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Formation and Use of Executive Committees

 

By Karyn A. Larko, Esq.

 

** This article was published on CACM’s The Law Journal – Winter 2022 Issue.

A committee is a group of persons appointed by an association’s board of directors to perform a specific task or tasks.

The scope of authority of a committee is largely dependent on its composition. A committee composed solely or partially of persons other than board members is generally tasked with advising the board on specific matters or exercising powers granted to that committee by the governing documents (e.g., some architectural review committees (“ARCs”).

Conversely, executive committees (“ECs”) are composed of two or more current directors and only current directors in accordance with California Corporations Code § 7212. ECs are given decision-making power that would otherwise be exercised by the board. An example of an EC is a litigation committee comprised solely of directors, established to communicate with the association’s legal counsel and make decisions pertaining to a lawsuit. Another example is an ARC comprised solely of directors tasked with exercising the board’s authority under the governing documents to approve or reject architectural applications.

Forming an EC

An EC should be formed when a board needs to delegate tasks for which it is responsible. This need may arise when a board is dealing with a complex, time-consuming matter that is ongoing and necessitates attention between board meetings. This need also exists when a dispute exists between a director and the association. In the latter example, the interested director (i.e., the director whose interests are contrary to the association’s interests) should not serve on the EC due to their conflicting interests.

California Civil Code § 5350 requires directors to recuse themselves from voting on certain matters. In some instances, it may also be prudent to form an EC to address these matters.

ECs should not be formed to exclude a director from generally participating in board discussions and votes. However, if a director is jeopardizing the interests of the association by, for example, revealing confidential or privileged information to others, it may be appropriate to form an EC to exclude that director from meetings whereat the Board discusses matters that, if made public, might expose the association to liability or disadvantage the association in a dispute. Your boards should consult with their association’s legal counsel before forming an EC for this purpose as taking this action can also create legal issues for the association.

Why Form an EC?

There are benefits to having ECs. An EC comprised of directors willing and able to volunteer more time to the association can address complex, time-consuming matters more quickly than the entire Board. Additionally, since an EC has fewer members, scheduling meetings and coming to a collective decision on matters is often easier. Finally, if less than a quorum of directors serves on an EC, the EC meetings are not subject to the Open Meetings Act (i.e., the meetings are not subject to the same notice and agenda requirements as board meetings).

In the event of a dispute involving a director, especially a dispute that could lead to litigation, there are important additional benefits to establishing an EC of disinterested directors (i.e., directors not adverse to the association in the matter) to handle the dispute. By establishing the EC, the board can prevent the interested director from obtaining privileged or confidential communications and documents related to the matter (e.g. correspondence between the EC and the association’s legal counsel, expert findings), thereby better protecting the association’s attorney-client privilege and its interests. The board can also avoid the appearance of impropriety and better protect the association and directors individually against potential liability.

In order to preserve the association’s attorney-client privilege, however, all EC meetings pertaining to the director dispute must be held in executive session and all legal guidance, EC discussions, meeting minutes and other documents and information related to the dispute cannot be disclosed to persons outside of the EC, including other directors.

Forming an EC

Have your boards review their governing documents prior to establishing an EC. The governing documents may already establish the EC, grant the board committee-making authority or, conversely, limit the board’s committee-making authority, as well as impose requirements on how ECs are formed or who may serve on them.

Unless otherwise provided for in the governing documents, ECs may be formed by a resolution or charter adopted by a quorum of the board pursuant to Corporations Code § 7212. A resolution is an official expression of the opinion or will of the board that includes the reasons for that opinion or will. A charter is a founding document that is typically more detailed than a resolution and outlines the EC’s responsibilities and authority.

When forming an EC, your boards should consider: 1) whether any directors have conflicts of interest that disqualify them from appointment or perceived conflicts that make appointment unwise; 2) whether certain directors have knowledge and experience that would benefit the EC; 3) the time commitment needed to serve on the EC; 4) whether the governing documents dictate which directors serve on the EC (e.g. based on the offices they hold); 5) whether California law dictates the composition of the EC (e.g. Civil Code § 5501 requires the treasurer to serve on an EC that reviews the association’s financials); and 6) the willingness of directors to serve on the EC.

The board should also keep in mind that if the EC is composed of a majority of the board, the same notice and agenda requirements for board meetings will apply to EC meetings. Having said this, the authority of an EC composed of a quorum of the Board is less likely to be challenged. Thus, ECs established to handle controversial matters should generally include a quorum of the board.

 

Multiple Choice Questions (correct answers in bold)

An executive committee may be composed of two or more:

a) current and former directors.

b) current directors and general members.

c) current directors and non-member experts on the matter.

d) current directors only.

 

Which of the following is not an appropriate reason for a board to form an executive committee?

a) a complex, time-consuming matter has arisen for the association

b) a majority of directors do not like the personality of another director

c) a dispute exists between a director and the association

d) the governing documents have granted the Board the authority to do so

 

Which of the following statements pertaining to executive committees is accurate?

a) An executive committee must be formed by a quorum of the board, and all executive committee meetings must be properly noticed pursuant to the Open Meetings Act.

b) An executive committee may be formed by a quorum of the board, in which case the executive committee meetings must be properly noticed pursuant to the Open Meetings Act.

c) An executive committee may be formed by a quorum of the board, but, in either case, notice of executive committee meetings should not be provided to the membership.

d) An executive committee may not be formed by a quorum of the board, and notice of executive committee meetings should not be provided to the membership.

 

 

*This article was originally published in The Law Journal Winter, 2022 and was adapted from the original article, Formation and Use of Executive Committees, as authored by Karyn A. Larko, Esq.

Refresher on the Architectural Approval Process

By  Karyn A. Larko, Esq.

** This article was published on CACM’s The Law Journal – Fall 2022 Issue.

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

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

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

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

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

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

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

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

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

REVIEWING APPLICATIONS

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

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

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

APPROVING/DENYING APPLICATIONS

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

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

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

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

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

APPEALS

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

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

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

ARCHITECTURAL GUIDELINES

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

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

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

ANNUAL DISCLOSURE

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

 

 

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

 

An interview with ProTec Building Services and Kieran J. Purcell, Esq.

An interview with ProTec Building Services and Kieran J. Purcell, Esq.

Dave Rauch of ProTec Building Services interviews Epsten, APC Shareholder, Kieran Purcell, Esq., to discuss a wide variety of topics including SB 326 and what it means for communities as the deadline nears. They also discuss future legislation we can expect to see here in California in response to the Champlain Towers collapse and other trends in the industry.

Click here to check out the full interview.

Video source credits to ProTec Building Services

Using Drones for Inspections

 

Four Considerations Before Using Drones for Community Association Inspections

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

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

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

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

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

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

 

 

*This article was originally published in San Diego Community Insider in the Fall 2022 edition and was adapted from the original article, Using Drones For Inspections).

 

 

Epsten, APC Attorneys, Susan Hawks McClintic & Kieran Purcell Receive National Recognition as CCAL Fellows

Epsten, APC is pleased to announce that Susan (Sue) M. Hawks McClintic, Esq., Managing Shareholder and Kieran J. Purcell, Esq., Shareholder have been granted fellowship in the College of Community Association Lawyers (CCAL). More than 4,000 lawyers practice community association law in the United States, yet fewer than 175 attorneys nationwide can distinguish themselves as CCAL fellows.

Read the Press Release

Budgeting Appropriately for Increasing Costs with Regular Annual Assessments

Civil Code section 5600(a) requires an association to “levy regular and special assessments sufficient to perform its obligations under the governing documents and [the Davis-Stirling Act].” To that end, Civil Code section 5605 gives boards of directors the authority to increase regular assessments by up to 20%, without a membership vote.

As costs naturally increase over time due to inflation, material costs increase due to supply chain shortages and insurance premiums increase in response to the rising risk of drought-fueled wildfires, directors of common interest developments often find it difficult to manage their association’s budget.

Although it is important for board members to carefully scrutinize an association’s costs, consistently and steadfastly refusing to increase regular assessments to account for rising costs can lead to disastrous results for homeowners. Eventually, a hefty special assessment may be needed when long deferred maintenance results in property damage, or worse.

Often, candidates for the board of directors make campaign promises to cut regular assessments claiming they will reign in years of alleged financial mismanagement. And, board members often tout an association’s consistent level of regular assessments as evidence the association is well-managed and financially stable. In fact, these arguments are misplaced. Artificially keeping assessments low can be a major red flag, often indicating significant financial struggles around the corner. This is especially true now with inflation and the difficulties of obtaining goods and services.

Too often, boards of directors ignore the advice of the association’s experts, defer routine maintenance, fail to adequately fund the reserve account in accordance with the approved reserve funding plan, or otherwise kick their problems down the road for future boards and homeowners to address. This simply delays the inevitable and often ends up costing the association and the owners more in the long term and may create the need for a large special assessment to perform needed work in the community. Owners are often shocked when hit suddenly with a large special assessment and may have difficulty paying it when they prepared their own household budget based on an assumption of their association’s financial well-being.

When boards decide to forego a long-term warrantied roof replacement project, opting instead for a short-term patch job, or delay replacing corroded and worn-out pipes despite multiple leaks, for example, associations may find themselves paying not just to replace the broken common area components (often at a greater expense than would be paid if the board had been more proactive), but may also have to pay for the avoidable resulting damage to the separate interests as well. This can be much more expensive for homeowners in the long run, especially if the association’s insurance carrier denies coverage for damage due to the association’s alleged failure to properly maintain the failed component.

This is not to suggest that delaying an important infrastructure project is never appropriate. It may be appropriate for a board to prioritize repairing damaged structural components that threaten the health and safety of the residents above less critical repairs. However, boards of directors, and candidates for the board of directors, should be candid with the members about the rising costs that they anticipate. Homeowners should not be surprised by moderate, incremental increases in regular assessments from one year to the next. Anyone who pays attention to the news is well aware of rising inflation and community associations are subject to this like everyone else.

Sudden unexpected special assessments are never welcome, but they are particularly frustrating when they could have been avoided with honest and transparent budgeting decisions – this includes annual assessment increases to keep up with rising costs.

Boards should expect small incremental increases to most budget line items each year to keep up with inflation and make these annual assessment adjustments as needed in an effort to avoid large increases or special assessments in later years.

AB 3182 (Rental Restrictions) Chaptered!

Today Governor Gavin Newsom signed into law Assembly Bill 3182 (“AB 3182”) which will become effective January 1, 2021.

Among other things, AB 3182 amends Civil Code section 4740 and adds a new section 4741 to the Civil Code. The new section 4741 provides that an owner of a separate interest in a common interest development (“CID”) will not be subject to a governing document provision that prohibits, has the effect of prohibiting, or unreasonably restricts the renting or leasing of a separate interest, accessory dwelling units (“ADU”), or junior accessory dwelling unit (“JADUs”) to a renter, tenant or lessee. section 4741 will allow CIDs to adopt or enforce governing document provisions which prohibit transient occupancy or short term rentals of separate interests for 30 days or less. However, section 4741 will prohibit CIDs from:

  • Adopting or enforcing a governing document provision that restricts the rental or lease of separate interests in the community to less than 25% of the separate interests regardless of when the provision was adopted (adopting or enforcing governing document provisions authorizing a higher percentage of separate interests to be rented or leased are allowed).
  • Treating ADUs and JADUs as separate interests.
  • Counting a residence as being occupied by a tenant, if the separate interest, ADU or JADU is also occupied by the owner.

Section 4741 will require CIDs to comply with the new law on and after January 1, 2021, regardless of what their governing documents provide. However, CIDs are required to amend their governing documents to conform to the requirements of this new law no later than December 31, 2021. This new law does not provide an exception to the membership approval requirements for any CC&R amendments necessary to comply with this new law. Section 4741 also states that a CID which “willfully violates” this law, including the governing document amendment requirements, shall be liable to the applicant or other party for actual damages and shall pay a civil penalty to the applicant or other party in an amount not to exceed $1,000.

In addition to the above, AB 3182 also requires local agencies to magisterially approve an application for a building permit within a residential or mixed use zone to create one ADU and one JADU per lot so long as certain building requirements are met. Moreover, AB 3182 provides that if a local agency has not acted upon a completed application for the creation of an ADU and/or a JADU within sixty (60) days, the application is deemed approved.

AB 3182 may cause sweeping changes to your community. Please consult with your community’s legal counsel for additional guidance regarding how AB 3182 may affect your community and what your community needs to do to comply.