Articles: Miscellaneous – Page 4

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

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.

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?

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.

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. – Jacquelyn E. Quinn, Esq.

Q&A. The board is thinking about making some changes to the common area. How do we determine if those changes count as capital improvements requiring membership approval?

A: To give everyone’s favorite attorney answer, it depends! California courts haven’t really supplied us with a bright line distinction between a necessary repair and a capital improvement. The board should likely begin with the association’s governing documents. Do the CC&Rs and/or Bylaws define the term “capital improvements”? Do they require a certain percentage of the homeowners to approve a capital improvement? Do they require approval of capital improvements that cost over a certain amount? Do the governing documents require a certain kind of vote to approve capital improvements? Generally, the board should determine (with the help of legal counsel, if needed) the answer to these questions and comply accordingly. Also note that not all documents contain a capital improvement limitation.

We can also look to out-of-state law for guidance. In one Illinois case, the court defined capital improvements as betterments of a long lasting nature which adds to the capital value of the property. The court considered even roof and gutter replacements to be capital improvements. Florida courts have applied a more balanced approach. Generally, the Florida courts have held that if a change is necessary for protection of the Common Area, or association membership, it is a repair or replacement. If it is more of a significant change to the property or an addition, it is a capital improvement.

The main takeaway is that this is an unsettled area of law. Neither Illinois nor Florida law is controlling in California, just persuasive. The answer to the above question is also dependent on the association’s governing documents. The association may want to consult with legal counsel to determine whether a specific change constitutes a capital improvement, and if so, what approach to take. – Rhonda R. Goldblatt, Esq.

How to Deal with a Lone Ranger Board Member

By Mary M. Howell, Esq.

What do you do about a “director gone bad?” The director speaks abusively of fellow directors, disrupts Board meetings, repeatedly attempts to revisit issues already decided, discloses confidences, interferes with vendors… what can the rest of the Board do?

The Board’s options are limited, and there is very little statutory or case law to clarify what actions are permitted or prohibited. Based on commentary (both California and from other states), the Board ought to be able to take the following actions, provided the director in question is given notice and a hearing before the discipline is imposed: private or public censure, removal from a particular office held by the director (such as president, vice-president, etc., but not from the Board, except in limited cases), or exclusion from executive session (where the director has disclosed confidential information).

If the bylaws include a provision making compliance with a stated code of ethics part of a director’s qualifications to serve, the Board may (after notice and hearing and a decision that the director is in violation of such a code) declare that director’s position vacant (that is, remove the director from the Board by Board action alone.)

The members of the association (as opposed to the Board) may recall the director in question (but beware, most attempted recalls are not successful, and if the director has any following within the community, a failed attempt to remove the director can severely divide the community.)

Sometimes the director’s misdeeds can be cured by other means. If a director interferes with vendors, for example, inform the vendors specifically to disregard the director. If the director continues to harass or interfere with vendors, the association might be able to obtain a court order requiring the director to stop interfering. Such an order is enforceable by contempt proceedings.

And, if the issue is disclosure of confidential information, or dissemination of false information, the association may also be able to obtain a court order prohibiting the director from repeating the offense (this is problematic, because the court will usually frame its very narrow order only to prohibit something the director has done in the past, rather than issuing an open-ended prohibition on similar remarks and misinformation).

If the director disrupts Board meetings, consult the rules of parliamentary procedure. The Board should be able to declare the director “out of order” if the Board has adopted rules governing decorum within board meetings. Roberts’ Rules, for example, state that the speaker must confine remarks to the motion under consideration, refrain from attacking another member’s motives, and refrain from speaking adversely on a prior motion. Roberts’ goes on to add that during debate, no member should be permitted to disturb the assembly (such as by whispering to others, or physically disrupting the meeting). In the absence of specific rules prohibiting disruption, consider making a motion to recess the meeting (not adjourn), get a second on the motion, get the Board vote, and then recess for a limited period of time to allow for restoration of order to the proceedings.

Rental Restrictions – A Potential Pitfall for Condominium Communities

By Karyn A. Larko, Esq.

It is common for associations to amend the rental provisions in their CC&Rs in an effort to address the issues associated with tenants. However, when an association is a condominium community, there is an important consideration that is frequently overlooked during this process – the FHA.

With few exceptions, FHA insured mortgages and reverse mortgages on units within a condominium community are only available if the community is FHA certified.

The FHA will only certify associations that meet all of the certification requirements, including those pertaining to rental restrictions. The rental restrictions the FHA allows are limited to the following:

A requirement that all leases must be in writing.
A requirement that that leases comply with the association’s governing documents.
A requirement that owners provide the association with a copy of their lease or sub-lease.
A requirement that owners provide the association with the names of all tenants and any family members of the tenants who will occupy their unit.
A prohibition on leasing for an initial term of not less than 30 days.
A maximum allowed length of lease.
A restriction on the number or percentage of units that may be concurrently rented within the community, provided this percentage does not exceed 50%.
Language allowing the Board to grant hardship exceptions to the rental cap.
A requirement that owners check the Registered Sex Offenders list prior to renting.
A requirement that rent be assigned to the association if a unit owner is delinquent in the payment of assessments.
A requirement that the Board review leases (but not that the Board approve leases).
A requirement that a specific form be used for leases.
Corporate leasing restrictions.

Complete prohibitions on renting, prohibitions on new owners renting their units, stated minimum lease periods greater than 30 days, requirements that leases and/or tenants be vetted and approved by the Board, and requirements that owners perform a background check on potential tenants (other than a check of the Registered Sex Offenders list) are a few examples of rental provisions that will disqualify an association for FHA certification.

Stated minimum lease periods of less than 30 days will also generally disqualify an association for FHA certification. However, it may be possible to overcome such a provision with a declaration signed by a Board member or manager attesting to the fact that, to the best of his/her knowledge, no units are being leased for a period of less than 30 days or for hotel or transient purposes.

For more information on FHA certification requirements, please see HR 3700: Requirements for Qualifying and Applying for FHA Certification.

Please contact me for assistance with FHA (or VA) certification. I am here to help.

Q&A. Please review Anti-SLAPP… What is it? How to use/do it?

A. The acronym SLAPP stands for “Strategic Lawsuit Against Public Participation.” In 1993, the California Legislature enacted Code of Civil Procedure §425.16 after finding a “disturbing increase” in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition. The statute’s express aim is to provide a quick and inexpensive method of “nipping SLAPP litigation in the bud” by disposing of unmeritorious cases at the outset of a case where the litigant has misused the legal system to challenge the valid exercise of another party’s effort to petition a court for redress. In the association context anti-slapp motions are not uncommon. An example of a classic Association-related SLAPP suit (i.e. subject to being dismissed by an Anti-SLAPP motion) arises in the following scenario: An Association sues an Owner over a CC&R violation. In response, the Owner files their own lawsuit claiming damages for the “emotional distress” caused by the Association’s lawsuit. Since the Association has a constitutional right to file a lawsuit (right of petition), the Owner’s lawsuit is subject to an Anti-Slapp motion to strike. Another example can arise in an election context. Here an Owner may publicly criticize a candidate’s qualifications or motives (free speech). If the candidate sues the commenting Owner for libel or slander, the Defendant-Owner can probably file an Anti-Slapp motion. A defendant who believes they have been improperly sued for merely exercising their constitutional rights may file an Anti-SLAPP motion. If the Defendant can demonstrate that the allegations arise from protected activity, the Plaintiff must then submit admissible evidence to the Court that demonstrates a likelihood of prevailing at trial. If the motion is granted, the causes of action (possibly entire lawsuit) must be dismissed, and the court must award the Defendant attorney’s fees and costs. This is a complicated and nusanced area of the law, and should only be litigated by a lawyer experienced in this area of law. – William S. Budd, Esq.

Q&A. Can management companies do anything about bad yelp reviews? Such as former employees posing/posting as a home owner?

A. Unfortunately, you cannot get rid of a negative Yelp review just because it does not represent your business in the best light. The only way to remove a review is if the review itself is deemed inappropriate by Yelp Terms of Service. (The review is flagged and awaits a determination by the reviewing platform itself). That said, there are certainly actions that can be taken for “damage control.” As a general rule of thumb, monitor all reviews (good, bad or ugly) and, if possible, respond in a positive manner. This will allow you to give context to the comments and also exhibit a level of concern, which goes a long way with other readers. If you suspect the review has been fabricated, respond in a way that makes the fabrication obvious. For example, ask for specific information or for more detail. The reviewer will have a hard time concealing the true facts if you engage in this type of dialogue, offering to remedy the situation if one truly exists.