Election Process Timeline (Effective January 1, 2020)

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

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

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AB 670: Accessory Dwelling Units (ADUs)

By Jackie E. Quinn, Esq.

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In recent years, the California Legislature has enacted several laws aimed at limiting the authority of local agencies to restrict accessory dwelling units (“ADUs”) and junior ADUs and streamlining the construction of ADUs and junior ADUs.  Up until now, state law hasn’t addressed private restrictions on ADUs, such as in an association’s CC&Rs.

However, effective January 1, 2020, AB 670 adds section 4751 to the Common Interest Development Act that will prohibit associations from “unreasonably” restricting the construction of an ADU or junior ADU on a lot zoned for single-family residential use.  (An association’s governing documents may continue to prohibit the construction of an ADU on a lot zoned for multi-family residential use. )  The intent of the Legislature in passing this bill is to encourage the construction of ADUs or junior ADUs that are either owner-occupied or are used for rentals for longer than thirty (30) days.

An ADU, sometimes referred to as mother-in-law units or granny flats, is a dwelling unit designed to serve as independent living quarters for at least one person. These dwelling units can be both attached and detached from the primary dwelling unit. A junior ADU is simply a unit that is 500 square feet in size or less, attached to the home, and has entrances from within the primary dwelling unit as well as from outside.  A garage, carport or covered parking structure on the lot may also be converted to an ADU or junior ADU.

AB 670 makes any governing document void and unenforceable to the extent that it prohibits, or effectively prohibits, the construction or use of ADUs or junior ADUs.  However, AB 670 does allow an association to place “reasonable restrictions” on ADUs and junior ADUs in common interest developments, as long as the restrictions do not discourage or effectively prohibit ADU or junior ADU construction or unreasonably increase the cost to construct them.

Although the new law does not define what sort of restrictions are “reasonable,” the law does not require an association to follow the same exact standards that the city or county has adopted concerning ADUs or junior ADUs, leaving open the option for an association to adopt its own “reasonable restrictions” that may differ from those of local agencies.  Such “reasonable restrictions” may include requirements related to aesthetics and design of the new unit, submitting and receiving approval of an architectural application, size of the new unit, use of shared facilities in the community, and parking.

There are bound to be disagreements over what constitutes a “reasonable restriction.”  What constitutes a “reasonable restriction” for one association may not qualify as “reasonable” for another. Therefore, it is important for associations to conduct a diligent inquiry into what restrictions are truly reasonable for their community and members before adopting ADU guidelines for members to follow.

With respect to new provisions that local agencies must follow, sections 65852.2 and 65852.22 of the Government Code set forth specific standards that local agencies must follow in adopting local ordinances related to ADUs and junior ADUs.  For instance, local ordinances cannot establish a maximum square footage requirement for an ADU that is less than 850 square feet, or 1,000 square feet if the ADU contains more than one bedroom.  The local ordinance also cannot require a property owner who built an ADU to occupy the primary home on the property or the ADU. In addition, a local ordinance may not impose a requirement to replace lost parking spaces somewhere else on the property when converting a garage to an ADU.  While an association may adopt ADU restrictions that differ from local regulations, it is important and helpful for associations to be aware of their city’s or county’s local ordinances concerning ADUs and the ways in which the association’s restrictions vary, as residents are bound to raise comparisons.

Membership & Voter List Opt-Out Form

Civil Code section 5200 currently requires associations to disclose membership names, property addresses, and mailing addresses to other members upon request unless a member opts-out of sharing their information.

A new law mandating the disclosure of member email addresses to requesting members will go into effect on January 1, 2020. As such, we have updated our “Disclosure of Member Information Opt-Out Form” template, which is available upon request.

Associations may send updated opt-out forms to their membership now in anticipation of the change in the law. After January 1, 2020, member email addresses on file with the association must be disclosed to requesting members unless a member completes and submits a form to the association opting-out of having their information shared.

Note: Some of our clients may already provide member email addresses to requesting members. For those clients, their current opt-out form may be adequate.

Sexual Harassment Training Requirements

By Mandy D. Hexom, Esq.

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NEW UPDATE: Associations That Have Five or More Employees Must Provide Sexual Harassment Training by January 1, 2021
(Rather than January 1, 2020).

Employers with five or more employees no longer have to provide sexual harassment training by January 1, 2020 as previously required under Government Code section 12950 (Senate Bill 1343). Rather, pursuant to Government Code section 12950.1 (Senate Bill 778 signed by Governor Newsom on 8/30/19), an employer with five or more employees (which include seasonal and temporary employees, unpaid interns, unpaid volunteers, and independent contractors), must provide two hours of sexual harassment training to all supervisory employees and at least one hour of sexual harassment training to non-supervisory employees by January 1, 2021.

Subsequently, the employer must provide the training once every two years. This new law also requires an employer to provide initial training for non-supervisory employees within six months of hire.  However, if your supervisory employees received training in 2019, they need not be trained again until two years thereafter. Employers must keep the training documentation for at least two years.

More information about the training requirements, other related requirements, and resources for the required trainings can be found on the DFEH’s website at: https://www.dfeh.ca.gov/resources/frequently-asked-questions/employment-faqs/sexual-harassment-faqs/

AB 5: New Requirements for Independent Contractors

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By Mandy D. Hexom, Esq.

Does Your Association Have Independent Contractors Providing Services?
If so, Assembly Bill 5 Will Further Impact the Ability of Companies Including Associations to Classify Workers as Independent Contractors.

What Are the New Laws?

You may have seen or heard the recent uproar in the news by Uber and Lyft over the so-called “gig worker bill.” Unfortunately, this new bill will impact not just the “Gig Economy,” but almost all California businesses including community associations and community management companies.

On September 18, 2019, California Governor Gavin Newson signed into law Assembly Bill 5 (“AB 5”) to be incorporated into the California Labor Code beginning January 1, 2020, as Labor Code section 2750.3, with an amendment to the definition of “employee” in Labor Code section 3351 and other related amendments to the Unemployment Insurance Code at sections 606.5 and 621.

What is the Proper Classification of Individual Workers?

This new law essentially requires employers to comply with the California Supreme Court decision in Dynamex (Dynamex Operations West, Inc. v. Superior Court of Los Angeles County 4 Cal.5th 908 (2018)) concerning classification of workers as independent contractors rather than employees and creates statutory liability for not complying with these new limitations on worker classifications. AB 5 and the Dynamex case permit California hirers to classify  individual workers as independent contractors only if it meets the ABC Test, which provides workers are employees  unless: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under contract and in actual fact; (B) whether 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 of the same nature as the work being performed for the hiring entity. AB 5 includes some exceptions for certain businesses or industries. However, there are no specific exceptions for community associations or community management companies.

What if There is a Bona Fide Business-to Business Relationship? Should Associations or Management Companies Be Worried?

Yes. AB 5 also provides guidance when there is a “bona fide business-to-business contracting relationship.” AB 5 defines what is a legitimate “business-to-business contracting relationship” and sets forth further requirements to determine whether a “business service provider” is a properly classified independent contractor (e.g., janitorial services, etc.).

  • First, the two parties contracting must both be “business service providers” which are either a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation, which includes nonprofit mutual benefit corporations, such as many common interest developments (Labor Code section 2750.3(e)(a)(1)).
  • Second, the determination of employee or independent contractor status of the business service provider in a business-to-business relationship shall be governed by a different test as opposed to the ABC Test that applies to individuals (Labor Code section 2750.3(e)(a)(1)). This business-to-business test is known as the Borello Test from the California Supreme Court case that historically and previously set forth the applicable test to determine proper worker classification (G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341). The Borello Test has been in use since approximately 1989 and sets forth 12 factors, all of which must be satisfied to have a bona fide business-to-business/independent contractor relationship, not an employer-employee relationship:
  1. The business service provider is free from the control and direction of the contracting business in connection with the work, both under the contract for the performance of the work and in fact.
  2. The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.
  3. The contract with the business service provider is in writing.
  4. If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.
  5. The business service provider maintains a business location that is separate from the business or work location of the contracting business.
  6. The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.
  7. The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.
  8. The business service provider advertises and holds itself out to the public as available to provide the same or similar services.
  9. The business service provider provides its own tools, vehicles, and equipment to perform the services.
  10. The business service provider can negotiate its own rates.
  11. Consistent with the nature of the work, the business service provider can set its own hours and location of work.
  12. The business service provider is not performing the type of work for which a license from the Contractor’s State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

(Labor Code section 2750.3(e)(a)(1)(A)-(L); S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341.)

Are There Any Other Considerations Related to Misclassification of Employees?

In addition to this new law, associations should continue to be cognizant of the risks of being deemed a joint employer and plan ahead to minimize their liability for these potential joint employer risks. For example, an association should understand that when it has onsite workers who are employed by their management companies or vendors, these onsite workers could also be deemed employees of the association under the joint employer doctrine and under AB 5 which amends the definitions of “employee” and “employer” in Labor Code section 3351 and Unemployment Insurance Code sections 606.5 and 621.

What Can Associations Do In Response to These New Laws?

Community associations should consult with legal counsel about whether to reclassify all of their workers as employees unless they are confident their workers can meet the ABC Test set forth in the Dynamex case and AB 5. If employees are misclassified as independent contractors, these workers could file a lawsuit in state court or initiate a claim with the Labor Commissioner’s Office, the Employment Development Department, and the Franchise Board, all of which have jurisdiction and authority over worker misclassification matters. If such a claim or lawsuit is filed against an association, these claims are considered “wage and hour” or “misclassification” claims and are typically not covered by the standard Employment Practices Liability Insurance (“EPLI”) policies that cover associations or their management companies. Nonprofit corporations and smaller companies are not financially equipped to participate in protracted litigation or administrative proceedings in an attempt to prove their workers are properly classified.

What are Some Options to Minimize the Risks of Misclassification?

What can associations do to try to protect themselves if they are concerned about workers providing services that may be misclassified as independent contractors by the association or its vendors or contractors?

  • Classify association workers as employees and ensure that your onsite workers are being classified as employees by your vendors or contractors if these workers cannot satisfy the ABC Test.
  • Contact your insurance agent to obtain an EPLI policy for the association that covers wage and hour claims, misclassification claims, third party claims as well as coverage for your independent contractors, especially if there are independent contractors providing services for the association. It is best to make this inquiry now before the next budget disclosures are distributed to the owners in case the association will need to increase assessments to cover increased insurance costs.
  • Timely and immediately notify any applicable EPLI carrier of facts or circumstances that may give rise to a claim if you have any concern you may have misclassified workers as independent contractors.
  • Carefully draft new written contracts or revise existing contracts with vendors or contractors, in order to minimize risks of liability for misclassification claims because it is possible that the association may be deemed a joint employer of the workers provided by the vendors or contractors. For example, an association can require its vendors or contractors to (i) indemnify the association for employment-related claims; (ii) have EPLI insurance including wage and hour, misclassification, independent contractor and third party coverage; and (iii) require an additional insured endorsement in favor of the association on these EPLI policies, if available.

SB 326: The Balcony Bill

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By Gordon A. Walters, Esq.

On August 30, 2019, Governor Newsom signed Senate Bill No. 326 (S.B. 326) into law, adding two new statutes to the Davis-Stirling Act. Civil Code section 5551 adds a requirement for associations to perform inspections of balconies and other exterior structural elements that the association has an obligation to maintain. Civil Code section 5986 invalidates and voids developer friendly provisions in governing documents that require homeowner votes prior to filing of a construction defect lawsuit. Below is an overview of the important points you need to be aware of regarding these new laws, which will go into effect on January 1, 2020.

Balcony Inspection Q&A

The balcony inspection portion of this bill will look familiar to many, as it resembles the bill passed one year ago (S.B. 721), impacting apartment buildings and other multi-family projects throughout California. Common interest developments were excluded from S.B. 721, as the legislature tinkered with the inspection requirements to make for a more bearable burden on associations.

Which Associations Are Impacted?

Associations with buildings with three or more multifamily dwellings.

What Needs to Be Inspected?

Any “Exterior Elevated Elements” for which the association has a repair or maintenance responsibility – generally, this will be any load bearing components that extend beyond the exterior walls of the building to deliver structural loads to the building. Primarily this includes balconies, decks, stairways, walkways and railings that are supported by wood or wood-based products and are more than six feet above the ground.

Who Can Perform Inspections?

Inspections must be performed by a licensed structural engineer or architect. Larger associations may also need to use a statistician, as the statute requires a statistically relevant sample size be inspected (95% confidence level, with a 5% margin of error).

When Do Inspections Need to Be Performed?

Inspections must be completed every nine years. The first inspection must be completed by the end of 2024. Buildings being constructed after this law goes into effect will need to complete their first inspection within six years of issuance of a certificate of occupancy.

What Must the Inspection Look For?

Visual inspections must confirm that areas are in a “generally safe condition” and “performing in accordance with applicable standards.” If the inspector sees signs that the waterproofing system has been compromised, or that there is risk of damage to the load bearing components of the building, they are to use best judgment to recommend further inspections. If there are any threats to safety of residents, the inspector must notify the association immediately and governmental inspection agencies within 15 days of issuing their report. The association must act immediately to prevent access to dangerous areas and take other appropriate preventive measures necessary to protect the safety of the residents.

What Reports Must Be Generated From the Inspection?

The inspector must issue a written report that includes:

  • Identification of the applicable building components subject to inspection;
  • Current physical condition of the components and whether there is a present threat to the health or safety of residents;
  • Expected future performance of the components and remaining useful life; and
  • Recommendations for any repairs.

The inspector’s report must be stamped or signed and included in the association’s reserve study. The reports generated must be preserved in the association’s records for a period of at least two inspection cycles.

The five-year window to complete the first inspection will allow associations to coordinate the first balcony inspections to take place with an upcoming reserve study inspection. The nine-year balcony inspection cycles will then coordinate with every third reserve study inspection going forward.

Prior to moving forward, an association should also confirm that there are no more stringent inspection requirements in its governing documents or required by local government or enforcement agencies, as the code allows for more stringent requirements to be adopted locally.

Construction Defect Lawsuit Homeowner Voting Requirements

In August 2018, the Fourth District Court of Appeals, Division Three issued an opinion titled Branches Neighborhood Corp. v. CalAtlantic Group, Inc. (2018) 26 Cal. App.5th 743 (“Branches”). In Branches, a community association’s construction defect lawsuit against the builder of the project was dismissed because the association did not take a membership vote prior to filing the lawsuit, as required by a provision in the CC&Rs. The court dismissed the entire lawsuit, which sought over $5 million in damages to the association’s common areas, despite the fact that the homeowners overwhelmingly approved the filing of the lawsuit, voting to ratify the board’s decision to file, 92-1.

Because of the many short statutes of limitation and repose for construction defect claims, associations with similar CC&Rs provisions are often caught in a no-win dilemma. They can risk letting a statute of limitations run by complying with the vote requirement, which often takes months to complete in larger associations. Alternatively, the association can risk filing the lawsuit without conducting the homeowner vote to avoid letting a statute of limitations run, only to have their lawsuit dismissed for failing to take the homeowner vote prior to the filing of the lawsuit. While, on its face, requiring homeowners to approve litigation seems to be a pro-owner provision, as a practical matter, it served to insulate developers from liability by causing delay.

Recognizing the unjust result in Branches, and the no-win situation developers were effectively putting associations into with these onerous vote requirements, the Legislature has acted to invalidate governing document provisions that operate to limit the board of directors’ authority to decide whether to file a lawsuit against the builders of the project for construction defects. Any such provisions contained in governing documents are to be deemed unenforceable, null and void. The failure to comply with any precondition to filing suit, other than those conditions set forth in the Civil Code, cannot be asserted by the builder as a defense for claims brought against the builder.

The statute applies retroactively to all governing documents, whether recorded before or after the enactment of the statute. However, if a claim has already been resolved through a settlement, final arbitration decision or final judicial decision on the merits, the enactment of the statute will not revive any of those claims.

Notwithstanding the Legislature’s decision to invalidate these governing document provisions, associations can enact their own similar provisions, so long as the provisions are enacted solely by non-builder affiliated members of the association.

Maintenance Responsibility, Insurance Obligations, and Notifying the Carriers

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By David A. Kline, Esq.

The CC&Rs for common interest developments typically allocate the responsibility to maintain, repair, or replace various components between the owners and the association.  When the CC&Rs are silent, Civil Code section 4775 provides a default allocation of responsibility.

Recently, we have received a lot of questions about how the allocation of maintenance and repair responsibilities relates to an association’s insurance obligations.  To answer these questions clearly, an association’s obligation to insure a component may have nothing to do with its obligation to maintain, repair, or replace that component.

Condo Communities

When it comes to a typical airspace condominium community, each owner’s deed defines his or her ownership interests, generally in reference to the condominium plan.  The condominium plan describes a three-dimensional airspace that is owned separately by each member and divides the entire community (or a phase of the community) into units, common area, and exclusive use common area.  Typically, the interior surface of the perimeter walls and the unfinished floors and ceilings are identified as the boundaries of the condominium units with everything inside these boundaries (excepting structural components such as bearing walls) being part of the units.

Usually, the CC&Rs define “unit,” “common area,” and “exclusive use common area” in a manner that is consistent with the condominium plan.

Planned Developments

When it comes to planned developments, the community is typically comprised of member-owned lots and association-owned common area.

Allocation of Maintenance Responsibility

The CC&Rs generally identify the maintenance, repair and replacement responsibilities of owners and the association.  Sometimes, the CC&Rs simply state that owners are responsible for the maintenance, repair and replacement of their units or lots and any exclusive use common area appurtenant to their units or lots, and the association is responsible for the common area.  More recent CC&Rs might include a maintenance matrix that provides greater detail regarding which components the owners and association are responsible for.  It is not uncommon, especially for newer CC&Rs, to allocate certain maintenance and/or repair responsibilities in a way that deviates from a straightforward unit or lot/common area delineation.

Often, when a sudden loss occurs, such as a fire or plumbing leak, associations assume that the location of the damage or the allocation of maintenance, repair and replacement responsibility contained in the CC&Rs definitively determine the party responsible for the damage.   However, this may only be partially true.

Insurance Coverage

The CC&Rs generally obligate the association to maintain property and casualty insurance.  In some condominium communities and planned developments, especially when the units or homes are attached, the CC&Rs may obligate the association to maintain insurance covering not only the common area, but certain portions of the units or lots as well – portions that the owners may be responsible for maintaining and repairing under the CC&Rs.  For example, the CC&Rs for a condominium community may require the association to insure components within the units, such as cabinetry, built-in appliances and flooring, or even structural components that the owners are generally responsible for maintaining and repairing.  Likewise, the CC&Rs for a planned development may require the association to insure the homes (i.e., the structures) and, possibly, certain improvements located within the homes.  When an association’s policy covers any damaged portion of the residence, owners have a right to file a claim under that policy.  Because the association is the customer of its insurance carrier, the carrier will often ask the association whether the board would like the carrier to process the claim.  Too often, boards of directors instruct the carrier not to process the claim, either because they cite the owner’s repair obligations or because they take issue with the fact that the owner sought to file a claim without first seeking the board’s permission.

When a board instructs the association’s carrier not to process a claim that would otherwise be covered, the board is interfering with the owner’s rights under the CC&Rs and under the insurance policy.  After all, the owner is an “insured” under the policy and the policy is maintained for the benefit of the owners.

If a board instructs the association’s insurance carrier not to process a claim that would otherwise be covered under the association’s policy, the board is effectively obligating the association to pay for the damage to the same extent the carrier would have, had the claim been processed.

In some cases, it may make sense strategically for the board to ask the carrier not to process a claim that would be covered.  For example, if the amount of the damage is only slightly higher than the deductible, the board might opt to pay the small amount of money the carrier would have paid, rather than allow another claim to affect the association’s loss history.  However, in most cases, it will make more sense to authorize the carrier to process the claim.

Directors & Officers Liability Coverage

The decision on whether to authorize the association’s carrier to process a property claim should not be confused with the decision to notify the directors and officers (“D&O”) liability carrier of facts and circumstances that could lead to a potential claim against the association’s board, officers, manager or any other parties who may be covered by the policy.  When an owner threatens to sue a community association or its board, there is no reason not to promptly notify the D&O carrier about that threat.  And, when a lawsuit is filed, there is no reason not to promptly tender the claim to the D&O carrier.  D&O carriers do not base their decisions about renewals and premiums upon the number of claims that they have been notified about.  D&O carriers base their decisions on their determination about the risk of future claims.

Failure to promptly notify the D&O carrier about potential claims could cause the carrier to deny coverage for an expensive claim that otherwise would have been covered.  Placing the carrier on notice of facts and circumstances that could give rise to a potential claim gives the carrier an opportunity to appoint legal counsel for the association and to make an early settlement offer to limit its exposure to liability.  This is why we often say: “Tender early.  Tender often.”

But, That Can’t Be Right, Can It?

Turning back to property and casualty insurance, it may seem counter-intuitive that the association’s policy covers an owner’s unit or house.  After all, why should the association pay to insure an owner’s separate interest when he or she owns it and is responsible for maintaining and repairing it under the CC&Rs?  For that matter, why should assessments be used to buy insurance that pays to repair damage that the owner him or herself may have caused, such as a kitchen fire?  Unfortunately, this train of thought overlooks the realities of common interest living.  If owners were given the option to insure their own property, many owners would fail to do so.  In the event of a major casualty event, such as a fire, an uninsured owner’s unit or home might not be rebuilt.  In a typical planned development with unattached homes, this could result in an eyesore for the rest of the community.  But, in a condominium or planned development where the structural components of one owner’s residence are integrally tied to those of one or more neighboring residences, lack of insurance coverage for one residence could also prevent or seriously delay the repair or reconstruction of multiple residences.

Even when lack of insurance only delays or prevents the repair or reconstruction of the interior of a unit, the appearance of the community and property values may be impacted.

Conclusion

In summary, an association’s CC&Rs and its condominium plan, if applicable, can be helpful tools in identifying when owners will be responsible for repairing or replacing damaged components within the community and for identifying when owners will generally be liable for the costs associated with this work.  However, the association’s insurance obligations may shift this liability to the association – at least in certain circumstances.

What is an Association’s Duty Before a Wildfire Strikes?

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By Kieran J. Purcell, Esq.

Typically, an association is charged with enforcing its governing documents.  Some aspects of pre- and post- wildfire related activities may be covered by an association’s CC&Rs or Rules (e.g., deadlines for reconstruction of damaged property or architectural approval) but many are not (e.g., the association’s ability to compel brush abatement on owner’s separate interest property).  Yet homeowners may look to the association, if not for actual enforcement activity, then for leadership in this issue.

Providing Voluntary Services

If an association is not required to provide pre-and post- wildfire services pursuant to its governing documents, then any services provided by an association are purely voluntary and with that comes risks.

Consider the 2018 O’Malley v. Hospitality Staffing Solutions case in which a hotel employee voluntarily undertook a welfare check at the request of a guest’s spouse.  The employee did not find the injured plaintiff during his welfare check, but she was found by her spouse sometime later.  The injured plaintiff sued the hotel alleging the employee’s welfare check was not thorough enough and had she been found earlier, she would have received more timely medical care and her injuries would have been less extensive.  The court in O’Malley held that if someone is giving aid to another, then the person providing the aid has to exercise due care.  If the person providing the aid fails to exercise due care and that failure increases the risk of harm to another or if harm is suffered because the other relied on that person’s aid, then the person providing the aid may be liable.

So, what’s the lesson to be learned from the O’Malley case?  If an association voluntarily renders services for the protection of others, it must exercise reasonable care in doing so or the association may be liable under a “negligent undertaking” theory of liability for its failure to exercise reasonable care.

Many homeowners assume their association will render some sort of relief or emergency services should a natural disaster occur.  Some associations even provide periodic reminders or create an “Emergency Preparedness Plan” or an “Emergency Preparedness Committee.”  If your association is going to provide such voluntary services, the association should: (1) clearly inform its residents of the services the Association will and will not voluntarily provide; (2) consult with an expert as to how the association can provide the best quality services possible; and (3) confer with its insurance expert to obtain insurance for any insurable risks.

Premise Liability

Negligence arises when an association, through its board of directors, knows or should know there is a risk of property damage, fails to take reasonable action to prevent such damage, and this failure proximately causes property damage.  The types of negligence asserted against associations are myriad and diverse.  Some of the more common varieties concern premises liability.

Could an association be held to the same standard of care as a landlord regarding premises liability?  In short, the answer is “yes.”  In Frances T. vs. Village Green Owners Ass’n, the California Supreme Court held that in certain instances an association has a duty to investigate criminal activity and take appropriate safety measures, just as a landlord would for his or her tenants.  The Court’s rationale for its holding in Francis T. is that, like a landlord, the association manages and controls the common area, so when a hazard is foreseeable the association has a duty to exercise due care for its resident’s safety in those areas that are under its control.  A court might impose a similar duty on your association if a wildfire is foreseeable because your community is located in high risk area for wildfires.  If your community is located within such an area, your association should consult with an expert as to the kinds of wildfire mitigation measures your association should implement as part of its common area maintenance and your association should implement them if it is able.

Breach of the Duty to Maintain

An association could be liable, even if it was not negligent, if it failed to adequately discharge its maintenance duties as required in its governing documents.  In Franklin v. Marie Antoinette Condominium Ass’n., a building component the association had a duty to maintain, pursuant to its CC&Rs, leaked resulting in property damage to an owner’s condominium.  The owner of the condominium sued the association for breach of the association’s duty to maintain and for negligence. The court in Franklin discussed how an association might be liable regardless of whether it acted negligently if the association had a duty under its CC&Rs and it breached that duty.

Good Samaritan Laws

Will an association be protected as a “Good Samaritan”?  California Health & Safety Code section 1799.102(b)(2) offers some protection to “Good Samaritans,” but under fairly narrow circumstances.  In relevant part it provides, “no person who, in good faith and not for compensation, renders emergency medical or nonmedical care or assistance at the scene of an emergency shall be liable for civil damages resulting from any act or omission other than an act or omission constituting gross negligence or willful or wanton misconduct.”  A careful reading of this language shows it may provide immunity to an individual, who renders emergency medical or nonmedical care at the scene of an emergency, but not an association as a corporate entity.

So, what’s an association to do?  A good place to start is by reviewing the association’s governing documents, for example:

Easement Rights

Generally, CC&Rs grant the association and owners nonexclusive easement rights of ingress and egress through the common area and separate interest property for specified purposes, e.g., maintenance the association or owner is obligated to perform under the CC&Rs.  However, do your association’s CC&Rs allow it to access an owner’s separate interest property to do brush abatement, clear debris, or other common pre/post-wildfire activities?  And if so, do the CC&Rs permit the association to impose an individual assessment to recover its costs if it performs these tasks after an owner fails to do so?  Does the association have the authority to: (a) barricade damaged common areas; (b) control or limit access over streets; (c) open gates to admit emergency vehicles; and (d) shut-off utility valves, cap leaks and repair non-common area lines?

Exculpatory Clauses

An exculpatory clause is a provision in an association’s CC&Rs which typically exonerates it from liability for certain types of damages.  California courts have accepted the validity of exculpatory clauses in CC&Rs, which exonerate an association from having to reimburse an owner for property damage caused by a failed component the association had a duty to maintain, when the failure was not due to the association’s negligence.  (See the Franklin v. Marie Antoinette case.)  If your association still has its original 1970’s era CC&Rs, it’s unlikely they will contain such an exculpatory clause.  However, if your CC&Rs were written or amended within the last 20 years or so they may contain an exculpatory clause, and if so, this may impact the association’s liability for property damage after a wildfire occurs.

Insurance Obligations

Most governing documents contain insurance provisions, but they can vary greatly from association to association, so it’s a good idea to consult with your association’s community management team, its insurance broker, and legal counsel to: (1) confirm that your association is meeting its existing insurance obligations and (2) determine if additional insurance coverage is a good idea (e.g., guaranteed replacement cost or anticipated emergency activities coverage).

Damage, Destruction and Partition

CC&Rs often contain provisions establishing the duties and responsibilities of owners in the event their separate interest property is damaged or destroyed by fire or another casualty.  It is common for these provisions to require owners to rebuild, repair, or reconstruct their separate interest property in a manner substantially similar to its condition/appearance prior to the casualty or as approved by the association within a specified period of time.  Is the specified time limit (sometimes as short as 30 days) adequate?  Consider the feasibility of the time limit not only from the stand point of a single property being damaged, but also following a conflagration like the 2007 Witch Creek fires, in which over 1,000 homes were destroyed.  What triggers the start of this time clock?  The date of the loss?  Or, something which sounds logical-like the date owner receives insurance proceeds-which may be difficult or impossible to accurately determine.

The above list of governing document provisions to consider is provided solely for the purposes of discussion and is not intended to be an all-encompassing list.  If your review of your governing documents identifies areas of concern, you may wish to consider working with your community management team and legal counsel to amend your governing documents.

It’s the 25th Anniversary of Nahrstedt

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By David A. Kline, Esq.

September 2, 2019, marks the twenty fifth anniversary of the California Supreme Court’s decision in Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal. 4th 361 (Nahrstedt), the seminal case in California common interest development law.

You might remember Nahrstedt as the “cat case.”  Nahrstedt involved a challenge to a pet prohibition in a condominium community’s CC&Rs.  The homeowner asserted that the association’s pet restriction was unreasonable and could not be enforced against her three indoor cats because they caused no noise and did not create a nuisance.  The court of appeals agreed with her.  But, the Supreme Court disagreed for a number of reasons that have affected the reasoning of many court cases since then.

In this article, we will reexamine the reasoning in Nahrstedt, explore its influence on other cases, and consider how it might be expanded in the future.

The Court in Nahrstedt explained:

[U]nder subdivision (a) of [Civil Code] section 1354 [currently codified as 5975] the use restrictions for a common interest development that are set forth in the recorded declaration are “enforceable equitable servitudes, unless unreasonable.” In other words, such restrictions should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.

This reasoning was extended in Sui v. Price (2011) 196 Ca. App. 4th 933 to apply the same test for reasonableness of an association’s operating rule that authorized the towing of inoperable vehicles.  In Dolan-King v. Rancho Santa Fe Association (2000) Cal.Rptr.2d 280, the court relied on this same language to uphold an association’s architectural guidelines that were more specific than the general language in its CC&Rs.

The Court in Nahrstedt said, “[T]he reasonableness or unreasonableness of a condominium use restriction that the Legislature has made subject to section 1354 is to be determined not by reference to facts that are specific to the objecting homeowner, but by reference to the common interest development as a whole.” In other words, it did not matter that her indoor cats did not bother anyone.  Their mere presence violated the CC&Rs and the restriction in the CC&Rs was reasonable as applied to the entire community.

That language was cited in Liebler v. Point Loma Tennis Club (1995) 40 Cal.App.4th 1600, a case involving a non-resident owner’s right to use the recreational facilities.  In the Liebler case, the CC&Rs prohibited any severance of the right to use the recreational facilities from the right to use a unit.  The court held that the restriction requiring owners to give up their right to use the recreational facilities and assign the right to their tenants is reasonable when applied to the development as a whole.

That language was also cited in Colony Hill v. Ghamaty (2006) 143 Cal.App.4th 1156.  In that case, the court rejected an owner’s challenge to the reasonableness of the “single-family residential” use restriction in the CC&Rs when used to prohibit him from renting rooms out in his home to multiple residents under separate rental agreements.

Nahrstedt also held:

[W]hen … a restriction is contained in the declaration of the common interest development and is recorded with the county recorder, the restriction is presumed to be reasonable and will be enforced uniformly against all residents of the common interest development unless the restriction is arbitrary, imposes burdens on the use of lands it affects that substantially outweigh the restriction’s benefits to the development’s residents, or violates a fundamental public policy.

The court in Cebular v. Copper Arms Homeowners Association (2006) 47 Cal.Rptr.3d 666, relied on this language to uphold a CC&R provision providing for unequal, weighted voting rights and assessment amounts based on the size of the unit airspace owned by an owner.

The court’s decision in Nahrstedt has a big impact on community associations and how they are governed.  Often, when representing a faceless corporation seemingly ruthlessly enforcing its CC&Rs against a sympathetic resident, it can be difficult to find words that will elegantly express why the association’s argument deserves attention.  Friends and family sometimes ask me, “how could you remove a child from senior housing when the court granted custody to his grandmother to remove him from his drug-addicted parents?” or “how could you foreclose on a homeowner struggling to make ends meet?” I tell them what the Supreme Court said in Nahrstedt – “Our social fabric is founded on the stability of expectation and obligation that arises from the consistent enforcement of the terms of deeds, contracts, wills, statutes, and other writings. To allow one person to escape obligations under a written instrument upsets the expectations of all the other parties governed by that instrument … that the instrument will be uniformly and predictably enforced.”

Sometimes, when I struggle to find an argument to benefit my client and I can’t think of anything better than, “it just isn’t fair,” I re-read Nahrstedt and find a nugget of wisdom.  I am reminded of one association’s onerous restriction in the CC&Rs requiring membership approval and lender approval for any changes to the landscaping design of the community.  When our client wanted to convert to drought tolerant landscaping during the statewide drought, we relied on Nahrstedt to argue that the restriction violates a fundamental public policy in support of water conservation.

How might courts rely upon Nahrstedt in the future?

 

What’s All the Buzz About FHA?

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By Karyn A. Larko, Esq.

You may be hearing rumors that the Federal Housing Administration has made changes to its requirements for insuring condominiums.  The rumors are true and the new requirements will take effect on October 15, 2019.

Before addressing the substantive changes made by the FHA, however, it is important to mention that the certification period for FHA approved condominium projects has increased from two (2) years to three (3) years.  This means that condominium associations who want to maintain their FHA certification will only have to re-apply every three (3) years going forward.  While not as convenient as the “old days” when FHA certification did not expire, it does reduce the frequency with which associations must go through the re-certification process.

The first noteworthy change when it comes to FHA and condominium associations is the addition of spot or single-unit FHA approval.  Under the current FHA guidelines, a project or phase of a project must be FHA certified in order for any unit within the project or that phase to be eligible for FHA.  As of October 15th, it will be possible to obtain FHA certification on a condominium unit within a project that is not certified provided certain requirements are met, including the following:

  1. The project is a completed project consisting of at least five (5) residential units.
  2. The project is not comprised of manufactured housing.
  3. The unit is not part of a project that is FHA certified or has one or more FHA certified phases.
  4. For a project with at least twenty (20) units, the percentage of units within the project owned by the same party or related parties does not exceed 10%. For the purpose of this requirement, a related party is an individual related to another unit owner by blood, marriage or operation of law; a person serving as the unit owner’s officer, director or employ; or a direct parent, subsidiary or other related entity with which the unit owner shares a common officer or director. For a project with fewer than twenty (20) units, no owner may own more than one (1) unit and no related party may own a unit.
  5. For a project with at least ten (10) units, no more than 10% of the units within the project are already FHA insured. For a project with fewer than ten (10) units, no more than two (2) units within the project are already FHA insured.  (This requirement differs from FHA certified projects where the FHA will insure up to fifty percent (50%) of the units.)
  6. The project is at least 50% owner occupied.
  7. The project meets other standard requirements for FHA (e.g., no more than 15% of the units are delinquent in the payment of regular or special assessments by more than sixty (60) days, no more than 35% of the project is mixed use).
  8. The borrower meets certain eligibility requirements.

The second noteworthy change is the expansion of the definition of site condominiums. Under the FHA guidelines, projects consisting solely of site condominiums do not require project-wide FHA certification or single unit approval.  Currently, site condominiums are defined as single family totally detached dwellings encumbered by CC&Rs and a condominium form of ownership, where the units consist of the entire structure as well as the site and airspace, and the owners are solely responsible for the insurance and maintenance costs for their units.  As of October 15th, site condominiums will include condominium projects (other than manufactured homes) consisting of horizontally attached dwellings (i.e., townhomes) where the units consist of the dwelling and land.  The requirement that the owners be responsible for all insurance and maintenance costs pertaining to their units still exists, with the exception of landscaping.