The Maintenance Matrix: An Incredibly Helpful Tool

By Lindsay J. Anderson, Esq.

One of the perks of living in a common interest development is that maintenance, repair, and replacement responsibilities for various components are divided between the association and the owners.  This means that the expense of maintaining, repairing, and replacing some components are shared across the entire community (or a portion of the community, depending on what your governing documents provide) while the expense of maintaining, repairing, and replacing other components are borne by the individual owners.  These responsibilities can also be split up so that specifically maintenance and repair are the responsibility of the owners while replacement is the responsibility of the association.  Sharing the burden of the cost of common components can help to ensure that the community is maintained to a more uniform level.  However, maintenance, repair, and replacement responsibilities are not one size fits all and vary widely from community to community.

So, how can the board and management know who is responsible for what?

The particulars are found in the community’s governing documents which include condominium plans/tract maps, CC&Rs, articles of incorporation, bylaws, and operating rules, regulations, policies, and resolutions.  There are also statutory defaults found in the law for maintenance, repair, and replacement responsibilities which can be found in Civil Code section 4775, but it is important to note that these statutory defaults do not apply if the CC&Rs provide for a different breakdown of responsibility.

The board and management can review each situation on a case-by-case basis when a determination needs to be made on responsibility.  This will involve reviewing the governing documents for each component as issues arise and may require consultation with the association’s counsel if the documents are ambiguous.  There are two main problems with this approach.  First, these questions often pop up during emergencies and answers need to be found quickly which can lead to unnecessary stress for the board and management.  Second, this can mean that the owners do not understand what their responsibilities are.

Alternatively, if an association has planned ahead, the association’s board and management can turn to their handy dandy maintenance matrix!  A maintenance matrix is a compilation of the maintenance, repair, and replacement responsibilities in a clear and concise chart which depicts the specific assignments for each component.  A maintenance matrix is prepared by reviewing all of the governing documents and the statutory defaults in advance so that it can be referred to when questions arise about responsibilities.

Adopting a maintenance matrix is one of the most effective ways of ensuring that owners, the board, and management understand who is responsible for each component.  Consultation with legal counsel during the process of preparing a maintenance matrix is crucial to help avoid any potential errors in the matrix which can lead to liability.  Carefully examining inconsistencies and discrepancies up front can save the association time and money down the road.

Maintenance matrices may be adopted as an operating rule in accordance with Civil Code section 4360 or can be adopted as part of the CC&Rs through an amendment or restatement.  The benefit of adopting a maintenance matrix as a rule is that the maintenance matrix can be adopted by the board at an open meeting after considering any comments made by the membership during the membership’s twenty-eight (28) day comment period.  There is no need for a membership vote if the matrix is adopted as an operating rule.

However, the board may not use a maintenance matrix that it has adopted as an operating rule to make any changes to the maintenance allocation.  You cannot use it as a wish list.  Civil Code section 4205 establishes the statutory hierarchy of governing documents of common interest developments – law, condominium plans/tract maps, CC&Rs, articles of incorporation, bylaws, and operating rules, regulations, policies, and resolutions.  If there is a conflict between the CC&Rs and one of sources below the CC&Rs in the hierarchy, the CC&Rs will prevail.  If the maintenance matrix is adopted as an operating rule, it cannot be used to override the CC&Rs given this statutory hierarchy.

Adopting a maintenance matrix as an amendment to the CC&Rs or as part of a restatement of the CC&Rs will allow the association to make changes to the maintenance, repair, and replacement responsibilities.  Amendments to the CC&Rs and restatements of the CC&Rs require membership approval – often the approval of a supermajority – which sometimes can be difficult to obtain given membership apathy.  However, adopting a maintenance matrix through an amendment to the CC&Rs or restatement of the CC&Rs is the best method.

Once a maintenance matrix is adopted or approved by the Board (or the membership, depending on whether a membership vote is required), it can be used by owners, the board, and management to determine maintenance, repair, and replacement responsibilities and can essentially serve as the association’s cheat sheet.

If your association is considering creating a maintenance matrix, your board should contact your association’s legal counsel for assistance in preparing or reviewing the matrix prior to implementation.

Refresher on the Architectural Approval Process

 

By Lindsay J. Anderson, Esq. and Karyn A. Larko, Esq.

Most CC&Rs require owners of the separate interests to obtain association approval prior to making structural alterations or alterations to the exterior of their separate interests or common area.

In some instances, the language is vague, imposing the obligation on owners, but providing few details. In other instances, the CC&Rs set forth in detail the process owners (and the association) must follow.

Directors should be encouraged to review their association’s CC&Rs so they are well-versed on the architectural approval process (“Process”) they must follow. Likewise, if the CC&Rs provide for an architectural review committee (“ARC”), ARC members should be encouraged to review the Process.

Having said this, “knowing” the Process is not enough. The board and ARC, if any, must also comply with the Process. Failure to do so can lead to the inadvertent approval of alterations that are not acceptable to the board or ARC.

Many CC&Rs state that if an application is not approved or denied within a specified time period, the application is automatically approved or association approval is no longer required.

The inadvertent approval of alterations can result in alterations that are detrimental to the appearance of the community and property values, or that undermine the structural integrity of a building. Inadvertent approval of alterations can also lead to potential liability for the association and, in some instances, individual board or ARC members.

On a related note, be sure your boards and ARCs know the time periods imposed by California law for reviewing solar energy systems and electric vehicle charging station applications. California Civil Code (“CC”) §714(e) (2)(B) provides that unless a solar energy system application is denied in writing within 45 days of submission, it is deemed approved.

CC §4745(e) provides that if an electric vehicle charging station is not denied in writing within 60 days of submission, it is deemed approved. The Civil Code controls in the event the governing documents grant a longer review period.

Federal law also imposes a deadline for reviewing applications for qualifying satellite dishes and antennas. If your clients require approval for the installation of these devices, encourage your boards to consult with their association’s legal counsel on this matter

REVIEWING APPLICATIONS

The CC&Rs generally identify the factors the board or ARC is to consider when evaluating applications, such as conformity of the alterations with the governing documents, the quality of the proposed workmanship, the design and harmony of the alterations with existing structures, the location of the alterations in relation to surrounding structures, topography, and finish grade elevation.

It is important that boards and ARCs understand the scope of their authority and duty when evaluating applications, and perform their evaluation in keeping with this scope.

If an application contains a disability related request for a reasonable accommodation, the board or ARC should consult with the association’s legal counsel on how best to evaluate the application.

APPROVING/DENYING APPLICATIONS

Boards and ARCs must act reasonably and not in a capricious or arbitrary manner when deciding applications. This does not mean that if they have previously approved an alteration, they must approve all future applications for the same or similar alterations.

Nor does it mean that if they have previously denied an alteration, they must do so in the future. However, they should have objective reasons for treating the applications differently and these reasons should be noted in the meeting minutes.

For example, the location of a proposed alteration in relation to other structures might be a basis for denying a request that was previously approved elsewhere in the community.

CC §4765(a)(4) mandates that applications be approved or denied in writing, and that if an application is denied, the notice of denial must include the reason(s) for the denial and a description of any procedure the owner must follow to appeal the denial.

Your boards and ARCs may impose reasonable conditions when approving applications, subject to any limitations imposed by the governing documents. If any conditions are imposed, these conditions should be clearly set forth in the notice of approval.

APPEALS

If applications are denied by an ARC, other committee, or subcommittee of less than the whole board, CC §4765(a)(5) grants owners the right to appeal the denial of their application to the board. Section 4765(a)(5) does not extend this same right of appeal to other owners who may object to the approval of a neighbor’s application.

Some governing documents provide an appeal process regardless of the composition of the body reviewing applications. In such instances, this process must be followed even if the right to appeal is not imposed by the CC.

If owners are entitled to appeal, the board must promptly consider their appeal at a duly noticed open session board meeting, subject to any additional requirements imposed by the governing documents.

ARCHITECTURAL GUIDELINES

CC §4765(a)(1) requires associations to have a fair, reasonable, and expeditious procedure for deciding applications, including the maximum time for responding to applications and appeal requests. This procedure must be set forth in the governing documents, which include CC&Rs and rules or guidelines.

Therefore, if any of your clients have CC&Rs that do not include a detailed description of the architectural review process or have concerns about the current process, they should consult with legal counsel.

If authorized by the governing documents, your boards should adopt architectural guidelines that set forth any standard restrictions on commonly requested alterations. By doing so, they reduce the potential for inconsistent application decisions and claims of wrongdoing.

ANNUAL DISCLOSURE

CC §4765(c) requires associations to notify their members annually of any requirements for association approval of physical changes to property. This notice must describe the types of changes that require association approval and include a copy of the association’s process.

 


 

*This article was originally published in The CACM Law Journal, Fall 2022 edition and was adapted from the original article, Refresher on the Architectural Approval Process) as authored by Lindsay J. Anderson, Esq. & Karyn A. Larko, Esq.

 

Using Drones for Inspections

By Lindsay J. Anderson, Esq.

Four Considerations Before Using Drones for Community Association Inspections

Drones, also known as unmanned aircraft systems, are nearly everywhere. Advances in technology have made drones smaller, cheaper, and easier to use, and therefore more accessible to average users.  As drones become more accessible, community associations may wonder whether drones may be used to help conduct inspections of common area components. Drones can provide a host of benefits for associations including, but not limited to, lowered costs because inspections can be completed more quickly, fewer accidents in inspections, and better-quality documentation in the form of video footage.  However, before moving forward with using drones for inspections, boards should contemplate the following considerations and consult with the association’s legal counsel.

First, laws are still developing in the drone realm.  As of now, drones are primarily regulated by the Federal Aviation Administration (“FAA”).  The FAA requires pilot certification, registration of drones, and a minimum age of pilots if the drone is used for commercial purposes.  There are also strict requirements regarding speed and altitude. The state and municipalities may impose additional requirements.  Associations should be sure to abide by all federal, state, and local requirements for drones.

Second, associations should craft appropriate policies regarding the use of drones.   Since drones are a relatively new phenomenon, an association’s governing documents may not address the use of drones.  Consultation with the association’s legal counsel is recommended to craft appropriate policies regarding the use of drones, including with respect to notice requirements for inspections.

Third, using drones for inspections of common area components may give rise to privacy concerns.  In California, laws prohibit entering the airspace of another in order to capture an image or recording of that individual engaging in a private, personal or familial activity without permission.  While an association may intend to use a drone for an inspection of a common area component only, the drone may inadvertently capture a private or family activity which could open the association up to liability.  Rules and policies should be carefully tailored in order to protect the association from liability and owners from unintentional privacy intrusions.  Consultation with legal counsel is also imperative with respect to addressing privacy concerns.

Fourth, since drone use is still a relatively new endeavor for associations, associations should be sure to consult with their insurance providers to make sure that the association’s policies cover claims arising out of the association’s use of drones.

While drones may be the wave of the future, associations should proceed with caution before using them for common area inspections.  A careful and thorough examination of the considerations outlined above, coupled with consultation with association counsel and the association’s insurance professional, may help to protect associations from potential liability.

 


 

*This article was originally published in San Diego Community Insider in the Fall 2022 edition and was adapted from the original article, Using Drones For Inspections) as authored by Lindsay J. Anderson, Esq.

 

 

Reservation of Rights Letters: What are They and What Should You Do if Your Association Receives One?

By Lindsay J. Anderson, Esq.

Your Association gets sued by a homeowner. You reach out to your insurance company to let them know about the lawsuit then you sit back and relax because insurance is going to cover everything, right? Do not get too comfortable!

Insurance companies may not cover everything, or anything, that you believe they should. How do you know what the carrier is going to cover during the course of this particular lawsuit? Look no further than the reservation of rights (“ROR”) letter. Your insurance company is required by law to provide you, as its insured, with a reservation of rights letter detailing all possible limitations on coverage that the insurer may rely on in connection with adjusting the claim or suit.

Basic Definitions

Before we can understand what the insurance company is saying in its ROR letter, we need to understand the jargon that’s typically included in the letter. The following definitions provide the basics.

  • Duty to Defend: Used to describe an insurer’s obligation to provide you with a defense to claims made under an insurance policy. As a general rule, an insurer’s duty to defend you arises when there is potential for coverage under a policy.
  • Duty to Indemnify: Used to describe an insurer’s obligation to pay the claim, by funding a settlement or paying a judgment against the insured. Unlike the duty to defend, which is typically determined at the outset of the litigation, the duty to indemnify arises when the facts establish that there is a covered loss under the policy.
  • Tender: Under the terms of your insurance policy, you must give your insurance carrier notice of any claim or suit being made against the Association. Such notice includes a demand for defense (i.e., duty to defend) and indemnity (i.e., duty to indemnify) under the policy.
  • Trigger or Coverage Trigger: Refers to the event that must occur before a liability policy applies to a given loss.

What is a Reservation of Rights Letter?

The ROR letter will be a letter from your insurance company which notifies you of the carrier’s coverage position, including any limitations on coverage that may act as a complete or partial bar to coverage. The ROR letter also affords the insurer an opportunity to undertake a more thorough factual investigation into the claim without waiving its rights to deny or limit coverage at a later date.

ROR letters vary in form depending upon the insurance company but, in general, include a summary of the factual background surrounding the current claim, a detailed analysis of the applicable insuring agreement and applicable exclusions (i.e., intentional acts, breach of contract, no monetary damages being sought) and endorsements which may impact coverage, a reservation of rights, and, in some instances, a denial of coverage for some or all of the claims. Since ROR letters may be long and winding with insurance terms and phrases peppered throughout, they are difficult to understand.

What are the Insurance Company’s Duties (Refer to Definitions Above)?

The duties of an insurance company are set forth in the Insuring Agreement section of the policy. Typically, an insurer has two distinct duties – the “duty to defend” and the “duty to indemnify.” In California, the duty to defend is “triggered” when there is any possibility, no matter how remote, that the claim would be covered under the policy. Where your carrier defends an entire action where only a portion of the claims are covered, the carrier may seek reimbursement from you for any defense fees and costs incurred in defending the non-covered claims.

Under the typical scenario where an insured is faced with a third-party claim for monetary damages, the carrier is obligated to defend the action if, under the facts known, there is a possibility of coverage under the policy. Once a carrier’s defense obligations have been “triggered”, the carrier is obligated to hire counsel, retain experts, investigate the claim, pay defense costs, and defend the case through disposition.

The duty to indemnify is the insurance company’s duty to pay any monetary judgment (i.e., damages) rendered against an insured for a covered loss. A carrier’s indemnity obligations are limited by the terms of the insurance contract and should be detailed in the ROR letter.

Why is an ROR Letter Important?

California’s insurance regulations require an insurance company to provide you with a written response to a request for defense and/or indemnity. That response typically comes in the form of the ROR letter which puts you on notice of any limitations or exclusions to coverage. Knowing what is, and more importantly what is not, covered under the policy is crucial to making strategic decisions regarding the handling of the claim. By way of example, the ROR letter can assist the Association and its defense counsel in evaluating a settlement demand and determining whether or not it is in the Association’s best interests to settle a claim. However, it is worth noting that the decision to settle typically rests entirely with the insurance company.

The ROR letter is also how an insurance company reserves its rights to either deny or limit coverage under the policy and to recover defense fees and costs expended in connection with the defense or settlement of uncovered claims. Under California law, the carrier’s coverage defenses may be waived where the insured relies upon the carrier’s failure to specifically reserve its rights under the policy.

What Should You Do if Your Association Receives an ROR Letter?

Receiving an ROR letter from an insurance company may feel intimidating. However, knowing what to do and what to look for when you receive an ROR letter are crucial in getting a handle on the carrier’s coverage determination.

  1. Your first step when you receive an ROR letter should be to share it with your attorney.
  2. The next step is to carefully review the policy exclusions and endorsements and discuss them with your insurance professional so that you can work within your budget to buy the broadest coverage available.