Reporting Rentals to Banks

QUESTION: Is my HOA required by law to gather data with regard to occupancy (owner or renter) in our development? I am unable to refinance because most lenders require this information.

ANSWER: No, there is no such requirement. Some boards may have stopped tracking rentals since they can’t do anything about them–a perverse gift of the California Association of Realtors (CAR). In 2011, CAR pushed through legislation crippling the ability of associations to adopt rental caps.

As a practical matter, most associations provide such information (as best they can) to assist owners with the refinancing and sale of their units since lending institutions recognize the damaging effect too many rentals have on property values and the stability of community associations.

Even though there is no statutory duty to gather rental information, if the matter were litigated, an argument could be made that (i) the information is vital to members, (ii) impossible for members to collect, but (iii) within the board’s power to gather, therefore, (iv) boards have a duty to provide the information. Litigation, however, is not the best solution because of the cost, the uncertainty of the outcome, and the further delays it would create in the sale of units.

RECOMMENDATION: Lobby your board. The association’s management company can determine the number of rentals by looking at billing records and making phone calls. Those with offsite billing addresses are either landlords or part-time residents. Telephone calls to those individuals would provide the information you need. If there is a cost to gather the data and the board is unwilling to pay it, offer to pay. It is considerably less expensive than litigation and will provide a much faster result.

PAINT COLORS

QUESTION: We are in the process of selecting paint colors for the exteriors of our buildings. The board chose three color schemes for membership review but several members are unhappy with the choices. Please advise.

ANSWER: It’s impossible to please everyone, especially when it comes to paint colors (or carpet, wallpaper, lobby furniture, etc.). Putting it to a vote of the members is the best way to handle the situation. If the board leaves the membership out of the decision-making process, unhappy owners would have a clear target—the board—and may threaten to sue or launch a recall.

Benefit of Owner Vote. If the membership makes the selection, there is no one to recall. It also makes a lawsuit less likely since unhappy owners would have to sue the association as a whole and then try to convince a judge that the majority’s decision should be reversed. I don’t see that happening.

Voting Formalities. In this case, a membership vote does not require secret balloting, which is reserved for specific kinds of votes. It can be done electronically or by paper. If paper ballots are used, they can be signed or unsigned. Although not required, it’s still a good idea to use an independent inspector of elections.

DROUGHT EMERGENCY
AND ARTIFICIAL TURF


Readers asked if the Davis-Stirling Act or the drought emergency voids existing HOA restrictions on artificial turf. Attorney Curt Sproul of the law firm Sproul Trost, LLP provides the answer:

Davis-Stirling. The recent amendment to Civil Code §4735 (dealing with architectural and landscaping guidelines) fell short of prohibiting artificial turf. That amendment said that “architectural or landscape policies are void if they prohibit or include conditions that have the effect of prohibiting the use of low water-using plants as a group or as a replacement of existing turf.” Although low water-using, artificial turf is to plants what a toupee is to real hair.

Governor’s Order. On April 25, 2014, the Governor adopted the following provision:

[HOAs] have reportedly fined or threatened to fine homeowners who comply with water conservation measures…To prevent this practice…I order that any provision of the governing documents, architectural or landscaping guidelines, or policies of a common interest development will be void and unenforceable to the extent [that the provision] has the effect of prohibiting compliance with the water-saving measures contained in this directive, or any conservation measure adopted by a public agency or private water company, any provision of [the Davis-Stirling Act] notwithstanding.

The Order does not mention artificial turf but does indicate that public agencies and private water companies could go further than the restrictions currently set forth in Civil Code §4735 and issue directives overriding HOA restrictions (including those related to artificial turf). That has not yet happened.

SUMMARY. HOA restrictions on artificial turf are still valid. However, that may change. Currently, there is a bill in the legislature to add the more generic “landscaping” to the statute which, according to the author, would stop HOAs from prohibiting artificial turf (see AB 349).

FEEDBACK

Drought #1. As usual your newsletter is of current value. Our HOA will take advantage of the SCE offer for power and water saving devices. We will also install separate irrigation water services as that will reduce our potable water rates. -Eric D.

Drought #2. Perfectly timed letter. I applaud your water conservation tips. We converted to all drought resistant landscaping with CA native and Australian native plants, drip irrigation and more. We’ve required conversion to low-flow toilets, faucets, dishwashers, showers since 2007, and adhering to SF’s 2009 ordinance that low-flow conversion must occur during unit sales. A suggestion to HOAs. If landscape is on separate intake line, it may be worth the $5k – $7k to install a separate meter as most counties don’t add a waste water tax as the water goes in the ground, not down the drain. -Joseph L.

Drought #3. PUDs can also pursue installing a new irrigation system to use recycled water for watering the landscape. Talk to your Water District. -Diane W.

Drought #4. Everything you say is right! Unfortunately, nearly all boards are run by retired people who have not kept up with the times and are afraid of changing the landscaping. I would contact the mayors to initiate inspections by qualified engineers. I find native California gardens much more attractive than my over-watered crabgrass. -Mark in MdR

Drought #5. I noticed your Article referencing Water Management for HOA’s – our specialty for over 24 years in California. California Sub-Meters is the oldest and largest Water Sub-meter company in California—something associations should consider. -Tom Rogers, www.CalSubMeter.com

Hillary’s Emails. When I was involved in e-discovery systems for corporate litigation, a key criteria was being able to tell the judge and opposing counsel that you were providing all emails including ones that the user had deleted. The ability to restore user deleted emails is fairly standard for company email servers but when I checked with several email providers who support modest sized systems (under 10 users for us), they all said they removed deleted emails after a short time and subsequently could not restore them. I wanted to see if I am taking too high a standard or if possibly any of your readers might have encountered the same issue and found providers who offer the ability to produce deleted emails for smaller users like us? -Gary P.


Adrian Adams, Esq.
Adams Kessler PLC

“Much More Than Just a Law Firm!” We’re friendly lawyers–boards and managers can contact us at (800) 464-2817 or info@adamskessler.com.

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Drought Emergency

This week Governor Brown imposed unprecedented mandatory water restrictions. To address the worsening drought, he ordered a 25% reduction in water usage throughout the state. Because of growing scarcity, water rates will likely spike which will adversely affect association budgets. That means boards need to look for ways to save water.

Master Metered HOAs. This is particularly difficult for master metered developments since they have no control over water usage by members inside their units. Boards can, however, hire a plumber at HOA expense to inspect all units in the complex for water leaks, for high water usage toilets, and to install water savers on showers and faucets. If presented properly to the membership, everyone should cooperate.

Some of my clients have already implemented inspection programs and made a complete list of leaky faucets, valves, supply lines, drains, toilets, shower heads, etc. throughout the development. The list also includes units that need water saving devices. Arrangements can then be made to make repairs, change toilets and install water-saving devices at a discounted rate to owners if they agree to the repairs.

For those who refuse, boards can hold hearings, impose fines, and send lawyer letters to persuade the recalcitrant to cooperate.

Common Areas. For PUDs and condominium associations alike, landscaping is an obvious source of savings. It can be addressed in a variety of ways such as (i) installing drought resistant plant materials, (ii) installing artificial turf where appropriate, and (iii) replacing old irrigation systems with “smart” systems to reduce water usage.

RECOMMENDATION: Boards should meet with plumbers, legal counsel and management to set up an inspection/repair program for all plumbing in the development along with retrofitting with low-water devices. Boards should also meet with landscapers for ideas on how best to reduce water usage. Contact us if you need assistance.

ABANDONED
PERSONAL PROPERTY

QUESTION: We foreclosed on an owner but he left behind personal property. During the 90-day redemption period can he get his property or would it be considered trespassing? If he doesn’t retrieve his belongings, when and how can they be removed?

ANSWER: I asked attorney Wayne Louvier to address this issue:

90-Day Hold. When real property is sold subject to a right of redemption (Civ. Code §5715(b)), the association’s right to possession is deferred until the redemption period has expired and after its title has perfected. (First Nat. Trust & Sav. Bank of San Diego v. Staley, (1933) 219 Cal. 225, 227; Code Civ.Proc. §1161a (b)(2) & (3).)

Accordingly an association has no right to either evict an owner or the owner’s tenant, or to enter the property to remove personal property until after the 90-day redemption period expires. Once the redemption period ends and title transfers, the association can dispose of personal property using legally proscribed methods.

Abandoned Personal Property. Personal property abandoned on residential premises can be removed as provided for in Civil Code, §§1951.3 and 1980 through 1991. The process requires notice to the former owner (or tenant) of his right to reclaim the abandoned property. The association must allow for recovery within 15 to 18 days of the notice (depending on how notice is given) and indicate that it may be disposed of by public auction thereafter.

The property must be left in the vacated premises or stored elsewhere during the reclamation period. After that period has passed, if the property is believed to be worth less than $700, it may be disposed of as the association sees fit. If it is worth $700 or more, it must be sold at public auction. The proceeds, after all costs are deducted, go to the county which allows the owner to claim the excess within a year.

“Lost Property.” The law makes a distinction between property which is “abandoned” and that which is “lost.” Abandonment requires intent to leave the property behind. (Civ. Code §2080.7.) Without intent to abandon, the property is deemed lost and the association would follow procedures in Civil Code §2080 through 2080.10 which involve informing the owner, if known, and, if the owner is unknown and the property unclaimed, turning it over to the police or sheriff. If the police/sheriff will not accept the property, the association can follow the procedures for abandoned property described above.

Commercial Premises. Disposal of personal property from commercial premises follows procedures beginning in Civil Code §1993.


Wayne Louvier, Esq.
Adams Kessler PLC        


RECOMMENDATION: Because the law has specific and sometimes complicated requirements, always consult an attorney to be sure proper notices are given and procedures followed.

COLLECTION POLICY

QUESTION: Our board is planning on voting on a new collection policy. Don’t they first need to send it to all homeowners for a 30-day review and follow the same legal requirements as for any new/revised rule?

ANSWER: Yes, it needs to go to the membership for review and comment. Your collection policy falls under the definition of an “operating rule,” which is broadly defined as any rule or regulation that applies to the management and operation of a common interest development or the conduct of its business and affairs. (Civ. Code §4340.) For more information, see “Adopting and Amending Rules.”


Adrian Adams, Esq.
Adams Kessler PLC

“Much More Than Just a Law Firm!” We’re friendly lawyers–boards and managers can contact us at (800) 464-2817 or info@adamskessler.com.

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Airbnb Rentals

QUESTION: Wondering if Davis-Stirling addresses Airbnb and how associations can deal with problems created by short-term rentals.

ANSWER: No it’s not addressed by the Act and yes you can do something about the problem.

Growing Problem. For those unfamiliar with Airbnb, it is a website for people to rent out their homes or even rooms on a short-term basis, whether it be a night, a weekend or a week. The service has become popular with tourists seeking lodging outside of hotels. Airbnb was founded in 2008 and in seven short years has grown to a $20 billion company with over 800,000 listings.

The problem with Airbnb short-term rentals was recently the subject of a front page article by the Los Angeles Times, “Homes as Inns Put New Pinch on Housing.” The reporter observed that landlords have discovered they can make more money renting their houses a few days at a time rather than months at a time. This has led to “a whole cottage industry” that cities are struggling to regulate because of the negative impact it’s had on the rental market. Long-term, stable renters have been pushed out by transient renters. Many municipalities now require short-term rentals obtain a license and pay a transient occupancy tax the same as hotels.

Impact on HOAs. Homeowner associations also suffer problems related to transient renters such as security issues, rules enforcement problems, higher maintenance costs, and increased administrative expenses because they require greater supervision. To meet the challenge, one association restricted short-term rentals and imposed a fee on landlords to offset the expenses they created.

Lawsuit. An unhappy landlord promptly sued the association over the restrictions and fees and lost. (Watts v. Oak Shores.) He appealed, and again lost. Thanks to his aggressive litigation, we now have favorable case law on the subject and he has a bill for $1.2 million in legal fees.

Published. We reported on the case three weeks ago. This past week, the court reclassified the case from unpublished to published, which means it can now be cited as case law. The court’s three major rulings are significant: (i) association’s have the right to restrict short-term rentals, (ii) boards can impose a reasonable fee to offset expenses associated with renters, and (iii) courts should defer to boards on decisions related to the maintenance, control and management of common areas.

Prohibiting Short-Term Rentals. If associations want to prohibit short-term rentals, they should be able to do so without the necessity of amending their CC&Rs. Most already have provisions in their CC&Rs that give them the authority they need. The first, found in many documents, prohibits owners from using their units for hotel-like operations. The second prohibits owners from running a business in the development. The third is the nuisance provision found in all governing documents. And, finally, most documents give boards broad powers to adopt rules and regulations for the benefit of the membership.

RECOMMENDATION: Associations wanting to restrict short-term rentals and/or impose fees on landlords should have legal counsel review their documents and make recommendations. To read the court’s decision, see Watts v. Oak Shores.

SOFTWARE MARKETING
WANTED

We are looking for someone to market our Smart HOA management software.

It’s a base plus commission that will grow as sales increase.

If you are interested, please contact us at maureen@smarthoa.com.

BOOTLEGGED
HARDWOOD FLOORS

A common problem encountered by condominium associations is bootlegged hardwood floors.

Violation. In Ryland Mews HOA v. Munoz, a new owner installed hardwood floors in violation of the CC&Rs and created intolerable noise conditions for the owner below. When confronted, Munoz refused to mitigate the problem claiming his wife suffered severe allergies.

Lawsuit. The association sued Munoz for the following CC&R violations: (i) creating a nuisance that unreasonably interfered with the quiet enjoyment of another owner’s condominium, (ii) altering his unit in a manner that increased sound transmission to an adjoining unit, and (iii) failing to get written approval from the architectural committee.

Court Order. The association asked the court to issue a preliminary injunction that Munoz relieve the problem pending trial on the merits. The court agreed and ordered Munoz to install rugs over 80% of his floors. Munoz appealed and lost, thus providing us with more case law on how to handle hardwood floors (and hard-headed owners). Munoz’ violation of the CC&Rs and his refusal to compromise saddled him with an order to install rugs and a looming trial that could result in fines, an award of attorneys’ fees, and an order to remove his hardwood floors.

COMMENT: Having an allergy does not give an owner the right to ruin his neighbor’s life. There are plenty of hypoallergenic rugs and other products on the market that could have simultaneously resolved the allergy and noise problems. It took a court to order Munoz to be a good neighbor. Even that was not sufficient, it took two courts. Some people are just not suited for condo living. To read the case, see Ryland Mews HOA v. Munoz.


Adrian Adams, Esq.
Adams Kessler PLC

“Much More Than Just a Law Firm!” We’re friendly lawyers–boards and managers can contact us at (800) 464-2817 or info@adamskessler.com.

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Director Abstentions

QUESTION: We have a 5-member board and a recent vote on a motion was two “for” and one “against” with two abstentions, does the measure pass since abstentions automatically count as “yes” votes?

ANSWER: Abstentions do not automatically count as yes votes. Abstentions are confusing when people conflate them with silent acquiescence. If a director verbally states, “I abstain,” it is not counted as a yes or a no vote, it’s a non-vote. In the scenario you describe, the motion fails. Since all five directors are present, you need three “yes” votes to pass a motion. Because only two voted for the motion, it fails. The outcome is different when you have silent acquiescence.

Silent Acquiescence. In a more common scenario, one director votes against, two vote in favor and the other two are silent. In that case, the two unresponsive directors are counted with the majority. The president properly announces the vote as four-to-one in favor and the motion passes.

NOTE: For a more complete discussion of the topic, see “Abstentions & Recusals.”

RE-VOTE FOR A NEW
AMENITY

QUESTION: The membership voted to add an amenity to the common areas but the board dropped the ball and wants to hold another vote to see if the result is the same. Are they allowed to hold another vote? How can we hold the board responsible to fulfill the initial directive of the members?

ANSWER: The board can hold a second vote but it would not be the same as the first one, i.e., “Do you want the amenity?” Instead, it would be a vote cancel the first vote. Since the membership already voted to install the amenity, it would require an affirmative vote NOT to install the amenity. You can hold the board’s feet to the fire through letters, open forum, and the election of new directors.

PAYING FOR
RESERVE REPAIRS

QUESTION: Can operating funds be used for reserve items? Any pitfalls?

ANSWER: There are no legal restrictions on using operating funds for reserve repairs. The considerations are more practical in nature, “Are sufficient funds available to cover the reserve repair without running the budget into a significant deficit?”

Two scenarios come to mind when you might want to use operating funds: (i) the component is not listed in the reserve study or (ii) there are insufficient funds in the reserve account.

MEMBER SURVEYS

QUESTION: We are reviewing our CC&Rs and would like input from members on board priorities, solutions, proposed changes, etc. This will give us an idea whether proposed changes would receive support before we go through the expense of sending a secret ballot. Can we survey members and do we need permission to publish responses?

ANSWER: Yes, you can survey your members and no you don’t need permission to publish responses, provided you keep them anonymous.

No Secret Ballot Needed. By statute, a secret ballot must be used for special assessments, election and removal of directors, amendments to the governing documents, and grant of exclusive use of common area property. (Civ. Code §5100(a).) Since a survey does not fall into any of these categories, it can be done electronically via an online service such as SurveyMonkey.com or SurveyGizmo.com. Even though secrecy is not required, members will be more forthcoming in their opinions if they are assured their responses are anonymous.

FEEDBACK

Director Emails #1. When it comes to board member emails, I do not agree with using names instead of positions. I would establish an email address for President@MyFriendlyHOA.org and then then set the account to forward a copy to JohnSmith@gmail.com. In the past I used GoDaddy to host these things, but Google Mail has some great corporate options that can host the domain’s email. -Jim S.

Director Emails #2. A simpler and less expensive way to handle HOA emails is used by members on my HOA board. We set up a dedicated email address that is used only for HOA emails. -Chris H.

*****

Marijuana #1. With today’s technology the THC content in oils and waxes exceeds that of the plant it is extracted from, thus, there are numerous ways to use the medication, or just get high, without the smoke. At least that’s what my cousin told me. -Scott C.

Marijuana #2. Just to add to your marijuana smoking in unit discussion, in 2009 California added marijuana smoke to the state’s Prop 65 carcinogen list. Thus, wherever cigarette smoking is banned, so is marijuana. In many municipalities, this extension was implemented, such as San Francisco where the Board of Supervisors applied the current ban of smoking in multi-unit complex common areas to include marijuana. The prohibition was also applied to all public areas where cigarettes are banned. -Joseph L.

Marijuana #3. What happens in cases where the smoker is using “medical” marijuana around the pool and on their balconies? We have a few “wake and bake” residents that are generating complaints by other residents.

RESPONSE: If you already have a ban against smoking at the pool, you can enforce it against cigarettes, cigars, pipes, e-cigarettes and marijuana alike. If smoking on balconies is creating a nuisance because smoke is drifting into adjacent units, you can adopt a rule against smoking on balconies.

*****

Humor #1. I have been reading your newsletter for years and always find them entertaining and informative. Thank you for the humor and the good advice. Almost 88-year-old condo owner and board member. -Doris Y.

Humor #2. Over the years I thought the photo that accompanies your signature was taken after you had prevailed over a particularly difficult case. But, over the last several newsletters I’ve concluded that grin is the grin of an amused (and perhaps bemused) deeply philosophical student of life and culture. -Longtime Reader


Adrian Adams, Esq.
Adams Kessler PLC

“Much More Than Just a Law Firm!” We’re friendly lawyers–boards and managers can contact us at (800) 464-2817 or info@adamskessler.com.

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Hillary’s Emails

QUESTION: With all the news regarding Hillary’s emails, should our board set up a dedicated email account for official business?

ANSWER: Unlike federal employees, there is no requirement that boards use “official” email accounts. However, there are practical reasons for doing so.

1. Litigation. Even though homeowners do not have a right to inspect emails between directors, that changes when litigation is filed. As part of discovery, a director’s emails can be subpoenaed. When board members use personal accounts for HOA business, their personal emails can end up in plaintiff’s hands for the world to see if not carefully sifted from the record. That means sleepless nights deleting 30,000 “private and personal” emails, making it look like the board is hiding something. When people start deleting emails, plaintiffs and judges are understandably skeptical.

2. Confidential Information. Another benefit to an “official” HOA account is it becomes less likely that confidential HOA business will be viewed by family members. Many couples share email accounts and see each others’ communications. A family member is less inclined to log into a board member’s HOA account and read confidential communications.

3. More Cautious. Finally, using an HOA account should make directors more careful about what they write since emails are no longer personal but rather business emails that belong to the association. Knowing the emails are retained by the association should make directors more cautious and businesslike in their communications. That raises an issue that needs clarification–conducting business by email.

No HOA Business. By statute, boards cannot conduct association business by email. (Civ. Code §4155.) That does not mean directors are prohibited from emails altogether. Directors are allowed to (i) conduct emergency meetings, (ii) send emails to management and vendors, (iii) send emails to legal counsel, and (iv) send administrative emails to each other about meeting dates and times. For a more complete discussion, see “Email Meetings.”

RECOMMENDATION: Boards should reserve a domain name for their associations and establish an email account for directors. Setting up an account is easy and the cost modest. Email accounts should not be a generic “president@myfriendlyhoa.com” since they need to be terminated once a director is no longer on the board. Rather, use the director’s name, “j.smith@myfriendlyhoa.com.” Finally, boards should adopt an official “Email Policy” for directors that complies with the Davis-Stirling Act so board members know what they can and cannot do with emails.

FEEDBACK

More feedback on my March 1 newsletter.

Presidential Authority #1. One of the best newsletters. -Theresa S.

Presidential Authority #2. Surprised you were referring to Richard Nixon. I immediately assumed you were referring to President Obama, without a second thought! -Janice M.

RESPONSE: Perish the thought.

Presidential Authority #3. Your response about President Nixon actually made me laugh out loud. I am sure your agility is a great asset to the practice of law. Semper Fi to you and our country. -Pat S.

******

Marijuana Garden #1. What about excessive water usage? At many associations, dues pay for water used throughout the complex. It would seem to me that boards should be able to prohibit the practice of some activity (such as growing marijuana) that uses considerable water. -Larry M.

RESPONSE: A good argument for prohibiting marijuana gardens in master-metered properties.

Marijuana Garden #2
. In your last newsletter, you said a homeowner has no legal right to grow medical marijuana. What about smoking medical marijuana as prescribed by a doctor? We have a smoking ban and if I can’t smoke in my unit, where can I use my legal medicine? -John D.

RESPONSE: When it comes to “reasonable accommodation” so pot smokers can get their medicine, it has already been determined that employers are not required to accommodate an employee’s wish to use medical marijuana in the workplace. It’s unclear whether a nonsmoking association would be required to accommodate smoking in a unit. Even if accommodation is considered, smokers are not entitled to engage in an act that endangers the health and quiet enjoyment of their neighbors.

Secondhand smoke has been declared a human carcinogen and courts are increasingly protecting the rights of nonsmokers to be free from exposure to it. Earlier this week a judge in Washington D.C. issued a temporary restraining order against a pot smoker when neighbors sued alleging negligence, nuisance and trespass from secondhand smoke. Last year a California jury awarded damages against an HOA for not resolving a secondhand smoke dispute.

Pot smokers who disregard the health and well-being of others expose themselves to legal action for (i) breach of CC&Rs, (ii) intentional and negligent infliction of emotional distress, (iii) assault & battery, (iv) trespass, and (v) nuisance. I’m sure an enterprising young attorney could think of other causes of action to add to the list.

In summary, there are other ways for pot smokers to consume their medicine–weed brownies come to mind. I don’t know firsthand but I understand they can be quite potent.


Adrian Adams, Esq.
Adams Kessler PLC

“Much More Than Just a Law Firm!” We’re friendly lawyers–boards and managers can contact us at (800) 464-2817 or info@adamskessler.com.

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Short Term Rentals

I asked Gary Kessler to report on a new case involving short term rentals.

This past week, in the case of Watts v. Oak Shores Community Association, the California Court of Appeal issued an unpublished opinion in favor of our client on three issues of importance to associations throughout California. Although not binding precedent, it provides guidance as to how courts may rule on similar matters in the future.

#1 Rental Restrictions Are Valid. The court upheld an association’s right to adopt rules governing short-term rentals and the right to impose a reasonable fee on landlords to offset expenses incurred by the association. The court noted:

That short-term renters cost the Association more than long-term renters or permanent residents is not only supported by the evidence but experience and common sense places the matter beyond debate.

#2 Fees Need Not Be Exact. Associations are prohibited from imposing assessments and fees which exceed “the amount necessary to defray the costs for which it is levied.” (Civil Code §5600). But how precise must the relationship be between the fee and the underlying costs? The court explained that an exact correlation is not required since the statute “requires nothing more than a reasonable, good faith estimate of the amount of the fee necessary to defray the cost for which it is levied.”



Gary Kessler, Esq.
Adams Kessler PLC

#3 Deference to Boards. The court rejected the owners’ argument that the judicial deference standard (deferring to board decisions) is limited to ordinary maintenance decisions. The court wrote that “[c]ommon interest developments are best operated by the board of directors, not the courts.” To read the case, see Watts v. Oak Shores.

FEEDBACK

I received a lot of feedback on last week’s newsletter–more than I can print. Following are samplings:

Marijuana Garden #1. I thought people could have 12 immature plants and 6 mature plants. Is this so or did I dream this? -S.C.

RESPONSE: Under California’s Health & Safety Code §11362.77, qualified medical patients are allowed to cultivate up to 6 mature or 12 immature marijuana plants. It means the state will not prosecute growers. However, growing pot is not protected from federal or association restrictions. Boards can adopt reasonable rules so growing (and smoking) marijuana does not create a nuisance for other members of the association.

Marijuana Garden #2. Would it be acceptable for a resident to cultivate their plants, legal in number, inside their residence? -John G.

RESPONSE: Yes, provided they do not create a nuisance or a safety hazard.

Marijuana Garden #3. A marijuana crop has additional collateral consequences. An HOA may experience an increase in pizza boxes and empty Doritos packets in community trash cans. Sorry I couldn’t resist. I always thought one needed to he “high” to serve on a board. -K.A.


Abusive Attorney #1
. Your discussion of an attorney’s bullying conduct as a board member (and probably in other environments) was terrific. As always, the discussion was concise, completely accurate, and will certainly be enormously helpful to lay people being threatened by one of “our own.” Kudos. -Joe M.

Abusive Attorney #2. If he were to sue the board, the D&O would not cover if the policy has an exclusion against suing oneself. -Jim S.

Abusive Attorney #3. Regarding the attorney/board member who was threatening the other board members with legal action, we had the same situation in our small association a few years ago. We immediately reported the “threat of legal action” to our insurance carrier. We never learned precisely what happened after that, but the threatening attorney/board member quietly resigned, citing pressing business matters in his practice. -Frank D.

Abusive Attorney #4. Perhaps this lawyer is exasperated because the board’s majority keeps trying to do things in executive session that are unethical or illegal, and they refuse to listen to his objections. What about that possibility? -David S.

RESPONSE: Cursing and threatening to sue fellow directors in a manner to preclude insurance defense is never justified. A more professional approach is for the lawyer/director to ask the board for a legal opinion on disputed matters from HOA counsel. If fellow directors refuse, he should resign from the board and write a letter to the membership explaining the reason for his resignation.

Abusive Attorney #5. In the past, I’ve reported an abusive attorney to the State Bar. In one case, the attorney used offensive language and was acting as a bully. Immediately after I reported him to the Bar, the attorney called me and butter wouldn’t melt in his mouth–or other orifices. The simple act of reporting him to the Bar brought him to heel. If disbarred, attorneys are denied their right to practice law. This tends to discourage attorneys from bad behavior if people stand up to them. Most people don’t realize they have the right to be treated with courtesy and respect. -Bret R.

Abusive Attorney #6. I believe Rule 7-104 became California Rule of Professional Conduct 5-100 in 1989. A good piece of advice in updating governing documents to disqualify any member of an HOA with an active case against the HOA. -K.A.

RESPONSE: You’re right, it’s Rule 5-100. I saw the incorrect cite after I sent the newsletter. I think I was standing too close to my neighbor’s marijuana garden when I hit the “send” button.


Presidential Authority #1
. Loved your take on removing presidents. -Susi N.

Presidential Authority #2. “Removing a U.S. President is a bit more difficult.” Yes, it usually takes between four and eight years. -Esme G.

Presidential Authority #3. You advised a private meeting with the president. Shouldn’t it be public? -Robert A.

RESPONSE: Executive session meetings are private. The legislature specifically allowed for disciplinary, legal and personnel issues to be held in a confidential setting. The board needs to sit the president down in a private setting and outline the scope of his authority and let him know that action will be taken if he strays outside it.

Presidential Authority #4. Really… did you need to turn your last newsletter political by talking about presidential authority? -Casey R.

RESPONSE: I don’t know what came over me. I forgot that readers don’t like it when I make vague references to Richard Nixon’s abuse of power. A lot of people still have fond memories of him.


Adrian Adams, Esq.
Adams Kessler PLC

“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers–boards can contact us at (800) 464-2817 or info@adamskessler.com.

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Gala Report


Everyone,

The Foundation’s sold-out event was held this past Friday at The Fairmont Newport Beach. The room was filled with 350 guests decked out in tuxedos and glittering gowns. Guests were entertained by the Arroyo String Quartet during the reception and wowed by pianist Le Grand Barr during dinner.

Kudos. Following is a sampling of comments about the Gala:

What an amazing event. It was the night of a lifetime and I am so happy that you were able to squeeze me in. It was an honor to be there and to see such wonderful people celebrated! Bravo! Wonderful success! -Liz J.
Congratulations to you and all the volunteers on a most successful gala event. My neighbor works for Jaeschke and attended. She raved about the speakers and the history of the Davis-Stirling Act. We are all thankful that Prof. Rosenberry pursued the legislature to adopt laws for CIDs. I look forward to seeing photos of the gala. And, thanks for writing another great newsletter this week. -Chris S.

The gala was a huge success and a lot of fun. Thank you. -Karen J.

Awesome job!! Best event ever. -Mike P.

It was a great event. What a turnout. First class. You know how to put on a party. -Richard W.

THANK YOU SO MUCH FOR A WONDERFUL EVENING. You are the best! -Kirk W.

The gala was a wonderful event and I am so glad I was able to attend. -Laurie P.

What an excellent event. Everything was perfect. -Cal C.

Not only was it an event commemorating the 30th Anniversary of the Davis-Stirling Act – the major milestone in setting the life cycle of California Common Interest Developments; but it also put in clear perspective the human contributions that made it happen! The execution of the event itself, was flawless in all aspects: venue, food, entertainment and content! It was an informative and fun time. Well done! -Marc P.

Honoree Recognition. It was impressive to see so many dignitaries and industry leaders in one room. Beautiful “California Assembly Resolutions” and “Certificate of Recognitions” and “City of Newport Beach Proclamations” were presented to the Honorees recognizing their unique contribution to the State of California. Below are some of the honorees.

To view pictures from the event, go to the Foundation’s Facebook.

Anyone wanting high resolution pictures can go to Sipper Photography and put in access code: 56fec40b. If you have any questions, please contact Dana at dana@sipperphotography.com or at (714) 348-0630.

Many thanks to Karen Conlon and to the Foundation’s Board of Directors and The Quimby Group for all their dedication and hard work in making the 30th Anniversary such a success.

This is the Foundation’s final newsletter.

Sincerely,

Adrian J. Adams, Esq.
President
Foundation for California
Community Association Education
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Marijuana Garden

QUESTION: I live in a senior retirement community and grow medical marijuana. The board passed a rule banning marijuana in garden plots. Is the board’s action legal?

ANSWER: Yes, it’s legal.
Just because California does not prosecute citizens for growing a federally banned substance does not mean your association must allow it.

Nuisance. A marijuana garden can be a nuisance. First it has a strong odor that can be offensive to neighbors. Second, it’s a magnet for crime. People like to steal it. That is sufficient basis for an association to deem it a violation of the nuisance provision of the CC&Rs and ban it from garden plots.

Garden Plots. The January 1, 2015 change in the Davis-Stirling Act that allows backyard gardens (Civ. Code §4750.) does not allow for the growing of marijuana. The Civil Code defines “plant crop” to mean plants that bear edible fruits or vegetables. Although marijuana can be eaten, it’s not a fruit or vegetable. Moreover, the statute specifically excludes “marijuana or any unlawful crops or substances” from the definition of plant crops. (Civ. Code §1940.10(a)(3).)

RECOMMENDATION: There are other readily available sources of pot without creating problems for your neighbors. You should seek out those sources.

ABUSIVE ATTORNEY

QUESTION: We have a director who is also a lawyer. At executive sessions, he curses and threatens to sue other board members who don’t agree with him. He claims he can structure a lawsuit to make directors personally liable so we won’t be covered by our D&O insurance. Can he do that? Can we report him to the State Bar?

ANSWER: Most attorneys are professional in their behavior and an asset on HOA boards. The attorney you described is an embarrassment to the profession. Clearly, he does not have the temperament to serve on your board. A tranquilizer and an ethics course may be in order.

Insurance Defense. Even if he abuses his litigation rights by filing an unmeritorious lawsuit and draft it in such a way as to exclude D&O coverage, your insurance carrier would still defend although it might do so under a reservation of rights. As directors, you have the right to vote your conscience provided you follow the Business Judgment Rule, i.e., your decisions are made (i) in good faith, (ii) in a manner you believe to be in the best interests of your association, and (iii) with the care of an ordinarily prudent person.

Ethics Rule. You can report his behavior to the State Bar but his threats do not appear to violate rule 5-100 of the State Bar’s Rules of Professional Conduct, which prohibits an attorney from threatening criminal, administrative or disciplinary charges to obtain an advantage in a civil action. Even so, you can ask the State Bar if they think his behavior violates Rules of Professional Conduct.

RECOMMENDATION: You should hire an HOA attorney to advise the board on legal matters. Doing so may blunt the bad behavior of your director/attorney. In addition, you may want to amend your bylaws to require that any member in a legal proceeding against the association or fellow directors be disqualified from serving on the board during the pendency of the action.

MISUSE OF
PRESIDENTIAL AUTHORITY

QUESTION: Our HOA president identified himself as such at a recent city council meeting and spoke presenting the HOA in support of the council’s vote to ban smoking in multi-unit housing. There was no action from the board giving him that direction. Is it appropriate for a president to publicly represent the HOA on issues without approval by the board?

ANSWER: While most people support a smoking ban, it’s not appropriate for your HOA president to take that position with the city council without board approval. Sometimes presidents (including U.S. Presidents) act outside their legal authority. Some do so with good intentions some with bad.

RECOMMENDATION: A private discussion by your board with the president may be sufficient to fix the problem. If your president continues to act without authority, you can easily remove him and install a new president. Removing a U.S. President is a bit more difficult.


Adrian Adams, Esq.
Adams Kessler PLC

“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers–boards can contact us at (800) 464-2817 or info@adamskessler.com.

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Suspending Remote Entry

QUESTION: Can a board deny a delinquent non-disabled owner the ability to remotely open the lobby door from his phone thereby requiring the owner to go downstairs and open the door manually for guests?

ANSWER: Yes, the privilege can be suspended. Remote entry is a privilege not a right. The delinquent owner can still escort guests to his unit–he simply loses the convenience of remote entry (since he is no longer paying for it). Make sure you hold a hearing before suspending privileges.

INSURANCE
HAMMER CLAUSE

QUESTION: One of our members filed a bogus lawsuit against the board and our insurance appointed a law firm to defend us. After a year of being put through the ringer by a nutcase plaintiff and his slimy lawyer, our attorney is recommending settlement. We don’t want our insurance paying him a dime. We know we can beat this guy in court. Are we in our rights to refuse settlement and demand that the case go to trial?

ANSWER: You can refuse settlement but first you should find out if your insurance policy has a “hammer clause.” If it does, you need to carefully weigh the pros and cons of continued litigation. On the plus side, if you take the case to trial and win you discourage others from filing spurious lawsuits against the association. If you lose, it could cost the association a lot of money and a special assessment.

Economics of Settling.
Insurance companies don’t look at who’s right or wrong–they look at the economics, i.e., the cost of taking a case to trial verses the cost of settling. Not only are trials costly, there is a risk of losing. A loss could burden the insurance company with damage awards and plaintiff’s attorneys’ fees. to avoid the risk, they like to settle.

Hammer Clause. To ensure that boards cooperate with settlement offers, insurance carriers frequently insert a “hammer clause” in their policies. In the event a board refuses to settle and takes a case to trial and loses, the association, not the insurance company, pays the difference between the rejected settlement offer and (i) any additional legal fees incurred by the carrier, plus (ii) any judgment against the association, plus (iii) any award of legal fees against the association.

Plaintiff Refuses to Settle. Sometimes it’s the nutcase plaintiff who refuses to settle. When that happens, insurance continues to pay for defending the association through trial and sometimes beyond (if the nutcase loses and files an appeal).

Thank you to Tim Cline of Timothy Cline Insurance for his assistance with this question.

FEEDBACK

Mudslide Loss #1. I don’t think mudslides are covered under homeowner policies. -Don L.

RESPONSE: You’re right. Mudslides are not a covered peril but coverage is available for purchase as a “Difference in Conditions (DIC)” policy. It is something homeowners who are downslope from a burn area would purchase. “Loss of Use” coverage provides additional living expense while repairs are made to the house. This coverage is also an extra.

Mudslide Loss #2. What if common areas were damaged and the association needed to special assess the membership? Does that go to the membership for approval? -Geri N.

RESPONSE: If the association’s insurance does not cover a loss, the board could levy a special assessment under its emergency assessment powers. Members who carry loss assessment insurance could then file a claim against their own policies to pay the assessment.

Mudslide Loss #3. If the association is providing no services to the lots because they are “red tagged” it would seem that they should be exempted from assessments equal to the costs they are not incurring. -Doug C.

RESPONSE: The association would still have ongoing operations, maintenance, utility bills, street repairs, reserve contributions, management contract, etc. If this is a 40-unit association, one-fourth of their budget will be wiped-out if ten homeowners stopped paying assessments. That means a special assessment against the other thirty homeowners. To avoid potential legal challenges, the board should put it to a vote of the membership.

Reserve Components. In your article about unplanned reserve components, you made no mentioned that an association’s CC&Rs may control how reserve monies are treated. Ours (from the 1970s) state that “Reserves for a specific item shall only be expended for that particular item.” -Bob A.

RESPONSE: You’re right, your governing documents must be taken into consideration when dealing with reserve issues. CC&Rs might include restrictions that would necessitate a special assessment instead of the more flexible approach I described. You may want to amend your documents.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Mudslide Assessments

QUESTION: About 10 homes in our community were red-tagged by the city due to severe damage from mud and rock sliding off a mountain slope. I asked our board to waive monthly assessments for those homes until they could be occupied again. I was told “We do not have the authority to do that.” Are they correct?

ANSWER: Waiving assessments is analogous to California waiving property taxes. If you can get the state to waive taxes you might have an argument for the board waiving assessments.

Deficit. Forgoing assessments is a friendly gesture but it would create a deficit in the budget that would have to be covered by other members via a special assessment.

Negligence. Fortunately, there is no need to drop assessments since the ten homeowners should have insurance to cover their loss. If they failed to carry insurance, you would be asking your neighbors to involuntarily pay for someone else’s negligence, i.e., their failure to insure.

RECOMMENDATION: If you want to waive assessments, I recommend putting it to a vote of the membership. If the membership approves the waiver, the board would not be acting outside their authority.

UNPLANNED
RESERVE COMPONENT

QUESTION: Should an improvement not listed on the reserve study be paid out of the operating account? We had to modify the drains on a deck above the garage.

ANSWER: Whether you pay from operations, use reserve funds, or special assess depends on the cost.

Small Cost. Some components are left out intentionally because, relative to the association’s annual budget, the cost to replace is too small to include in the study. In that case, you pay out of operations.

Moderate Cost. Sometimes components are left out by mistake. If the cost is moderate and the reserve account healthy, reserve funds can be shifted between components and the missing item added to the study.

Significant Cost. If, however, the impact on the reserve account is significant because the cost to repair is high or the reserves are underfunded, the board may need to borrow from reserves and levy a special assessment to repay the account.

RECOMMENDATION: If you use reserve funds previously allocated to other components, make sure you notify your reserve specialist so he can make appropriate adjustments to the study.

Thank you to Les Weinberg of Reserve Studies Incorporated for his assistance with this question.

BOARD MEMBER WORKSHOP
AND WINE TASTING

Since it includes wine tasting, I thought I better pass this along. On Friday, February 20, the Coachella Valley Chapter of CAI is hosting a Board Member Workshop from 3:00 to 5:30 p.m. at the Shadow Mountain Resort and Club in Palm Desert.

The workshop includes a briefing on legal and insurance issues with Laurie Poole and Tim Cline. It costs $15 and the Chapter is offering tickets to its wine tasting event (5:30 to 8:00 p.m.) for only $5.00 for attendees of the workshop. Please RSVP at 760-341-0559 or admin@cai-cv.org.

FEEDBACK

New Yorker. If you ever decide to change careers, Adrian, may I suggest writing satire for The New Yorker? Even if the topics don’t always apply to me, I know I’ll get a laugh–sometimes from the questions themselves; sometimes from your answers. Please keep it up. -Lee H.

Priceless. Your sense of humor is priceless! I look forward to reading your newsletter every week. Thanks, Roy S.

Politically Correct. You totally crack me up! In this day and age where political correctness is often taken to the point of absurdity, you can still pull off some great “tongue in cheek” humor. Good for you! -Judy M.

Humor. I love everything about your newsletter, graphics, tone, tenor, substance, generosity and sense of self-deprecating humor. -L.S.

Humor #2. Love the humor you inject into your answers! We need laughter as the best medicine, so thank you!! -S.W.

Never? NEVER NEVER use my address again for ANYTHING. -Z.C.


COMMENT: I don’t think he likes the humor.

Really Funny. Love your humor–really, really, smart and funny. There has been no announcement in at least 30 days about a new lawyer addition to your firm. Things must be slowing down! -Cassie T.

COMMENT: If you know any good HOA lawyers who may be looking, send them my way.

Voice of Reason. As always, your newsletter is superb. In an area of law practice which deals with conflicts oddly similar to family law disputes, you are a voice of reason. -Joseph M.

RESPONSE: HOA law makes family law look easy. When parties get divorced they go their separate ways. In HOAs, battling parties never leave…they run for the board and elevate their dispute to a new level.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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