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.

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?

 

Q&A. I am a director on my community association’s board, but I am not a “volunteer” director under the language of Civil Code section 5800 because I own three homes in our community. Does that mean I could be personally liable for a portion of the damages if the association is sued and loses the lawsuit?

A: Potentially, yes, but that does not mean you do not have insurance coverage. Civil Code section 5800 provides that volunteer directors of residential or mixed use associations will not be personally liable for damages in excess of the association’s insurance coverage so long as the volunteer director’s action(s) were performed in good faith, within the scope of their duties, and not willful, wanton or grossly negligent, and their association maintained the minimum levels of general liability and directors and officers insurance as provided in section 5800.  Section 5800 does not apply to “non-volunteer directors”, i.e., a director who is either (1) the declarant, (2) an employee of the declarant, (3) an employee of a financial institution that purchased a separate interest in the community via foreclosure, or (4) the owner of three (3) or more residences within a residential community.   Consequently, non-volunteer directors may have personal exposure.  Non-volunteer directors should contact their insurance agent to make sure that they have both types and amounts of insurance coverage (either personally or through their employer, if they are declarant employee or the employee of a financial institution as described above) to protect them.  The association’s insurance agent should also be consulted to confirm that the association’s insurance policies meet at least the minimum coverage requirements of section 5800 and that non-volunteer directors are covered by the association’s insurance policies.  – Dea C. Franck, Esq.

Q&A. Must we have a published fine schedule if we notify owners in the hearing notice what fine the board intends to impose at the hearing?

A: Yes. California Civil Code section 5850 requires associations that want to use fines as a means of disciplinary action for violations of the governing documents to prepare and distribute a fine schedule. Additionally, section 5850 limits associations to imposing fines that comply with their published fine schedules. In other words, if an association’s fine schedule provides for a $100 fine for a given governing document violation, the association’s board cannot impose a $150 fine for that violation. The hearing notice should include the possible fine amount(s) but this doesn’t replace the need for a fine schedule.
On a related note, please remember that boards need to follow the rule adoption process mandated by Civil Code section 4360 when adopting a fine schedule. This means that the proposed fine schedule must be sent to all members for at least a 28-day comment period before being adopted at a duly noticed open session board meeting. The purpose and intended effect of the fine schedule must also be provided. Finally, notice of the board’s decision to adopt the fine schedule must be provided to the members within 15 days of the board meeting whereat the fine schedule was adopted. – Karyn A. Larko, Esq.

Q&A. If the board votes to levy discipline against a member at a hearing, but we don’t send the post-hearing notice of decision within 15 days of the hearing, can we still levy the discipline? If not, how do we correct the error?

A: 
  • If the board decides to impose discipline on a member (e.g., fines, suspension, damage reimbursement charges) Civil Code section 5855(c) requires the association to “provide the member written notification of the decision, by either personal delivery or individual delivery pursuant to section 4040, within 15 days following the action.”
  • If the post-hearing notice of decision is not timely sent, the discipline or charges “shall not be effective,” and the association cannot impose or enforce the discipline. (Civ. Code §5855(d).)
  • To correct this error, you must notice another hearing, you may confirm the decisions, and then you must timely send the post-hearing notice of decision.

Jodi A. Konorti, Esq.

Q&A. Does an association need to provide a telephone conference number to non-director members who want to attend an open board meeting by phone?

A: No. There is no legal requirement that associations provide a call-in number for non-director members to attend open board meetings by phone. However, if an open board meeting is to be held via telephone conference, at least one director or a designated representative of the association must be present at designated physical location indicated on the notice of the meeting so members can attend the meeting at that location. (Civ. Code §4090(b).) – Dea C. Franck, Esq.

Must We Sue This Owner?

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By Pejman D. Kharrazian, Esq.

A community association board is required to enforce its governing documents against owners. But must a board file a lawsuit if internal enforcement measures fail to gain a recalcitrant owner’s compliance? I often see boards grapple with this difficult decision. The following discussion of California case law explores how directors should decide whether to sue an owner or not and what legal protections are available once that choice is made.

The Business Judgment Rule as a guide and a defense.

In 1977, Beehan v. Lido Isle Community Assn. established that a board may exercise prudent business judgment (i.e., in good faith, in the best interests of the association, and after conducting due diligence) in deciding whether or not to sue over a violation of the governing documents.

But Beehan does not go as far as saying a board can indiscriminately decide not to sue an owner who has violated the governing documents. Instead, it says a decision about whether to sue should be made using the business judgment rule as a guide. The business judgment rule, codified in California Corporations Code section 7231, applies to nonprofit corporations and says:

“A director shall perform the duties of a director . . . in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.”

In following the business judgment rule, a board should, for example: examine the underlying facts, consult with independent legal counsel and other experts to analyze the merits of the potential case, review and follow the governing documents, weigh the costs and benefits of filing a lawsuit versus the nature and magnitude of the owner’s violations, discuss the matter in executive session and memorialize in minutes. A board should also keep in mind the prevailing party attorneys’ fee provisions found in the Davis-Stirling Common Interest Development Act and many CC&Rs—that essentially say, if an association loses the case it could be paying its own attorney and the owner’s attorney!

At the end of the day, if a board’s decision about whether to sue is challenged, the primary defense will likely be the business judgment rule.

Will a court give the board’s decision judicial deference under Lamden?

In 1999, Lamden v. La Jola Shores Clubdominium Homeowners Assn., the California Supreme Court established that when a “duly constituted association board, upon reasonable investigation, in good faith and with regard for the best interests community association and its members, exercises its discretion within the scope of its authority” on how to maintain the common areas, “courts should defer to the board’s authority” (a.k.a., “judicial deference” or the “Lamden rule”). The Lamden rule is analogous to the business judgment rule and is another legal doctrine that affords protection—even if an association is unincorporated.

The court in Haley v. Casa Del Rey Homeowners Assn. recognized Lamden applied to ordinary maintenance decisions. But nonetheless went on to say that Lamden “reasonably stands for the proposition that the Association had discretion to select among means for remedying violations of the CC&R’s without resorting to expensive and time-consuming litigation, and the courts should defer to that discretion.” Haley comes very close and possibly even crosses the line of extending Lamden’s judicial deference standard to a board’s decision about whether to sue.

Haley is not alone in expanding Lamden beyond ordinary maintenance decisions. For example, Dolan-King v. Rancho Santa Fe Assn. granted judicial deference to a board’s architectural decisions; Harvey v. The Landing Homeowners Assn granted judicial deference to a board’s interpretation of the CC&Rs; Watts v. Oak Shores Community Assn. granted judicial deference to a board’s adoption of rules. In taking their broader view of Lamden, Haley, Dolan-King, Harvey, and Watts each quote the seminal California Supreme Court case of Nahrstedt v. Lakeside Village Condominium Association, Inc.:

“Generally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with public policy.”

But other cases have tried to limit Lamden: Ritter and Ritter v. Churchill states the Lamden rule protects individual directors from liability, but seems to suggest Lamden will not protect the association (as an entity) from liability for an improper decision.[1] But in Lamden the directors were not parties to the action when the Supreme Court made its decision (only the association was). By that logic, it seems Lamden did apply its judicial deference rule to the association. It therefore, appears Ritter may have gone too far in this regard.

Ritter also reads Lamden narrowly by saying it did not apply to extraordinary (versus ordinary) maintenance decisions by a board, whereas, Haley, Watts, Harvey, and Dolan-King indicate Lamden can apply beyond ordinary maintenance decisions. Ritter seems to be an outlier in this regard.

Further, Affan v. Portofino Cove Homeowners Assn illustrates that Lamden does not apply to decisions of association managers and does not generally apply in situations where no decision is made by the board (inaction versus action).

If future courts are inclined to expand Lamden’s judicial deference rule, then the decision of an association board about whether to sue may be given judicial deference by a court, in addition to the protections provided by the business judgment rule.

 

[1]  Other cases have held an association can remain liable for injury to third parties that flows from improper decisions. (See e.g., Frances T. v. Village Green Owners Assn.; White v. Cox)

Solar Energy Systems: Civil Code §4746 and “Equitable Allocation”

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By Jillian M. Wright, Esq.

Since January 1, 2018, California community interest developments have been required to allow members to install solar energy systems on common area roofs of the buildings in which their unit is located or on roofs of adjacent carports or garages (See Civ. Code §§ 714.1, 4600, and 4746). However, this does not mean a member can put as many solar panels as he or she wants up on the common area roof without consideration of neighbors in the building. The California Legislature fortunately included a provision into Civil Code section 4746(b) which states in part:

(b) When reviewing a request to install a solar energy system on a multifamily common area roof shared by more than one homeowner pursuant to Sections 714 and 714.1, an association may impose additional reasonable provisions that:

(1) (A) Require the applicant to submit a solar site survey showing the placement of the solar energy system prepared by a licensed contractor or the contractor’s registered salesperson knowledgeable in the installation of solar energy systems to determine usable solar roof area…

(B) The solar site survey shall also include a determination of an equitable allocation of the usable solar roof area among all owners sharing the same roof, garage, or carport.

(Civ. Code § 4746(b))

While this provision prohibits the first owner in a building who wants to install a solar energy system from taking all the usable space on the roof, it unfortunately fails to define what an “equitable allocation” is. Does it mean each member in the building gets an equal amount of square footage of the usable roof[1] or does it mean each owner should get a proportion of the usable roof space that would result in an equal amount of energy output? We interpret it to mean the latter.  This interpretation promotes solar ownership as it theoretically allows all owners in a building an equal opportunity to the same quantity of solar energy, whereas the former interpretation rewards only the first installers of solar energy systems who utilize the most energy efficient square footage available on the shared roof.      Even if equitable allocation is based on a proportional share of potential energy production, as technology evolves and energy output for solar energy systems improves, equitable allocation may change over time. If this happens, the Board may need to reconsider existing determinations of equitable allocation.

Another quandary arises when a building contains different sized units or members in a building pay variable assessments based on unit size. The Board must then determine if “equitable” means “equal/identical proportions” or “fair/reasonable.”  For example, one could argue that if a member pays more in assessments, then it would be fair for that member to  use a larger share of the usable common area roof space based on the owner’s assessment to common area ratio for the building.  In situations where assessments are variable, this is a reasonable interpretation; however, where assessments are equal for all units, it becomes more difficult for an owner to argue he is entitled to more roof space based on unit size alone.

Ultimately it is up to the board to decide what is fair and reasonable when determining the equitable allocation of a common area roof. Each association and each building is different, and unfortunately there is no black and white answer that applies in every situation.  If you require further guidance in making such a determination, Epsten Grinnell & Howell, APC can assist you in the process.

 

[1] This is another term the legislature failed to define. Since the legislature appears to leave the preparation of a solar site survey in the hands of the solar installer, it might be necessary to obtain the opinion of the solar installer on what portion of the roof is considered “usable” on a case-by-case basis.   Generally, we believe the definition of “usable roof” to be those portions of the roof that get sun (are not shaded by trees or vents) and can feasibly support an energy system.

 

Keywords: Solar Panels