Civil Code sections 5300 and 5310 require common interest developments to distribute their annual budget reports and annual policy statements 30 to 90 days before the end of their fiscal year. For most community associations, that deadline is fast approaching.
So, let’s take this opportunity to consider some of the issues that community managers and boards of directors sometimes overlook when racing to complete their annual disclosures.
Start Early
To begin, in an ideal world, we would not race to complete the annual disclosures. It’s a good idea for management to provide the board with a draft budget for its consideration well in advance of the deadline. It’s particularly important for directors to review that draft budget in advance of the open board meeting where the budget will be discussed. That way, they will be prepared to approve the budget or propose amendments to the draft budget at the meeting. The budget meeting should be scheduled sufficiently in advance of the deadline so that the board can adjourn the meeting if necessary to resolve any issues that may arise during the budget meeting or in case the meeting needs to be adjourned for lack of quorum.
Don’t Forget Balcony Inspections
Civil Code section 5551 requires condominium communities to complete their first visual inspection of exterior elevated elements by January 1, 2025. That means, if your condominium community has not already completed this task, it must budget for it in this next fiscal year. Also, the law requires the report prepared by the architect or structural engineer to be incorporated into the association’s reserve study, which should be completed before the budget meeting so that the board can properly budget for reserve contributions.
Make Sure Your Disclosures Are Well-Reasoned
It’s also important for community managers and boards of directors to carefully review the disclosures required by Civil Code sections 5300(b)(3) through (6). Generally, the law requires an association to share its reserve funding plan, and statements as to whether the board has determined to defer maintenance, whether it anticipates any special assessments, and a description of the mechanisms by which the board plans to fund reserves. Occasionally, we find annual budget reports that proudly report no increase in regular assessments, but disclose severely underfunded reserves, no intention to defer maintenance, no plan for future special assessments, and no realistic explanation as to how future maintenance needs will be addressed. Of course, boards of directors have an obligation to levy regular and special assessments sufficient for their association to perform its obligations under the governing documents and Davis-Stirling Act. (See Civil Code section 5600(a).) It’s important for the annual budget report to provide evidence to the members that the board has complied with that obligation and explain the board’s reasoning.
Insurance Premiums Are Skyrocketing
Finally, it’s generally a good idea to plan for small budget increases every year due to inflation and increases in the cost of living. This year though, as you may have heard, many associations are facing significant increases in their insurance premiums. In some cases, insurance premiums have skyrocketed to multiple times an association’s previous premiums. We recommend reaching out to your association’s insurance broker at budget time to discuss anticipated increases in premiums. It’s better to find out the bad news now, so you can plan ahead, rather than wait until the policy is set to renew later in the fiscal year.
Conclusion
If you need help preparing your annual disclosures, contact your association’s legal counsel for assistance. But, do so well in advance of your deadline so that the board has sufficient time to address any issues that may arise. As they say, the early bird catches the worm! Following these recommendations will help avoid a mad scramble at the end of the fiscal year, and help set up your association for a productive new year.
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!
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.
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.
These are the top ten things I see landing community associations in hot water:
Conditional Approvals for Architectural Applications
Don’t give conditional approval. Either approve or deny an owner’s architectural application. If there are “conditions” that would make an application approvable, deny the application, but welcome the owner to resubmit with the conditions addressed. Conditional approvals create ambiguity that can later cause problems for the association.
Emailing Too Much
Cut back on emails? Sounds great! There are (at least) two good reasons to cut down on emails:
First, under the Open Meetings Act (found in Sections 4900 et seq. of the Davis-Stirling Act), association business must generally be conducted at a duly noticed meeting. Emails amongst directors and management can easily run afoul of the Act and cross the line to an impermissible and illegal board meeting.
Second, most emails are discoverable in litigation. The less emails there are, the less there is to be discovered by a would-be plaintiff. In short, try to save most discussions for board meetings.
Spilling the Beans
Many boards believe transparency is the touchstone of good governance. But that is not entirely true. The board, first and foremost, owes a duty to the association (the corporate entity). One of those duties is the duty of confidentiality. Certain information cannot and should not be shared with the membership. For example, confidential information discussed during executive session, attorney-client privileged information, information that compromises the privacy of owners (such as information related to assessments or member discipline), or information that can subject the association to liability should not be shared.
Not Reading/Following Governing Documents
You mean I have to read all those governing documents? Yes! As a director, your decisions must be made with reasonable diligence, and that includes being familiar with the association’s governing documents (e.g., the CC&Rs, Bylaws, Condominium Plan, and Rules and Regulations). If the board cannot understand the provisions (yes, sometimes they can be confusing or poorly drafted) it should consult with legal counsel to help interpret.
Overstepping Power/Authority
Powers and duties of the board can be found in the Davis-Stirling Act, other applicable laws, or the association’s governing documents. Boards are limited in the scope of their power and authority and need to ensure they stay within those boundaries. When in doubt, seek the advice of legal counsel, to determine whether the board has the authority to do what it is seeking to do.
Inconsistent Enforcement
“Well, we let those owners do it because we like them” is not a good answer! The association’s governing documents need to be enforced uniformly and consistently. If the board gets heartburn when enforcing a rule or it is difficult to enforce, the underlying rule probably needs to be amended or repealed.
Missing the Mark on Civil Rights or Fair Housing Issues
Discrimination and disability issues are majorpitfalls for associations. Federal and state laws are quite onerous and technical in this area. Consult with legal counsel early and often on these issues, even just allegations, because a false step can be very costly for an association.
Keeping Assessments Too Low
Often a director is heard saying: “I was voted to the board to keep assessments low.” Keeping assessments low is important to the membership, for sure, but too often this notion is taken too far such that the association’s operating and reserve funds are not adequately funded. This can lead to deferred maintenance, large special assessments, and other problems.
Responding to Online Posts
As a director, responding to online posts on social media is rarely, if ever, fruitful. A director or manager responding to social media posts can result in liability (defamation for example), be construed as speaking with the board’s authority, enflame the situation, or worse. So often, ignoring an online post or comment is the better move.
Acting Without Legal Advice
The list of laws and cases that govern associations is large, and ever growing and evolving. Add in the provisions and requirements of your governing documents, and it quickly can become overwhelming, even for seasoned community managers. A bit of timely legal advice can make all the difference in staying on the right track and avoiding pitfalls and liabilities.
Epsten, APC, is pleased to announce the addition of Jenniffer ‘Jen’ Serrano as the firm’s new Senior Marketing Manager. Jen is a versatile marketing professional with a proven track record of leading integrated, multi-channel campaigns consisting of traditional and digital marketing ecosystems.
“We are happy to welcome Jen to the Epsten team,” said Carolyn D. Decker, Chief Operating Officer of the firm. “Her extensive marketing experience, coupled with her strategic thinking and collaborative leadership style will help us continue to deliver forward-thinking and effective marketing solutions to our clients.”
Before joining Epsten, APC, Jen was Marketing Communications Manager at Woods Rogers Vandeventer Black PLC, one of Virginia’s largest law firms, where she championed a multifaceted role leading integrated campaigns and provided creative leverage to the firm’s brand voice. Jen also has creative agency experience where she managed a broad portfolio of brands, including industries such as education, healthcare, travel and tourism, among others.
Jen was awarded as an “Unsung Legal Heroes” Class of 2017 by Virginia Lawyers Weekly, a recognition reserved for law firm employees who have consistently gone above and beyond the call of duty. She previously Chaired the Diversity & Inclusion Committee from the Public Relations Society of America, Hampton Roads Chapter, and was a Treasurer and VP for the Naval Special Warfare Family Readiness Group (FRG).
Meetings are the primary mechanism for conducting business in common interest developments, so effective meetings are a key element in the health
Ineffective meetings in common interest developments, especially when addressing sensitive topics, can easily devolve into shouting matches, threats, and even news coverage. Fortunately, these meetings are rare. More common is apathy or frustration with how business is conducted, which results in very few homeowners attending association meetings, even when important topics are discussed. Whether the concern is a potentially volatile meeting or disinterest, there are ways to conduct meetings that are productive and beneficial for the community.
Community associations hold an annual membership meeting and board meetings at regular intervals throughout the year to conduct their business. Occasionally, special meetings of the members may be held to conduct a membership vote on matters other than the annual election of directors. California law and community association governing documents impose different requirements for board meetings and membership meetings, so it is important to be clear in the meeting notice and agenda about which type of meeting is being held.
For both board meetings and membership meetings, there are procedures and processes dictated by law and the community association’s governing documents related to notices and how to conduct business; these will be discussed below for each type of meeting. The primary sources of information for conducting meetings are in the association’s bylaws, the Common Interest Development Act beginning at Civil Code § 4900 for board meetings and § 5000 for member meetings, California Corporations Code beginning at § 7211 for board meetings and § 7510 for member meetings for incorporated associations, and California Corporations Code at § 18330 for unincorporated associations.
Beyond these requirements for meetings, there are some practices that can help make meetings more effective. Effective meetings can serve multiple purposes beyond just conducting business. They can create confidence in the board and a greater sense of community among the members. Ineffective meetings can lead to conflicts between the board members and the members of the community association.
Board Meetings
Board meetings are held for the purpose of conducting board business. The board president presides as the chairperson and is responsible for leading the board members through the agenda items and keeping the discussions focused on those agenda items. Board meetings are required to be open to attendance by the association members unless certain sensitive topics are to be discussed and statute allows for a closed-door conversation.
The first step in keeping board meetings productive and effective is to establish rules of order and decorum. Some of the rules will be different depending on whether one is a board member or an association member attending the meeting. Board meetings are for the board to conduct board business. Association members who are not on the board should be limited to observing the meetings, except during the designated association member comment periods.
While some of the rules should probably “go without saying,” they need to be said and should also be written down and read as a reminder to the attendees at the beginning of each meeting. The board may want to have copies of the rules readily available for board members and audience members. For an electronic meeting, the rules could be posted on a slide. These rules of decorum can include a reminder that members who are not on the board may only speak during the homeowner comment period unless specifically addressed by the board, that only one person may speak at a time, that all meeting attendees must refrain from interrupting speakers, and that speakers must stay on the topic of the agenda item being discussed. The chair of the meeting or another designated board member should enforce these rules so that all attendees maintain trust in the board and know that differing opinions may be presented and will be considered in a respectful, businesslike manner. Healthy associations are those that are open to new ideas and respectfully consider dissenting opinions.
The second step is to set the meeting agenda in advance. Common interest development board meetings must have an agenda per California Civil Code § 4920. The agenda must be posted with the meeting notice at least four days in advance of the board meeting, except in an emergency. For a meeting held solely in executive session, only two days’ notice is required. These timelines for notice of the meeting may be longer if required by the association’s governing documents.
The agenda can include time limits for each agenda item to keep the meeting moving, but flexibility should be allowed as long as the discussion remains productive and on topic. The board can adopt protocols for determining how a decision is made to extend a discussion beyond a designated time period. Options can include approval by a majority of a quorum of the board or approval by any two board members.
The third step is for the chair of the meeting to keep the meeting on topic and maintain the rules of order or decorum. The president usually acts as the chair of the meetings. As a side note, most bylaws define the roles of the board officers and list their duties. The bylaws also usually provide for the delegation of some of these duties to other board members or association management, as well as making provisions for assigning these duties to another officer in the absence of the assigned officer. It is very common for many of the administerial tasks (such as taking meeting minutes, posting meeting notices and agendas, creating financial documents, and other similar tasks) to be delegated to management representatives, with oversight by the officers and directors.
The chair of the meeting can keep the meeting moving forward by following the agenda and requiring that discussions remain focused on the agenda item being considered. A specific amount of time can be allotted to each agenda item and the time extended only by agreement of a majority of the directors’ present, to avoid “going in circles” on a topic without reaching a conclusion. If conversations tend to go on for longer than needed to adequately address agenda items, a motion can be made and approved by a majority of the board to discontinue discussion and call for a vote.
The chair of the meeting should also maintain decorum by ensuring that only one person at a time is speaking, that all speakers stay on the topic under discussion, and that any time limit for a topic is enforced unless extended by the board.
Board meetings are for conducting board business, and often owners/members not on the board will be limited to observing and making comments during one or more designated comment periods. At least one owner comment period is required by law at open session board meetings. The timing of this comment period can be designated by the board. The law does not address any time limits or set out any specific time during the meeting for owner comments.
Most commonly the comment period is at the beginning of the meeting, but some associations choose to allow comments for each agenda item as it arises on the agenda, and other associations only allow comments at the end of the meeting. The disadvantage of only allowing members to comment at the end of the meeting is that it does not allow the members to comment in advance of the board’s consideration of agenda items during the meeting. This seems to defeat one of the primary purposes of the owner comment period – namely, owner input on an agenda item prior to the board considering the item. So, a comment period should be allowed before the board conducts its business.
The board may set reasonable time limits for comments by individual owners as well as an overall time limit for owners’ comments. These time limits should be set by the board in advance of meetings and stated on the posted agenda for each meeting so members are informed of the time limits before the meeting. Typically, individual owner comments are limited to two to three minutes and the overall owner comment period to 15 minutes. These time limitations can vary depending on the size of the community and the number of owners who regularly attend board meetings.
The board may decide to extend these time limits for a particular meeting or topic if they believe that additional time is needed to allow individual owners sufficient opportunity to comment. This most commonly occurs when the board is considering a large project or a significant change in policies or procedures.
The board is not obligated to provide any response to owner comments, but it does promote community goodwill if easily answered questions are addressed and other comments, even negative ones, are acknowledged.
Membership Meetings
Membership meetings are not board meetings and are treated differently in the law than board meetings. Membership meetings are either annual meetings to hold the board election and conduct any other items of business set by the board in the notice and agenda for the meeting, or special meetings to address a specific topic.
Special meetings of the members can be called by the board or by a petition signed by association members. For incorporated associations, Corporations Code § 7510(e) provides that special meetings “for any lawful purpose” may be called by the board, by the board president or chairperson, by other persons specified in the bylaws (which is rare), or by 5 percent or more of the members. Some association bylaws set a higher percentage of the members required to call a special meeting. Legal counsel for the association should be consulted upon receipt of any member petition to determine if the meeting is properly called and whether the association’s governing documents may set a higher percentage of the members to call a special meeting than the 5 percent set by § 7510(e) noted above. The minimum requirements for members to call a special meeting for unincorporated associations should be set forth in the governing documents.
Membership meetings are held for the members to conduct business, primarily in the form of voting. The primary business conducted at most membership meetings is the election of directors at an annual membership meeting. Infrequently, special membership meetings are held for other types of votes, such as approval of capital improvement projects and document amendments.
Membership meetings are typically conducted by the board. The opportunity for members to speak at membership meetings is different than the opportunity to speak at board meetings as discussed above. Civil Code § 5000 requires that the board permit any member to speak at any membership meeting and allows the board to set a “reasonable time limit for all members to speak.” Section 5000 specifically references the overall time for members to speak and does not mention any per-person limitation, although a per-person time limit may be set in the meeting procedures. The agenda should include a designated time for homeowners’ comments.
Larger associations often ask members who wish to speak at a membership meeting to complete a form requesting to speak and identifying the agenda item or topic of the member’s comments, so the president or other chair of the meeting can call on those members who wish to speak in an orderly manner by topic. Smaller associations generally allow members to take turns speaking merely by raising their hand and being called on in turn by the chair of the meeting.
Civil Code § 5000 also requires that all membership meetings be conducted using some form of parliamentary procedure to maintain order and allow opinions to be voiced respectfully. This procedure should not be overly complicated and difficult to follow. The board does not need to adopt a one-hundred-page tome on parliamentary procedure. There are simplified forms of parliamentary procedure available that do not require interpretation by a professional parliamentarian. The goal of the procedure is to maintain decorum and ensure fairness to all members wishing to speak. The board should not censor statements (unless the statements are discriminatory, offensive, or inappropriate) or show favoritism or preferential treatment toward any individual members.
As with owner comments at board meetings, the board is not obligated to provide any response to owner comments, but it does promote community goodwill if easily answered questions are addressed and other comments, even negative ones, are acknowledged.
Conclusion
When association meetings are conducted in an orderly, calm manner, they are much more likely to be productive and create positive relationships in the community than if they are disorganized, unruly, and unproductive. Setting meeting procedures in advance and consistently enforcing the use of those procedures throughout the meeting will help set a positive tone for the interactions among the board members and association members. This positive tone can greatly benefit the community as a whole and lead to more productive, effective governance of the community.
Helpful Tips to Remember When Hiring A Professional
Does your community need to hire a professional company to do maintenance, repair, or any other work to the common areas? Here are some helpful tips when looking into hiring a professional from a community association manager or board’s perspective.
Does This Professional Have A License?
Associations should always hire a licensed professional versus an unlicensed professional. The Department of Consumer Affairs Contractors State License Board has more on why hiring a licensed contractor is important and how to check a contractor’s license status here.
Get Multiple Bids.
The old saying “you get what you pay for” rings true here. Sometimes the cheapest bid is not always best for your association, even if the budget is low. While it may be tough and time consuming to get multiple bids, this effort upfront may help you on the back end if you need to fix the project or, worst case, litigate an issue. It is recommended that association’s make a reasonable effort to get at least 3 bids from different professionals in order to get an idea how much the project will cost on average.
Ask for References.
If your community needs professional services, hopefully the company has done similar work before. Don’t hesitate to ask for recent references from projects and/or communities similar to yours so you can talk to other managers or board members about their experience with the company in both quality of the work and experience with the personnel.
Obtain A Written Contract.
While oral contracts are sometimes enforceable, it is our recommendation to always obtain a written contract when contracting for services. It is very hard to prove the existence of an oral contract in a court of law and memories fade over time. Additionally, a bid or proposal, even when signed, doesn’t always contain the necessary terms and conditions a contract may require. After a written bid or proposal is obtained, make sure a signed, written contract is also obtained. The party drafting the contract typically writes the terms most favorable to them, so we highly recommend associations have their legal counsel review or draft any contracts. Attorney review may cost more money upfront, but can save you thousands if a claim is made later on. For more information on this topic, see Epsten’s Contracting Checklist here.
Set Expectations Up Front.
As tedious and boring as reading a contract may be, it is imperative that both parties understand what is expected of them beforehand. If, when reading the scope of the project provided by your professional, there is a discrepancy or vague term you don’t understand, make sure to ask for clarification. Both sides need to be clear on what is expected of them before any work begins or money is exchanged. Unless your legal counsel has been involved in all negotiations or discussions regarding the project, the board and management may be in a far better position to review the scope of work and ensure it includes everything discussed, agreed upon and expected. Your legal counsel may not be in a position to make any representations regarding the proposed scope of work if they were not included in those negotiations. As noted above, legal counsel should review or draft contracts but will likely need input from other professionals on the scope of the work.
Does This Professional Have Insurance?
A written contract between an association and its professional should specify the necessary insurance that the professional is expected to maintain, and provide proof of upon request, while performing work on behalf of the association. Please also note that a certificate of insurance may not always be sufficient to ensure the association and management have been added as an additional insured once a contract has been executed. Make sure to ask your professional for a certificate of insurance and a blanket insured endorsement form before you accept any proposals. Consult with your association’s insurance professional about adequate insurance requirements or proof of insurance. It is important that both parties are protected from any liability that may occur while workers are on your property and that the common areas are protected from damage, should any occur. Worker’s compensation is also important for professionals to have, should they need it. This tip includes all professionals, including, for example, architects.
Are Permits Needed for The Project?
Depending on the governmental jurisdiction, permits may be required for your project. Consult with your licensed professional and make sure the contract is clear on who will be requesting and paying for permits, if permits are required. Inspections are typically needed to obtain permits, so make sure to factor in the time it will take to get your local permitting officials on scene to do any inspection.
Keep All Documents and Communication with Your Hired Professional.
When dealing with a project, large or small, it is recommended that the association keep all documents, communications (emails, faxes, etc.) from the hired professional. While a fully executed written contract is an association’s best line of defense if a dispute arises later on, having documents to support any discussions and advice during the process of work can also be extremely beneficial. Sometimes disputes come up months or even years later. It is also recommended to take photos before, during, and after the project is completed as well.
Communication with Members is Key
Once a project begins, be sure to update your members periodically. Delays, changes, and other deviations from the original plans and timelines tend to happen when projects begin. Members will appreciate any updates about how the project is progressing over time.
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.
Like many Californians, you may be so used to seeing “No Lifeguard on Duty” and “Caution” signs posted around public pools and spas that you just glance at the verbiage and do not give it a second thought. Like public pools and spas, common interest developments (CIDs) with pools and/or spas are required to post “No Lifeguard” and “Caution” signs pursuant to Sections 3120B.4 and 3120B.7 of the California Code of Regulations. The same is required for all other public pools and spas.
What CIDs may not be aware of is the sign verbiage required by Cal. Code Regs. Section 3120B.4 and 3120B.7 just a couple of years ago likely violated fair housing laws. CIDs were therefore stuck between their obligations to post the required pool/spa sign verbiage and avoid enforcing discriminatory rules; however, a 2019 update to Cal. Code Regs. Section 3120B.4 and 3120B (effective January 1, 2020) removed the discriminatory components.
Now, CIDs must not only change the sign verbiage accordingly, but they should also review their Pool and Spa Rules to ensure the language is not discriminatory.
Change in Required Sign Verbiage
Prior to the 2019 update, Cal. Code Regs. § 3120B.4 required “No Lifeguard” signs to state “NO LIFEGUARD ON DUTY” in addition to ”Children under the age of 14shall not use pool without a parent or adult guardian in attendance”. However, a US Discrict Court in California found that such restrictions discriminated against families wih children (protected by federal and state fair housing laws), in that it treated families with children differently and less favorably than adult-only households. (See United States v. Plaza Mobile Estates (2003).) After the 2019 update, the required verbiage changed to “NO LIFEGUARD ON DUTY” followed by “Children should not use pool without adult supervision”. Similarly, the “Caution” sign verbiage for spas changed from “Unsupervised use by children under the age of 14 isprohibited” to “Children should not use spa without adult supervision.” (See Cal. Code Regs. § 3120B.7 for additional required verbiage.) The amendments to both provisions removed reference to a specific age and altered the prohibitory language to mere suggestions.
What Should Your Community Do?
CIDs with pools and/or spas should update their “No Lifeguard on Duty” and “Caution” signs to reflect the current, non-discriminatory language in Code Regs. §§ 3120B.4 and 3120B.7.
In addition, they should review their Pool and Spa Rules to ensure they do not treat families with children more harshly than adult-only households.
PRACTICE TIP: Avoid any reference to specific ages or familial dynamics in your CID’s Pool and Spa Rules.
Although restrictive Pool and Spa Rules may be well intentioned, any such discriminatory language would only be acceptable if the CID could successfully articulate a compelling business necessity and the language is “the least restrictive means to achieve that end”. (Fair Housing Council v. Ayres,855 F. Supp. 315, 318-19 (C.D.Cal.1994).
Do you have questions regarding your Pool or Spa Rules? Our firm is happy to review or draft a new set of rules for your community. Please contact us.
