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.

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.

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.

When was the Last Time Your Board Met with Your Insurance Agent?

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By Dea C. Franck, Esq.

Your association insurance agent’s knowledge and expertise can be critical to the health and longevity of your community. Yet, association boards of directors often forget to consult with them.

Meeting with your association’s insurance agent every year not only allows your board to get to know your agent personally, but it gives your agent the opportunity to explain the association’s insurance coverages, recommend any changes in coverage, and answer any insurance questions your board may have.

Your fellow homeowners may also be surprised to find out that the association’s master policy does not provide the broad coverage they think it does.  Homeowners usually make this discovery when their home has been damaged and they find out there is a gap in coverage between the association’s master policy and their individual policy.  In an effort to prevent such an unwelcome surprise, boards should ask their association’s insurance agent to prepare a letter to the homeowners which explains what the association’s master insurance policy will and will not cover.  The association’s agent should review and update the letter annually.  While not legally required, this letter can be included in your association’s annual budget report and policy statement and would supplement the association’s insurance information that must be disclosed to the homeowners yearly.

Finally, every year the association’s insurance agent will likely ask the association to fill out insurance applications in order to renew or purchase insurance coverage.  The information provided by your association on these applications is extremely important because your association’s insurance policies will be underwritten based on the information provided therein.  Upon receipt, your board should review and fill out these applications to the best of its knowledge.  If your association contracts with a professional management company and your community manager fills out these applications on your board’s behalf, the board should review the responses provided for accuracy and thoroughness.  Failing to disclose or providing inaccurate information as requested on the application could result in the insurance carrier either refusing to provide coverage for certain claims or rescinding or cancelling the policy.  Any questions about how to fill out an insurance application should be directed to your association’s insurance agent.

Your association’s insurance agent is the expert when it comes to your association’s insurance policies.   When in doubt, do not hesitate to contact them for advice or clarification.  This is part of the service they provide.

Conflict Resolution

By Jon H. Epsten, Esq.

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It should come as no surprise to all of you that life in a community association (or working for one) is fraught with conflict of all types: “You’re playing favorites,” “You’re discriminating against me,” “My neighbor is irrational and he’s making my life a living hell and it’s the association’s job to fix it,” “I’m not paying the assessments until you do what I want you to do,” “Too late for architectural approval, I already finished construction!”

All too familiar. Unfortunately, it’s going to fall on board members and managers to resolve such conflicts. While some of these conflicts will end up in court, it’s wise and a proper discharge of the board’s business judgment and fiduciary obligation to consider how to resolve conflict within the community at the least social and economic cost. At a time in our country where the most basic civility is in short supply, there are pressures which exacerbate the conflict between associations and members, and between the members themselves. Most board members and managers aren’t schooled in how to defuse conflict (and too many attorneys are better at litigating conflicts than facilitating conflict resolution by other means).

Here are some helpful guidelines to remember about the basic nature of a ‘dispute’:

“It takes two to tango.”

For a conflict to really blossom into something ugly, it generally takes two egos, and mouths which operate better than ears. For conflict to be resolved, it’s going to take someone with a better ability to listen than to talk. Find a board member or manager who is a good listener and you’re halfway to resolving a dispute.

“Much conflict is sustained because no one wants to ‘admit weakness’.”

While volumes have been written about that, remember that ‘when you’re at the edge of a cliff, sometimes progress is a step backwards.’ It’s not weakness to search for some middle ground, and if it takes a good display of humility and an attempt to understand the other side of an argument, that’s time (and energy) well spent.

Compromise is not a dirty word.”

Consider that a lawsuit is going to cost just about as much as the other side wants to make it cost. With some basic guidelines (the board can’t give away common area, for example, nor can it afford to overlook egregious violations of architectural restrictions–but many disputes are about far less), with some willingness to compromise, and some imagination (“No, you can’t plant 60′ species which within 5 years will block your uphill neighbor’s view, but you can plant ___________”), there’s a compromise waiting to be found. Think outside that box!

“You can’t always get what you want;
You can’t always get what you want;
But, if you try sometimes,
You just might find,
You get what you need.”
– Mick Jagger and Keith Richards

Because so many community association disputes end up in court, the legislature has over the years created pre-litigation dispute resolution procedures, some of which (ADR) is actually required before most association cases are filed. A quick refresher on “ADR” and “IDR” follows.

IDR

“IDR,” or “internal dispute resolution,” is a relatively new type of dispute resolution. It is unique to the Davis-Stirling Act. Essentially the Act allows an owner to compel a sit-down meeting with a board member to discuss a dispute. If a written demand is made to the association, the association must meet with the owner, in a reasonable period of time, and at no cost to the owner. (Conversely, if the association would like to convene an IDR session with an owner, the owner is not required to participate.) The parties may agree to use the services of a mediator, but it is not required. It is important to note that the Act does not necessarily require the association (or the member) to ask for IDR before moving on to mediation or arbitration, though that is often the case. The Act anticipates that each association will adopt its own IDR procedure, but if the association does not do so, the Act specifies a default procedure (currently found in Civil Code section 5915).

Some observations:

IDR is not a confidential proceeding (unlike mediation). What is said in an IDR proceeding can be repeated in any subsequent lawsuit.

Consider carefully the best candidate to represent the association in an IDR proceeding. It’s not necessarily the president. In general, it’s the director who can listen to an angry homeowner without taking umbrage, while at the same time effectively putting forth the association’s concerns. (A FAQ is whether the board can attend in its entirety. While not absolutely clear from the statute, it’s not generally a good idea. We do like to see more than one person attend, avoiding the “one-on-one swearing contest” scenario. Often times, attorneys are definitely not welcome. An IDR is supposed to be a meeting between the member and a director, leave the mouthpieces–on both sides–out of it.)

Make sure you understand the dispute when a homeowner asks for IDR. The demand is required to be in writing. If the written demand isn’t clear, ask follow up questions before the IDR begins. This is important so that the board can decide how much discretion the director has.

Even though the association isn’t statutorily required to offer IDR before moving to the offer of ADR, it’s a good idea (unless there’s an emergency requiring some immediate court action). First of all, it makes the association look better if the matter later turns into litigation, and second, you just might get lucky, learn something, and avoid the lawsuit altogether. (It’s also free discovery.)

ADR

California law and tradition recognize three types of alternative dispute resolution (“ADR”): binding arbitration, nonbinding arbitration, and mediation. “Arbitration” is a quasi-judicial proceeding, wherein a person selected by the parties (usually) acts as a judge of a dispute, hearing evidence and argument, and making a ruling. At the end of the proceeding (unless the parties settle in the meantime), a decision will be made.

If the arbitration was a “binding arbitration,” the order may be filed with the court, and thereafter it will operate as a judgment. In general, there is no appeal from a binding arbitration order.

“Non-binding arbitration” is precisely that–non-binding. The arbitrator will make a ruling, but it does not bind either of the parties unless and until they agree to that.

“Mediation” is another form of ADR. It is not a quasi-judicial proceeding, but a facilitated negotiation. The mediator, who is chosen by the parties, has no authority to decide a dispute, only to assist the parties to the dispute in attempting to find some middle ground. If at the end of the mediation, the parties cannot agree, then everyone goes home.

For most disputes in a community association (that is, those involving a request for enforcement of the governing documents, the Davis-Stirling Act or the Corporations Code, as well as prior to recording a lien for unpaid assessments), the party anticipating filing a suit will be required to at least offer ADR to the other potential litigant before filing the suit. (Civ. Code §§ 5925, 5930, 5660)

There are exceptions:

If the suit involves damages in excess of the small claims court jurisdiction, the offer of ADR is not required.

If the suit involves a request for a TRO (temporary restraining order) or preliminary injunction, no pre-filing offer of litigation is required.

The Act provides that the offer of mediation shall be in writing, and the offer is to contain a brief description of the dispute between the parties, a request for ADR, a notice to the party receiving the offer that the respondent must reply within 30 days of receipt or the request will be deemed rejected, and if the person receiving the offer is a homeowner, the association must include a copy of the relevant Civil Code provisions (§§5925-5965.)

If the homeowner agrees to the mediation, the mediation is to be held within 90 days of the acceptance, unless the parties extend that time by written agreement. (Civ. Code §5940(a).)

If a party seeking to file an enforcement action fails to first offer ADR, the complaint may be stricken by the court or placed on hold (stayed) to allow ADR. And, if the party who wins an action has refused to participate in ADR, the court may reduce the amount of fees awarded to that party. (Civ. Code §5960.) While the Act provides that the parties to the ADR are to be “borne” by the parties (Civ. Code §5940(c)), one recent case awarded a homeowner his legal fees incurred during the mediation. Grossman v. Park Fort Washington (2012) 212 Cal.App.4th 1128.

Why we need conflict resolution that does not involve lawsuits:

In a word, lawsuits are often times inefficient and a costly way of resolving disputes, as even attorneys agree:

“Lawsuits consume time, and money, and rest, and friends.” – Sir Alan Patrick Herbert

“The courts of this country should not be the places where resolution of disputes begins. They should be the places where disputes end after alternative methods of resolving disputes have been considered and tried.” – Sandra Day O’Connor

And in the context of communities, lawsuits are not the vehicle of choice for dispute resolution for another very good reason: even if you win, you lose because of the residual mistrust and animosity spawned by the court proceedings.

Finally, there are the lingering problems posed by the money. Of course most lawsuits over the CC&Rs will result in an award of attorney’s fees to the prevailing party, but what happens when the loser cannot or will not pay those fees? Will the association pour more money down the drain, or consider settling instead for less than it “should” have received? It’s difficult to explain to the owners that the association won at the same time the board is imposing an assessment to cover the costs of the lawsuit which remain unpaid by the losing owner (not to mention the catastrophic prospect of a fee award which pales in comparison with the actual costs expended or — God forbid — the loss of a case which seemed a “sure thing” way back when the case started.

Do We Only Need a Member Vote to Borrow Money if the Governing Documents Say So?

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By Karyn A. Larko, Esq.

Borrowing is a common method for community associations to pay for major projects within their communities.  However, Boards frequently find the lending process a lot longer and more stressful than they first imagined – primarily because they do not realize until they are ready to close on the loan that they need member approval, and maybe even mortgage holder approval, to obtain a loan.

It is not uncommon for a community association’s Bylaws or CC&Rs to include a provision expressly providing that the approval of a specified percentage of the membership is required to borrow money.  However, the absence of such a provision in these documents does not necessarily mean that the Board has the authority to take this action on its own.  In some cases, the Bylaws and CC&Rs are silent, but the Articles of Incorporation impose restrictions on borrowing.  In other cases, the Articles, Bylaws or CC&Rs  impose member and/or mortgage holder approval requirements on actions that are, or may be required to borrow money.  Examples of these actions include restrictions on the Board’s ability to unilaterally encumber common area, or pledge or assign other association assets.

One provision that is contained in the Bylaws or CC&Rs for many associations that is commonly overlooked when ascertaining the Board’s ability to borrow money is the provision requiring member approval for contracts exceeding one year.  Because a loan is a contract, a loan with a repayment term exceeding one year will generally be subject to this provision unless there is language in the governing documents that expressly exempts loans from this requirement. Remember also that any regular assessment increase or special assessment needed to repay the loan may also require a membership vote.

If your association requires assistance determining whether member or lender approval is required to borrow money, or assistance obtaining the required approval, please contact us.

Q&A. There is a director on our board that is sharing information from executive session with other owners that are not on the board. What do we do?

A: Initially, sharing such confidential information may qualify as a breach of the director’s fiduciary duty, subjecting that director to personal liability. Often a letter from association’s legal counsel reminding the director of his/her fiduciary duty can have an impact on the director’s future behavior. If you have recently restated your bylaws, they may provide that under such circumstances the board has the ability to remove the director from the board without a member vote. If you do not have this option, the board may be able to remove the violating director from a position as an officer (as president, secretary, etc.) if the individual is an officer and the bylaws allow for such removal. While removing a director from an officer position does not remove the director from the board, it does make a statement that the person may not serve in a position of greater responsibility.
The board may also censure the director. A censure is a statement of reprimand, criticism, and/or disapproval of a director. Again, while this will not remove the director from the board, it often acts as a strong reminder to the director that the board takes such matters seriously. If the board has adequate evidence that the director has indeed shared executive session information and the risk of the director continuing to share such information is great, the board could form an executive committee consisting of two or more directors (other than the director at issue) to address certain executive session subjects. If such a committee is formed, it should be set forth in a detailed written resolution outlining the purpose of the committee, the reason why it is being formed, and the scope of authority of the committee. – Carrie M. Timko, Esq.

Q&A. Can an association be responsible for damage to owner-maintained driveways and walkways caused by tree roots located on the owner’s lot but maintained by the association as part of its common maintenance responsibilities?

A: The association may be liable for damage caused to an owner’s property by the roots of the tree under a theory of negligence. However, the association would not normally be liable under a claim of negligence unless it was on notice that the tree roots were causing damage and thereafter the association failed to timely remedy the problem. Negligence occurs when an association, through its board of directors, knows or should know there is a risk of property damage and fails to take reasonable action to prevent such damage. To prevail on a negligence claim, the owner would have to prove the tree roots caused damage to his or her property and the association was negligent in maintaining its roots. The relevant inquiry, therefore, is whether the association as acted reasonably in maintaining the trees and corresponding roots. An association that has landscaping responsibilities should consult a licensed landscape contractor and make regular inspections of the association maintained trees, and when appropriate consult with an arborist. If the association regularly adheres to the recommendations of its licensed landscape contractor and arborist with regard to maintenance and upkeep of the trees and roots it will be difficult to argue the association was negligent in its maintenance. – Jackie E. Quinn, Esq.