By: Susan Hawks McClintic, Esq.

There are many documents used or referred to in the management of a condominium project. The least understood and consulted is undoubtedly the condominium plan, even though it is referenced in every single deed to a condominium. Virtually every board member, association manager and attorney has read or analyzed the association’s Declaration of Covenants, Conditions and Restrictions, Bylaws and Articles of Incorporation a number of times. These documents are frequently consulted for answers to a multitude of questions regarding the rights and responsibilities of the association and its members. The condominium plan, however, is frequently overlooked. Although the contents and purpose of a condominium plan are limited, it has an important role to play in condominium management.

The term “condominium plan” is defined in Civil Code section 4120 and described in section 4285. It has three elements. First, it contains a description or “map” of the condominium project in reference to ground monuments. This means the location of the project is identified with respect to reference points on the ground, such as streets. The dimensions of the project will also be shown.

Second, the plan contains a three-dimensional description of the project in sufficient detail to identify the common areas and each unit. This means the plan will contain a description of the location, size and boundaries of each unit, the exclusive use common areas, and the common area. For example, the boundaries of each unit might be described as the unfinished interior surfaces of the perimeter walls, floors, ceilings, windows and doors. The location and dimensions of patios, balconies, parking spaces, and storage spaces may also be described in the plan.

Third, the condominium plan contains the consent of the record owner of the property and any lender to recordation of the plan. The original plan only requires the consent of the developer, who at the time the plan is prepared owns all of the property. However, once the project is built and sold, 100% of the members who collectively own the common area and 100% of all lenders on any unit must consent to any modification of the plan.

In terms of its use as a management tool, the condominium plan has two primary functions. The first primary function is the description of units versus common area. This is extremely important in the identification of maintenance responsibilities, which are often assigned according to whether a particular feature is common area, or part of a unit. The plan usually describes the boundaries of the unit (air space), and then lists those physical features which are either exclusive use common area or common area, and not part of the unit. Frequently, such items as bearing walls, pipes, wiring, and other utility installations (except the outlets within the unit) are identified as part of the common area. Garages, parking spaces, balconies, patios and other similar features are often identified on the condominium plan as either part of the unit or exclusive use common areas.

The second primary function of a condominium plan is the identification of exclusive use common areas. Often, parking or storage spaces, not physically connected to a unit, are identified in the plan on a plat map by location and identifying numbers. Then, when their identifying numbers are located on a deed, the plat map can be consulted to determine their exact location. Other condominium plans utilize a list format where each unit is matched up with its respective exclusive use common area, such as a patio, balcony, parking space, or storage space. The list can be consulted to identify the numbers of the exclusive use common areas belonging to any given unit, and then the plat map can be used to find their location. Though a variety of condominium plan formats can be used, the results are usually the same: fixing and identifying the location of units and their assigned exclusive use common areas.

One problem we have encountered is the “reassignment” by either boards of directors or owners themselves, of certain exclusive use common areas. For a variety of reasons, some associations have “rearranged” parking or storage space assignments, and owners are no longer using spaces originally assigned to their units on the condominium plan. Exclusive use common areas which are assigned pursuant to a condominium plan (and appear on the deed as well) are real property interests which cannot be changed without the property owner’s consent and appropriate documentation. Remember, changing the scheme set forth in the condominium plan in any way requires the written consent of 100% of the owners and 100% of the lenders on the units. If a board of directors or group of owners is contemplating action which will result in any deviation from the condominium plan, legal counsel should be consulted before taking that action.

It is likely the condominium plan will remain the least utilized of all the association’s documents. Yet, when maintenance, repair, location, or boundary issues arise, it may well be the document that should be consulted first. A copy should be kept with every association’s governing documents.

Developer Transition

By: Mary M. Howell, Esq.

One of the most critical periods in the life of a community association occurs when the developer’s involvement is about to end. Many significant events arise within a very short period of time. Following are some of the more common issues with which an association will need to deal:

Securing Completion and Turnover of the Common Areas

The Board must confirm that all common area promised by the developer has been conveyed to the association and needs to inspect those common areas to determine whether they have been appropriately completed, and whether the workmanship is adequate. Poor workmanship may not delay the transfer of the property from developer to association, but may give rise to claims for construction defects. On the other hand, failure to complete construction may require the association to call on “on site completion” bonds (copies of which may be lodged in the Bureau of Real Estate’s files for the project).

Obtaining Copies of Important Documents

While there are few documents the developer is required by law to relinquish to the new association, there are many documents which would be helpful and should at least be requested: corporate records (such as the articles of incorporation, corporate minute book, originals of bylaws and CC&Rs, and annexation documents); real property records (deeds, tract maps, condominium plans, easements and licenses); bank statements; tax records; contracts with vendors and service providers; “as built” plans for recreational facilities, irrigation systems, etc.; grading plans; Bureau of Real Estate (BRE) final subdivision reports (“white papers”) for each phase; BRE budgets for each phase; copies of completion and assessment bonds; warranties for equipment; maintenance manuals; legal correspondence; insurance policies; subsidy agreements; records of architectural review applications and decisions.

Arrange for Education of Homeowner Directors and Committee Members

The administration of common interest developments is a highly regulated area. Obtaining education, via Community Associations Institute or other classes, or by reference to texts on the subject, will vastly improve director performance and homeowner satisfaction.

Confirm Payment of Real Property Taxes on Common Areas

While the real property which will be “common area” is still owned by the developer, it is subject to property tax. When the common area is transferred to the association, there should be no regular property tax due thereafter. Unfortunately, several things can go wrong: if the Assessor’s office is not properly notified of the change in ownership, the lots continue to be taxed; if tax is assessed and not paid, the property may be sold by foreclosure of a tax lien. It is therefore essential to have a complete list of the common areas, and to confirm when the transfer to the association was recorded, and whether there were outstanding taxes at that time, or at present.

Bring Developer Current on Unpaid Assessments

Often a developer will fail to bring assessments current in the last stages of sales. Because the developer will no longer have a significant presence in the community at this stage, it is particularly important to either obtain full payment or lien the unpaid homes prior to the sale to a third party. While it is important to timely collect all unpaid assessments, sale of the units without a lien in place will make collection against a developer much more difficult.

Determine What Easements the Developer Will Retain

Most CC&Rs contain easements in favor of the developer to allow it to continue to market and sell within the community, even after construction is completed. Some developers claim a right to continue to occupy recreational facilities, even after completion of construction, on the basis of such retained rights. The Board needs to review these provisions to see what specific rights were retained, and whether the developer has the right to continue to occupy common area buildings without paying rent to the association.

Determine Developer Voting Rights

After construction is completed, but before sales are done, the developer will typically retain rights to appoint some of the Board. It is important to determine how many developer-appointees are permitted, so that the Board may correctly conduct the election of homeowner directors.

Inspect Common Area Improvements for Possible Defects

While both developer and association desire to avoid litigation to resolve allegations of defective construction, it is important to note that housing constructed after January 1, 2003 is subject to a relatively short period wherein the Board must advance its claims, under the law commonly referred to as “SB 800.” Old law allowed a board up to 10 years in some cases to pursue defects; current law shortens that period substantially in many cases (in some cases, to one year). Accordingly, the Board needs to be vigilant in investigating claims of poor construction or landscaping. Furthermore, some CC&Rs impose on the association an annual inspection requirement, and may further require the use of specified maintenance manuals prepared by the developer.

This is a short list of typical problems. In a bad economic market, the turnover process may be complicated by developer failure, sales to successor developers, lender foreclosures, and insolvency proceedings. Any of these will force the association to obtain legal advice specifically addressing these problems.

Theft: Protecting Community Association Funds

Theft of community association funds is unfortunately a reality, and in times of economic distress, the likelihood of such theft tends to increase. Community association funds can be stolen in any number of ways, by any number of people with access to the funds or bank accounts of a community association. While the following list is by no means exhaustive, some red-flags that Board members and community association managers should watch for include: outright taking of cash; not receiving regular and timely monthly statements; discrepancies between monthly statements and ledgers; lack of receipts for purchases; payments to family members; clubs having access to an association’s bank accounts; illegitimate credit card receipts and charges; and difficulty in explaining expenses by the person(s) handling the funds.

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Due Process Rights: To Each His Own (Quail Lakes v. Kozina)

In the recent case of Quail Lakes Owners Association v. Kozina (2012) 204Cal.App.4th 1132, the Third District Court of Appeal found that a single member of a community association cannot assert the due process rights of other association members resulting from insufficient notice of a court proceeding to obtain approval for a CC&R amendment.

In Quail Lakes, the Association filed a petition with the court for approval of an amendment to its CC&Rs in accordance with Civil Code § 1356 (“Section 1356”). Section1356 allows an association to obtain approval for an amendment to its CC&Rs with majority approval where its CC&Rs require supermajority approval. In addition to the majority approval requirement, Section 1356 requires associations seeking a court- ordered amendment of their CC&Rs to meet other requirements, including the requirement to provide the association’s membership with 15 days notice of the court hearing on the petition. Such notice allows members who oppose the amendment to present their objections to the court.

After failing on its first attempt to gain court approval of a CC&R amendment, the Association was allowed to file a second petition to address certain deficiencies in the first filing. Homeowner Vladimir Kozina, who opposed the first petition, filed opposition to the second petition claiming that the Association failed to provide sufficient notice of the hearing on the petition to the membership. Kozina’s opposition included declarations of three members who claimed to not have received sufficient notice. The court granted the Association’s petition, and Kozina appealed.

On appeal, Kozina argued that the hearing on the second petition violated due process because the notice allowed only four days from the mailing of the notice until the date members were required to file opposition. Kozina pointed out that those four days included a weekend. The court noted that Kozina had no difficulty filing his opposition within the timeframe provided, and was therefore not prejudiced. However, Kozina argued that other owners were also prejudiced by the timing of the notice. The court ruled that Kozina did not have standing to assert the due process rights of any other association members. The court further ruled that a party to a lawsuit may not representthe interests of third persons who are not involved in the case.

First, Kozina argued that he was entitled to represent the interests of the othermembers based on associational standing; however, the court pointed out that the Association is the de facto representative of its members, and Kozina was not claiming to represent any subgroup within the Association. Rather, he was attempting to assert the rights of members who may or may not have opposed the petition if they were provided with earlier notice. The court noted that any members who fell into that category could have achieved standing for themselves by moving to vacate the court’s order granting the petition.

Second, Kozina compared his representation of other members’ interests to a shareholder derivative lawsuit. A derivative lawsuit is one where a shareholder brings a lawsuit on behalf of the corporation when the corporation itself fails to so. The court rejected this argument on the basis that Kozina was only challenging the court’s order granting the petition – not any act or omission by the Association.

Third, Kozina also challenged the order granting the petition because the trial court failed to make factual findings within the order itself. The court found that the court’s order granting the petition sufficiently detailed each of the requirements for granting a petition pursuant to Section 1356, and that nothing in Section 1356 required the court to recite the evidence supporting each finding.

Given the number of community associations subject to supermajority approval requirements to amend their CC&Rs, petitions filed pursuant to Section 1356 have become more commonplace. Due to the contentious nature of these petitions when they are opposed, it is important to be aware of all decisions that may impact an association’s success in obtaining an order to amend its CC&Rs. Decisions such as Quail Lakes continue to define the legal requirements for petitioning the court for approval of a CC&R amendment.

Water Meters – Are You Buying Someone Else’s Water?

Almost every year since I moved to California in 1985, I have heard of some association that learned that it has been paying water bills for water meters that serve other properties, or conversely, that one association learned that a second association has been paying water bills for meters that have been irrigating the property of the first. When this occurs, the accusations begin to fly from the current board to prior boards, from the association to its developer, from the association to one or more prior management companies, from the current management company to the prior management company, and so on.

The fact is that most association boards and their managers assume that, if they are getting a water bill, it is for water they have used. When the mistake is discovered, many times it is a mistake that has continued undetected for years, and in some cases, for a decade or more. While there is probably some recourse for recovering money that was paid on someone else’s behalf, there is probably not much chance for recovering more than the payments made over the last two because of the applicable statutes of limitations. There is obviously no written agreement between the parties, or the mistake would not have occurred. Thus the four year statute of limitations will not apply. Unless there is some provable fraud by the party obtaining the “free” water, most likely the statute of limitations will be two years. (See Code of Civil Procedure section 339 regarding obligations or liabilities not founded upon an instrument in writing.) Also, because there is no written agreement between the parties, there can be no attorney’s fees clause, and thus any legal fees expended in the dispute will reduce the ultimate recovery and increase the chances that any settlement will be for less than what has been paid unknowingly by the injured party.

Many of these problems date back to when the association was first formed. The same developer may have built several adjoining properties, or adjoining properties may have been built by different developers around the same time. The associations may have been managed by the same management company, even if the developers were different. For whatever reason, including a mistake by the applicable city water department or water district, the wrong party gets the bill and pays it. From that point on, all future bills are addressed to the wrong party and paid month after month, year in and year out.

How can you determine if this is happening in your association? First, you need to start with each water bill that you pay. The water bill will either have a meter number on it or an account number from which you can obtain the meter number from the local water district. You need to identify the meter number for each such water meter and match that up with the meter number in the field. If you have difficulty determining where the water meters are located that do match up with your bill, the water district should be able to tell you approximately where they are located, since their meter readers need to find all of them to prepare the bills.

Once you have identified the water meters, you also need to know what the water meter supplies. In some cases, we have found water meters that connect to the irrigation systems of two different associations. This may happen if a developer originally plans one development and later decides to create two or more associations over the property originally planned for one association. The developer may form the additional association or associations but forgets that the water meter is irrigating several slopes now encompassing slopes in more than one association. Of course you can also work backwards, starting with the water meters you know serve your association and then seeking to match them up with the right water bills.

However you check on the meters, you really want to make sure that you are not paying for anyone else’s water and that someone else is not paying for yours. While you may have gotten a “free ride” for some time, sooner or later it will be discovered. Also, once you know that you are obtaining water that someone else is paying for, if you continue, the act then becomes a knowing taking of someone else’s water which may provide sufficient intent to constitute a criminal misdemeanor for theft of utility service under Penal Code section 498.

Since these problems continue to surface on a regular basis, there are obviously associations that have never verified that they are paying just their own water bills, or paying the water bills for all the meters that serve their respective associations. Thus, it is a good idea to prepare a map showing the location of each water meter and the areas that it serves. The map showing the location of the meters and what they serve should be given to the association’s landscape and plumbing contractors so that the water meters can be located to shut off the appropriate valve anytime there is an emergency, such as a burst pipe. It is then critical to correlate each meter on the map with a serial number and water bill account number, to be sure that the association is not paying for too many or too few water meters. It is certainly advisable for any newly-formed association to check on all water meters and to make sure that all the information is accurate by the time the association is fully built out. Also, when an association changes management, it is advisable for the new manager to verify this information early in the manager’s tenure. Once the information is verified, it should be kept in a safe place and passed from one board to the next along with other important records.

Smoking in Common Areas & Beyond: Recent Developments in the Law

Keeping in stride with California’s continuous movement to regulate public smoking, the law may support a community association’s ban on smoking in common areas. Beyond just the common area, however, an association’s board is also likely required to abate secondhand smoke emanating from exclusive use common areas and inside units. In fact, a failure to address secondhand smoke complaints due to smoke emanating from anywhere in the community could subject an association and its board to nuisance claims.

I. Birke v. Oakwood Worldwide – Smoking in Common Areas

In Birke v. Oakwood Worldwide et al. (2009)169 Cal.App.4th 1540, a residential apartment complex, Oakwood Worldwide (“Oakwood”), banned smoking in all indoor common areas and indoor units, but permitted smoking in all outdoor common areas. The plaintiff, a five-year old resident with asthma and allergies, sued Oakwood alleging that Oakwood’s failure to abate secondhand tobacco smoke in the outdoor common areas was a public nuisance. Oakwood argued that it did not have a legal duty to prohibit smoking in the outdoor common areas, so it could not be liable for failing to stop the alleged nuisance.

The Appellate Court agreed with Birke and ruled her complaint alleged what could be a valid nuisance claim against Oakwood such that she could try to prove the nuisance claim against the landlord. The Court reasoned that Oakwood, as a landlord, had a duty to maintain its premises in a reasonably safe condition and by failing to abate secondhand smoke in the common areas, Oakwood may have created a harmful condition to others and interfered with others’ comfortable enjoyment of life or property. The Appellate Court’s ruling returned the case to the lower, trial Court to decide if a nuisance actually existed. The lower Court decided that based on the facts in this particular situation, there was no nuisance.

The Court’s reasoning in Birke follows the holding in Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 499 which found that community associations, like landlords, have a duty to exercise due care for residents’ safety. The result of Birke is that secondhand smoke can be a threat to safety so community associations that permit smoking in common areas may face potential liability for nuisance claims brought by residents. Similarly, Birke provides support for associations that attempt to ban smoking in all outdoor common areas. This does not mean, however, that an association is required to prohibit secondhand smoke entirely. It may instead impose restrictions on smoking, such as designating smoking and no smoking areas (it still must enforce verified nuisance violations). To that end, a board would likely be acting within its power to adopt reasonable smoking prohibitions if it found such activities created an unreasonable threat to the health, safety and welfare of the association’s residents.

II. Secondhand Smoke and Nuisance Claims in Exclusive Use Areas and Units

The potential for nuisance claims arising from secondhand smoke does not stop at smoking on the common area. Most CC&Rs prohibit nuisances, and to the extent the CC&Rs are silent on prohibited nuisances, Civil Code section 3479 prohibits private nuisances. These provisions ban anything that unreasonably interferes with someone’s use or enjoyment of his or her own property. The courts have made it fairly clear that secondhand smoke generally falls within this category and is considered a nuisance. What this means for associations is that legitimate secondhand smoke complaints – whether arising from smoke emanating from common area, exclusive use common area, or inside an owner’s unit – if not properly and timely addressed, could subject the association to liability for failure to abate a nuisance. This does not mean that all smoke from cigarettes is a nuisance. Rather, the key is that the board must investigate such complaints, determine whether a nuisance in fact exists, and if it does, the board must take steps to abate the nuisance.

III. Municipal Ordinances

As a further example of the legal trends in this area, the City of Pasadena passed a no-smoking ordinance applicable to existing and new construction multi-family residences, defined as two or more dwelling units. The ordinance applies to condominiums. The ordinance makes it unlawful to smoke in any area of the property, including in any common area, patio, or balcony – and yes, even inside the units. The ordinance requires an association to post specific signage in the community, but leaves enforcement of the ban to the City.

IV. No Smoking Provisions in the CC&Rs

The laws establishing smoke-free environments are unsettled, but appear to be evolving to support smoke-free condominium associations. Thus, we cannot explicitly conclude whether or to what extent a court would uphold an association’s efforts to enforce a smoking prohibition within the common area, exclusive use common areas, and/or units. Support may be found, however, if an association models its smoking provisions in the CC&Rs (or rules) on the Municipal Codes for the relevant area, if any exist. A recorded CC&R amendment approved by the members would undermine an argument the board exceeded its authority in establishing such a prohibition. Furthermore, this would provide new owners with notice that in purchasing within the community, they are giving up their right to smoke within all or some of the areas of the community. If an association passes a CC&R amendment banning smoking in various areas of the community, the enforce-ability of such a prohibition will be easier, more cost-effective and more robust than nuisance abatement action or a board-adopted rule.

V. No Smoking Rules

Even though a CC&R amendment may have greater enforce-ability, adopting a rule banning smoking in the common areas, exclusive use common areas, and even possibly the units, is an option so long as the rule is within the board’s rule-making authority. For example, if an association’s governing documents limit the board’s rule-making authority to rules governing the common area only, a proposed rule seeking to prohibit smoking within units or on lots may be subject to legal challenge (however, secondhand smoke should still be addressed pursuant to the nuisance provision in the CC&Rs, if one exists).

While a rule prohibiting smoking is fairly easy to adopt, it is also fairly easy to repeal, as a rule does not carry the weight and reasonableness presumptions of a CC&R amendment. Thus, the best way to ensure a court would uphold an association’s efforts to prohibit smoking is to enact an amendment to the CC&Rs whereby the members vote to make certain areas smoke-free.

In conclusion, as with many decisions a board must make, the decision on whether to prohibit smoking in all or part of a community is a difficult one. However, the trend in California seems to be geared towards smoke-free communities. As with all board decisions, a board must use its business judgment in determining what is best for an association as a whole.

If your board needs further guidance or has specific questions on this issue, we recommend you consult with legal counsel.

Revised January, 2015.

Contracting for Community Associations

Why do we need written contracts?

Contracts set forth the rights and duties of the parties to the contract, and help to reduce or eliminate misunderstandings regarding the work to be completed and the money to be paid. In resolving any dispute or problem under the contract, such as whether a payment is due, a reviewing court will look to the language of the contract to determine which party will prevail. Thus, the contract provisions should be carefully considered in every contracting situation.

Should we sign the contract prepared by our contractor?

Most “standard form” contracts are written to favor the party who wrote it. Thus, most pre-printed contractual forms will provide little or no protection to the association if a contractual problem develops. Whereas any contract may be acceptable if there are no problems with the contractor’s performance, only an association-prepared or reviewed contract offers the protections necessary in case of serious disputes.

What are the most important issues to address in a contract?

There are many, many important issues to be considered in every contract. Those that most frequently lead to problems or disputes include: an inadequate description of the work the contractor is to perform, poorly drafted payment provisions (when payments are due, when they can be withheld, and retentions), how change orders are approved, indemnification and mechanic’s lien issues.

What types of insurance should the contractor have?

This can vary depending upon the type of job, but all contractors should have at least a comprehensive general liability policy, an owned, non-owned and hired automobile policy and workers’ compensation coverage. The amount of insurance may vary, but should never be less than $1 million in comprehensive general liability and $500,000 in automobile coverage. The association should be named as an “additional insured” on the contractor’s insurance policies. Some contractor’s insurance policies contain an exclusion for all work performed on a community association. Contractors who are not insured to work on community associations should not be hired.

How should payment provisions be written?

The Association’s best protection against financial loss resulting from a contract problem is to not allow the contractor to receive more money than the percentage of work that has been completed. In regular maintenance contracts such as landscaping and pool service, payment should be made after the service has been provided. In construction projects, the contract should provide that progress payments can be submitted only for work actually completed, and should also provide for the association to retain a percentage of each progress payment until the job is completed. Avoid provisions that require payment “upon delivery” or “upon completion,” as few associations are set up to have a check waiting for the contractor immediately after the job is completed.

What are “indemnification” clauses?

Indemnification is the contractual obligation of a party to a contract that requires the party to pay the expenses of the other party under certain conditions, such as when the party being indemnified is named in a dispute or lawsuit. The indemnification clause defines when this obligation arises. Most often, the obligation arises when the party being indemnified is not legally liable for the alleged damage, loss or injury, while the party providing the indemnification is legally liable. Many “standard form” contracts contain clauses that require the owner/association to indemnify the contractor unless the contractor is negligent. Boards of directors should be aware that most association insurance policies contain an exclusion for “contractual obligations” such as indemnification. As a result, whenever possible, provisions requiring the association to indemnify the contractor should be stricken from the contract before it is signed.

Are provisions requiring mediation or arbitration a good idea?

Provisions requiring mediation or arbitration to resolve disputes can save the association significant time and money, especially if these forms of “Alternative Dispute Resolution” succeed in avoiding litigation. Mediation is the voluntary attempt by the parties to discuss and negotiate the dispute with the help of a neutral third party in an effort to reach an agreement or settlement. Arbitration is similar to litigation in that the facts of the dispute are presented to an arbitrator who will decide which party is right. Arbitration can be binding or non-binding. If non-binding, the losing party still has the option of filing a lawsuit. In binding arbitration, the parties agree to waive their rights to a jury trial and appeal. The arbitrator’s decision is final.

What is a mechanic’s lien?

A mechanic’s lien is a constitutionally-established procedure that helps ensure that a contractor gets paid for the work that has been completed. If the contractor is not paid, he or she can record a lien against the property where the work was performed. If payment is not timely made, the property can be foreclosed by the contractor to satisfy the debt. If the association is not vigilant, a lien can be recorded by a design professional, subcontractor, material supplier or wage earner even if the general contractor has been paid!

How does the Association protect itself against the contractor recording a mechanic’s lien?

Except for a party with a direct contractual relationship with the association (such as a general contractor or design professional), a “lien claimant” (party desiring to record a mechanic’s lien) must provide the association with a Preliminary Notice (which is sent by registered or certified mail, return receipt requested). Before payment is made to the general contractor, the association has the right to insist that every company or individual who has filed a Preliminary Notice submit a lien release with every request for payment. If the lien claimant has not been paid, the association can then write joint checks to the general contractor and the potential lien claimant.

What are liquidated damages?

Liquidated damages are the amount of money that the contractor and the association agree in advance is a reasonable sum that the contractor will be charged if the work is not completed on time. The amount is usually charged on a daily basis until the work has been completed, and is intended to eliminate the need to prove the actual damages suffered by the association because the work was not completed on time.

Architectural Enforcement Procedures for Community Associations

Where should the association start in order to implement an effective architectural enforcement procedure?

Start by reviewing the CC&Rs. Many contain an application submission process, a decision-making process according to specific criteria including deadlines for action by the association, and even a construction- monitoring procedure with time limits for improvement completion. In addition, California law provides minimum steps for architectural review procedures (Civil Code §4765) and provides certain decision-making deadlines, with failure to meet those deadlines resulting in automatic application approval (e.g., Civil Code §714 on solar energy systems and Civil Code §4745 on electric vehicle charging stations).

If the governing documents require association approval before a physical change is made to a separate interest or the common area, the association must provide a fair, reasonable, and expeditious procedure for making its decision. The procedure shall provide prompt deadlines and the maximum time for response to an application. A decision on a proposed change must be made in good faith and not be unreasonable, arbitrary or capricious. The decision may not violate any governing provision of law.

A decision on a proposed change must be in writing. Thus, the architectural committee or board should take minutes of the meetings at which these decisions are made, noting reasons for application approval or denial. If a proposed change is disapproved, the written decision shall include a description of the procedure for reconsideration by the board. An applicant is entitled to reconsideration at an open meeting of the board.

An association must annually provide its members with notice of any requirements for association approval of physical changes to property. The notice must describe the types of changes that require association approval and shall include a copy of the procedure used to review and approve or disapprove a proposed change.

What is the best way to develop architectural guidelines?

First, include any “criteria” for approval specified in the CC&Rs. Second, cover as many of the major items as possible for which owners are likely to request approval. Applications for fences, patio covers, balcony improvements, decks, and landscaping are frequently encountered. Third, ensure that guidelines are easy to understand. Owners should be able to tell exactly what the application should include, what items are totally prohibited and what items may be approved if they meet specified criteria. Fourth, consider pre-approvals; that is, a list of improvements an owner can complete without applying for prior approval, such as painting a structure its original color or constructing a patio cover whose size, materials, design and color are all “pre-approved.”

What role should neighbors play in the approval process?

To avoid the anger of disgruntled neighbors, it is a good practice to require the notification of nearby owners when an application is submitted. Allow them to offer input; however, avoid permitting neighbor consent or apathy to result in automatic approval or disapproval. Owners should be told on the application form that neighbor input is merely “information” used in the application consideration process.

Can approvals be given orally or informally?

Avoid a procedure which permits any form of approval other than written approval after a vote of the entire committee or the board. One court decision upheld the oral approval of only one committee member because the owner relied upon it, believing it represented the committee’s decision, and proceeded to build the improvement. Guidelines should specify that oral approvals are invalid and that the only effective approval is the one on the authorized form and/or otherwise issued in writing by the association after the above-described vote.

How much subjectivity can go into architectural decisions?

Many architectural decisions are inherently subjective, yet will be enforced. The key is having “criteria” such as “harmony with the architectural scheme of the community.” Always develop general criteria used or referred to in making a subjective decision. Many CC&Rs already contain such general criteria. When this occurs, it is a good idea to repeat those criteria in the guidelines.

Can variances or exceptions to the architectural guidelines be granted?

Generally, yes, if there is authority for a variance in the CC&Rs. However, variances should be used very judiciously, only in rare instances when it is necessary (for example, to make use of a unique lot and where there is minimal or no effect on other owners). If you contemplate variances, at least some reference to them should also be made in the guidelines. The idea behind using variances is to accomplish a desired result (e.g., aesthetic uniformity) despite a technical violation of the guidelines. In other words, you are adhering to the “spirit” rather than the “letter” of the guidelines. One effective tool is the recorded Restrictive Use and Indemnity Agreement whereby the owner agrees to defend and indemnify the association if another owner complains or files a lawsuit because a violation is allowed to exist. This type of agreement can also be used to limit the duration of time a structure can be kept and to require the owner to maintain it.

What should be done if an owner is ignoring the architectural procedures?

This depends on the situation. If the committee or the board seeks to compel the owner to take some particular action, a hearing should be held before the association acts further. If an architectural improvement is already in place, the committee should rule upon it as if an application were filed, as required by the court case of Ironwood Owners Ass’n. IX v. Solomon. If the owner is in the process of constructing something clearly prohibited, immediately consult legal counsel about seeking a restraining order. Undue delay when construction is underway can result in a court refusing to issue an order prohibiting further construction.

How can the association rule upon an application and avoid setting precedents?

If there is nothing unique about a particular situation, it may well be a precedent to rule on it differently. Accordingly, keep this in mind when ruling upon applications, including those for variances. If there is a unique situation or a variance is granted, document in writing the reason why an approval was issued. Doing so will help you appropriately respond if other owners ask for the same approval, but the association desires to limit its decision to the unique situation of one owner.

What is the best way to ensure success in the architectural approval and enforcement process?

First, ensure that every step of the process is documented in writing. Second, be fair and develop architectural guidelines responsive to community needs. Third, maintain perspective on the entire community rather than what one particular owner is doing. Fourth, be mindful of the fact that architectural disputes can end up in mediation, arbitration or court, and that you may be asked to explain everything the association has done. The best way to do this is through written documentation. An unbiased, documentation-oriented approach to architectural enforcement has consistently proven most effective.

Insurance for Community Associations

Does our Directors and Officers “D&O” insurance cover only those who are actually directors and officers?

You must check the policy. Better policies have broader coverage that includes former directors, committee members, and even volunteers who work for the association. Some carriers now provide coverage to association managers under the association’s D&O policy. Make sure that everyone working on the association’s behalf is defined as an “insured” under the policy.

Who pays the deductible when an owner makes a claim covered under the association’s property and casualty insurance policy?

When property belonging to an individual owner is damaged, the loss may be covered under a property insurance policy purchased by the association. When this occurs, the association will typically make the claim for damage to such property; and the association will be named as a payee on the proceeds check because the association is the party to the insurance contract. The association will receive a check for the amount of the claim less the deductible. Before the association can require an individual owner to absorb the loss of the deductible on the claim, the policy designating who is responsible for the deductible should be set forth in the association’s governing documents, preferably in the recorded covenants (“CC&Rs”).

Will the association’s insurance cover damage to an owner’s personal property?

An association’s property insurance generally will not cover an owner’s moveable personal property, although some association property policies may cover unit fixtures such as carpeting, cabinets and installed appliances. Owners should be notified annually that they should procure coverage for their own property. A general liability policy protects the association where it is legally obligated to pay for physical damage to an owner’s personal property. The issue usually arises when an item the association must maintain (e.g., the roof) fails and results in damage to an owner’s property (e.g., furniture, carpeting). Although some courts have ruled that an association would not be liable to the owner absent negligence in maintaining the roof, other courts have held that the association’s obligation under the governing documents to maintain the roof would render it liable for any damage caused by its failure, even if the association were not negligent.

How does the board know what to insure?

First, read the governing documents, since they may make certain insurance mandatory. Second, read the statutes for the insurance required to qualify for limitations on the association’s and owner’s liability. Third, itemize everything the association owns or must repair or maintain (called insurable interests). Fourth, consider all available types of insurance and evaluate whether they are appropriate for your Association as part of a prudent insurance package (e.g., fidelity bond, workers’ compensation, D&O, earthquake, flood, etc.) Finally, look at all available options under your current property and liability coverage and evaluate them in light of your association’s particular needs. Talk to an experienced community association insurance agent.

What is the individual owner’s responsibility for insurance?

Look first in the association’s governing documents to determine what responsibilities individual owners have for procuring insurance, if any, as the individual owner’s responsibility for insurance will vary depending upon the type of community association involved. In associations where individual owners are responsible for maintenance and repair of the building structure, the governing documents may require each owner to obtain specific types of property and casualty insurance. If the association maintains and repairs unit structures, however, there may be no insurance requirement for individual owners. Moveable personal property (contents) is typically never covered by the association, although, as indicated above, some association policies may provide coverage for certain fixtures such as carpeting and built-in appliances. Individual owners should procure liability insurance to protect them against their own negligence and other conduct, and for injuries to others which may occur within their own unit or exclusive use areas. Owners also need their own coverage for alternate housing, if the unit is not habitable after a casualty loss, as this is usually not covered by an association’s master policy.

Our property is insured for its “cash value.” Is this good coverage?

No. Coverage for “full replacement cost” offers better protection. It provides the cost of actually replacing what is damaged or destroyed. “Cash value” is the purchase price less depreciation. When older property is destroyed, you receive only its depreciated value, which is almost always less than the actual cost of replacing it.

Our association signed a contract, agreeing to indemnify our landscaper if he is sued. Will our insurance cover this?

Probably not. If the landscaper is sued for something due to the landscaper’s conduct, the association’s liability policy might defend and indemnify the landscaper. Most policies, however, exclude “contractually assumed liabilities;” i.e., liabilities you have voluntarily assumed in a contract. You should consider an “endorsement” (a supplement to the policy) providing such coverage, especially if such a clause appears in the contracts with several of your vendors. The insurance carrier may be unwilling to issue this endorsement, so check with the carrier before signing any contract containing an indemnification obligation.

Is the association required to disseminate information about its policies to the membership?

Yes. Civil Code section 5300 requires a community association to distribute information annually to the members about its property, general liability, earthquake, flood and fidelity policies. Included must be policy information on the name of the insurer, type of insurance, policy limits of the insurance and amounts of the deductible. The association must also notify members of any cancellation or significant changes in its policies. (Civil Code §5810)

When an owner makes a claim that involves an actual or potential lawsuit against the association, must the association always tender it to the insurance carrier?

Unless the governing documents require otherwise, the association has the discretion to decide which claims to tender. However, unless the claim is relatively small, or less than the deductible, the decision must be made carefully. The better practice is to tender all claims, even if the claim is small or less than the deductible. First, small amounts can become large amounts if, for example, additional damage is discovered, or repair estimates are revised, or costs of defending are considerable. Second, do not withhold tendering under the assumption you can do so later. Insurance companies can reject late claims, especially if the delay has prejudiced the carrier. An owner request for alternative dispute resolution (e.g., mediation) might seem of little consequence at the time it is made but could later result in an expensive lawsuit. Do not withhold tendering just because a small claims case is involved, as you may have to pay the claim yourself and/or incur legal fees to appeal an adverse small claims judgment. The result of any court proceeding is uncertain, so never expose the association to financial risk by withholding or delaying a tender just to save a few dollars on next year’s premium. Consider adopting a policy of tendering all claims, whether or not a lawsuit has been filed, unless there are substantial and compelling reasons not to do so. Finally, tender claims to your D&O carriers if you know of any facts and circumstances that may give rise to a claim. Most D&O policies are “claims made,” and if you wait until there is an actual lawsuit, it may result in no coverage, especially if the association has changed carriers before the actual lawsuit is filed.