Author: Jillian Wright

Contractors Insurance: Basic Coverage Provisions to Consider Including in Contracts

Time after time we have seen associations receive a one-page form contract or proposal from a contractor for thousands of dollars in work or services. Even if the job seems quick and simple, there is risk when a party is doing work on association property. Appropriate insurance coverage is necessary to mitigate that risk. Unfortunately, the one-page contract or proposal usually does not typically require the contractor to maintain adequate insurance coverage. Or worse yet, might require the association to insure the contractor. Some associations are not sure what insurance coverage their contractor should have. If that includes you, the descriptions of various types of insurance coverage below can help determine whether the contractor has sufficient insurance.

Comprehensive general liability (“CGL”) Coverage
Requiring a contractor to have general liability insurance is a prudent measure for several reasons. Firstly, general liability insurance provides protection against potential construction defect litigation, which is typically complex and expensive. This type of insurance helps offset the cost of defending lawsuits where the general contractor’s liability is claimed to be derivative of their work, thus providing financial security and peace of mind to both the contractor and the association.

General liability coverage would ideally include the following:

Products and completed operations provision to cover claims related to bodily injury or property damage arising from the contractor’s completed work, essentially covering issues that occur after the construction project is finished and handed over to the association, like faulty workmanship or defective materials that cause damage. Ideally, the contract would require this coverage be maintained for ten (10) years, but at a minimum at least as long as the longest applicable statute of limitations for the contracted work so there is coverage down the road for such defective work.
Broad form property damage provision which protects a contractor from property damage caused by their subcontractors while working on a project.
Additional insured endorsement naming the association and their agents as additional insureds. Being listed as an additional insured is important to ensure the association is protected by the contractor’s insurance policy. It is unlikely that the association’s liability policy would cover damage resulting from a third party’s work so it’s important that the association is named under the contractor’s coverage. Additionally, being named an additional insured often allows an association to make claims directly to a contractor’s insurance carrier rather than having to wait for the contractor to make the claim.
Separation of Insureds clause which stipulates that the policy’s coverage is to apply separately to each insured against whom a claim is made. Severability of interests guarantees that the policy will respond to a suit brought against one insured by another insured. Practically, this means that the carrier will provide coverage to the contractor even if another insured – the association – sues, or vice versa.
Waiver of subrogation clause applied in favor of the association and their agents which prevents the carrier from recovering the money they’ve paid out on a claim arising from a negligent third party’s actions. This avoids lengthy and costly legal disputes, particularly if the association or its agent was in any way negligent.
Premises and operations coverage with no explosions, collapse, or underground damage exclusion. This coverage requires the carrier defend claims that arose while on the association’s premises.
A stipulation the contractor’s insurance is primary and any duplicate coverage the association has is secondary and only applies after the contractor’s coverage is exhausted.

Any general liability policy should not include an attached, residential or condominium project exclusion or an insured versus insured exclusion.

Workers’ Compensation Insurance
Workers’ compensation coverage is important because it provides benefits to injured workers and their dependents and holds employers liable for work-related injuries. Workers’ compensation provides benefits such as medical care, wage replacement, and disability benefits. Contractors are generally required to maintain certain amounts of coverage by law, even if it is not written into your contract. Prior to January 1, 2026, sole proprietors are not legally required to obtain workers compensation, unless they are engaged in high-risk activities like roofing. However, effective January 1, 2026, all active contractors must have workers’ compensation insurance, even sole proprietors, associations sometimes require it to protect themselves from potential liability if the contractor gets injured on the job and tries to sue for medical costs. Moreover, while someone may claim to be a sole proprietor, if you see they have another helping hand – be it a relative or good friend – then they technically have an employee and workers’ compensation insurance is required.

Automobile Liability
If the contractor is driving on your property, they need to be properly insured with owned, non-owned and hired motor vehicle insurance for themselves and their employees.

Professional Liability Insurance
This coverage is more typically seen for design professionals (or general contractors working on a design build project) and covers claims arising from the professional’s services, not just defective designs but potentially other mistakes like cost overruns and missed deadlines.

Property Insurance
It helps to require contractors and their subcontractors maintain property insurance coverage for physical damage of their property, supplies, and equipment (whether or not owned by them) that are not covered under builder’s risk insurance, if any.

Builder’s Risk Insurance
This coverage protects projects and materials while the work is ongoing. For example, once materials are installed, they are considered a fixture of the property and generally covered by an association’s general liability insurance. Builder’s risk insurance covers uninstalled materials which are not typically otherwise covered by property insurance so materials lost by a sudden occurrence, like a fire, would be a sunk cost. Builder’s risk insurance helps avoid the parties quibbling over who is responsible to replace any uninstalled materials.

Employment Practices Liability Insurance (“EPLI”)
EPLI insurance protects from claims arising from employment-related claims, like wrongful termination, discrimination, and harassment. It is unlikely that a contractor has this coverage so they may increase their cost estimates if the association requires it be obtained. However, this can be especially important for longer term contracts where the contractors may have more interface with the association’s agents or residents. If, for example, a resident claims they feel harassed by the contractor’s worker and the resident sues the association, this coverage will be necessary to help defend that claim.

Special Considerations
Your contracts should require the contractor to provide the association certificates of insurance and additional insured endorsements prior to the commencement of any work. The association should be notified at least thirty (30) days prior of any cancellation or nonrenewal of coverage. Subcontractors should also be required to maintain all the coverage the contractors do. Perhaps most important of all, the association’s insurance broker should review the contract insurance provision before it is signed. The association’s broker knows what coverage the association has and can identify any gaps in coverage which need to get closed before the contract is signed. You should also discuss what the amount of the policy limits should be with your insurance broker as that will vary based on what the project is.

This is just the tip of the iceberg! These are generally the types of coverage to look for, however, we are not insurance professionals. We strongly suggest you discuss all contracts with your insurance broker as the needs for your specific project may require different types or amounts of coverage. We also strongly suggest you an association have any contract reviewed by the association’s legal counsel.

Virtual Board and Member Meetings

By Jillian Wright, Esq.

Good news for directors and managers who hold virtual meetings but hate the hassles that come with hybrid meetings: you can legally hold solely virtual meetings! Read on for details.

Associations have been using virtual video communications platforms like Zoom, GoTo Meetings, and Microsoft Teams for the last few years to hold board and member meetings. This was borne out of necessity as a result of the stay away orders of the COVID-19 pandemic. Boards continued to hold virtual meetings after the pandemic finding them convenient and efficient; more people – members, board directors, management, and vendors – are able to attend board meetings and at a lesser cost to the associations.

However, until recently, unless there was a local, state, or federal state of emergency, Civil Code required that an association still provide a physical location for the board meeting to allow members or board directors to physically attend the meeting if they desired to do so (Civil Code section 4090(b)). This led to hybrid meetings where boards held meetings both virtually and at a physical location. While convenient for some, it complicated matters for others as it required enhanced audio visual equipment to allow those attending virtually to hear the members attending in person and increased costs for management’s presence in person or venue rentals.

Now, as of January 1, 2024, Civil Code section 4926 allows boards to hold board meetings (and members to hold member meetings) solely by “teleconference”, without a physical location, provided a few conditions are met. Namely, associations planning to hold solely virtual meetings must give specific notifications to members; ensure director votes are cast clearly by roll call vote; allow members to attend by telephone; and protect members’ and directors’ statutory rights to participate.

Notification Requirements

Associations holding solely virtual meetings must provide notices of the meeting (given in accordance with Civil Code section 4920) which include:

1. Clear technical instructions on how to participate by teleconference;
2. The telephone number and e-mail address of a person who can provide technical assistance with the teleconference process, both before and during the meeting; and
3. A reminder that a member may request individual delivery of meeting notices, with instructions how to do so.

Board Roll Call Vote

To ensure the record is clear, Civil Code section 4926 requires that any vote of directors be conducted by roll call vote (Civ. Code section 4926(a)(3)). This means each director’s name should be stated either by the directors themselves or by the president or manager before they vote for, against, or abstain on a motion. Since the directors are required to vote using a roll call, each director’s vote should be noted in the minutes rather than just stating that a motion passed or failed.

Member Participation

Directors and members need to be given the chance to participate as they would at any meeting held in person (Civ. Code section 4926(a)(2)). This means that members need to be given the chance and capability to speak during the open homeowner forum. All present at the meeting – directors and members alike – need to be able to hear and be heard. However, we note that the board may opt to mute members during those portions of the meeting where the board is conducting board business and members are not permitted to interject.

Attendance by Telephone

Associations need to give members and directors the option to attend a board meeting by telephone (Civ. Code section 4926(a)(4)). This is usually already offered through the more common virtual meeting platforms. Associations should consider including instructions for muting and unmuting oneself while on telephone in the notice of the meeting. Managers may also want to make an announcement at the beginning of the meeting as to when it is appropriate to unmute oneself and how to do so to avoid those less technologically savvy members from complaining that they are not able to address the board during open homeowner forum.

Exception

Civil Code section 4926(b) clarifies that while some member meetings may be held solely virtually, those meetings at which ballots are counted and tabulated pursuant to Section 5120 may not be held exclusively by teleconference.

Conclusion

Holding meetings virtually has its advantages, but associations need to make sure they are conducting such meetings in accordance with the law to avoid members’ challenging the validity of actions taken at such meetings. If you have any questions about the requirements discussed in this article or in the Open Meetings Act generally, we recommend you consult with your legal counsel directly.

Assessment Collections: Payment Plans Q&A

By Jillian M. Wright, Esq.

When the economy dips, delinquencies rise and boards are left scrambling for solutions. Payment plans can be a useful collections tool. Boards and managers would be wise to understand when and how payment plans can help, when they are required, and what to put in a payment plan.

Q: Are Boards Required to Meet with Owners Requesting a Payment Plan?

A: Sometimes, yes. Civil Code section 5660(d) provides that an association must offer delinquent owners the right to meet with the board to discuss payment plans in its pre-lien notice. Civil Code section 5665(b) provides that a board shall meet with a requesting owner within 45 days of receiving the request to meet to discuss a payment plan if that request is sent within 15 days of the pre-lien notice being sent. If there is no board meeting scheduled to take place within that 45-day period, the board can designate a committee of one or more board members to meet with the requesting owner.

Even if a board encounters circumstances in which it is not legally required to meet with the requesting owner, a board may still want to meet with the owner if there is any chance the meeting could result in a reasonable payment schedule. The old adage, “a bird in the hand is worth two in the bush” comes to mind. Having a steady stream of income is often the least costly and most efficient way to get paid even if the payments extend over a period of time. Boards should consider all collection options with their collections services provider as there are many variables to each delinquency, but the bottom line is this: owners who get behind in paying their assessments will usually not magically acquire one large sum of money to pay off their balance. Delinquent owners often need the time and structure a payment plan allows to become current.

Also, keep in mind that if an owner makes any request to meet with the board regarding a delinquency, it may be considered a request to meet for Internal Dispute Resolution (Civ. Code § 5915(b)(2)); such is a request that an association may not deny. This is yet another reason boards should meet with requesting owners to discuss delinquencies. Generally, the more information a board has regarding an owner’s circumstances, the better a board will be able to decide how to proceed with collection efforts.

Keep in mind that any meetings to discuss a payment plan should be held in executive session. (Civ. Code § 4935(c).)

Q: Are Boards Required to Offer or Accept Proposed Payment Plans?

A: No and no. While the benefits of payment plans are discussed above, circumstances differ for every delinquent owner. If an owner does not have the paystubs or bank statements evidencing that they are capable of making regular payments, then a payment plan could be a stalling tactic.

However, if an association has set payment plan standards – for example, all payment plans must allow for the debt to be paid back within one year – the association must include those standards in its collection policy and notify owners of those standards on an annual basis in its annual budget report and policy statement. (Civ. Code § 5730(a).) However, there is no legal requirement that an association have set payment plan standards.

Q: What Should be Included in a Payment Plan?

A: A payment plan should clearly state that the owner shall pay the regular assessments monthly as well as a set amount to be paid toward the delinquent balance. Regular assessments increase and special assessments could be levied during the term of the payment plan, so the association should account for that possibility in the plan. For example, if a payment plan simply says “Owner shall pay $200 per month,” but the regular assessments later increase from $100 to $150, this means the amount being paid towards the delinquent balance goes from $100 down to $50. Yet, if the owner continues to pay $200 a month then there is no breach of the payment plan and the association would not have the right to proceed with other collection efforts.

On that note, we strongly recommend the association clarify what constitutes a breach of the payment plan and what the association’s rights are in the event the owner breaches.

The payment plan should also clarify how payments will be applied if there is a judgment balance and a post-judgment balance. Without that clarification the association may not know when a judgment is satisfied or what amounts should be included in a lien.

It should also be made clear in the payment plan agreement that the owner shall be responsible for any collection costs incurred, even if they are incurred while the owner is in compliance with the payment plan. Collections services providers often charge to monitor delinquent accounts, so while an owner may be paying according to the plan that owner should still be liable for the collection costs incurred while delinquent. Vague language in the payment plan agreement stating all collections efforts will be on hold during the plan could limit the association’s ability to collect on these costs.

PRACTICE TIP: Have your draft payment plan or payment plan standards reviewed by a collections services provider.

Q: Will Entering into a Payment Plan Limit Other Collections Options?

A: Yes, in part. While an owner is in compliance with a payment plan, additional late fees shall not accrue during the payment plan period. (Civ. Code § 5665(c).) However, an association may still record a lien while a payment plan is in effect to secure the debt. (Civ. Code § 5665(d).) Interest may also accrue while an owner is compliant with the payment plan. This is another example of why payment plan agreements should not say that all collections efforts will be on hold while the owner is in compliance with the payment plan.

Boards and managers with questions regarding payment plans should consult with legal counsel and/or their collections services provider. Our firm is happy to review and/or draft a payment plans for boards to consider implementing. Please contact us.

Parking and Requests for Accommodation for a Disability

By Jillian M. Wright, Esq.

Parking requests to accommodate a disability bring about a particular set of issues and questions. What requests are reasonable? If the board deems a request reasonable, who pays for the accommodation, if a cost is involved? What if parking spots are so limited in the community that accommodating the request seems impossible? What to do?

When in receipt of an accommodation request, a board is strongly encouraged to engage in an interactive process and make a good faith effort to consider the following when deciding how to handle the request:

Does the requesting party have a qualifying disability?

If someone has a physical or mental impairment which substantially limits a major life activity like walking, talking, hearing, seeing, breathing, learning, performing manual tasks or caring for themselves, then federal law considers them disabled. State law offers broader protection; disability is defined as an impairment that makes performance of a major life activity “difficult.” If a requesting party’s disability is obvious, e.g., they use a wheelchair, then it could be considered discriminatory to ask for verification of the disability.

Does the requesting party have a disabled person placard or license plate?

Oftentimes, when requesting a parking accommodation the requesting party will have a disabled person placard from the DMV. Presuming the plate or placard is current and valid, then this should constitute sufficient verification of a disability related to use of a vehicle

Is the request reasonable?

Every community’s parking situation differs and so too will the reasonableness of a request for accommodation. One main factor to consider is whether the request is even possible. For example, if the requesting party asks for a parking space closer to their unit but there are no common area spaces closer to the unit, the board likely does not have the power under the governing documents to displace another owner from their deeded or assigned parking spot.

A board should also consider whether there is a causal link between the disability and the request for a parking accommodation. Not every disability impacts the use of a vehicle and parking. If a person with a mental disability requests a parking accommodation, it would be reasonable to request verification to identify the link between the request and the disability.

Another consideration is cost. Typically, granting parking variances have minimal costs to the community while physical modifications can become costly. If the cost to the association is minimal and the benefit to the disabled person is significant it will be difficult to argue that the request is not reasonable.

Is the request necessary to allow equal enjoyment of the community or just convenient?

A requesting party is not entitled to an accommodation if the accommodation is merely convenient, but they are entitled to a reasonable accommodation if the accommodation is necessary to allow them the equal use and enjoyment of their home or the common area facilities.

One federal case illustrates this point well: In Sporn v. Ocean Colony Condominium Ass’n. (D NJ 2001) 173 F.Supp.2d 244, a disabled owner sought and received permission to use a parking space closer to his unit, but Sporn refused to relinquish his assigned space despite the association’s parking rules requiring such transfer. Sporn argued that he needed the space for his guests. The Sporn court held, “an accommodation should not ‘extend a preference to handicapped residents [relative to other residents], as opposed to affording them equal opportunity'” and “accommodations that go beyond affording a handicapped tenant ‘an equal opportunity to use and enjoy a dwelling’ are not required …”(Citations omitted.) The association’s parking policy requiring the relinquishment of one’s deeded parking space granted the same rights to disabled tenants as it did to non-disabled residents. When plaintiff Sporn was asked to relinquish his parking space pursuant to the association’s parking policy, Sporn refused and when asked why he needed two spaces, Sporn did not offer any explanation related to the disability, but instead responded, “because during the summertime we couldn’t get any parking for any of our family that came down.” (Id.). This comment lead the Sporn court to determine that Sporn’s request for “reasonable accommodation” was really a request for accommodation coupled with a demand for special treatment.

Even if the board determines the requesting party is disabled and accommodation is necessary, unique concerns arise that are specific to parking accommodation requests:

Are common area disabled parking spots required by law/building code?

Not necessarily. While disabled parking spots are common in public accommodations (hotels, restaurants, grocery stores, etc.), if the community is not a public accommodation subject to the Americans with Disabilities Act and was built prior to building code regulations requiring disabled parking spaces, then the association likely does not need to convert any open parking spaces to disabled parking spaces. When asked, each community should review its conditional use permit and consult with a licensed contractor or architect familiar with the applicable building code. Moreover, construction of additional disabled parking spots is often impossible because there is limited space or a limited number of common area parking spaces.

What if there are no open common area spaces to provide?

An association is only required to accommodate a reasonable request to the extent possible. If, for example, there are no spaces closer to the requesting party’s residence or there is no way to convert an existing common area space to make it more accessible, then the association should engage in the interactive process with the requesting party to determine if there is any reasonable alternative which alleviates some of the requesting party’s concerns. Every community and disability is different, so it is best to consult with legal counsel if approval of a reasonable accommodation seems impossible.

Does the association have to help pay for the accommodation?

Maybe! Some accommodation requests include physical alterations to the parking lot – painting new lines, making and installing a “reserved” sign, etc. Such alterations might sound more like a reasonable modifications rather than accommodations. Owners are often responsible for the cost to install reasonable modifications if it benefits them individually. However, the courts have treated requests for parking spaces as requests for reasonable accommodations, making associations responsible for some costs. Providing a parking accommodation could include creating signage, repainting markings, redistributing spaces, or creating curb cuts. This list is not exhaustive and there is no clear law on how much expense is unreasonable.

Can a disabled resident allow their non-disabled guests to park in a spot afforded to them as an accommodation?

Yes. As mentioned above, disabled persons must be afforded equal enjoyment of the community. If an association would allow any other resident to have guests park in their assigned parking spot, then the association must also extend this right to disabled persons, even if their guests are not disabled.

The resident has a disabled parking placard and claim that they can park anywhere with the placard regardless of the rules. Is this true?

No, not necessarily. While a resident with a disabled parking placard or license plate may park in all disabled parking spaces, when parking on private property they are still subject to the reasonable rules of the community. For example, they may not park in a fire lane or in a manner that blocks the ingress and egress of other residents. Another example: if there is a limit to parking in a guest spot for more than 72 hours, this rule applies to all guest spots, including disabled parking spots. The disabled parking placard or plate does not give them the right to store their vehicle in a guest parking spot. However, we strongly encourage consulting with legal counsel before towing a vehicle with a disabled parking placard or plate.

Can the association explain to other inquiring residents why someone is receiving a special parking accommodation or variance?

No. The association must keep all information relating to someone’s disability confidential.

This area of law is complicated. A board should carefully consider each reasonable accommodation request and engage in the interactive process to avoid discrimination claims, even if there is limited parking in your community. When in doubt, contact your legal counsel.

Neighbor to Neighbor Disputes and Balancing the Liability Line

By Jillian M. Wright, Esq.

Neighbor to Neighbor Disputes and Balancing the Liability Line

With more people working from home in the last year, you might have noticed an increase in neighbor disputes. Often, neighbors will turn to the association first to resolve the dispute. The board must determine when a neighbor-to-neighbor dispute becomes an association issue; which complaints are based merely on bad relations between the neighbors and which are based on substantial and documented violations of the governing documents? What to do if the complaints are substantiated?

When and How to Investigate

It can be tempting to write off neighbors’ complaints as outside the role of the association. However, the board is tasked with enforcing the governing documents. If an association fails to conduct an adequate investigation into a complaint which might involve a violation of the governing documents, an owner could sue the association for failure to enforce those governing documents. Typically, governing documents prohibit noxious, offensive behaviors and/or nuisances. One of the primary neighbor to neighbor disputes occurs when one or both parties are accusing the other of committing a nuisance – whether it be an offensive noise, sight, or smell.

When an association receives a nuisance complaint the first step should be to investigate the claim. In-person investigations by the manager or non-interested board member should be the first step, if at all possible as this is often the best way to determine if the alleged nuisance is offensive to a reasonable person.

If the offensive conduct happens late at night, seek other evidence to substantiate the complaint. Ask other neighbors about their experience. Ask for videos or pictures with time stamps.

If the dispute takes place solely online or on social media, then the association should not intervene. Governing documents typically define nuisance as actions affecting a residents’ ability to quiet enjoyment of the common area and separate interest property. As such, complaints of online conduct should be directed to the website host (such as Facebook or Nextdoor) or law enforcement as necessary. However, if the dispute takes place on the association’s own forum the board may need to institute codes of conduct and decorum or limit posting rights in order to avoid defamation claims.

Additionally, if a resident complains that their neighbor has discriminated against them based on their protected class (including race, color, religion, national original, sex, disability and familial status) federal law requires the association to investigate (See Code of Fed. Reg. §100.7(a)(1)(iii)). Failure to investigate and enforce quickly could result in liability for the association.

However, if an association acts too quickly, without investigating, it could also face liability. For example, if an association sends a violation letter to an owner who is a member of a protected class, that owner could allege that the association’s enforcement was based solely on the board’s discriminatory beliefs. If the association did not investigate or substantiate the neighbor’s complaint, it may not have enough evidence to disprove this allegation.

When and How to Enforce

If a complaint is substantiated, then the association needs to follow the enforcement procedure within the governing documents: send the violation notice and/or call the offending owners to a hearing at which the association can impose fines or suspend privileges. Alternatively, boards can request owners mitigate the alleged nuisance, for example, lay down rugs to dampen sound or insert insulation to lessen the transmission of smoke smell.

If basic enforcement does not garner results, the board may need to consider litigation (and mediation prior, if necessitated by Civil Code §5925 et seq.). However, while the board is dutybound to enforce the governing documents, the law does not necessarily require the association to see the matter through to the end. In Beehan v. Lido (1977) 70 Cal.App.3d 858, the court held that a board’s decision whether or not to file an action to enforce the CC&Rs is governed by the business judgment rule. If the board determines that filing suit is not in the best interest of the association after reasonable inquiry, then the complaining neighbor has the right to bring suit pursuant to Civil Code §5975.

Tools for Enforcement or Resolution

Common interest developments are seen as quasi-governmental organizations, so owners often assume associations’ power reach farther than it does. Associations should make clear to owners the limited scope of the association’s authority and offer tools to help neighbors address issues with each other directly.

One tool is law enforcement. An association cannot and should not guarantee a resident’s safety. Complaints of violence, harassment, or threats of violence should be directed to law enforcement. An association may have a corresponding role to law enforcement if the actions or threats are directed toward board members or vendors or violate the governing documents but an association’s ability to intervene to prevent or stop someone’s behavior may not be effective remedies when someone is potentially committing a crime.

Another little known tool to neighbors is mediation. Some dispute resolution centers offer low or no-cost mediation. California’s Department of Consumer Affairs has a list of mediators which offer these services and the local county bar association may offer more options as well. If owners seek mediation, the association is not obligated to participate.

In sum, this is a difficult balancing act. An association could face liability for both refusing to get involved and getting involved too soon, without a proper investigation. As always, consult legal counsel with questions.

This article was originally published by CACM in the Fall, 2021 Law Journal.

Enforcement of Short-term Rental Bans: Brown v. Montage at Mission Hills

By Jillian M. Wright, Esq.

Enforcement of short-term rental bans for common interest developments (“CID”) just got more complicated thanks to a recent California Court of Appeals decision.

In the recent case of Brown v. Montage at Mission Hills, Inc. (2021) 68 Cal.App.5th 124, the California Court of Appeal, Fourth District found that a CID cannot require a rental to be for a minimum term for homeowners who owned prior to the CID adopting that requirement pursuant to Civil Code section 4740. In this case, Brown purchased a unit for the express purpose of renting it out as a short-term rental. Montage at Mission Hills later adopted a 30-day minimum rental period. Brown sued on the basis that she was exempt from that requirement because Civil Code section 4740 provides that homeowners are not subject to governing document provisions that “prohibit[ ] the rental or leasing of any of the separate interests … unless that governing document, or amendment thereto, was effective prior to the date the owner acquired title to their separate interest.”

The appellate court sided with Brown and found that minimum rental terms are rental prohibitions and not rental restrictions. Therefore, a short-term rental ban would not apply to homeowners who purchased prior to the ban’s adoption. The appellate court noted that “[t]he legislative history indicates that the Legislature’s intention was to ensure that owners maintained all rental and leasing rights they had at the time of purchase.”

What does this mean for your association?

If you have a minimum rental term in your governing documents it may not be enforceable against all homeowners, depending on the language of the provision and when it was adopted. If you have questions about the enforceability of your association’s minimum rental term, please contact us or your association’s legal counsel for further guidance.

Agenda Setting: Who, When, and How?

By Jillian M. Wright, Esq.

Setting the agenda for a board meeting is an important parliamentary protocol as the agenda establishes what will be discussed at the upcoming meeting. Though an agenda is required by the California Civil Code, California law does not specify how to set the agenda and association governing documents are often silent on the issue.

California’s Open Meeting Act (“Act”) (Civ. Code §4900 et seq.) was established with the intent of increasing transparency of the conduct of board business in common interest developments in an effort to keep owners involved and aware of board business. The Act prohibits boards from discussing or acting on an item of board business outside of a board meeting (Civ. Code §4910(a)). Civil Code section 4930 also prohibits boards from discussing any board business which was not previously placed on the agenda prior to the meeting with some exceptions outlined in Civil Code section 4930 (b) through (d) and discussed below. Thus, agendas are more than just a loose guide for meetings; they restrict what boards can discuss and act on. If an item of business is not on the agenda, then generally a board cannot act on that item unless certain criteria are met.

Agenda Setting Protocols – Determining The Who, When and How

Who May Set and Place Items on the Agenda?

Your association’s governing documents may expressly provide who may place items on board meeting agendas and how. However, if your association’s governing documents are silent on these issues, your board should consider adopting an agenda setting protocol. Such a protocol should provide which director sets the agenda (generally we see board presidents handling this task), who may place an item of business on the agenda, how that is accomplished, and any requisite deadlines.

Regarding who may place an item of business on the agenda, California law does not provide any guidance on this issue. However, Corporations Code section 7211(a)(1) states that meetings of the board may be called by the board president, vice president, secretary, or any two directors. If the Corporations Code gives these individuals the power to call a board meeting, then by analogy the board president, vice president, secretary, or any two directors should have the power to place an item on the agenda for that meeting. Therefore, we generally recommend that agenda setting protocols provide that the board president, vice president, secretary or two or more directors may place items of board business on the board meeting agenda. Non-board member owners should not be given the power to place matters on the agenda.

Agenda item requests may be emailed to the association’s community manager or the designated board member responsible for setting the agenda. Whatever method is used to set the agenda, be careful not to violate the Open Meeting Act by having a quorum of the board discussing or debating what to place on the agenda. Simply emailing a request for an item to be added to the agenda does not violate the Open Meeting Act.

When Must the Agenda be Finalized and Posted?

Agendas must be included with the notice of the meeting. Associations must give general notice of the meeting at least four days before a regular (open) session board meeting and at least two days before an executive session board meeting. (Civ. Code §4920). In order to meet these deadlines, the board adopted protocol should provide that requests for items to be added to the proposed agenda be sent to the person designated to prepare the agenda at least 24-48 hours prior to when the notice and agenda will be posted.

How Can Agenda Items be Added to an Agenda at a Meeting?

There are some instances where a board can add an agenda item at a meeting:

If the board determines that an emergency situation exists (i.e., there are circumstances that could not have been reasonably foreseen by the board, which require immediate attention and possible action by the board which make it impracticable to provide requisite notice), then the board may add that emergency issue to that meeting’s agenda by a vote of the majority of the board. (Civ. Code §4930(d)(1).)
If the board determines that there is a need to take immediate action on issue and that need for action came to the attention of the board after the agenda was posted, the board may, by a vote of two-thirds of the directors present at the meeting (or if less than two-thirds of the total membership of the board is present at the meeting, then my unanimous vote of the directors present), add that item to that meeting’s agenda. (Civ. Code §4930(d)(2).)
If the item appeared on the agenda for a prior meeting that occurred not more than 30 days before the date of the current meeting and at that prior meeting action on that item was continued to the current meeting. (Civ. Code §4930(d)(3).)

If the proposed agenda item does not meet one of the above, then that item cannot be added to the agenda at the meeting. However, the board can direct the community manager or director designated to set the next meeting agenda to add that item to the agenda for that future meeting.

If the proposed agenda items meet a Civil Code section 4930 exception, then the board should first vote to add the item to the agenda. Once the board votes to add the item to the agenda, then further board discussion and action may be taken on the agenda item.

In sum, if your governing documents do not address the who and how of setting board meeting agendas, your board should consider adopting a protocol in order to clearly provide a procedure as to how board meeting agendas are handled.

Be forward-thinking and consider preparing and adopting such a protocol to prevent future unnecessary strife amongst board members. Please contact our office if your association needs assistance in preparing an agenda setting protocol.

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

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, 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

Q&A: Trusts are becoming more common. Can you speak to:

Q. Trusts are becoming more common. Can you speak to:

Who can serve on the board?
Who can be served and fined?
Who can authorize access to a residence?

A. The trustee(s) of the trust listed on title should be treated as the owners who are members. Those trustees on title can serve on the board, can be sent violation notices/fined, and can authorize access to a residence. Beneficiaries of a trust are not owners or members. —Jillian M. Wright, Esq.

Solar Panels and Solar Energy Systems: The Association’s Ability to Regulate Owners’ Installation on Common Area

By Jillian M. Wright, Esq.

On October 15, 2017, California Governor Brown signed Assembly Bill No. 634 into law, which revised Civil Code §§ 714.1 and 4600 and created Civil Code §4746. With AB 634 being signed into law, community interest developments are now required to allow owners to install solar energy systems1 on certain common areas as of January 1, 2018. However, the new law allows associations to impose reasonable requirements to guide solar energy system installation and protect the association from liability. With the increasing prevalence of homeowners wanting to install solar energy systems, associations should be aware of the new law’s implications and how best to craft compliant guidelines and regulations. Below, we summarize the new law’s provisions and how to remain compliant with the new law in a manner that best protects the interests of the association.

1. An association may not establish a general policy prohibiting the installation or use of a rooftop solar energy system for household purposes on the roof of the building in which the owner resides, or a garage or carport adjacent to the building that has been assigned to the owner for exclusive use. (Cal. Civ. Code §714.1(b)(1).)

This means an owner cannot place solar panels or equipment on whatever common area he or she chooses, but rather is limited to the buildings or structures in which he or she owns. Also note, if a carport is adjacent to the building but is not assigned, the association is not required to allow an owner to place solar energy equipment on that carport. Additionally, we note that this provision provides for the “installation or use” of solar energy systems, meaning the owner is not required to own the equipment and may lease it (which is a popular option).

2. The new law prohibits an association from requiring approval by a vote of members owning separate interests in the common interest development to allow this exclusive use of the common area by an owner. (Cal. Civ. Code §714.1(b)(2) and Cal. Civ. Code §4600(3)(J).)

Prior to the new law, an association was required to seek membership approval to grant exclusive use to common area for the installation of solar energy systems, which is a huge undertaking for most associations. With the passage of the new law, this burden is removed.

3. When reviewing a request to install a solar energy system on a multifamily common area roof shared by more than one homeowner, the association must require an applicant to notify each owner of a unit in the building on which the installation will be located of the application. (Cal. Civ. Code §4746(a)(1).)

We suggest any association with common area roofs create solar energy system guidelines and include this requirement to notify all owners in the same building. We recommend those associations require the requesting owner to provide the association with signatures from the notified owners or certified mail receipts showing the notification was sent. That way, if a neighboring owner challenges their neighbor’s solar installation, the association has proof that it complied with this requirement.

4. The association must also require the requesting owner and each successive owner of that unit to maintain a homeowner liability coverage policy and provide the certificate of insurance within fourteen days of approval and annually thereafter. (Cal. Civ. Code §4746(a)(2).)

Unfortunately, the California Legislature did not clarify what an association can or should do if an owner does not comply with this requirement. We believe the Legislature would not force an association to permit the solar energy system to be installed if there is no proof that it is insured, so we think revocation of approval is appropriate in that instance. We also believe the Legislature intended to permit an association to require that a solar energy system be removed if an owner cannot provide proof that it is insured. However, if the system is already installed and the owner does not provide proof of insurance coverage, must the association undertake efforts to see that the solar energy system is removed, even if it means the association will incur significant legal costs? Will the association be liable if it does not follow up annually to ensure that proof is received? Unfortunately, there are no answers to these questions at the moment. If this new law applies to your association, we suggest calendaring a follow up with the applicable owners each year for this request to avoid liability.

5. When reviewing a request to install a solar energy system on common area, the association may impose additional reasonable requirements, including a requirement to submit a solar site survey showing the placement of the solar energy system. If the association requires this solar survey, it must “include a determination of an equitable allocation of the usable solar roof area among all owners sharing the same roof, garage, or carport.”(Cal. Civ. Code §4746(b)(1).)

This means the association can impose guidelines and restrictions regarding aesthetic standards, so long as the restrictions do not “significantly increase the cost of the system or significantly decrease its efficiency or specific performance…” as described in Civil Code §714 (see discussion below). For example, an association can provide that the preferred location for all solar energy systems is one that results in the least visual impact to owners of the association and, if possible, that the system equipment not be visible from street view. However, if in this example, the only feasible location for solar panels to be placed is on a roof which directly faces the street and any other location would significantly decrease the system’s efficiency, the association cannot prohibit an owner from placing the solar panels on the roof that faces the street.

Additionally, this provision provides that an association “may” require that an owner provide a solar site survey showing the usable area of the rooftop and the proposed placement of the solar energy system.2 We recommend every association with common area roofs require this with their solar guidelines. Alternatively, the association, in its sole discretion, may perform its own solar site survey.

As for the “equitable allocation,” we interpret this provision to mean the association may require the owner to then abide by the equitable allocation as called for in the survey by using only the owner’s share of the rooftop so the remainder will be available for other owners of units in the building. This will greatly affect whether owners in mid-rise and high-rise buildings seek out solar energy systems; it may not be cost effective to install a solar energy system if an owner in such a building is required to abide by the equitable allocation determination given so many people are sharing a common roof.

The phrasing of Civil Code §4746(b)(1) seems to indicate that the requesting owner may choose where the solar energy system shall be placed, so long as the owner lives in the building on which it will be placed, has complied with the association’s reasonable regulations (if the association has adopted any), has performed the site survey (if the association requires that), and is not exceeding his or her equitable allocation of the roof. This means, for example, even if there are multiple units within a building, the requesting owner is not required to place the solar energy system directly over his or her unit, but can place the panel anywhere on the building’s roof, the garage, or adjacent, assigned carport.

6. The association may also require the owner and each successive owner to be responsible for costs of any damage to the common area, exclusive use common area or unit; costs for the solar energy system; and disclosures to prospective buyers. (Cal. Civ. Code §4746(b)(2).)

We highly recommend each association require a requesting owner to take on these responsibilities within the solar energy system guidelines and require the owner to sign a license, maintenance, and indemnity agreement stating the same. This agreement can then be recorded on title so all prospective buyers are put on constructive notice of the agreement. This agreement should also include language which clarifies that the owner may be required to remove the solar energy system, at his or her own cost, to allow for common area maintenance or repair and that the owner is responsible to replace the system at his or her own cost.

7. The association must still abide by Civil Code §714.

This new law specifically requires associations to allow owners to place solar panels on common area roofs. However, though AB 634 altered Civil Code §§714.1 and 4600 and created Civil Code §4746, an association is still required to abide by Civil Code §714 as well when crafting its solar energy system guidelines.
California Civil Code section 714(a) prohibits any declaration and other governing document provision(s) from prohibiting or restricting the installation of solar energy systems outright. Civil Code section 714(b) states that it is the public policy of the State of California to promote and encourage the use of solar energy systems. As such, any restrictions on the installation of these systems are declared invalid if the restrictions “significantly” increase the cost of the system or “significantly” decrease the efficiency of the system. A “significant increase” in the cost of a solar domestic water heating system or solar swimming pool heating system that complies with state and federal law is one that increases the cost more than 10% over the cost of the system, but in no case more than $1,000. A “significant increase” in the cost of a photovoltaic system3 that complies with state and federal law is a cost increase of more than $1,000. A “significant decrease” in the efficiency of the system is one that decreases the efficiency by more than 10% over the efficiency of the owner’s originally proposed system. Restrictions on system placement are generally valid if they allow for an “alternative system of comparable cost, efficiency, and energy conservation benefits.”4
The penalty for willful non-compliance with Civil Code section 714 is $1,000, plus the amount of any actual damages suffered by the owner. (Civ. Code § 714(f).) Attorney’s fees are also recoverable by the prevailing party. (Civ. Code § 714(g).)

The statute also mandates that review of an application cannot be “willfully avoided or delayed.” An application is to be reviewed and approved in writing in the same manner as an application for any other architectural application. “If an application is not denied in writing within 45 days from the date of the association’s receipt of the application, the application shall be deemed approved, unless that delay is the result of a reasonable request for additional information.” However, if an association’s governing documents include a shorter response time frame, we suggest the association provide its written decision on a proposed solar energy system application within the time frame stated in the governing documents to avoid any potential risk of the application being “deemed approved” by a court.

In summary, though associations are required to permit owners to install solar energy systems on common area now, it need not be at the association’s expense. An association can adopt reasonable restrictions on the placement and maintenance of the systems and require the owner to take on the liability involved with any damage caused by the system, as described above. We suggest an association consult with its legal counsel to ensure compliance with the new law when creating solar energy system restrictions and guidelines.

1 For purposes of these Guidelines, the term “solar energy system” refers to both solar domestic water heating systems and/or photovoltaic systems, as applicable to an Owner’s request.
2 The cost to perform this survey shall not be deemed as part of the cost of the system as used in Civil Code §714. See discussion below.
3 A “photovoltaic system” is one that generates electricity.
4 California Civil Code section 714(b)