Association Operations Archives - Page 3 of 3

10 Things Community Associations Get Wrong!

Pejman D. Kharrazian, Esq.

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858.527.0111
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Practices: Community Association Counsel | Commercial CID | Civil Litigation

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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 major pitfalls 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.

When the Votes Aren’t There, Don’t Despair

Pejman D. Kharrazian, Esq.

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858.527.0111
Email
Practices: Community Association Counsel | Commercial CID | Civil Litigation

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An Overview of The Court Petition to Amend Process for CC&Rs

It can be challenging to amend your CC&Rs, especially when owner approval requirements are high. Some documents can require approval of up to 75% of all members before the CC&Rs can be amended. Absentee owners and voter apathy can further compound the challenge of getting enough owners to vote.

If your association has tried to amend your CC&Rs but has not been able to obtain the requisite approval, fret not, as there may be a way forward. Under California Civil Code section 4275, associations can file a petition with the state superior court to seek relief when the votes aren’t there. There are few statutory prerequisites to keep in mind:

1. 1. The association must have held a proper vote, meaning the vote was conducted in accordance with the association’s governing documents and applicable laws;

1. 1. At least a majority (over 50%) of all owners must have voted “yes” on the amendment; and

1. 1. The association must have made a “reasonably diligent effort” to solicit votes from owners and be able to make a showing to the court that it has.

If these threshold requirements are met, the association can move forward with petitioning the court to approve the amendment based on the affirmative votes actually received. The petition papers filed with the court require a large amount of information and supporting documents and should be prepared by the association’s legal counsel to ensure all statutory requirements are met. For example, the petition must demonstrate to the court’s satisfaction that the amendment is reasonable and that all owners (and any other parties entitled to notice under the CC&Rs) were provided sufficient notice of the court proceedings.

During the petition process, owners have an opportunity file opposition papers with the court. But granting the petition is ultimately within the judge’s discretion, and even in the face of owner opposition, judges are generally quite willing to grant such petitions if the statutory requirements are met.

The petition process can take anywhere from three to six months, or longer, depending on the court’s schedule.

PRACTICE TIP: Since the petition to amend is essentially a lawsuit, the association should involve its legal counsel in the discussion as early as possible.

Assuming the court grants the petition, then the association can proceed with recording the CC&R amendment.

Finally, the court petition process can also be used for other governing documents, such as bylaws or articles of incorporations, under California Corporations Code Section 7515, and a request to amend CC&Rs and other governing documents can be filed together with the court in one streamlined petition.

Tips for Hiring a Professional

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.

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.