FREQUENTLY ASKED QUESTIONS ABOUT DISCLOSURES
AND OTHER HOMEOWNER ASSOCIATION ISSUES
The following are questions asked by our clients regarding home owner association issues. If you do not see your particular issue listed below, please do not hesitate to contact us. Your question will be investigated thoroughy and answered promptly.
All questions benefit our clients, queries not listed will be considered and placed on our website on a regular basis. Please check this page often.
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Q: How should an association distribute disclosures to the members?
A: Some statutes merely state that a given disclosure must be "distributed" to the members. Others say the information must be "delivered," and still others require distribution by first class mail. NOTE: Notices of assessment increases and of the association's schedule of monetary penalties must be sent via first class mail. We suggest that the remaining disclosure information, such as pro forma budgets, reserve studies, and financial statements, be provided by first class or third class (bulk) mail. Hand delivery complies with applicable statutes but raises questions about whether the materials are actually received. Mailing disclosure information is consistent with traditional corporate practice and is easier to prove and more difficult to challenge. Hand delivery should only be used in emergencies and should be documented in the association's official records.
Q: We just can't get the budget ready in time. What should we do?
A: Distribute it in the most accurate form possible, providing budget notes that indicate revisions may be made. The Davis-Stirling Act does not prohibit revisions. When the budget is complete, redistribute it to the members. However, you may be precluded from making any assessment increases.
Q: Can we increase our assessments if we discover after sending out the budget that we need more money to cover expenses than we initially thought?
A: Although the Civil Code does not specifically prohibit a homeowners association from increasing assessments mid-year (A review of all of the Sections of the Civil Code clearly indicates that that was not the intention of the legislature), you could be challenged by a homeowner. The Civil Code specifies a specific period of time during which you are to distribute the budget. The Civil Code also states that the board has the right to levy a special assessment, without homeowner approval, if there is an expense required for the maintenance and repair of the common area that could not have been anticipated when the budget was distributed. The law assumes that when you distributed the budget, you did research the expenses of the Association. If you do want to increase the regular assessments, you may need to obtain the approval of a majority of a quorum of your association's homeowners.
Q: How do we properly establish a summary of reserves if we are in the process of making substantial repairs or in the middle of a construction defect lawsuit, and we are not sure of the exact cost of repairing all the damage?
A: This is a troublesome issue for many associations. The best action to take is to disclose to the owners that the reserve analysis you are providing may not be accurate. You should provide some form of statement as to why you are unable to accurately establish a reserve analysis and that when the case has been concluded and/or repairs have been made, a new reserve analysis will be made. If you anticipate that you may need a special assessment in order to make repairs, it is best to disclose the fact that there may be a special assessment within the next year, including the estimated amount of that assessment. If a special assessment has been passed, or is even seriously contemplated, this must be disclosed somewhere in your budget.
Q. Our board recently determined that we have a termite problem. Our investigation concluded that we could fumigate by tenting or we could utilize spot treatment. We opted for spot treatment, as we felt that there would be less inconvenience to the owners. A small group of our homeowners is not happy with that decision and has threatened a lawsuit. Can the courts make us tent our buildings?
A. This is the fact situation in the Lamden v. La Jolla Shores Clubdominium Association case recently decided by the California Supreme Court. The Supreme Court's decision makes it clear that homeowners cannot second-guess the decisions of the board of directors. Please note, however, that the Lamden decision does not necessarily insulate the association from potential liability for personal injury or property damage and it is important that the association not try to save money when it comes to life safety matters.
Q. Are we required to have professional reserve studies?
A. In 1992 the Civil Code was amended to require that the association's budget be based on the most recent review or study of the association's reserve requirements. Subsequently, the Civil Code was again amended and now requires that community associations "cause to be conducted a reasonably competent and diligent visual inspection of the" major components in the common area which the association is obligated to repair, replace, maintain and restore, as part of a study of the reserve account requirements of the association. The Code is very clear to state that "at least once every three years . . ." This does not mean that it should not be done every year, if circumstances warrant such an inspection. Circumstances would include noted problems in the common area that may affect the reserve analysis. This Code Section also requires that the board review the study annually "and shall consider and implement necessary adjustments to the board's analysis of the reserve account requirements as a result of that review." The reserve disclosures are some of the most important disclosures the association makes, as they affect how homeowners will budget for future assessments, and what disclosures they will make to potential buyers.
Q. Our association depleted reserves to pay the cost of repairing dry rot that was discovered last year. Can we levy an assessment to replenish the reserve fund?
A. This may sound like an easy question. However, if you look at Civil Code Section 1366.1, it provides that "an association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied." In Foothills Townhome Association v. Christiansen (1998), a court held that the replenishment of the association's reserve fund was a valid basis for a special assessment, finding that "costs" under Section 1366.1 could include efforts to replenish depleted reserves.
Q: What if the board meeting minutes aren't distributed within 30 days to requesting owners?
A: The Civil Code does not specify what penalties will be imposed if the minutes are not distributed within 30 days of a board meeting to those owners who have requested the minutes. You will certainly hear from those owners who have requested and not received the minutes, and they will let you know how you feel. This negative communication with your owners may be a large enough penalty to motivate the association's board and management to distribute the minutes. In developments where hot issues dominate the association's political landscape, it is important to distribute the minutes to the extent required by law. We suggest the board or management distribute the minutes or a draft of the minutes as quickly as possible.
Q: Do executive session minutes need to be distributed to the members along with the regular board meeting minutes?
A: Pursuant to Civil Code Section 1363.05, a Board of Directors is required to adjourn a regular meeting to go into an executive session. As executive session meetings are limited to discussions on litigation, contract formation, member discipline and personnel matters, these are matters that are confidential, and the matters addressed at those meetings should, for the most part, remain confidential. Subsection (c) of Civil Code Section 1363.05 requires that "any matter discussed in executive session shall be generally noted in the minutes of the Board of Directors' meeting." While the Board should keep minutes of the executive session meetings, they should not be made available to the general membership. They should be maintained separately, and the information contained in those minutes should remain confidential.
Q: What if fines have been imposed without distributing the penalty schedule?
A: The Civil Code does not require that an association have a penalty schedule. However, if your association has adopted a policy of imposing monetary penalties on the members, the Civil Code does require that the Board also adopt and distribute to each member, by personal delivery or first class mail, a schedule of the monetary penalties that may be assessed. This may be as simple as stating that there will be a fine of $25 for the first violation, $50 for the second and $100 for the third. Each association's circumstances are different. Strict compliance with the rule requiring distribution of the schedule of penalties is recommended to maximize the chances of collecting fines, and may be required under your CC&Rs. In some cases of ongoing violations, and depending on the circumstances, fines that were imposed prior to distribution of the schedule could be re-imposed after the schedule is mailed or delivered to the members as long as the "notice and opportunity for hearing" procedures are again followed.
Q: How does the alternative dispute resolution (ADR) law affect recovery of attorney's fees in enforcement cases?
A: A very familiar complaint heard from boards is that judges refuse to award recovery of all attorney's fees in governing document enforcement cases either won or successfully defended by the association. The ADR law may help in that judges are more likely to award more of the attorney's fees actually incurred if owners refused to arbitrate or mediate these disputes. Of course, the same principle applies to an association that unreasonably refuses to engage in ADR or appeals an arbitration award.
Q: When a member is unhappy with a Board decision or policy, does the ADR law apply?
A; No, unless the decision relates to CC&R enforcement. The ADR law applies to disputes regarding the "enforcement" of the association's governing documents, not to disagreements with legitimate board practices or decision-making. Disputes of a political nature should be remedied politically, i.e., through director elections.
Q: Does the "Open Meeting Act" really prevent directors from discussing association business without first giving notice to the owners?
A: Notice need not be given in all situations. First, the statute only prevents a majority of the board from discussing any "item of business scheduled to be heard by the board." Thus, there appears to be no rule against board members discussing, outside of a board meeting, items not "scheduled to be heard" by the board. Also, the law does not prohibit communications with committees, including a committee which includes a board member, so long as the committee does not include a majority of the board.
Q: Do members get to vote on the commencement or settlement of lawsuits for building defects?
A: No. The decision to bring and settle lawsuits on behalf of the association continues to rest with the board of directors. Lawsuits are generally filed on behalf of or against the corporation, and these types of corporate decisions are made by the board of directors, who presumably has the most information available to make such decisions.
Q: Does the construction defects law require the developer to fix our development?
A: No. Civil Code Section 1375 requires the association to notify the developer of defects and give it the opportunity to inspect and make repairs the developer believes would adequately address the problems. The association is not obligated to accept these repairs where it believes the repairs are inadequate.
Q: What is a simple explanation of the construction defects law?
A: Civil Code 1375 is intended to create a process for an association to present its claims and test results regarding defects to the developer, which can then hire its own experts to verify those claims and test results. Thereafter, the parties meet and discuss ways of resolving the dispute. If settlement cannot be reached within certain specified time frames, the association may then file suit to seek recovery of the cost of making repairs.
Q: Is an association required to make disclosures to prospective buyers?
A: No. A recent California Appellate Court decision confirmed that an association's disclosure obligation is to the owner. Associations should only provide information to the owner, who may be required to provide that information to the buyer. Civil Code ¤ 1368(b). If an association does make disclosure to the buyer, and if the information is wrong, the association could be held responsible.
Q: Are we required to divulge the existence of a defect lawsuit, the defects themselves, or of a settlement of a defect case?
A: Yes. Recent legislative changes require these types of disclosures to the owners. These types of disclosures are complicated and should be made with the assistance of legal counsel.
Q: Must an association allow a homeowner to operate a day care center out of their home if the CC&Rs prohibit this use of the property?
A: Yes, day care centers must be allowed, at least those with 14 or fewer children. The California Health and Safety Code provides that every association restriction "which restricts or prohibits ... the acquisition, use, or occupancy" of property "for a family day care home for children is void." The statute applies to day care facilities of up to 14 children found in any single-family residence, whether condominium, townhome or detached home. Although current law forbids associations from prohibiting the existence of day care centers, associations may sue for nuisance based upon the problems caused by the conduct of the facility. Under a nuisance cause of action a court can restrict the operations of a day care center if it determines that the center disturbs a homeowner's quiet enjoyment of his or her property, among other things.
Q: Our CC&Rs prohibit owners from installing antennas without prior Board approval. Is this enforceable against satellite dishes?
A: In some situations, no. The FCC has enacted a rule which prohibits associations from requiring pre-approval before owners can install satellite dishes of one meter or less, or any antennas designed to receive but not send transmissions, on any separate property or common area over which the owner has "exclusive use or control." The FCC Rule also prohibits associations from enforcing any restriction of these types of installations that "unreasonably delay" or "unreasonably increase the cost" of the installation or maintenance of the satellite dish or antenna. To provide some regulation on installations, an association should enact rules and regulations on satellite dish and antenna installation and maintenance. Legal counsel should be consulted regarding the scope of those rules.
Q: We have learned that the developer did not install proper shear walls for earthquake protection or proper firewalls when he built the property (less than 10 years ago). Can we sue for construction defects?
A: Until this year, the answer would have been "yes." However, in a very recent California appellate court decision (Aas v. Superior Court), the court held that developers were only liable for construction defects that caused personal injury or damage to other property. The Aas decision contradicted existing law under which a contractor owed a duty of care to prosecute its work in a manner which does not cause undue injury where such injury is reasonably foreseeable. Under Aas, reasonable foreseeability is not enough; there must be actual injury. However, the California Supreme Court has agreed to review the Aas decision. It is possible that the Supreme Court will overrule the Aas appellate court decision, and either establish a new standard of liability for contractors or reinstate the former standard of liability.
Q: There are several homeowners in my project who are delinquent in the payment of their assessments, including fines for violations of our Association's rules and regulations. One member of the Board of Directors has told me that the Association cannot record a lien against a homeowner's property for failure to pay fines or monetary penalties. Is this true? As President of the Association, I need to know the answer.
A: Under Civil Code Section 1367, the Association cannot record a lien against a homeowner's property for that homeowner's failure to pay any monetary penalty or fine imposed by the Association as a disciplinary measure for non-compliance with the rules and regulations or other governing documents of the Association. However, if the homeowner is responsible for damage to the Common Area in the Project and the Association imposes a monetary penalty against the homeowner in order to reimburse the Association for the Association's costs to repair the damage, such monetary penalty may become a lien.
Q: The Board of Directors of my Association has recently distributed a written ballot to the homeowners soliciting homeowner approval of an amended and restated set of CC&Rs ("Restated CC&Rs"). The Board has also distributed copies of the Restated CC&Rs to the homeowners for their review, but is giving the homeowners only five days to vote for approval or disapproval of the Restated CC&Rs and return the written ballot. Although many of my neighbors tell me that they have no problem with this deadline because they are not going to read it anyway, I would like to read the document provision-by-provision. However, I cannot thoroughly review the Restated CC&Rs in five days. Can I ask the Board for an extension to return the written ballot?
A: You can certainly tell the Board that it needs to extend the deadline within which all of the homeowners must return the written ballot. According to Civil Code Section 1355, in order for an amendment to the CC&Rs to be effective, the homeowners should have the proposed amendment(s) distributed to them by first-class mail, postage pre-paid or by personal delivery, not less than 15 days nor more than 60 days prior to any approval being solicited. What this means is that homeowners must have at least 15 days to review and consider the Restated CC&Rs before being required to return the written ballot.
Q: Our Association's CC&Rs provide that a unit cannot be occupied by more than two persons per bedroom? Is this provision valid?
A: Yes, provided that enforcement of the covenant does not constitute discrimination on the basis of familial status under the federal Fair Housing Act ("FHA"). Under the FHA, "familial status" is defined as "one or more persons under the age of 18 living with one or more legal parents or legal guardians." An association violates the FHA when it enforces covenants that restrict the total number of occupants in a unit, if those restrictions are merely a vehicle for restricting families with children. To be valid under the FHA, covenants restricting occupancy must be rationally related to physical characteristics of the project, including the number and size of bedrooms and the overall size of the dwelling. See Park Redlands Covenant Control v. Simon (1986) 181 Cal.App.3d 87. Furthermore, an association must have legitimate reasons to restrict the number of occupants in a unit, such as to prevent overcrowding of a unit. See City of Chula Vista v. Pagard (1981), 115 Cal.App.3d 785. Because violations of the FHA may lead to severe monetary penalties for the Association, if a homeowner challenges the enforcement of an occupancy restriction, claiming that the Association is discriminating against families by enforcing the restriction, legal counsel should be consulted.
Q: To minimize the risk of liability to the Association if an owner's child is injured while playing in the Association's driveway or common area streets, can our Association prohibit children from playing in these areas?
A: Yes, provided that the authority to adopt such a rule or regulation is stated in the Association's governing documents and provided that the rule restricts certain activities on identified portions of the common area, and not particular classes of people (i.e. children) from engaging in the prohibited activity. By prohibiting all Owners, and not just children, from doing certain activities in the common area driveway and streets that pose a likelihood of injury to a person or property, the Board may avoid claims from owners that the Association is discriminating against children and/or families with children.
Q: Can our Association sue a homeowner in small claims court for non-payment of delinquent assessments and foreclose non-judicially on the homeowner's property at the same time?
A: Yes, until one method is completed (i.e., a judgment is issued in the small claims action or a non-judicial foreclosure sale is completed). Under the Doctrine of Election of Remedies, the Association can only complete one type of collection method. Once a collection method is completed, the Association is barred from pursuing another collection method for the same delinquency.
Q: Our Association is repairing our building with construction defect settlement proceeds. Is the Association required to fix the owners' private balconies that are leaking?
A: The Association must repair the owners' private balconies. In general, the Association is obligated to repair the common area, including exclusive use common area. Whether or not the balconies are defined as exclusive use common area or common area in your CC&Rs and Condo Plan, the Association must repair them. In most cases, the owners' obligation is simply to maintain the balconies.
Q: Our contractor told us that tile on a balcony surface can lead to leaks through the balcony. Can the Association prohibit the owner from placing tile on the balcony after the Association repairs it?
A: Yes. In general, since the balcony is designated "common area," no owner may alter or modify the balcony. However, some CC&Rs do permit modifications to a private balcony, subject to architectural committee approval. In that case, the Board should adopt specific rules and criteria prior to approving any improvement to a balcony. Because placing tile on balcony floors causes moisture to be trapped between the tile and balcony floor surface, damage to the structural integrity of the common area is likely to result. When too much water becomes trapped, balcony leaks commonly occur. For this reason, your Board should prohibit tile from being installed on a balcony.