A. To use everyone’s favorite word from an attorney, it depends. Initially its important to determine who holds the warranty(ies). For example, the contractor who installed the roofing system may offer a one year warranty on labor and materials, while the manufacturer of the roofing system offers a much longer warranty. The best approach is to contact the warranty holder(s) and determine what needs to be done to maintain the warranty prior to any work being done. Oftentimes the warrantyholder(s) will want to inspect the solar energy system installation to make sure the roofing system was not damaged and all penetrations of it are sealed. Please recall Civil Code section 714.1(a) allows an association to impose reasonable restrictions that: (1) provide for maintenance or repair of roofs & building components and (2) require installers to indemnify or reimburse the association for damage caused by installation or maintenance of a solar energy system. – Kieran J. Purcell, Esq.
Important Tips with Purchasing Insurance
One of the most important roles a board performs is the purchase of association insurance protecting the association’s assets and its directors, officers and committee members. Be mindful that most Directors and Officers insurance policies EXCLUDE coverage for the failure of the board to purchase adequate insurance.
Oftentimes I find that association boards spend more time on landscaping issues (e.g., tree trimming, grass cutting and watering) than the purchase of the association’s insurance. In the board’s defense, the squeaky wheel gets the oil and most owners, and oftentimes the board members, care much more about the landscaping than they do about the adequacy of the association’s policies. For this reason, the focus on insurance often becomes secondary to the cosmetic issues an association faces. Not making insurance a number one priority can have devastating consequences to an association. A book could be written on how to make certain your association has adequate insurance!
Let me offer a few basic tips:
- Use insurance agents who are well versed in association insurance.
- Review the insurance application and be certain that known or threatened claims have been carefully reported.
- Have the insurance agent perform policy comparisons showing the different coverages in each policy being offered.
- Ask questions of the insurance agent, don’t assume he/she knows your association’s liability risks (e.g., association having responsibility to insure an easement area).
- Talk to your insurance agent about the different types of policies available such as earthquake and cyber insurance.
- Do not make your decisions based on the amount of the premium but rather on the quality of the coverage.
- Don’t save money by buying lesser insurance – your association will get what it pays for, guaranteed.
- Always ask your agent in writing, “Do you have any recommendations on coverage?” Your agent should provide a letter stating that he/she has reviewed the coverages and the coverages comply with the CC&RS and the law, thus placing the onus on your insurance agent.
- Lastly, meet with your agent no less than annually to check on the health of your insurance coverage.
I urge boards to make insurance a priority and devote the necessary time to make certain the best possible coverage is in place.
Indian Land Leases
An Indian land lease is a contract between an Indian landowner (either the tribe or individual allottees) and a lessee. Specifically, the Indian landowner conveys the right to use and occupy their property, subject to specified conditions and for a limited period of time, to a lessee in exchange for rent. A change in the terms of such a lease may require the consent of the BIA (see below), the tribe and/or allottees, or all of the foregoing.
The website for the Bureau of Indian Affairs Palm Springs Agency found at https://www.bia.gov/regional-offices/pacific/palm-springs-agency notes that the Agua Caliente Indian Reservation encompasses approximately 28,000 acres of land in the western Coachella Valley, including portions of Palm Springs, Cathedral City, Rancho Mirage and unincorporated areas of Riverside County. There are approximately 1,175 commercial leases, 7,671 residential subleases and 11,118 time shares on Indian land leases under the jurisdiction of the Bureau of Indian Affairs-Palm Springs Agency.
Lease Extensions
Indian landowners, at their discretion but subject to statutory limits on the terms of such lease extensions, may extend existing lease agreements. The Bureau of Indian Affairs does not compel Indian landowners to extend existing leases. An Indian land lease on the Agua Caliente Indian Reservation may be extended for a period of time such that the total lease period does not exceed 99 years (other tribes have much shorter periods of permitted extensions).
What about a purchase of the land? Certainly it’s permissible under the law and some local associations have indeed managed a buyout. The number of consents and separate instruments necessary to effectuate a buyout differ greatly from association to association. Raising the money for an acquisition can also be problematic and will depend on a number of factors, including an association’s financial condition. As with a lease extension, such a project requires considerable advance planning, fair negotiations, and sensitivity to the possible underlying social implications of the purchase.
PRACTICE TIP:
Your association should know when its lease expires and it needs to plan accordingly, i.e., lease extension or lease buy-out. Ideally, associations seeking a lease extension or buy-out need to begin the negotiation process at least 10 years before the lease terminates. Sometimes it is difficult to parse out the ownership interests, and in this regard, the BIA maintains its own title records, and can be very helpful. The minimum recommended 10 years’ planning time allows sufficient time for negotiations between the association, the sublease holder (if applicable) and the Indian landowner to negotiate the terms of the deal, prepare the documentation and, as applicable, obtain the approval of the association membership, the approval of the BIA, and obtain financing.
This website lists statuses of current residential leases under the jurisdiction of the BIA – Palm Springs Agency; this list was last updated in May 2015.
The “Why” of Executive Sessions
By Mary M. Howell, Esq.
“Executive session”: fighting words in most associations! The general complaint is that the board abuses its right to meet in “executive” (closed) session. But the fact is that most owners, and some directors, don’t understand why it is very important to keep some of the board’s deliberations under wraps, even to the point of not discussing these items with homeowners. This article explains why boards can, and should, preserve the confidentiality of executive sessions.
At the outset, let’s review the very short list of items which a board is permitted to take up in executive session under the Davis-Stirling Act: litigation, personnel, contract negotiation, member discipline, and proposed member payment plans for overdue assessments. There is a distinctive reason for each of these items to be kept in confidence.
Litigation. Most readers are familiar with the attorney-client privilege, that is, the right to refuse to disclose, even in court, communications between an attorney and his or her client. This is considered proper because without the guarantee of confidentiality, often neither the client nor the attorney would feel safe in being completely honest. The client might withhold relevant information, and the attorney might not give an answer critical to the client’s proper defense, if either had reason to fear civil or criminal actions based on what was said. This privilege is considered of paramount importance to our system of jurisprudence: “The social good derived from the proper performance of the functions of lawyers acting for their clients is believed to outweigh the harm that may come from the suppression of the evidence in specific cases.”
Homeowners are often confused about the nature of the attorney’s representation. It is not uncommon to hear a homeowner contend that the attorney really represents individual owners, and so should answer all questions posed by owners about association (board) actions. Not so. By the rules of professional conduct, an attorney representing an organization does so by receiving information and giving advice to that organization’s highest governing body—the board of directors of a homeowners association. Nor does the owner “pay the attorney’s fees.” Rather, the owner pays assessments and the board pays bills.
California courts have already considered the issue of who the attorney represents, and in the face of a claim by an owner to confidential communications between the association and its attorney, the court clearly indicated that the board, not the owner, is the holder of the privilege:
[Homeowners] argue they were the “true clients” of [the Association’s attorney] rather than [the association], a “faceless” association which could only act in a “representative” capacity of the general membership. They contend [the association] owed them a fiduciary duty to act in their best interests as “the rightful owners who are paying with their assessments for the legal services being rendered on their behalf.” They characterize as the “crux” of the matter the question: “For whose benefit is the lawsuit being brought?” … We have squarely rejected this equation … The Supreme Court was not persuaded to the contrary because the beneficiaries were indirectly paying attorney fees which came out of the trust. That is because “[p]ayment of fees does not determine ownership of the attorney-client privilege. . . . [T]his question of cost allocation does not affect ownership of the attorney-client privilege.” (Wells Fargo Bank v. Superior Court, supra, 22 Cal. 4th at p. 213.)
Smith v. Laguna Sur Villas Community Ass’n. (2000) 79 Cal.App.4th 639.
To summarize, the confidentiality of communications between an attorney and his or her client is considered a valuable social policy, encouraging free exchange of information and the fair administration of justice.
Personnel. In our highly litigious, employment-challenged society, one of the fastest ways to get sued is to interfere with someone’s ability to find employment. When directors openly discuss with others—even homeowners—any perceived failings of a vendor or employee, the association (and the directors) have essentially invited a suit for defamation, invasion of privacy, or a related employment tort. See, e.g., Damon v. Ocean Hills Journalism Club (2000) 85 Cal.App.4th 468. In construing the Brown Act’s very similar provision allowing personnel discussions to take place in closed sessions, the court noted that, “The purposes of the personnel exception are (1) to protect employees from public embarrassment and (2) to permit free and candid discussions of personnel matters by a local governmental body.” Morrow v. Los Angeles Unified School District (2007) 149 Cal.App.4th 1424. The same is true for personnel decisions in the association context.
Contract Negotiations. There is considerable discussion as to why “contract negotiations” should take place in executive session. Generally the rationale for doing so overlaps with the exception for personnel issues discussed above: as with personnel issues, in contract negotiations the Board needs to be able to discuss not only what it knows to be true, but what the directors or the manager speculates may be true—all without fear of being sued. In addition, discussing contract negotiations can be particularly problematic where the association is attempting to work through a valid competitive bidding procedure—open discussion of a competitor’s bids can result in information being transmitted to other bidders, and may tempt the recipient of that information to be less than frank about pricing or qualifications.
Member Discipline. While many boards (and some aggrieved neighbors) would like to broadcast the Board’s disciplinary activities, that is very unwise. As with personnel matters, the board needs to be free to discuss what is known, both about the violation and about the violator. The goal of discipline is compliance, not punishment—unless punishment is the only effective tool to secure compliance. And which “tool,” whether it be fines, suspension of privileges, or the like, is likely to be effective can only be determined if the board and management are free to discuss what each knows about the violator. The question of whether to file suit against an owner, and whether such would be well-founded or defensible, are matters deserving of frank and open discussion.
Member Payment Plans. In happier economic times, some boards were in the habit of posting the names of delinquent homeowners—a “hall of shame” aimed at forcing the owner to pay up. Since then, massive delinquencies, coupled with state and federal fair debt collection laws, have combined to make this practice very unwise. An owner’s finances are private, and to the extent that information is given to the board to allow it to evaluate a proposed payment plan, the information must remain confidential.
Conclusion. As one court, in rejecting a homeowner’s claim to see privileged documents, noted, “It is no secret that crowds cannot keep them. Unlike directors, the residents owed no fiduciary duties to one another and may have been willing to waive or breach the attorney-client privilege for reasons unrelated to the best interests of the association…” Smith v. Laguna Sur Villas Community Ass’n. (2000) 79 Cal.App.4th 639, 645. The same may be said of the other types of confidential information received by the board from time to time. There are, quite simply, some items that are best kept confidential. And while the Association may, eventually, win a case based on the improper disclosure of confidential information by a resident or director, the cost to defend the suit, and the resulting community-wide acrimony, would be unnecessary but for “loose lips.”
Helping Your Boards Handle Director Conflicts of Interest
By Karyn A. Larko, Esq.
*Originally published in the Summer 2018 CACM Law Journal
A conflict of interest (“Conflict”) exists between a director and the director’s association any time the personal, professional or financial interests of the director (who is referred to as the “Interested Director”) differ from those of the association. Stated another way, a Conflict exists when a director’s loyalty to the association is compromised by the director’s own interests.
California Civil Code §5350 identifies some of the most common Conflicts faced by directors, which arise when:
• A director requests to make architectural alterations to his/her property
• A director requests the exclusive use of a portion of the common area
• A director is in violation of the association’s governing documents and the board is faced with deciding what, if any, disciplinary action to take
• A board is faced with the decision on whether to assess a director for damage caused to the common area
• A director requests a payment plan for delinquent assessments
• A board must vote on whether to foreclose on a director’s property
If not handled properly, a Conflict can lead to liability for the association based upon such claims as failure to enforce the governing documents, violation of the governing documents, and discrimination. It can also lead to personal liability for the Interested Director and even the other board members under a claim of breach of fiduciary duty.
Handling Short Term Conflicts
Civil Code §5350 prohibits an Interested Director from voting on those matters identified by the statute. However, even when an Interested Director is not prohibited from voting, the Interested Director should be encouraged to abstain from voting on the Conflict matter in order to protect against a breach of fiduciary duty claim. Further, the Interested Director should be encouraged to leave the board meeting during the vote, because if he/she does not, the director’s abstention effectively acts as a vote against whatever matter is being voted on. For example, if a vote is conducted on whether to deny an Interested Director’s proposed payment plan and there are four directors present, including the Interested Director, and two directors vote in favor of rejecting the plan, one director votes against rejecting the plan and the Interested Director abstains from voting, the motion fails. However, if the Interested Director steps out of the meeting during the vote, the motion passes two-to-one.
While leaving the meeting during the vote on the Conflict matter may be contrary to the interests of the Interested Director, this action is important to protect the association’s interests.
If your board is required to vote on a Conflict matter that could lead to litigation between the Interested Director and association, or that is or could foreseeably become contentious within the membership, the directors who vote should clearly identify the reasons for their decision and these reasons should be recorded in the meeting minutes. Taking this action will help the board defend its decision should the board later be accused of breaching its fiduciary duty or otherwise acting improperly in coming to its decision.
If the Interested Director refuses to abstain from voting on the Conflict matter, encourage your board to consult with the association’s attorney for guidance.
When in doubt as to whether a Conflict exists, the board should seek the opinion of the association’s legal counsel or assume the issue as a Conflict.
Handling Long Term Conflicts
Disputes occasionally arise between a director (“Interested Director”) and a majority of the directors regarding an association matter. These disputes usually result from the board’s decision on a Conflict matter pertaining to the Interested Director, such as a decision to deny the Interested Director’s architectural alteration request. However, they can also occur when an Interested Director strongly disagrees with a broader decision made by the board, such as a decision to incur a large capital expense.
When faced with a Conflict that is not limited to one vote, especially a matter that could lead to litigation, encourage your board to promptly establish an executive committee to handle the Conflict only. This committee must be comprised of at least two current directors, but it cannot include the Interested Director. Only current directors may be appointed to the committee.
All discussions pertaining to the Conflict, including all attorney-client privileged communications, should be discussed with, and considered exclusively by the committee. Non-committee members, including the Interested Director, should not be included in committee meetings, copied on committee communications, or provided committee meeting minutes.
Committee meetings should be treated as executive session meetings. This means that a notice and agenda must be provided to the membership no less than two days in advance of the meeting.
Utilizing a committee to handle the Conflict will help avoid the appearance that the directors, including the Interested Director, are somehow acting improperly and reduce the likelihood of directors having to defend against a claim of breach of fiduciary duty. Additionally, it will help protect the association’s attorney-client privilege with regard to the Conflict because the opposing party (i.e., Interested Director) will not be privy to the legal advice given by the association’s attorney.
Additionally, if a Conflict involves any allegations of board wrongdoing, encourage your board to immediately file a claim with the association’s D&O carrier. If the carrier accepts the claim, the carrier may appoint insurance defense counsel, thereby saving the association in legal fees.
One final piece of advice you should give your board; Perception is everything. When faced with an issue that is or will likely be perceived by the membership as a Conflict, the safest course of action is to treat it as one.
Q & A:
1. When a Civil Code §5350 Conflict arises, the Interested Director:
a. Is encouraged to abstain from voting on the Conflict matter.
b. Is encouraged to abstain from voting on the Conflict matter and step out of the meeting during the vote.
c. Is required to abstain from voting on the Conflict matter and step out of the meeting during the vote.
d. Is required to abstain from voting on the Conflict matter and is encouraged to step out of the meeting during the vote.
2. If an executive committee is established to handle a Conflict, the board may appoint the following people to serve on the committee:
a. Two or more former or current board members, excepting the Interested Director.
b. Two or more current board members only, excepting the Interested Director.
c. Two or more current board members, excepting the Interested Director, and one or more members of the association who are not on the board.
d. Both A and D above.
3. While an Interested Director may not serve on an executive committee appointed to address the Conflict, the Interested Director may inspect Board communications pertaining to the Conflict and the executive committee meeting minutes. True / False
California Supreme Court Limits the Ability to Hire Independent Contractors
On April 30, 2018, the California Supreme Court clarified and narrowed the test for determining whether a worker is properly classified as an independent contractor by a hiring entity in Dynamex Operations W. v. Superior Court, (2018) 4 Cal.5th 903. The Court concluded that the correct test to determine whether a worker is properly classified as an independent contractor is the “ABC Test” requiring the employer to establish each of the three factors (ABC factors) as follows:
(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work and in fact;
(B) The worker performs work that is outside the usual course of the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business.
Prior to this decision, there were various factors and tests an employer could use to make the classification decision. Not anymore. The Court held that “[t]he hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor….” In adopting the ABC Test as the sole test to determine the correct classification of workers, the Court narrowed the meaning of “to suffer or permit to work” definition of the term “employ.” As the Court noted in its decision, “the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenues and millions of workers of the labor protections to which they are entitled.” Employers and hiring entities including association and management entities must carefully examine whether their current or prospective independent contractors meet all of the ABC factors before classifying workers as independent contractors. Now more than ever, it is best to classify a worker as an employee rather than an independent contractor.
Got Employees?
Remember, as of January 1, 2018, AB 168 prohibits California employers from asking job applicants about their previous salary and AB 1008 prohibits California employers with five or more employees from:
- Asking about criminal convictions on employment applications;
- Asking applicants about criminal convictions before making a conditional offer of employment;
In addition, when conducting a conviction history background check, it is unlawful to consider, distribute, or disseminate information related to specified prior arrests, diversions, and convictions.
If you haven’t already, be sure to update your employment applications and questionnaires!
10 Points for a Joint Use Agreement for a Golf Course
Having a golf course as a part of your community can be a benefit in terms of views and property values, however, not so much if the landscaping is not properly maintained or if more money is going out than coming in. If your association does not own its golf course or shares it with a third party owner/operator then the agreement governing the use of that course is crucial to keeping the people who own, operate, use, and live next to, the golf course satisfied.
A good agreement does at least the following:
- Clearly describes who maintains and insures what and who pays for what, including a clear description/formula for the parties’ respective contributions.
- Provides clear procedures, including established timelines, for an acceptance of the proposed annual budget by the parties, and allow for deviations from the budget during the year for unexpected occurrences. Also, if the golf course is not brining in enough revenue to offset its expenses, then the association’s share of that deficit, if any, must be addressed.
- Addresses capital improvements, including how they are agreed upon by the parties, budgeted and replaced.
- If a developer is involved and the course will ultimately be turned over to the association, the agreement accounts for a clear turnover procedure that describes when the association’s maintenance responsibilities begin and any conditions for a delayed start of this maintenance (e.g., improvements not in a turnover-ready condition).
- If a developer is involved, the agreement accounts for reserve contributions at turnover, including being sure that if the improvement is not “new” then it is properly funded at turnover.
- Sets forth a comprehensive indemnity agreement that addresses who is responsible for defending whom if a claim is filed that relates to the golf course improvements and operations.
- Provides for dispute resolution, possibly mediation with a right to go to court and inability of the party who did not consent to mediation to recover attorneys fees in litigation.
- Provides for allocation and duty to pay attorneys fees.
- Provides for recording the agreement (or a memorandum of it) so that it runs with the land and bind all successors.
- Provides for periodic meetings between the boards of the involved parties (and any essential other parties, such as finance and golf committees, legal and accounting advisors) to discuss the administration of the agreement, things on the horizon, or any other issues/concerns as people see them. This ensures a consistent line of communication, critical to a successful relationship.
Rules Pertaining to Interruptions at Meetings
By Kieran J. Purcell, Esq.
- The Board believes that owner attendance and participation at meetings is important and should be encouraged, so that more owners will become interested in and begin to participate in Association activities. The Board also recognizes that owners will not always agree with the actions taken by the Board, and that debate is fundamental to our concepts of representative democracy and that differences in ideas will improve the chances for a better long-term result.
On the other hand, as the elected representatives of the Association, the Board must be permitted to conduct its business without unreasonable interference. Thus owner participation must remain orderly and be limited to the portions of meetings specifically set aside for such participation.
The California Legislature has enacted laws to prevent disturbances (1) in meetings of the Legislature and other State and local governmental bodies (Government Code Sections 9050, 9051, 11126.5 and 54957.9) and (2) in other public meetings (Penal Code Section 403). For those few owners who may not be willing to avoid disrupting meetings of the Association, they should be aware that California Penal Code Section 403 states, in part, as follows:
Every person who, without authority of law, willfully disturbs or breaks up any assembly or meeting, that is not unlawful in its character. . . is guilty of a misdemeanor.
To address any problems which might arise from unwarranted interruptions at meetings, the Board enacts the following rules to be applicable at all Board, committee and membership meetings.
- If any person interrupts a meeting, the chair will first admonish those present that any person who persists in interrupting the meeting will be given two specific warnings after which the disruptive person will be ordered to leave the meeting. The secretary should note in the minutes that the chair gave this general warning.
- If any person again interrupts the meeting, the chair will give a specific warning to the person or persons doing so. The chair should indicate that the person is being warned, and the secretary should note the name of the person warned in the minutes, and whether it is a first or second warning.
- Upon a third offense, the chair shall order the interrupting person or persons to leave the room, unless the Board votes to suspend the rules to permit the person to stay, upon such other conditions as the Board collectively imposes.
- The chair will state that if the disruptive person will not leave voluntarily, there will be no option but to adjourn the meeting. If an owner is ordered to leave a meeting and refuses to do so, the chair may ask the police to be summoned.
Depending on what is feasible, the meeting can be adjourned to another location or another time.
- The Board members, either individually or on behalf of the Association, may also seek to obtain a restraining order prohibiting harassment pursuant to Code of Civil Procedure Section 527.6 against any individual or individuals who willfully disturb any meeting of the Association’s Board, committees or members.
Creating Community: From Developers to Community Associations
By Susan M. Hawks McClintic, Esq.
If you are looking for a newly built home in San Diego County, the odds are that home will be in a community association. When done right, community associations provide an immediate sense of community for new homeowners.
Community associations are typically found in condominiums or planned developments where the homeowners share common amenities such as pools, clubhouses, parks and playgrounds. According to a 2016 study by the Community Associations Institute, there are approximately 45,400 community associations in California, with an estimated 9.16 million residents.
In San Diego County, the vast majority of new homes are located in developments with community associations. Community associations are usually set up as a nonprofit corporation with a board of directors. While the development is being built, the board of directors consists of representatives of the developer and some homeowners.
Eventually, the association is turned over to the homeowners. This usually occurs after a certain number of properties have been sold. It’s important to have a good transition team, not only for the handover but also to set up long-term goals and success for the association.
“Strong, focused leadership at the outset of a community sets the tone for the future of the community,” said attorney Susan Hawks McClintic, co-managing shareholder at Epsten. “Developer representatives on the board of directors can play an important role in transitioning from constructing buildings to building relationships and a sense of community.”
The board of directors guides the community association. By serving on the board during the development, the developer is able to continue the vision of the original development plan. As the transition continues, that vision is passed on to the new homeowner board members.
“You may have heard some grumblings about someone monitoring whether you mow your lawn or paint your house the right color, but community associations offer many positives. Besides, do you want your neighbors to paint their house bright purple?” McClintic said. “In the 2016 study by the Community Associations Institute, 87 percent of the responding residents in community associations rated their experiences with the association as positive or neutral.”
It’s important for homeowners to get involved. Serving on the board is not for everyone, but all homeowners can attend meetings. Anyone interested in becoming a board member can learn the statutes and laws and get training on how to lead an effective association.
Homeowners need to share their vision of community from the start. Should it be a place with social events so neighbors can meet one another? Is a community garden important? What about quiet time? Planning some long-term goals is a great way to get the conversation started about the vision for the community.
Don’t hesitate to bring your ideas to the table. Working with the developer representatives on the board of directors is the best way to create a welcoming community and lay the groundwork for preserving the value of that community’s properties.
[1] This article was originally published by the San Diego Union-Tribune on August 16, 2017