Misused Terms in the HOA World

Misused Terms in the HOA World

As a lawyer, I plead “guilty” to being persnickety (to use a Latin term) regarding the correct use of legal terms.  In the world of common interest developments there are several commonly used terms which are inaccurate and create misunderstanding. Here are four of the “all-stars”. Homeowner Association.  This very common term does not appear within the Davis Stirling Common Interest Development Act! The Act refers to “common interest developments” (CIDs).  Calling them “homeowners associations” excludes the many “mixed-use” projects including business or “live-work” units along with residential units. The term “homeowners association” can be found only in two places in the entire Civil Code – in Section 714, regarding installation of solar systems, and at Section 2924b(f)(1), regarding a CID’s request for notification of a foreclosure sale.  [This column is often called “HOA Homefront” because if I used the legally correct term, “CID,” nobody would know what it was!] Planned UNIT development.  The term “P.U.D.” is so widely used, I despair of ever stamping out the term, which exists in some other states but not in California.  The Davis-Stirling Act identifies four varieties of CID, one of which is the “planned development,” and nowhere does the Act insert the word “unit” in the middle.  A “unit” is the separate interest a condominium owner owns.  The owned interest of planned developments is called a “lot”. Amazingly, even though the term isn’t recognized as a type of CID in California, there are two different Civil Code laws using the term — the sections regulating “shared appreciation” loans (Civil Sections 1917.030-1917.334) and the “Mobile Home Residency Law” regarding mobile home parks...
Your Corporate Success Could Create Failure in the HOA

Your Corporate Success Could Create Failure in the HOA

Many talented successful people find themselves continually frustrated with volunteer service on their HOA board, and often are surprised to find themselves in conflict regarding their HOA service.  This can be rooted in the failure to understand that HOAs run very differently than businesses, and some of the practices which bring career success are not what the HOA needs. Governing the HOA is very different than running a business. One such difference is the “chain of command.” In one’s career, whether in business, government service, or elsewhere, the hierarchy is vertical – someone supervises you and you supervise others, and you are expected to personally exercise authority quickly and efficiently.  In the normal business setting, officers are expected to act, and the decisionmaker is typically a single person.  However, in the HOA, the decisionmaker is not one person, it is a group – the HOA’s board of directors. The HOA president has only one vote and needs to obtain the agreement of other directors before a decision is made. The association acts by vote of its board – corporate action is BOARD action. Another major difference is the president’s role. The business corporate president is empowered and expected to make important decisions about all major operational issues. On the other hand, the typical HOA president controls very little. The HOA president normally sets the agenda and chairs the meeting but is only one of the decisionmakers.  So, HOA presidents are coalition builders working to lead the board to a consensus. Some presidents misunderstand their lack of power by misinterpreting HOA bylaws, which often recite the president is to use...
Navigating Elections in 2020 (and Beyond??)

Navigating Elections in 2020 (and Beyond??)

Senate Bill 323 took effect in January 2020, creating new procedural requirements for HOAs and also unintentionally creating many problems and unanswered questions. Consequently, California HOAs have many struggles to consider in their elections in 2020 and beyond. One of the first issues with the law is that it did not create a grace period before it took effect. Since the election process under the new law takes more than 90 days to complete, what do associations do if their election is in the first four months of the year? Are their elections invalid, no matter what they do? Do they follow their bylaws and hold the election as scheduled, or delay their election several months in order to comply with the new timelines? Another question regards board eligibility. If the law’s single mandatory eligibility standard (membership) and four optional standards are the only standards allowed, then many longstanding eligibility standards in thousands of HOA bylaws across the state are now erased – standards such as candidates cannot be suing the HOA when they run, cannot have longstanding unresolved rule violations, must live in the HOA, or sign a pledge for good conduct and ethics. It is hard to comply with a law which is not clear. Another consequence of the vagueness of the law regards term limits. Many HOAs amend (through membership vote) term limits into their bylaws. However, that also is an eligibility standard, so if in fact there are only five permitted eligibility requirements, term limits are now outlawed in California HOAs. Under Corporations Code 7511(c), if 5% of the members petition for vote to recall...
Fiduciary Duty – What It Is, And Is NOT

Fiduciary Duty – What It Is, And Is NOT

The term “fiduciary duty” is often used, but with a misunderstanding of what it means. HOA Directors are considered “fiduciaries” because they care for the community’s property and finances and are therefore in a position of trust. The basic fiduciary duties are care, loyalty and good faith. A fiduciary is expected to exercise due care, to put the other’s interests ahead of their own, and to work in good faith for the other’s best interests. Much confusion exists regarding where the HOA director’s fiduciary duties are owed. Homeowners often contend directors personally owe them fiduciary duties, but those duties are owed to the association and not its individual members. The director controls association assets and funds, and therefore is a fiduciary to the association. The HOA director does not control an individual homeowner’s funds. HOA directors cannot be a fiduciary to each individual member because directors periodically must pursue homeowners for assessment delinquencies or rules violations. If the director were a fiduciary to the individual member, that pursuit of delinquency or violation would breach the duty of loyalty toward that member, but the loyalty is to the corporation. After being outvoted by the board majority, a director strongly believing the decision is in error can be tempted to believe their “fiduciary” duty requires them to continue arguing the issue after the decision, even taking the issue to the membership at large. However, the director’s loyalty is to the corporation, and the corporation has decided. Even though the director believes the decision is a poor one, the director’s loyalty to the corporation compels the director to support and not frustrate...
Reader Questions – The HOA Is Not Handling Our Common Area!

Reader Questions – The HOA Is Not Handling Our Common Area!

Dear Mr. Richardson: Our deck, which is the HOA’s responsibility, has been rotted and deemed dangerous to walk on for over two years. The association claims they are fixing the decks one by one as they get the money. We are finding it hard to rent the unit because of the unavailability of the deck. Does the association have to levy a special assessment, or do we just have to wait? Thank you, C.B., Dana Point Dear C.B.: The obligation to maintain common area normally arises from the CC&Rs and Civil Code 4775. The statute does not allow for a financial hardship exception. Associations should pursue common area repairs with reasonable diligence, and that sometimes can require a special assessment or bank loan. Under Civil Code 5551, new in 2020, HOAs are required to inspect a sampling of “exterior elevated elements” every nine years, with the first inspection completed by 2025. The statute also does not contain a financial hardship excuse. A safe building is a paramount concern. If someone is hurt by a known unsafe condition, it may not be a sufficiently strong defense to say “but we didn’t have the money for repairs.” Hoping things improve, Kelly Dear Kelly – Question: When I moved into my home during many years ago, the CC&Rs stated that if a neighbor’s trees were growing above the roofline we should send a letter to our association and they in turn would send a letter to the offending homeowner requesting the trees be trimmed. I sent a letter to my association asking that they notify my neighbor as to the trees that...
H.U.D. Issues Practical Guidance On Assistance Animals

H.U.D. Issues Practical Guidance On Assistance Animals

Assistance animals are very important to certain disabled individuals. Under the federal Fair Housing Act (42 United States Code 3601 and following), and California Fair Housing Regulation section 12005(d) such animals are not pets, and housing providers (including HOAs) must make reasonable accommodations to permit such animals. However, the lack of guidelines and definitions regarding assistance animals has hampered the ability of deserving disabled persons while at the same time permitting broad abuse by persons not needing such assistance. Until recently, the only guidance available from the United States Department of Housing and Urban Development (H.U.D.), was a 2004 guide issued jointly with the US Department of Justice along with a letter H.U.D. published in 2013. However, on January 28, 2020 HUD issued important new guidance regarding the making, or receipt, of assistance animal requests. The 19 page document, called “Assistance Animal Notice FHEO 2020-1” is available at www.hud.gov or www.hoahomefront, and includes helpful guidance regarding how housing providers should respond to requests for assistance animals. The H.U.D. Notice is written in plain English, provides an 8-step process for responding to assistance animal requests, and includes many helpful tips on each step in the process. As with California’s Fair Housing Regulation 12185(c)(2), the H.U.D. notice requires an individual assessment of the person seeking an assistance animal and rejects websites which generate automatic “certificates” of need for assistance. The H.U.D. Notice differs in some important respects from California’s Fair Housing Regulations, since H.U.D. is addressing federal law, while California’s regulations were promulgated by the State Fair Employment and Housing Council. For example, the H.U.D. notice states that “health care professionals”...
Reader Questions – Is HOA Making Solar Installations Too Difficult?

Reader Questions – Is HOA Making Solar Installations Too Difficult?

Hi Kelly, Good morning. My HOA is requiring me to install “critter guards” as part of my solar installation, but this will cost me over $1,000. Can the HOA force me to undergo this expense? Your valuable advice is highly appreciated. Thank you very much for your help. With Best Regards, C.J., San Jose Dear C.J.: Civil Code sections 714, 714.1, and 4746 establish a strong legal preference for solar energy installations in California HOAs. Although a restriction which is “reasonable” is allowed, a restriction which either adds $1,000 or 10% to the cost (whichever is less) is not reasonable and is specifically not allowed. If there is no reasonable way to meet the “critter guard” requirement without a cost of over $1,000, you may want to bring that information to your board, along with a copy of the statute, (and perhaps this column also). Associations that make the wrong choice on this subject are exposed to not only damages and attorney fees, but also a civil penalty. However, don’t rush to court – show your board this information and help to educate them. Most HOA disputes begin with a disparity of information, followed quickly by assumptions of ill will by each side. This is something that should be quickly worked out as neighbors, once everybody has the same information. Thanks for your question. Sincerely, Kelly Dear Mr. Richardson: The problem with Civil Code 714.1 and its permission of “reasonable standards” for installation of solar panels is that many HOAs are proposing egregious indemnification agreements that go far beyond the maintenance and repair requirements such a system might develop....
Reader Questions – Can They Take Away My Sunshine (Energy) Away?

Reader Questions – Can They Take Away My Sunshine (Energy) Away?

Hi Kelly, I read your column about HOA’s regularly, and I enjoy it. Can a HOA prevent us from placing solar panels on the roof of our condominium townhome? If we agree to be responsible for the repairs needed due to our solar panels, do we have the right to place solar panels on our roof? M.F., Carmel Valley Dear Mr. Richardson: Can my HOA deny me from installing solar panels on my roof? M.H., Rancho Santa Fe Dear Kelly: I was told we could not install solar because it would void our roof warranties. Can our management company ban installation of solar because of that reason? D.D., Cypress Dear M.F., M.H., and D.D.: So long as you comply with reasonable restrictions (those are stated in Civil Code 714.1 and 4746), no, the HOA cannot arbitrarily deny homeowners seeking to install solar energy systems. As per Civil Code 714(b), the policy of the state is “to promote and encourage the use of solar energy systems and to remove obstacles thereto.” Civil Code 714 proceeds to implement that policy by protecting solar systems and making it illegal for HOAs to ban them. Under this statute, “effectively” prohibiting or restricting solar systems is illegal. Reasonable restrictions are allowed, and those are defined as something which does not increase the cost by $1,000 or 10% (whichever is less) or does not reduce the efficiency by more than 10%. HOAs which willfully violate this law could be liable for damages, a $1,000 civil penalty, and attorney fees. Hoping this helps to shed some light, Kelly Dear Mr. Richardson, I submitted a formal application...
Reader Questions – The Open Meeting Act

Reader Questions – The Open Meeting Act

Kelly, how much notice is required regarding place and time for monthly board meetings? Thanks, C.B., Redondo Beach. Dear C.B.: Under Civil Code 4920(a), four days’ notice must be provided before board meetings, unless the meeting is solely in closed executive session (in which case 2 days’ notice is required by Civil 4920(b)(2)). If the meeting qualifies as an emergency board meeting under Civil 4923, no advance notice need be announced. Sincerely, Kelly Dear Mr. Richardson: Our HOA has a rule that only homeowners listed on the title can attend a board meeting as meetings are not open to the public. My husband and I recently married, and he is not listed as an owner since it is only in my name. He would like to attend the meetings. Can they legally keep him from attending? M.W., Irvine Mr. Richardson: When we have an HOA meeting it is always announced that “If anyone here is not an owner, please leave the room” Since these are ‘open meetings’ I was wondering if this is in accordance with Davis-Stirling. H.D., Cathedral City Dear M.W. and H.D.: The Open Meeting Act only gives association members the right to attend open meetings of the association board. Civil 4925 states “Any member may attend board meetings…” So, tenants, family members of owners or owner representatives do not have the right to attend. The SB Liberty v. Isla Verde case, decided in 2013, involved owners who transferred their unit to their limited liability company and then sought to have their attorney attend board meetings on that company’s behalf. The court confirmed that the law only...
New Year’s Resolutions of HOA Service Providers

New Year’s Resolutions of HOA Service Providers

[This is the fourth and final installment of this series, which previously addressed directors, homeowners, and managers.] As the association’s service provider, I resolve to: NUMBER ONE:1. Follow the Golden Rule. [treating others how I want to be treated] PROPOSALS:2. Give the association the best proposal I can. If the association’s request for proposal omits important elements of the work, I will add those elements to my proposal and disclose the proposed extra cost now instead of charging it later as an “extra.” 3. Tell them if they really don’t need my services right now.4. Disclose the less expensive (and possibly less profitable) alternative they didn’t ask about.5. Explain my recommendations, and never tell them just to “trust me.” 6. Promise only what I know I can deliver.7. Not seek a contract of more than one year in length, unless the work cannot be completed in less than a year. KNOWLEDGE:8. Pursue professional designations and attend seminars to keep current.9. Take CAI’s Educated Business Partner course to ensure my understanding of the unique needs and characteristics of common interest communities. SERVICE:10. Promptly answer the board’s or manager’s questions.11. Explain my company’s charges, taking no offense.12. Take instruction only from the manager or from the person designated in the contract as my point of contact.13. Immediately alert management if a homeowner, even a committee chair or director, interferes with the work.14. Obtain written authorization if any work outside the contract becomes necessary and for which I have in writing quoted a price.15. Not attempt to perform work outside my expertise and immediately advise the association of the need for other...