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Reservation of Rights Letters Explained: How Should Your Association Respond?

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.

Do Your Governing Documents Need a Refresh?

Rhonda R. Goldblatt, Esq.

Senior Attorney

858.527.0111
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Practice: Community Association Counsel

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Boards of directors of community associations frequently wonder at what point they should restate their association’s Bylaws and CC&Rs. Many associations have older, outdated governing documents that could use a complete overhaul.  Board should keep in mind that restating these documents typically requires membership approval. Restated documents should also be prepared by a qualified attorney, and must be approved in a confidential vote, so the project can be relatively costly.  Below are some considerations for when to pursue a restatement:

When portions of the governing documents are unenforceable

Older documents may have been superseded since their adoption by subsequent case law and statutes, rendering certain provisions unenforceable.  Boards may want to restate their governing documents to bring them current with existing law (and thereby making them enforceable once again).

When the documents no longer fit the community’s needs

Communities change over time.  A set of CC&Rs recorded in the 1970s may no longer reflect the owners’ preferences with respect to parking arrangements, architectural styles and more.  Older documents also may not address innovations like solar panels and electric vehicle charging stations.  Further, the board may wish to amend the governing documents to empower the board to address a specific problem within the community.

When the documents include discriminatory provisions

Civil Code section 4225 requires boards to amend out any provisions in a governing document which discriminate on the basis of a protected status. Such an amendment does not require membership approval.  However, once this has been accomplished, boards may want to consider pursuing a complete document overhaul (a restatement), which does require membership approval. Documents old enough to include discriminatory provisions are likely due for an update in many other respects as well.

When the documents are just confusing

Not all Bylaws and CC&Rs are made equal.  Some are better written than others. If your documents create more confusion than clarity, because of inconsistent or vague language, it may be time for a refresh. This need may be especially pressing given that vague or inconsistent language can give rise to lawsuits, as homeowners insist on interpreting the documents in one manner, and the board another!

To better protect the association’s interests

Original governing documents are typically written by the community’s developer.  As one might expect, these documents frequently protect the developer’s interests rather than the associations. The board may want to consider restating the documents to provide the board with more expansive authority, and/or insert provisions designed to minimize the association’s and individual directors’ potential liability.

No matter your association’s goals, boards should consult their community association counsel regarding the timing of and procedure for restating their governing documents. Everyone deserves a makeover sometimes!

 

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Contractors Insurance: Basic Coverage Provisions to Consider Including in Contracts

Jillian M. Wright, Esq.

Senior Attorney

858.527.0111
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Practice: Community Association Counsel

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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.

 

 

Tiny but Mighty: Managing Legal Compliance for Small Community Associations

Rhonda R. Goldblatt, Esq.

Senior Attorney

858.527.0111
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Practice: Community Association Counsel

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** This article was published on CAI-SD’s San Diego Community Insider Magazine – Fall 2024 Issue.

 

California community associations are subject to a myriad of regulations, on topics ranging from noticing meetings, conducting director elections, handling finances, performing common area maintenance, and more.  Larger community associations with bigger budgets likely have more resources and management options to assist the board in complying with these regulations.  By contrast, smaller community associations get the short end of the stick, so to speak.  Smaller community associations are subject to the same legal standards – the law does not relax for or exempt smaller communities from compliance – with fewer resources on hand to meet those legal standards.

In that case, what is a smaller community to do?  Failing to comply with applicable statutory and governing document requirements can lead to liability.  At the same time, each association must work within the limits of its resources.  Smaller community associations can therefore consider the following ideas to make compliance easier to achieve:

  1. Governance – Smaller community associations can consider amending their governing documents to:
    1. Lower quorum for membership meetings so members who choose not to participate cannot derail any action.
    2. For very small associations, allow each separate interest to appoint a representative to serve on the board of directors, thereby avoiding costly elections.
    3. Reduce the frequency of board meetings to every other month, or once a quarter.
  1. Contracting – Smaller community associations may want to set up contracting protocols to automate retaining vendors to the extent possible, including creating:
    1. Checklists of required provisions in vendor contracts (dispute resolution mechanisms, firm start and end dates for the work, etc.).
    2. Written screening processes for vendors, including requiring proof of insurance, licensing and qualifications.
  1. Finances – Smaller community associations may want to set themselves up for success in terms of financial management by:
    1. Making association financials available online, for convenient director review.
    2. Creating a simple budget template for annual distribution.
  1. Conflict Resolution – Smaller community associations’ lack of compliance often ends up highlighted during individual homeowner conflicts. Therefore, smaller communities may want to consider heading off homeowner conflicts at the start by taking advantage of free community mediation programs, scheduling internal dispute resolution early on, and keeping all homeowners informed about the association’s operation to give them a sense of ownership in the community.  Smaller community associations should also carefully consider if and when to retain an attorney to assist with resolving a dispute, before a heated conflict spirals into a lawsuit.
  2. Insurance – Insurance coverage is key for associations with limited funds, in case of a catastrophic loss to the common area and/or an expensive lawsuit. Smaller community associations, just like larger associations, should strongly consider meeting with their insurance professionals once a year to ensure they have coverage in place as required by the law, the governing documents, and best practices.

Updates on The Corporate Transparency Act as of 8/26/2024

 

 

 

By Kieran J. Purcell, Esq.

 

 

*This article is an update to the version The Corporate Transparency Act (Updated on 2/1/2024)

 

The CTA & Community Associations

As a reminder, in an effort to enhance corporate transparency and combat money laundering, tax fraud, and other illicit activity, Congress passed The Corporate Transparency Act (CTA) back in 2021.  The CTA will be enforced by the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury. FinCEN published the Small Entity Compliance Guide (Guide)[1] to help small entities comply with the requirements of the Beneficial Ownership Information Reporting Rule (Reporting Rule) issued on September 30, 2022.[2]  Although the CTA applies to many types of small business entities, this article addresses movement towards potential exemptions and some of the most frequently asked questions about how the CTA currently applies to common interest developments (CIDs).

 

Movement Towards Potential Exemptions

CAI’s Lawsuit: 

As you may be aware, on March 1, 2024, a federal court ruled the Corporate Transparency Act (CTA) unconstitutional, and the federal government appealed the decision​​​ on March 11, 2024. In June 2024​, the Community Associations Institute (CAI) Board of Trustees approved filing a lawsuit to exempt common interest developments from the Corporate Transparency Act. Click here for more information about CAI’s lawsuit.[3]

CAI is pursuing this case in the U.S. District Court for the Eastern District of Virginia because CAI is incorporated in the District of Columbia and headquartered in Virginia. Additionally, the Eastern district is known for having a rapid docket process that allows it to hear cases more quickly than other federal courts and offers the potential for a faster resolution.  However, CAI National cautions common interest developments should be prepared to comply with the CTA and file the required beneficial ownership information by December 31, 2024 if the lawsuit is not resolved or the law has not been amended. While CAI is actively pursuing legal action to seek an exemption, it urges common interest developments to prepare to comply to avoid potential penalties and ensure they meet all legal requirements. More information can be found on CAI’s CTA FAQ page [4].

 

H.R. 9045:

The Corporate Transparency Act exempts non-profits that hold an IRS non-profit tax determination.  Common interest developments are generally incorporated as a local state non-profit corporation [5]; however, they usually do not have an IRS non-profit tax determination (i.e., 501c).

On July 15, 2024, H.R. 9045 was introduced seeking to exempt common interest developments from the requirements of the Corporate Transparency Act. CAI requests concerned individuals contact their Member of Congress urging them to support H.R. 9045 [6], even if they have done so already about the Corporate Transparency Act.

H.R. 9045 is in the first stage of the legislative process. It will typically be considered by committee, then if approved in committee, sent on to the House as a whole to approve.

 

Application to Common Interest Developments

While CAI’s lawsuit and H.R. 9045 provide hope that there might be an exemption from CTA requirements for common interest developments in the future, it is difficult to anticipate how near that future is.  Common interest developments boards should take the time now to become educated on the requirements and to prepare for compliance in case an exemption is not obtained before the filing deadline at the end of this year.  Unless and until an exemption is made for CIDs, CIDs will need to comply with the annual filing requirements.  For answers to frequently asked questions about the CTA filing requirements, read our article on The Corporate Transparency Act (Updated on 2/1/2024) [7].

[1] FinCEN’s Small Entity Compliance Guide, December 2023, Version 1.1 can be found at: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

[2] Beneficial Ownership Information Reporting Rule, Title 31, Section 1010.380 of the Code of Federal Regulations.

[3] https://www.caionline.org/Advocacy/Priorities/CTA/Pages/landing.aspx

[4] https://www.caionline.org/Advocacy/Priorities/CTA/Documents/FAQ%20FINAL.pdf

[5] https://www.caionline.org/Advocacy/Priorities/CTA/Pages/default.aspx

[6] https://www.votervoice.net/CAI/Campaigns/116499/Respond

[7] https://www.epsten.com/the-corporate-transparency-act/

City of Carlsbad Bans Smoking in Multiunit Residences – Including Some of Yours!

Jacquelyn E. Quinn, Esq.

Senior Attorney

858.527.0111
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Practices: Community Association Counsel | Commercial CID

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The City of Carlsbad recently approved a new ordinance that, beginning January 1, 2025, will ban all smoking and vaping of any kind anywhere on the premises of a multiunit residential development located within the City of Carlsbad, including inside private dwellings, on private balconies, decks, garages, patios and common areas of a common interest development.

While it is certainly a win for residential communities desiring a smoke free environment, the ordinance requires associations subject to the ordinance to take specific steps and impose certain enforcement measures to ensure a level of compliance with this ordinance on or before January 1, 2025.

Applies to Multiunit Residential Developments in Carlsbad Only

This new ordinance applies only to multiunit residential development associations located within the City of Carlsbad.

What is a multiunit residential development? A “multiunit residential development” includes a property containing three or more units, including condominium and planned development common interest developments. Exceptions include mobile home parks, single-family homes designed as free-standing units which are separate (detached) from any other unit, and most single-family homes with an accessory dwelling unit and/or junior accessory dwelling unit on the lot.

Therefore, if your association includes units or single-family homes that are attached in any way (i.e., shared walls), they are likely subject to this ordinance.

What Type of Smoking is Banned?

The ordinance defines “smoking” as inhaling, exhaling, or burning, any tobacco, nicotine, cannabis or plant product, or other substance, whether natural or synthetic; (2) carrying any lighted, heated or activated tobacco, nicotine, marijuana, or plant product, or other substance, whether natural or synthetic, intended for inhalation; or (3) using an “electronic smoking device.”

An “electronic smoking device” is defined to include any device that may be used to deliver any aerosolized or vaporized substance to the person inhaling from the device, including an e-cigarette, e-cigar, e-pipe, vape pen, or e-hookah.

Again, the ban is broad and appears to encompass all smoking and vaping of any kind.

Where is Smoking Banned?

      • In private dwellings and any associated exclusive-use area;
      • Private balconies;
      • Porches;
      • Decks;
      • Patios;
      • Common areas (except those designated as smoking areas).

Designated Smoking Areas

An association is not required to have or create designated smoking areas under this ordinance, but if it has, or wishes to create these areas, they must meet the following conditions:

      • An unenclosed area;
      • Be at least 25 feet away from any (1) doorway, window, opening or other vent into an enclosed area; (2) enclosed or unenclosed recreation area such as a tennis court, swimming pool and picnic area; or (3) enclosed or unenclosed area primarily used by children such as a playground;
      • Have a clearly marked perimeter;
      • Be identified by conspicuous signs showing it is a designated smoking area;
      • Have receptacles designed for and primarily used for disposal of smoking waste and that are maintained free of smoking-related litter, including cigarette butts; and
      • Must not overlap with any area in which smoking is otherwise prohibited by applicable law.

Actions for Associations to Take

Associations subject to this ordinance must do the following:

      • Notice: On or before January 1, 2025, provide written notice to all unit owners stating: (1) smoking is prohibited in units, including balconies, porches, decks or patios, as of January 1, 2025 and (2) smoking is prohibited in all common areas, expect in specifically designated smoking areas as of January 1, 2025.
      • Common Area Signage: On or before January 1, 2025, post and maintain clear and unambiguous “No Smoking” signs at entrances and exits of common areas, in sufficient numbers and locations, and in conspicuous places to make it obvious to a reasonable person that smoking is prohibited.
      • Violations: Beginning January 1, 2025, when an association has knowledge of a violation, it must take reasonable steps to investigate and enforce the regulation, including written notice to the resident of the violation, a request to cease and desist, potential action if the violation is not corrected (i.e., hearing, possible fines, enforcement of ordinance, etc.), and resources provided by the city to assist with nicotine dependence.
      • CC&R Amendments: Beginning January 1, 2025, any new or amended CC&Rs must include specific provisions prohibiting smoking in a unit or common areas, other than a designated smoking area. This does not create an obligation for an association to amend its CC&Rs, but any CC&Rs recorded, amended or restated by an association subject to this law after January 1, 2025 must include these provisions.
      • Ban Smoking Items in Common Areas: Beginning January 1, 2025, prohibit the presence of ashtrays, ashcans or other receptacles designed for or primarily used for disposal of smoking waste within the common area, unless area is designated as a smoking area.

It is also worth noting that unit owners who lease their unit have certain notice and lease requirements they must also comply with under this ordinance. However, the ordinance does not place any obligation on the association to ensure owners’ renting their units comply with these requirements.

Penalties for Failing to Comply

Some good news…if an association fully complies with the requirements placed on it under this ordinance, an owner or occupant will not have a private right of action against an association for any damages suffered due to another occupant’s breach of the smoking ban. The ordinance isn’t necessarily clear on what damages may be placed on an association that fails to comply with those requirements, but best not to find out.

If an occupant violates the ordinance, a court will award damages as follows:

        • Actual damages suffered based on proof (i.e., medical expenses, lost rent, loss of use, etc.); or
        • Statutory damages in the amount of $500 per each violation per day of a continuing violation.
        • A court may also award exemplary damages when the violator is found guilty of oppression, fraud, malice, retaliation or conscious disregard for public health.

The ordinance allows for private enforcement. Meaning an association, landlords and occupants may take legal action against violators on behalf of the general public and themselves.  Due to limited resources, it was stated that the city’s Police Department and Code Enforcement will not be responsible for enforcement. Contact us for more information.

 

 

Dos and Don’ts When Regulating Political Campaign Signs

 

 

By Kieran J. Purcell, Esq.

 

 

As political races heat up, you may notice more political signs in the community, which leads to questions such as: Can homeowners display political signs? If so, where can they post them? Perhaps most importantly, how soon after the election can we make them take down their signs?  

You may find answers to these questions in your association’s governing documents, the California Civil Code, and local ordinances.  The bad news is that you may not like the answers.

News flash: An association has the authority to restrict the placement of political signs in the common areas, while owners are generally permitted to display them on their separate interest property. Typically, an association’s CC&Rs grant the board of directors exclusive control over the common areas, including the placement of signs. Some CC&Rs may state that no signs are allowed to be displayed in the common area without permission from the board.

Nevertheless, some CC&Rs allow specific signage. For example, placing one (1) sign that follows customary and reasonable dimensions promoting a condominium for sale or lease.

Consequently, does this mean a board has no say in determining whether an owner may put political signs in the common area? Additionally, if an owner does place a political sign in the common area but fails to remove it promptly the association can remove it, correct? The answer to the first question is NO, and the answer to the second question is YES. To learn more about this, read Civil Code Section 4710.

Summarizing Civil Code Section 4710 “in a nutshell,” a homeowner may post political sign(s) not larger than nine (9) square feet made of statutorily permitted materials in or on his or her separate interest property. However, Civil Code Section 4710 does not grant a homeowner the right to post signs in the common area.

Supplemental Read >> Learn more about political signs, implications, and what associations can do about it here!

How long can a political sign be displayed before and after an election? 

While CC&Rs rarely address time limitations for signs, many cities and counties have ordinances that specify time ranges during which political signs may be posted; for example, ninety (90) days before and ten (10) days after an election. It would be reasonable for an association to adopt a rule with similar time limitations for owners to post political signs within their association. Civil Code Section 4710 permits an association to restrict posting noncommercial signs on an owner’s separate interest property if it violates any applicable laws. Therefore, if an association would like to impose time limitations, an association may want to consider adopting rules that align with the time limitations set out in local ordinances with the help of legal counsel.

Okay, we have to let someone post a political sign. But just one! Right?

Maybe. Civil Code Section 4710(a) says governing documents may not prohibit noncommercial signs, posters, flags, or banners, all plural.  Unless prohibiting the sign(s) serve(s) to protect public health or safety or if the posting or display violates a local, state, or federal law.  For instance, (a) if an owner were to display an excessive number of flags near the street, obstructing drivers’ view of other vehicles, (b) if the city mandates a permit for a flagpole of a specific height and the owner has no permit, or (c) if the city imposes restrictions on the number of signs allowed on private property at any given time.

Needless to say, it is essential to carefully review an association’s CC&Rs before drafting or revising rules governing signs’ displayed in your communities and properties. If we can assist you in this process, please do not hesitate to contact us.

Have you signed up for our upcoming 2024 Community Association Legal Symposium this Fall? Click here for more information or to register.

 

Navigating a Small Claims Lawsuit: A Guide to Defending the Case

Hannah I. Hughes, Esq.

Attorney

858.527.0111
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Practice: Civil Litigation

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Any board member or manager within a community association can tell you about their experience with an unhappy association member. But what happens when that member takes legal action against the association in Small Claims Court?

The first thing a community association needs to know is the differences between a Small Claims Court claim and a civil action in Superior Court. It is often said that the advantages of Small Claims Court are that it is cheaper and faster than a limited or unlimited action in Superior Court. Here are some ways in which Small Claims Court differs from Superior Court:

      • Litigants must represent themselves, and they cannot be represented by an attorney (subject to specific exceptions);
      • As of January 1, 2024, the jurisdictional limit for cases brought by an individual is $12,500, while corporations can only seek up to $6,250;
      • The filing fee for a San Diego Small Claims complaint is generally $30-$100 as opposed to $435 in Superior Court;
      • If the plaintiff loses, they cannot appeal the case (unless the defendant counterclaims and wins), but a defendant who loses can appeal the case;
      • Generally, litigants may receive a Small Claims hearing date sooner than in Superior Court.

When a community association is served with a Small Claims complaint, the association may need to act quickly. Below is a helpful checklist of steps to consider taking when a community association is served with a Small Claims complaint:

      • Contact the association’s legal counsel and provide them with a copy of the Small Claims complaint;
      • Submit a copy of the complaint to the community association’s insurance carrier(s);
      • Review the complaint and all attachments carefully;
      • Schedule and notice a special board meeting to discuss the complaint and the association’s response, or, depending on the Small Claims hearing date, add the complaint to the agenda for the next meeting. Depending on the timing and circumstances, holding an emergency board meeting may be necessary;
      • Calendar all applicable deadlines and due dates, including the date of the hearing, as failing to comply with applicable deadlines can result in an adverse judgment against the association;
      • Look at the date, time, and location of the hearing. If no association representatives are available to attend the hearing, the association may need to request to postpone the hearing;
      • Review what the aggrieved member, referred to as the “plaintiff,” is asking the Court for and consider whether to offer a settlement to the member in exchange for a dismissal of the complaint;
      • Prepare the community association’s response, including substantive arguments to respond to the Small Claims complaint. Be sure to submit all exhibits that support the association’s defense in advance of any applicable deadlines. While the Association’s legal counsel cannot appear at the hearing, counsel can help review and prepare the Association representatives to defend the Association in Small Claims Court.

Additionally, because the community association is not a person, it is important for the community association to complete and file an “Authorization to Appear on Behalf of Party” form, commonly known as an SC-109 form, with the Small Claims Court. This form must be completed by the board member or manager who intends to represent the association at the hearing.

Finally, it is important to remember that although a community association may have a good defense strategy, Small Claims Court sometimes favors member plaintiffs (the underdogs). Therefore, it is important to ensure that the community association is prepared and has a well-crafted response to a member’s Small Claims complaint. Helpful resources and more information can be found on the Judicial Branch of California’s website or by contacting a Small Claims advisor at (858) 634-1777 for San Diego County, (951) 274-4499 for Riverside County, or (213) 974-9759 for Los Angeles County. And remember that your friendly community association counsel is only a call away.