Insurance – Does Your HOA Have ALL It Needs?

Insurance – Does Your HOA Have ALL It Needs?

The previous column discussed considerations regarding property insurance, but that is only one of many insurance types which most HOAs should have in place. First and foremost is liability insurance. This is the insurance which covers claims of negligent damage or injury affecting persons (owners, tenants, or visitors) on the property. Civil Code Section 5805 protects the individual members of the HOA from being sued personally just because they are HOA members, so long as the HOA has at least $2,000,000 (100 or less members) or $3,000,000 (over 100 members) in liability coverage. HOAs should discuss with their insurance broker and legal counsel what amount of liability insurance is appropriate, since an allegedly injured party could seek damages beyond the limits of the insurance, and that financial impact on the HOA could still later be passed along to all the members in the form of a special assessment. Directors and Officers Insurance adds a layer of protection for the unpaid volunteer directors who are making important decisions each year, and who are exposed to lawsuits from unhappy homeowners. Civil Code Section 5800 provides for immunity for HOA directors so long as the HOA carries at least $500,000 (100 or less residences) or $1,000,000 (over 100 residences). This should really be a non-negotiable item for every HOA director in California – make sure the HOA has that insurance in place before joining the board. Just like with general liability insurance, discuss with the broker and legal counsel the recommended coverage levels, as many HOAs may find larger limits of coverage more desirable. Individual owners should have their own homeowner insurance...
HOA Insurance – Is The HOA’s Coverage Sufficient?

HOA Insurance – Is The HOA’s Coverage Sufficient?

Insurance brokers are one of an HOA’s most important vendors, yet they are often ignored until claims arise. This mistake can be costly. Insurance is a contract in which the insurer accepts a fee (“premium”) and in return agrees to pay for certain incidents of damage (property insurance) or claims of liability (casualty insurance). Because insurance is a contract, it is critical to understand the contract’s limitations. Here are six questions to carefully consider.  Is there a deductible, and how much is it? The deductible must be paid by the insured HOA before the insurance company pays the first dollar of damage reimbursement. Also, what are the limits of the insurance? Is there enough insurance to cover the amount of the damage?  What are the exclusions in the insurance contract, where the insurer states that it will not pay on certain kinds of damage incidents? Mold, mildew, or dry rot damage are commonly excluded. It is important to understand the exclusions, as there is contractually no insurance for the items excluded from the insurance policy. How much of the HOA property is covered by the insurance for damage to the property? Does it cover all the buildings and improvements? One HOA discovered to its shock during the wildfires two years ago that its asphalt streets, heavily damaged by the conflagration, were not included in the definition of “covered property.” Pay close attention to which elements of the property are covered by the insurance. How much insurance does the HOA have? Particularly with a condominium association, in which the HOA is normally responsible to rebuild the structures, it is important...
Be Ready When Amending CC&Rs (It’s Hard Enough)

Be Ready When Amending CC&Rs (It’s Hard Enough)

Amending CC&Rs is not easy. Here are some tips to avoid making it harder. Check with the members.  Amending CC&Rs usually takes a supermajority (i.e., more than simply a majority of the quorum), so a good idea isn’t enough – it still needs widespread support. A great proposed amendment is meaningless if the homeowners will not vote for it. Avoid controversial amendments. Be aware of subjects which could be very upsetting to some members. Avoid issues on which a widespread consensus cannot be achieved, such as changing assessment allocations or unpopular use restrictions. The board can pass some amendments. Certain amendments can be approved in an open meeting by the board such as amendments deleting developer marketing provisions (Civil Section 4230), removing illegal discriminatory restrictions (Section 4235), or changing the old Civil Code references to the current (Section 4235).  Get out the vote. Many members think abstaining is OK if they don’t have time to read everything, but that hurts the amendment’s chances. Divide the community into sectors and assign each sector to volunteers.  Apathy is usually the greatest frustration to amendments. Didn’t meet the number? Don’t give up. Civil Code 4275 allows HOAs to file a court petition seeking judicial approval so long as over 50% of all members voted in favor.  These petitions really should be viewed as a last resort, due to the legal, mailing, and copying cost involved. The EXACT text of the amendment must be sent out with the ballots, per Civil 5115(e) – even if it was already previously distributed.  Help members by sending TWO versions – one “redlined” showing what is being...
Are There Surprises In Your CC&Rs?

Are There Surprises In Your CC&Rs?

Among the association governing documents including articles of incorporation, recorded map or plan, bylaws, operating rules and covenants, conditions, and restrictions (“CC&Rs”), the CC&Rs document is arguably the most important. Here are eleven things about CC&Rs which might surprise you, before you read them. CC&Rs are: Public documents.  When filed with the County Registrar/Recorder (aka, “recorded”), CC&Rs become a public document and anyone can see a copy. Binding all owners. CC&Rs bind all owners, regardless of whether they read it, understood it, or received a full copy of it.  As a recorded document, CC&Rs are a “covenant running with the land,” meaning a legal commitment attaching to the land and therefore its owners. Typically not reviewed until too late.  Most buyers regard CC&Rs as boilerplate to be reviewed eventually.  Even though they don’t sign it, buyers should read it as carefully as the purchase agreement. Your covenants, not just the association’s. CC&Rs place rights and responsibilities on the association as well as upon each member.  If a neighbor violates the covenants, you have the same right to deal with the problem. Often distributed in draft or unrecorded format.  “Official” CC&Rs will have a recording number from the County Recorder on each page.  Associations often mistakenly distribute unrecorded copies originally received from the developer.  Obtaining a copy of the official document is easy. Normally enforced by courts, even if they seem unreasonable. The California Supreme Court ruled in 1994 that CC&Rs are presumed enforceable, with some narrow exceptions (such as if they contradict a law). Often not written with your HOA in mind. Original developer-supplied CC&Rs often are boilerplate with...
Reader Questions – Termite Fumigation Part 2

Reader Questions – Termite Fumigation Part 2

Hi Kelly, our board is resolved to resume fumigation of the buildings in our community and has voted to obtain quotes for the next phase of fumigation but has not voted yet to schedule the work. The president does not consider that to move out of one’s home and into a hotel or another person’s home is a COVID risk. Does the board have the right to push through with the fumigation work and force people out of their homes during COVID times? What do you recommend happens? Thank you for your help, C.P., Huntington Beach Dear C.P.: If the association has confirmed a termite infestation in the framing, that can affect all of the HOA owners. Effective treatment can protect the building’s structural integrity, thereby protecting residents’ safety and protecting owners from long-term major repair costs. Civil Code Section 4785 allows the HOA to temporarily remove an occupant from a residence slated for termite treatment if the HOA meets certain specified conditions. The HOA must mail or personally deliver written notice to the owner with specific information at least 15 but not over 30 days before the date the residence must be vacated. If the HOA finds it necessary to invoke this statute, it should consult its legal counsel before beginning the removal of a resident, and the lawyer will most likely suggest a court order is obtained on an emergency basis. HOAs should not try to force residents out of their home without appropriate legal process being invoked, and residents should cooperate with this important preventative work. Best, Kelly  Dear Mr. Richardson: My building has confirmed termite...
Reader Questions – Who Handles Those Termites?

Reader Questions – Who Handles Those Termites?

Dear Kelly: I live in a townhouse. My neighbor had termites and my other neighbor on the other side suspects them as do I.  We were told by the association that it is our responsibility to take care of them.  It just seems to me that termites come from the outside in and should be the responsibility of the association.  Could you shed some light on this for me.  M.N., San Clemente Dear Mr. Richardson: Does the association have any responsibility to handle a termite problem originating from trestles (wood patio overhangs) that were originally installed by the builder and are part of the architectural design of the townhouses? Termites are entering the home due to infestation of dry rot and termites in these structures. R.M., Coto De Caza Dear M.N. and R.M.: Termite infestations in attached housing affect not only those living in affected buildings but potentially affect all assessment-paying members if the damage requires expensive repairs to common area framing. Allocation of responsibility is provided by Civil Code Section 4780(a) which states that in condominium, stock cooperative, or community apartment associations, the association is responsible for repair and maintenance of common area termite issues, unless the CC&Rs say otherwise.  You each describe your homes as “townhouses,” but that describes the homes’ architectural configuration, not the type of property ownership you have. A townhouse could be a planned development, condominium, stock cooperative or community apartment property. If the CC&Rs are silent and your association is a condominium (you own a “unit”), stock cooperative (you own a share of stock) or community apartment (you own an undivided equal fractional...
Reader Questions – Is THIS a Conflict of Interest?

Reader Questions – Is THIS a Conflict of Interest?

Hello Kelly! Is it considered a conflict of interest if a board member is also an HOA employee? Our board is voting on matters which would affect the job duties of the board member/employee. Would this be considered a conflict of interest? The director acts as property manager. Thank you! E.L., Simi Valley Dear E.L.: A homeowner who is also an employee, let alone the manager, is burdened with major conflicts of interest. Is the manager making their home a higher priority? Does the manager issue violation notices against their friends? Managing HOAs under the Davis-Stirling Act is complicated, particularly under the growing body of technical requirements. Don’t hire a neighbor; hire a professional manager. They cost more, and there are reasons for that – professional managers have training, experience, and resources behind them which more than offset the cost. Best regards, Kelly Mr. Richardson, how ethical is it for an active member of our HOA board to be dating one of the vendors presently working on our property? Other homeowners are aware of this situation and I have been elected to ask you if it is ethical.  We feel as though one or the other should step down from their position. Kind of a conflict of interest.  Maybe you have a better perspective on the situation and can share with me. C.C., San Diego Dear C.C.: A director’s personal relationship with a vendor creates a conflict of interests for that director. I am assuming that the director has the good judgment not to discuss that vendor openly (or privately) with any other directors, and to abstain from votes affecting that vendor. Otherwise, it could...
Some Bad Pending HOA Legislation

Some Bad Pending HOA Legislation

Last week’s column recapped five bills proposing to help HOAs. This week addresses the other side of the coin, as four legislative proposals are pending, which would not help California’s 50,000+ HOAs. AB 1410 (author Rodriguez)  This year’s worst HOA bill is Assembly Bill (AB) 1410, by Member Freddie Rodriguez. The bill states that it responds to the pandemic emergency, yet most of the bill is not temporary. The bill would eliminate any ban on leasing portions of residences. This means that HOAs could not stop someone from renting each bedroom to a different tenant or subdividing the residence into multiple rented parts. This would effectively destroy the longstanding rule that HOA homes must be single “family” residences and allow them to become mini boarding houses. AB1410 would also add a new Civil Code Section 4754, banning anything in governing documents restricting “critical discussion” of the HOA. That sounds like a nice idea; however, I have not seen such a provision in any HOA CC&Rs or rules during 32 years of advising HOAs. Several years ago, the Community Associations Institute sponsored a bill proposing low-cost training for HOA directors, but it did not become law. AB 1410 would add a Civil Code Section 5101 requiring all of California’s 200,000 or more volunteer directors and every HOA employee (including everybody from managers to maintenance personnel) to take a course on “ethics and harassment prevention.” No information on course content, legitimacy, length, or cost is provided. AB 1410 would also create a new Civil Code Section 5870, prohibiting HOAs from pursuing enforcement actions of any kind during declared emergencies or quarantines,...
Legislators are Discussing Many Proposed New HOA Laws – Here are Sacramento’s Good Ideas

Legislators are Discussing Many Proposed New HOA Laws – Here are Sacramento’s Good Ideas

In typical years the Legislature considers a handful of bills concerning HOAs, but 2021 is an unusually heavy year. There are at least 20 bills pending that reference or directly affect common interest developments. Many are technical, but a handful of bills propose to make significant changes (some good, and some bad) to California associations. This column addresses five bills in which their current form would help HOAs, and next week’s will cover some unhelpful proposals. Senate Bill (“SB”) 392 is sponsored by the California Association of Realtors and authored by Senators Archuleta and Hueso. It would help HOAs by amending Civil Code Section 4040(a) so that starting in 2023 HOAs could use email as the default method of sending documents or notices to members. Members could still opt for postal mail, but most presumably would accept electronic mail, thereby saving association time, resources, and cost. The bill also would require HOAs of over 49 members to have websites providing general information to members unless two third of the members voted otherwise. Assembly Bill (“AB”) 502 by Assembly Member Davies, would modify Civil Code Section 5100 to allow HOAs of any size to forego sending out ballots if at the end of the nominations period the number of eligible candidates matched the number of open seats. In that situation, the bill would allow the HOA to declare the nominees elected to the open seats, saving the HOA the money and time of an election, which is a foregone conclusion. Presently, for reasons this writer does not understand, the current Civil Code Section 5100(a) allows only HOAs of 6,000+ members...
Behind Closed Doors – What Is (And Is NOT) OK in Closed Session

Behind Closed Doors – What Is (And Is NOT) OK in Closed Session

The Open Meeting Act (Civil Code Sections 4900-4955) is the HOA version of California’s “Brown Act,” requiring openness in governance meetings. However, the Brown Act (Government Code 54950-54963) generally applies to public agencies, commissions or private corporations created by a public agency. Since HOAs are private associations, the Brown Act does not apply to them, but the Open Meeting Act does apply. One Open Meeting Act’s key features is the prohibition in Civil Code Section 4910 of a quorum of the board discussing any HOA business outside an open board meeting, whether in person, telephonically or via electronic mail. The important exception to this requirement is executive session, in which the board discusses matters which for important reasons must be confidential and not discussed in front of the membership.  The Open Meeting Act provides at Civil Code Section 4935 for closed executive session but only permits a small list of permissible topics. Boards may in executive session discuss litigation (presumably including any attorney advice about potential litigation), personnel matters, member disciplinary or common area damage reimbursement hearings, assessment foreclosure votes, discussion with a delinquent member regarding their proposed repayment plan, and matters relating to formation of contracts with third parties.  A few of these permissible topics are frequently misinterpreted. By “personnel,” the law does not refer to the staffing of committees or filling board vacancies, but rather references association employees. Unless the association employs individuals who are paid directly by the association, there are no personnel to discuss in executive session. Another very commonly misapplied topic is “formation of contracts.” Note the term “formation” is used, as opposed to...