Social Announcements – Epsten, APC

Check It Off Your List

There is nothing simple about managing a common interest development (“CIDs”). The statutory duties (e.g., annual disclosures) and annual administrative duties (e.g. insurance) would be burdensome for any corporation; most CIDs are ill-equipped to handle this task without having a structure in place. Unlike most large business organizations, rarely do CIDs have a corporate compliance officer to monitor compliance with the laws and administrative obligations. To assist CID management and boards of directors, boards and management should consider developing checklists to use as tools for fulfilling fiscal and administrative duties thereby reducing legal exposures.

Recently, I was selected to participate as a contributing author for CAI’s ’Best Practices for Community Association Maintenance‘ (available on our website or through the CAI Research Foundation, at no cost). In this publication, the contributors developed checklists as a tool for maintenance and repair obligations. The development of that publication further confirmed my belief that checklists are essential for the proper operation of any CID. Checklists are nothing new. While not directly equivalent to what I am suggesting, airline pilot’s pre-flight and landing checklists have been proven to reduce airplane accidents, as well as pre and post-surgery checklists have proven to reduce surgical complications – like leaving surgical instruments in body cavities and infection prevention. (reference: The Checklist Manifesto).

Checklists should be tailored specifically for your CID to cover such things as fiscal responsibilities (e.g., timing of the budget, audit, reserve study, annual financial disclosures) and administrative responsibilities (e.g., insurance reviews and renewals, yearly contract reviews, property inspections, performance reviews, policies and procedure review, board education). Tasks on the checklist should be assigned to a specific person or position. Additionally, each checklist should include calendar dates for task deadlines, which will help not only the CID running efficiently, but help prevent financial losses.

If you do not know where to start regarding the types of checklists needed or what to include on those checklists, do not fret! We have done much of the work for you! Click here to access a compilation of checklists tailored for boards and managers with the most significant statutory duties imposed on community associations. Check the box and get it done!

Codes of Conduct for Association Volunteers

By Emily A. Long, Esq.

Generally, board members of common interest developments are volunteers dedicating their time, skills and energy to serve the communities within which they live. Indeed, without these director volunteers, community associations would be unable to properly function. Similarly, committee members are volunteers who work on specific projects within a community. Often, committee work is a valuable first experience which can entice a member to become more involved and to eventually run for the board. However, there is a steep learning curve upon entering the world of association governance.

In order to help board and committee members understand the association’s expectations for service, codes of conduct can be particularly helpful. Not only do codes of conduct codify association expectations, they can also serve to educate board and committee members and help minimize association liability. Boards might therefore consider adopting codes of conduct that cover the following topics, among others:

Prohibiting the acceptance of any gift, gratuity, favor, entertainment, loan, or any other item of monetary value by a board or committee member from a person who is seeking to obtain a contractual or other business or financial relationship with the association.
Clarifying that board and committee members may not engage in any writing, publishing, or speech that defames any other member of the board, committee, employee, or resident of the community.
Establishing that board and committee members may not knowingly misrepresent facts to the residents for the sole purpose of advancing a personal cause or influencing the residents.
Prohibiting board members from discussing sensitive and confidential matters discussed in executive session, outside of executive session, or with anyone who is not on the board (with the exception of management and association counsel).
Prohibiting board or committee members from seeking to have a contract implemented that has not been duly approved by the board.
Prohibiting board or committee member interference with an association contractor performing work.
Clarifying that board and committee members may not harass, threaten, or attempt through any means to control, instill fear or discriminate against any member of the Association, management company, service provider, or community resident.
Preventing interference by board and committee members with the system of management established by the board as a whole and the management company.
Reminding board members that they must operate as a board and do not have any individual authority unless it is specifically granted to them in writing by the board or the Association’s governing documents.

Often, codes of conduct may be adopted as rules of procedure by way of approval by the board at an open session meeting, rather than by following the rulemaking procedures spelled out in Civil Code section 4360. However, we encourage you to first speak with your association’s legal counsel to review your association’s governing documents and discuss your community’s particular needs prior to adopting such rules.

Enforceability of these codes of conduct is another important issue to consider when preparing draft rules. It is recommended that any code of conduct specifically list the consequences for a violation of the code of conduct. Reasonable penalties for violation might include: public or private censure by the board, removal of an officer title, and/or removal from committee service by the board. It is unlikely that violation of a code of conduct may result in unilateral removal of a board member by the board, but speak with your association counsel on this issue.

To Pickleball or Not to Pickleball? That is the Question

By Rhonda R. Goldblatt, Esq.

Pickleball is one of America’s fastest-growing sports.^[1] This surge has in turn generated professional tournaments, corporate sponsors, and professional players. Many homeowners, eager for a new amenity and a new hobby, have asked their community associations to create pickleball courts. Pickleball courts are relatively easy and cheap to create, especially if an association has an existing tennis court.^[2] But while many boards may leap at the chance to buy in to the pickleball craze and give residents a new way to exercise, associations should be wary of potential issues that can accompany the new game. Below are a few issues to consider.

Insurance. Pickleball related injuries are projected to cost Americans up to $500 million this year alone.^[3] Given the potential for injuries related to the sport, associations should consider consulting with a qualified insurance expert to confirm they have adequate coverage in the event of any pickleball-related incidents.
Noise. Pickleball can be noisy, and can in turn generate complaints from nearby residents. Therefore, associations may want to consider establishing rules limiting play to certain hours of the day, and consulting with qualified experts regarding sound-mitigating measures.
Authority under the Governing Documents. Depending on the cost of the project, the exact changes to be made, and the terms of the association’s governing documents, creating a pickleball court may constitute a capital improvement requiring membership approval. Boards should confirm they have authority under their governing documents before altering the common area. When in doubt, consult with a qualified community association attorney.
Consider a Trial Run. Associations can consider adopting a rule allowing pickleball play at existing facilities for a set amount of time with a sunset provision – for example, for thirty days – as a trial run, to see how pickleball fits into the community. The board can then review any member feedback received, and decide how to proceed.

[1] https://www.npr.org/2022/02/19/1081257674/americas-fastest-growing-sport-pickleball

[2] https://usapickleball.org/what-is-pickleball/court-diagram/do-it-yourself-guidelines/

[3] https://nbc-2.com/news/sports/2023/07/19/pickleball-injuries-costing-400m-nationally-the-alarming-toll-on-players-health/#:~:text=The%20most%20common%20types%20of,alongside%20the%20game’s%20unprecedented%20growth.

Strapped for Cash?

A Short Tutorial on Borrowing from Reserves

By Karyn A. Larko

Even a well-run association can find itself short on cash occasionally due to unexpected operating expenses or an unexpected shortfall in assessment income. Should this occur, a healthy reserve account can provide the solution – or at least the first step in the solution.

California Civil Code (“Civil Code”) section 5510(b) only permits a board to spend funds designated for reserves for maintaining, repairing, restoring and replacing major components the association is obligated to maintain, repair, restore or replace, for which the reserve fund was established; or litigation pertaining to the maintenance, repair, restoration and replacement of these components. However, Civil Code section 5515 allows reserve funds to be temporarily used for other purposes provided they are timely repaid.

The Benefits to Borrowing from Reserves

Because reserve funds can generally be quickly accessed, they can be used to meet the association’s cash shortfall until the Board can implement a financial plan to pay for the expense, such as increasing regular assessments, levying a special assessment, identifying budgeted expenses that can be deferred, reduced or eliminated, or obtaining a loan.

The Requirements for Borrowing from Reserves

Civil Code section 5515 imposes the following requirements when borrowing from reserves:

The board must vote to borrow from reserves at a duly noticed open session board meeting. Further, the board must vote on a financial plan to replace these funds within one year.
The fact that the board intends to consider a transfer from reserves must be included on the agenda for this meeting. The agenda must also state the reason or reasons the transfer is needed, whether the board will consider the imposition of a special assessment to repay reserves, and some of the other repayment options to be considered.
The minutes for the board meeting must include the board’s vote to approve the temporary transfer of funds from the reserve account, the reason or reasons the transfer was necessary, and when and how the reserve account will be repaid.
The funds borrowed from reserves must be repaid within one (1) year of the date of the transfer. If more than one transfer is needed, the funds must be repaid within one (1) year of the initial transfer.

Notwithstanding the one (1) year repayment requirement imposed by the Civil Code, it is possible to extend the repayment period if the board determines it is in the best interests of the association to do so. However, the same requirements for borrowing the funds apply. In other words, the board must vote at a duly noticed open session board meeting to extend the repayment period and on the new plan for repayment. The agenda for this meeting must clearly indicate that the Board will be considering a repayment extension and a new (or revised) plan for repayment, including a statement on whether a special assessment will be considered. The meeting minutes must reflect the board’s vote to extend the repayment period, the reasons the extension is necessary, and when and how the funds will now be repaid.

PRACTICE TIPS:

Borrowing from reserves is not an alternative to careful and considered budgeting. Nor is it an alternative to imposing the assessments needed to cover the association’s anticipated operating expenses. This tool should be used judiciously and infrequently in order to maintain the integrity of the reserve account.

A board cannot borrow what the association doesn’t have. A well-funded reserve account is important not just for fulfilling the association’s maintenance, repair and replacement responsibilities, but also for avoiding potential financial crisis in the event of an expected cash shortfall.

When meeting to vote on whether to borrow from reserves, don’t limit your options. Identify and duly consider all the ways the reserve funds can potentially be repaid. It may be the best option to combine methods of repayment.

The ability to extend the repayment period is not a license to use reserve funds to permanently fund purposes other than those authorized by the Civil Code. Any extension in the repayment period should not exceed a year at the most.

Please reach out to us if you would like further guidance on the board’s responsibilities when it comes to funding and borrowing from reserves, or assistance in implementing repayment plan.