Beaumont Tashjian Law Blog

Thursday, December 1, 2016

2016/2017 LEGAL UPDATE

The following is a summary of legislation enacted and court decisions from this past year, and news and current events, which impact common interest developments.

ENACTED STATE LEGISLATION

AB 968 (Gordon) Exclusive Use Common Area
Civil Code §4775

Section 4775 of the Civil Code currently holds associations responsible for maintaining, repairing, and replacing common areas while owners are responsible for maintaining their separate interest (e.g., condominium unit or lot) and any attached exclusive use common areas, unless the community's governing documents state otherwise. However, the current law fails to delineate whether associations or owners are responsible for the repairs and replacements of exclusive use common areas if the community's governing documents do not clearly establish same. In trying to clarify the current code's language, the legislature passed Assembly Bill No. 968 to amend Section 4775.

Effective January 1, 2017, associations will be responsible for maintaining, repairing, and replacing the common areas and repairing and replacing the exclusive use common areas while the owners of each unit are responsible for maintaining, repairing, and replacing their units and merely maintaining the exclusive use common areas, unless the community's CC&Rs provide otherwise.

This new bill may affect your community's obligations pertaining to exclusive use common areas. Reviewing your community's governing documents with legal counsel is strongly recommended to ensure that the new Civil Code language does not change how your association assigns maintenance duties. As many community's governing documents do not clearly establish responsibilities for the repair and replacement of exclusive use common areas, associations may now be responsible for them, which could significantly impact your community’s budget.

SB 918 (Vidak) Owners’ Notice Requirement
Civil Code §4041

Beginning on January 1, 2017, an owner of a separate interest (i.e., lot, unit or right to occupy a dwelling in a stock cooperative) is required to give written notice to the association of his/her mailing address. Section 4041 of the Civil Code will now require owners to provide annual written notice to the association of the following:

(1) The address or addresses to which notices from the association are to be delivered.

(2) An alternate or secondary address to which notices from the association are to be delivered.

(3) The name and address of his or her legal representative, if any, including any person with power of attorney or other person who can be contacted in the event of the owner’s extended absence from the separate interest.

(4) Whether the separate interest is owner-occupied, is rented out, if the parcel is developed but vacant, or if the parcel is undeveloped land.

Furthermore, the association must solicit notices of each owner on an annual basis; specifically, thirty (30) days before the association distributes its Annual Budget Report required by Civil Code Section 5300. If an owner fails to provide this notice, the owner’s property address shall be deemed to be the address to which notices are to be delivered. Also important to note, Civil Code Section 4040(b), which requires the association deliver an additional copy of specified notices to an owner’s secondary address if provided by the owner in writing, is still controlling.

AB 1963 (Calderon) CID – Construction Defects
Civil Code §6000

Existing law requires specified conditions to be met before an association may file a complaint for damages against a builder, developer, or general contractor of a common interest development based upon a claim for defects in the design or construction of the common interest development. Civil Code Section 6000 is set to expire July 1, 2018.

This bill extends, until July 1, 2024, the requirement that a homeowners association in a common interest development of more than 20 units follows a pre-litigation dispute resolution procedure before commencing a design of construction defect action against a builder, developer, or general contractor.

AB 596 (Daly) FHA and VA Disclosures
Civil Code §5300(b)(10)-(11)

AB 596, which is currently effective (as of July 1, 2016), requires the Annual Budget Report to include a separate statement, disclosing to the owners if the development is an approved condominium project pursuant to the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) guidelines. Most notably, the statement is required to be in at least 10-point font on a separate piece of paper and in the form specified by the statute.

SB 3 (Leno) Minimum Wage
Amendments to Labor Code

On and after July 1, 2014, existing law requires the minimum wage for all industries to be not less than $9 per hour. On and after January 1, 2016, existing law requires the minimum wage for all industries to be not less than $10 per hour.

This bill would require the minimum wage for all industries to not be less than specified amounts to be increased from January 1, 2017, to January 1, 2022, inclusive, for employers employing 26 or more employees and from January 1, 2018, to January 1, 2023, inclusive, for employers employing 25 or fewer employees, except when the scheduled increases are temporarily suspended by the Governor, based on certain determinations. The bill would also require the Director of Finance, after the last scheduled minimum wage increase, to annually adjust the minimum wage under a specified formula.

On or before July 28, 2017, and on or before every July 28 thereafter until the minimum wage is a specified amount for employers employing 26 or more employees, the bill would require the Director of Finance to annually determine, based on certain factors, whether economic conditions can support a scheduled minimum wage increase and certify that determination to the Governor and the Legislature. The bill would also require the State Board of Equalization to publish specified retail sales and use tax information on its Internet Web site to be used by the Director of Finance in making that determination.

AB 1978 (Gonzalez) Employment
Labor Code §§ 1420-1434

Existing law establishes the Department of Industrial Relations in the Labor and Workforce Development Agency to foster, promote, and develop the welfare of the wage earners of California, to improve their working conditions, and to advance their opportunities for profitable employment. Among other things, this bill would require employers providing janitorial services to register annually with the Labor Commissioner in accordance with prescribed procedures. Effective July 1, 2018, the bill establishes an online public database of registered property service employers. If your association utilizes such janitorial services, check the website to ensure the service provider is registered; violations of this new law subjects the association to monetary fines.

SB 944 (Committee on Transportation and Housing) Housing Omnibus

SB 944, a “Clean-Up Bill,” was chaptered on September 27, 2016 and makes non-controversial changes to various sections of law relating to housing. Among other things, SB 944 makes changes to the Davis-Stirling CID Act regarding the form for an association’s reserve summary (Civil Code § 5570), clarifying exceptions for procedures to approve, certify or record an amendment to the CC&Rs (Civil Code § 4270), and clarifying the recently adopted law regarding clotheslines (Civil Code § 4750.10).

AB 2362 (Chu) Pesticide Application; Notice Required
Civil Code §4777

Existing law generally requires a landlord or his or her authorized agent to provide notice to tenants of the use of pesticides at the tenant’s dwelling unit or in common areas, if the landlord or authorized agent applies any pesticide without a licensed pest control operator.

AB 2362, which takes effect on January 1, 2017, now requires common interest developments or their authorized agent(s) to provide notice to an owner or a tenant of a separate interest, or tenants of adjacent separate interest (if applicable), if pesticide is to be applied without a licensed pest control operator to a separate interest or to common area.

PROPOSED STATE LEGISLATION

SB 1053 (Leno) Housing Discrimination: Applications
Government Code §§ 12955 & 12927

Existing law generally prohibits housing discrimination based upon various personal characteristics of the tenant, including source of income. “Source of income” under current law is defined as “lawful, verifiable income paid directly to a tenant or a representative of a tenant, which does not include a landlord.”

This bill would provide greater protection to tenants from discrimination based on their source of income, by expanding the definition to also include specified federal, state or local housing assistance subsidies paid either to the tenant or directly to the landlord on behalf of the tenant. As of the date this article was published, this bill is active and in committee process.

AB 1720 (Wagner) Common Interest Development Meetings
Proposed Legislation

Although this bill has failed passage, it has been granted reconsideration. Existing law requires an association managing a common interest development to provide notice of the time and place of a board meeting and authorizes any member of the association to attend board meetings, except when the board adjourns to, or meets solely in, executive session. This bill would require the board to permit a person that represents a member to attend board meetings, and would require written notice to be given as well. For example, this would allow members to bring their attorneys or other professionals to board meetings.

AB 1799 (Mayes) Common Interest Development Elections
Proposed Legislation

This bill would amend Civil Code Section 5100 to allow associations to hold uncontested elections for directors by acclamation, pursuant to specified procedures. To date, this bill is active and in committee process.

FEDERAL LEGISLATION

24 CFR Part 100 Discriminatory Conduct Under the Fair Housing Act

Currently, 24 CFR Part 100 provides rules regarding discriminatory conduct under the Fair Housing Act (FHA). Effective October 14, 2016, these regulations are amended to formalize standards for evaluating claims of hostile environment and harassment in the housing context. It defines “quid pro quo harassment” and “hostile environment harassment” as conduct prohibited under the FHA, and by specifying standards to be used to evaluate whether particular conduct creates a quid pro quo or hostile environment in violation of the FHA.

In other words, the amendment sets forth nationwide standards which the Department of Housing and Urban Development will apply in enforcing the FHA, under which associations may be liable for conduct of residents which subjects other residents to “hostile environment harassment.”

HR 3700 (Luetkemeyer) Housing Opportunity through Modernization Act

This Act, currently effective (as of July 29, 2016), sets forth the following with respect to the Federal Housing Administration (FHA) Condominium Certification Process:

  • Reduces owner-occupancy percentages from fifty percent (50%) to thirty-five percent (35%), unless the U.S. Department of Housing and Urban Development (HUD) takes action within 90 days;
  • Replaces existing FHA policy on private transfer fees with the “less-restrictive model” used by the Federal Housing Finance Agency (FHFA);
  • Directs FHA to streamline re-certification process; and
  • Provides more flexibility for condominium projects with commercial space.

HR 4696 (Eshoo) HOME Act
Proposed Amendment to the Internal Revenue Code – Referred to House Committee on March 3, 2016 for Consideration

The Helping Our Middle-Income Earners Act (HOME Act) would amend the Internal Revenue Code to allow individual taxpayers a tax deduction, up to $5,000 (based on their income), for qualified homeowners association assessments paid during the taxable year. Under this bill, “qualified homeowners association assessments” are defined as regularly occurring, mandatory financial assessments:

  • That are paid by a taxpayer to a homeowners association for the taxpayer’s principal residence;
  • That directly benefit such residence; and
  • That arise from the taxpayer’s mandatory and automatic membership in the association.

HR 1471 (Barletta) FEMA Disaster Assistance Reform Act

This bill would reauthorize the programs and activities of the Federal Emergency Management Agency (FEMA) for three more years. This reauthorization would continue appropriations totaling $3.1 billion from 2016-2018, for funding federal emergency management programs.

Additionally, the bill also requires FEMA to study trends in disaster losses and issue recommendations aimed at reducing losses and increasing savings. The overall goal of FEMA is to coordinate the federal government’s role in preparing for and responding to natural or man-made disasters. In cases when a state or locality is overwhelmed by a disaster, it can elect to request assistance from the federal government via FEMA.

HR 1301 (Kinzinger) Amateur Radio Parity Act

This bill, passed in the House on September 12, 2016, would require the Federal Communications Commission (FCC) to amend its regulations, to prohibit private land use restrictions from applying to amateur radio stations, if these restrictions:

  • Preclude communications in an amateur radio service;
  • Fail to permit a licensee of amateur radio service to install and maintain an effective outdoor antenna on property under its exclusive use or control; or
  • Are not the minimum practicable restrictions to accomplish the lawful purposes of a community association seeking to enforce the restriction.

Furthermore, before installing an outdoor antenna, an amateur radio licensee must obtain the association’s prior approval. The association may prohibit installations on common area property not under the exclusive control of the licensee, and establish certain installation rules for amateur radio antennas and any support structures.

CALIFORNIA CASE LAW

“Published” court decisions are law, and binding, while “unpublished” court decisions are not law.  Although not law, unpublished decisions are extremely valuable as they illustrate how courts address various issues commonly faced by common interest developments.

Palm Springs Villas II Homeowners Association, Inc. v. Parth
248 Cal.App.4th 268 (2016)

In this case, the Association’s president and member of the Board of Directors took several actions: (1) she hired a roofing company to perform repairs, without notice or approval by the Board and without confirming whether the company held a roofing license; (2) she signed three promissory notes for $1,775,000, secured by Association assets, for a project to repave walkways and make other repairs without giving notice to or obtaining approval by the Board or obtaining a vote of the majority of the members as required by the CC&Rs; (3) she hired a landscaping company by entering into a 5-year contract without a majority vote of the members as required by the Bylaws; and (4) she secretly renewed a 1-year contract with their existing security company, even though the Board was actively obtaining bids from other security companies.

The court in this case found that, even though corporate directors are not supposed to be held personally liable, as long as they acted in good faith, in the best interests of the Association, and based on a reasonably inquiry (also known as the “business judgment rule”), this rule has its limits. Here, the president’s failures to investigate, for example, the roofing company’s license, amounted to “willful ignorance.” Association directors should remember that they have a duty to exercise diligence when making decisions for the association. The business judgment rule will not protect them from dereliction of this duty.

Almanor Lakeside Villas Owners Association v. James Carson
246 Cal.App.4th 761 (2016)

In this case, homeowners purchased two properties to use for short-term vacation rentals. These properties were subject to the Association’s CC&Rs, which provided that the properties could be used for commercial or residential purposes. However, the CC&Rs also provided that lots could not be used for transient or hotel purposes or renting for fewer than thirty days, unless the owners provided the board with the rental agreement at least seven days before the rental period. Nonetheless, the homeowners proceeded to rent the properties to transient guests without providing the Association with the rental agreement.

The Association fined the homeowners for the violation, and also fined them for overdue assessments, as well as interest, amounting to a total of $54,000. The court found that the vast majority of these fines were not enforceable, but still awarded the Association $101,803 for its attorney’s fees. This demonstrates that even if the court denies the association its fines, it may still be considered the “winner” in a lawsuit. In this case, the court argued that even though most of the fines were disallowed, the Association was still the winner in the lawsuit, because ultimately, their right to adopt and enforce “reasonable” rules was upheld.

Rancho Mirage Country Club Homeowners Association v. Hazelbaker
2 Cal.App.5th 252 (2016)

In this case, the homeowners applied for, and received approval from, the Association’s architectural committee to make improvements to their patio area. After the homeowners made these changes, the Association felt that the changes exceeded the scope of what they approved the owners to do. The parties then mediated, and agreed that the homeowners would make modifications to their changes within 60 days of the date of the agreement. The homeowners subsequently failed to make these changes.

In short, the Association sued the homeowners for specific performance of the mediated agreement. The parties again settled, and the homeowners agreed to make the modifications; however, the parties disagreed about who should bear the costs litigation. Ultimately, the court found that the Association is entitled to appellate attorney fees, because it was the “prevailing party.” Again, this case demonstrates that even when an association and homeowner(s) come to a settlement, the court still considers a prevailing party the one who “achiev[ed] its main litigation objectives.”

Pflugh v. 2-4-6-8-10-12 Steiner Street
Not Officially Published – May Not be Cited (NOT LAW) – (2015) WL 6736702

In this case, three condominium owners in the Association (the Plaintiffs) sued the Association for amending the CC&Rs to change the common area into an exclusive-use common area specifically for two assigned parking spaces. A majority of owners approved the change via vote, but the Plaintiffs argued that converting this common area to an exclusive-use common area changed the permanent character of each unit’s common interest; therefore, a unanimous vote should have been required.

The court held that because this area had already been used as two separate parking spaces for many years prior by the two units adjacent to it, unanimous vote was not required. Furthermore, the restated/amended CC&Rs did nothing to change the percentage interest assigned to each unit. On these grounds, the Plaintiffs lost, a unanimous vote was not required to change the CC&Rs, and the parking spaces remained. The lesson to be learned from this case is, generally, boards should be careful to amend the CC&Rs so as to alter the “permanent character” of each unit’s common interest. It is prudent to seek legal advice when amending or restating the CC&Rs to avoid these disputes.

FEDERAL CASE LAW - PUBLISHED

Castillo Condominium Association v. U.S. Dept. of Housing & Urban Development
821 F.3d 92 (2016)

In this case, the homeowner was keeping a dog in his Puerto Rico condominium, in violation of Castillo Condominium Association’s pet prohibition. The homeowner insisted that the dog was an emotional support animal that assisted him with his depression and anxiety, but the Board refused to make an exception to their no-pets rule. The homeowner moved out of the Association, but sued it for violating the Fair Housing Act, which prohibits discrimination in housing based on a person’s disability.

The Secretary for the U.S. Department of Housing and Urban Development awarded the homeowner $20,000 in emotional distress damages, and imposed a fine upon the Association of $16,000. The court affirmed and found that there was ample evidence that the homeowner was disabled under the FHA’s criteria and that the Association knew or had notice of the disability. Therefore, the Association should have provided the homeowner with a reasonable accommodation and adhered to his request for an exception to their no-pets rule. Courts take alleged FHA violations very seriously, and boards should always make sure the governing documents are being enforced in a way that is fair and nondiscriminatory.

Desert Pine Villas Homeowners Association v. Kabiling
In re Kabiling (551 B.R. 440)

After homeowners filed a Chapter 7 bankruptcy petition and left their unit in the Desert Pine Villas Homeowners Association, the Association acquired their unit through foreclosure sale. Upon filing for bankruptcy, the homeowners were discharged from their outstanding Association debt, and the court ordered all creditors to cease attempting to collect any discharged debts from them. The Association then sued the homeowners seeking to confirm that it held good title to the unit, and to demand from the homeowners its attorney’s fees.

By suing and alleging that the homeowners failed to pay assessments, seeking attorney’s fees from them, and otherwise complaining based on pre-discharge circumstances, the court held that the Association violated the court’s discharge order. Consequently, it is vital that associations and their boards consult with an attorney to help understand their rights in the event that a homeowner files for bankruptcy.


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