Wednesday, May 15, 2024
As many associations in California are approaching 50-plus years of existence, we are seeing CC&Rs begin to expire. If an association’s CC&Rs expire it can cause serious issues for the community and result in unbudgeted legal expenses to get the association back up and running properly.
Some CC&Rs provide for their expiration after a specific period of time, or by a specific date. Additionally, the CC&Rs may contain a provision for automatic renewal/extension following the termination date. This is the best-case scenario as it does not require the association to take any action to extend the term. Many times, CC&Rs will contain an expiration date with no provisions for extending the term. In these instances, the association must rely on applicable law for guidance on extending the term of the CC&Rs. Arguably, the Board no longer has authority to take any action, other than reinstating the CC&Rs, once the CC&Rs have expired.
Extending the Term: Renewal Addressed in CC&Rs
In some cases, the CC&Rs set forth a term that automatically renews. In this case, the board needs to closely read the term and determine what action, if any, is necessary to extend the term. If no action is required, then the board does not need to worry about the CC&Rs expiring.
Other times, the CC&Rs will include an expiration date or time period and provisions for extending the term. In these circumstances, the board should determine when the CC&Rs are set to expire and take the necessary steps outlined therein to extend. This may require an amendment to the CC&Rs or other vote of the membership to approve the extension. Regardless of the procedures, the board should ensure that all necessary steps are taken to prevent the CC&Rs from expiring.
Extending the Term: Silent CC&Rs
If the CC&Rs do not provide a mechanism for extending the term of the CC&Rs, we defer to the Civil Code. The Civil Code states that, to extend, “approval of members pursuant to Section 4270” is required, which means: (1) the amendment is approved by the percentage of members required by the CC&Rs; (2) it has been certified in writing and acknowledged by the officer designated in the CC&Rs or by the Association for that purpose, or the president; and (3) the amendment has been recorded in the County. (Civil Code Section 4265 and 4270.)
The association must comply with each step set forth in the Civil Code to extend the term. If the board fails to comply with any of the above steps, the extension will be considered invalid, and the association risks the CC&Rs expiring. Additionally, the Civil Code limits the term of the extension to 20 years. (Civil Code Section 4265(c).)
Accordingly, we strongly recommend that association boards and managers seek the advice and assistance of legal counsel when extending the term of the CC&Rs.
Extending the Term: After the CC&Rs have expired
If the CC&Rs expire and terminate, neither the Civil Code nor case law establishes a procedure for reviving CC&Rs them. The Civil Code only provides procedures for extending the term of CC&Rs prior to termination, but not after the fact. A board resolution may be necessary to create a paper trail that protects the board, by laying out the background of the amendment. Subsequently, the board may be required to obtain 100% approval of the members to approve reviving the CC&Rs via CC&Rs amendment and having same recorded against the properties in the county recorder’s office.
Additionally, lender approval may be required depending on the provisions of the CC&Rs. Given the complexity of this situation, it’s critical to consult with legal counsel.
Conclusion
As communities age, it is important to know which documents, if any, will be expiring and take the necessary steps to extend their terms. We strongly encourage all boards and managers to review their CC&Rs with the assistance of legal counsel, especially those that are more than 20 years old, to ensure that they will not be expiring anytime soon. If you have any questions or concerns regarding extending the term of CC&Rs please do not hesitate to contact our office.