FINES ON UNPAID FINES

FINES ON UNPAID FINES

QUESTION: Is it legal to fine someone twice on the same violation if they refuse to pay the first fine and have remedied what the fine was for in the first place?

ANSWER: The imposition of monetary penalties requires due process, which must be done in accordance with the association's published fine policy. I've never seen language in any governing document that allows a board to levy fines on unpaid fines or two fines on a single violation. If your board had a written, published policy that allowed for fines on fines, I suspect a court would find it unreasonable.

Board Options. If an owner refuses to pay a fine, boards have twooptions. The first is to take the person to small claims court for a judgment in the amount of the fine. This approach is not always successful--small claims judges are a bit unpredictable. The secondoption is to hold a hearing and find the person "not in good standing" and suspend their privileges and voting rights until the fines are paid.

RECOMMENDATION: Boards should have their association's legal counsel review their governing documents and advise them on how best to levy and pursue monetary penalties.

RESIGNATIONS
AND APPOINTMENTS

QUESTION: Our board president resigned because he sold his home and moved. He had more than one year remaining on his term. Our treasurer, who is up for election this year, resigned his seat and was appointed by fellow directors to fill the seat vacated by the president and assume the remaining year of his term. Is this allowed?

ANSWER: Yes, it's allowed. The Corporations Code and most bylaws authorize the appointment of replacement directors whenever there is a vacancy on the board. There is nothing illegal or improper when a board appoints an existing director to fill the longer term of a resigning director. Term limits might preclude the appointment depending on how the restriction is worded.

FEEDBACK

Borrowed Reserves #1. Can a board use reserve funds designated for a particular line item in the reserve study for another reserve item if it needs attention immediately? If so, do funds have to be paid back?-Linda D.

RESPONSE: Monies can shift between line items in a reserve account. It is normal to make adjustments from year to year to reallocate funds to cover items that fail prematurely or cost less to repair than was anticipated. For example, if a boiler fails in year eight instead year ten as projected by the reserve study, funds can be shifted from other line items to cover the unexpected early expense. Or, if a pool heater replacement ends up costing half the projected cost, the left-over funds can be assigned to other reserve line items. Such reallocations are not unusual. 

Major Expense. In the example I gave last week, the reserves were wiped out by a large unexpected, unreserved for item. The $400,000 expense I gave was not a minor adjustment--it was a complete depletion of the reserves. The unexpected and unreserved major expense is better addressed through an emergency special assessment. Or, in the alternative, "borrowing" from the reserves and using a combination of regular and special assessments to accelerate replenishment of the funds.

Consequences. An unplanned emptying of the reserve account will clearly have consequences. Per statute, the association will have published a reserve summary that showed $400,000 allocated for plumbing, painting and paving expenses--those expenses do not go away just because a roof emergency intervened. They will hit at some point with no monies to pay for them. Accordingly, the prudent course of action is to replenish the reserve funds. Some reserve specialists have weighed-in on this topic. See their responses below.

Borrowed Reserves #2. We keep track of the major repair and replacement components at the individual component level as part of estimating the overall obligation. But the investment portfolio is handled as a pool of money. There is no “roof” money or “painting” money. It would be like having a bank account for every line item of revenue and expense. What is really going on here is that associations levy assessments sufficient to perform its duties. The annual assessment level is designed to handle the year’s estimated routine operating expenses and to charge current owners a sufficient amount that covers the “annual wearing out cost” of common area major components that the association is contractually (CC&Rs) and legally (California law) obligated to maintain at an known and ascertainable standard. Acquiring and managing the investments is a mutually exclusive process from estimating what money you need to meet current and future cash flow requirements and deciding who pays for what when. It is a more technical conversation, but that is the essence of the matter. -Donald Haney, CPA, MBA, MS(Tax).

Borrowed Reserves #3. Assuming monies are set aside for the items you mentioned, however, for some reason, the roof is not included in the reserve study, and therefore no monies had been set aside for their replacement, the monies in the reserve fund can still be used for replacement of the roof. It’s all one bucket of money and it can be used to replace components the association is obligated to repair, replace, maintain or restore. My rational is: 

1.  Is the component the responsibility of the association?
2.  Is the component in need of replacement? 

Assuming yes to each, why would an HOA have to borrow its own money to replace a component it is responsible to replace? The fact that the component was excluded from the reserve study [error by the preparer or believed to be 30+ remaining life] is irrelevant to the responsibility and needs of the association. The monies are set aside to maintain the facility, the reserve study is simply a tool to help identify and estimate the costs to do so. There will inevitably be costs to maintain a facility that are unforeseen, limiting the HOA’s available resources to the items specifically identified in a reserve study seems imprudent. -Scott Clements, RS, PRA, CMI, Reserve Studies, Inc..

Borrowed Reserves #4. On the subject of reserves and borrowing, we define an appropriate reserve project as meeting the National Reserve Study Standards four-part test, meaning the component/project is:

1.  A common area maintenance responsibility,
2.  Life limited (expected to realistically occur in the future),
3.  Predictable (not randomly occurring), and
4.  Above a minimum threshold cost (often in the .5% to 1% of annual budget range).

There are three primary reasons why an association may be in a situation to overspend from reserves: the expense is higher than expected, the expense is earlier than expected, or the expense wasn't anticipated. All three demonstrate the need to update the reserve study regularly, learning from experience to make the reserve component list better and more accurate each year, and helping board/management know the reserve contribution needs of the association.

Realistically, those reserve contribution needs of the association will likely increase the year after reserves have been overspent as the reserve strength of the association needs to be rebuilt! In those cases I believe a special assessment may be necessary due to cash flow issues, but I don't believe a special assessment or "repay within 12 months" is automatically triggered. -Robert Nordlund, PE, RS, Association Reserves, Inc.

Alligators #1. How far do you go with the visual blight that an excess of signage creates? Do you warn against all wild mammals that could carry rabies - squirrels, raccoons, feral cats, bobcats, mountain lions, coyotes, etc? Do you warn of stray dogs that might be off lead? How about black widows, brown recluse, and bedbugs? This list goes on ad infinitum and ad nauseam. Someone needs to come up with a sign at the gate that says, "WARNING: There are things in life that can hurt you." -Jim S.

RESPONSE: Don't forget to include rabid lawyers.

Alligators #2. Regarding the article about the unfortunate episode of the alligator eating a human and a subsequent lawsuit: We don't have any alligators but we have members of our HOA who have engaged in 2 verbal assaults and one physical assault on other members. Do we need to let the membership know about this pattern of behavior, both for the protection of individuals and the protection of the board? -Lolly S.

RESPONSE: Human alligators? Warnings should be plastered all over the common areas. But you better check with legal counsel on this one, he/she might not agree. (Problem residents are particularly difficult to deal with and your options are limited. You should get your association's attorney involved. Personally, I would rather deal with real alligators than the two-legged kind--it's a lot easier.)

Commercial Signage #1. Your November 18Newsletter stated, "A homeowners association is not a governmental entity--it is a private organization with private restrictions, which means the First Amendment does not apply." I thought federal law would always apply, even within the confines of a private organization. -Richard A.

RESPONSE: Not so. The First Amendment states that "Congress shall make no law...." Accordingly, the Bill of Rights protects citizens fromgovernmental restrictions, not private ones. Thus, businesses and owners of private property can restrict the activities of others in their employ or on their property. That's why an employer can fire someone for giving political speeches or handing out fliers in the workplace or posting racist or homophobic slurs on Facebook. When it comes to homeowners associations, they can adopt restrictions on signage in their developments and restrict speech in their meetings.
Commercial Signage #3 Our association of 647 detached homes does not allow any commercial signage except for real estate sale signs which are controlled. Our rules also state that "commercial vehicles" owned by residents or their guests may not be parked overnight in private driveways or in guest parking spots. -Tom M.

Adrian J. Adams, Esq. Adams Kessler PLC

ASSIGNING VALUE TO TRASH

Assigning Value to Trash

Occasionally I catch people browsing my recycling bins on the curb in search of aluminum cans. One such individual dressed in a business suit drove up to my recycling bins – and others on the block – to harvest cans. This seems like quite a lot of work, not to mention a colossal waste of fuel for just a few pennies. How are these people breaking even?

They should join me on a daily walk around the neighborhood sometime. That’s where the real cache of recyclables can be found. Strewn along sidewalk, gutter and sometimes street, I easily find plastic soda bottles, aluminum cans, newspapers, the occasional milk jug, and if I’m really lucky, still-intact glass bottles. These I gingerly pick up like a trophy: An unbroken glass bottle means that I, or other neighbors, don’t have to swing by later with a broom and dustbin. You probably don’t litter. I fail to even imagine myself littering. But there are lots of people who do.

I do, however, have a very difficult time ignoring recyclables – actually trash of any sort – while out and about. My instinct, as my family is painfully aware, is to reach down, pick it up and stow it in a pocket, bag or looped around whatever digit is still available. I have picked up countless jagged shards of glass with bare hands when a broom was too far away and time was of the essence. Note to self: I really should use gloves. Fortunately, if I forget to bring along a garbage bag on a walk, it’s very likely that a bag (or large box, as recently happened) can be procured along the way to help tote the plastics and glass and cans and paper home.

Even after all the garbage I’ve scooped, carried and sorted, I’m still amazed that people litter. I’ve personally observed adults toss entire bags of fast food out of moving cars. I’ve seen kids walking down the street with a treat in hand, unwrapping as they walk and tossing the packaging to the ground in one fluid movement. I’ve witnessed teenagers taking great pleasure in smashing empty glass bottles in the street. And I’ve experienced the aftermath of large-scale dumping of unwanted personal belongings like mattresses and TVs in local parks and residential alleys.

We all experience something similar – or live alongside the result – on a daily basis. And it seems to me that our personal value systems may be a tad out of alignment. One of my neighbors, a retired teacher, frequently accompanies me on walks. His solution to help curb wanton littering is to assign monetary value to more recyclable packaging. I happen to agree. I also think that a deposit on certain items like plastic or glass bottles would greatly increase their recycling or reuse.

My grandmother kept few store-bought snacks in her house, but she did keep 7-Up on hand for the occasional upset stomach or special treat for a grandchild. For either use, an inch was all that was administered. Eventually those stately green glass bottles would empty and get returned to the corner market for reimbursement. Each one carried a 10-cent deposit. And you can bet that each one got returned.

Assigning value to trash is a difficult concept for some. It requires a great deal more big-picture thinking than the short-term gratification of consuming something and not being bothered with the waste produced by the product. What’s valuable beyond that? Well, how about diverting a recyclable item away from a landfill? Or reducing energy use? Or respecting shared space by properly disposing of trash? Or choosing to consume items that require less (or no) packaging whatsoever, like an apple.

The big picture is not that complicated: Understanding our personal impact on our environment, choosing wisely what we consume and taking responsibility for all of it — even the waste. This isn’t a new concept at all. In fact, it sounds a lot like plain, old common sense. Thanks, grandma, for the valuable early education.

TERMITE TENTING
A CAPITAL IMPROVEMENT?

QUESTION: The board wants to tent our entire building for termites. Is this a capital improvement that requires the entire association's vote? If the cost is under 5% of the annual budget, is membership approval required since this is common area?

ANSWER: Termite tenting is not a capital improvement. It is a maintenance/pest control issue. The form of treatment, spot or tenting, is a business decision for the board to make, not the membership or the courts. Lamden v. La Jolla Shores. Regardless of whether the repairs are related to the common areas, the board can approve a special assessment on its own authority for up to 5% of the current year's budgeted gross expenses. Civil Code §1366(b). If the cost is more than 5%, the board can impose a special assessment if the termite treatment is an emergency.

RESERVES FOR
HOA OWNED UNIT?

QUESTION: Our association has done a reserve study and now is taking the necessary steps to increase the reserves. The association owns one of the units free and clear and rents it out. The unit is worth over $500,000. Shouldn’t this count toward the reserve account?

ANSWER: The $500,000 estimated value of the unit can be included in the HOA’s balance sheet but not in its reserve funding calculations. Assuming the unit is a condominium, there is very little that needs to be reserved for inside the unit--carpet, cabinets and maybe painting. Depending on the size of your budget, most items in the unit will be addressed through routine annual maintenance.
Property Taxes & Insurance. Non-reserve items that are sometimes overlooked are the need to insure the unit and pay property taxes.

Separate Interest. If the unit was acquired through foreclosure, it will have a parcel number. In that case, property taxes must be paid and a separate general liability and property insurance policy purchased for the unit.

Common Area Unit. If the unit is part of the common areas, then property taxes are not an issue. That happens most often when a "manager's unit" is created by the developer and included in the common areas. Accordingly, the unit is covered by the association's insurance. However, boards should not assume it's covered--they need to verify it. 

Taxable Income. Rent money collected from the unit is subject to taxation as non-dues income. In addition, when the unit is sold the association will incur transaction costs and pay taxes on any gain on the sale. The gain on this asset sale produces “non exempt function” income, which is taxed at ordinary corporate rates. These rates go up to 35% for federal and 11% for California. There is also a “basis” for gain or loss issue to resolve when the unit is sold. Therefore, the net realizable value may be substantially less than $500,000.
Thank you to Donald Haney, CPA, MBA, MS(Tax) of haneyinc and Scott Clements, RS, PRA, CMI of Reserve Studies, Inc. for their input on this question. 

NO QUORUM
FOR PAST FOUR YEARS

QUESTION: I have been a board member three times. The last four years our annual election was held by mail. We never had a quorum. Do we need a new election or can we count the original ballots at the next meeting?

ANSWER: Sorry, you cannot carry over ballots from year to year until you get enough to hold a meeting. Ballots count for the election for which they were noticed (and any adjournments of that year's meeting). Consequently, you need to issue a new notice and new ballots for each annual election.

ELECTRONIC
CONSENT FORMS

QUESTION: I know that owners must sign a "consent form" before the association can electronically send documents. If we make these documents available on a website and only send owners an email notice that they are available, do we still need a signed consent form?

ANSWER: Documents can and should be posted on your website so owners can download them as-needed. However, whenever documents are required by statute to be distributed to the membership (budgets, year-end disclosures, annual financial statements, etc.) you will need an unrevoked consent on file if you want to either distribute them electronically or post them on the website in lieu of distributing them.

RELEASE OF
ASSOCIATION RECORDS

QUESTION: Our Reserve Study Committee needs to look at old records, especially ones our old management company turned over to the current one some 7 years ago. The current management rep told our board president he can't let those out of the office. Don't HOA records belong to the HOA and doesn't the HOA have the power to say where and when the records are kept?

ANSWER: I'm not sure why you need 7-year old records to prepare a reserve study. What you need is a reserve specialist to (i) visually inspect your development's major components, (ii) establish an estimated remaining useful life for each component the association is required to maintain, (iii) set a replacement cost for each component, (iv) calculate interest and inflationary offsets, (v) sprinkle a little pixie dust on it and produce a reserve study/funding plan that can be used by the board as a guide to properly fund the reserves. (See Reserves Menu.)

Records Oversight. When a managing agent is entrusted with the association's records, industry practice is to NOT allow them out of the management office because they can be lost, damaged, destroyed or altered. Accordingly, neither board members nor committee members have the right to remove records from the management office. Only the board as a whole has the power to authorize the "borrowing" of original records. Even so, letting originals out of the office is a bad practice. The better practice is to allow records to be reviewed in the management office or to make copies. An exception is during litigation when original records need to be sent to the association's legal counsel for review and possible production to opposing counsel.

FEEDBACK

Fines #1. In response to "Fine on Fines," our HOA has wording in the fine schedule that all fines will continue monthly until the member is in compliance. Not another fine on top of a fine, but a way to keep homeowners accountable. -Kaye

RESPONSE: I agree. A daily, weekly or monthly fine imposed for a continuing violation is not a fine on a fine. Ongoing fines can be effective when used in a "carrot and stick" approach to the violation. In other words, fines accumulate daily but will be waived if the violation is cured in an appropriate time period set by the board. If the violation is not timely cured, the fines are not waived and the association then takes legal action to bring the person into compliance.
Conversion Charts. THANK YOU for your and your staff's hard work! The double cross reference to the “new” to “old” Davis-Stirling Act is a godsend. I only hope our association board and property manager appreciate it as much as I. Thank you, again. -Bruce S.

Adrian J. Adams, Esq. Adams Kessler PLC

REMOVE MEMBERSHIP FROM DELINQUENT OWNER?

REMOVE MEMBERSHIP
FROM DELINQUENT OWNER?

QUESTION: We have a property owner who is in arrears. Can we remove him from membership in the HOA? Our bylaws state that we can suspend voting privileges, which we have done, but we would like to remove him completely from the membership.

ANSWER: Sorry, you can't remove his membership. Membership is automatically conferred by ownership of a lot or condominium. Civil Code §1358. The only way you can take away a delinquent owner's membership is to foreclose on his property.

REMINDER ABOUT
LENDER FORECLOSURES

All associations should record a blanket "Request for Notice of Sale" to receive notice of lender foreclosure sales. Otherwise, boards will notknow who to bill for assessments after the sale occurs.

Recording the Request is important if associations want to benefit from AB 2273 which goes into effect January 1, 2013. This bill requires lenders to record foreclosure sales within 30 days of the sale. It makes banks accountable for the properties they acquire, i.e., once the sale is recorded, the lender must start paying HOA dues and special assessments. 

INVESTORS HAVE
EQUAL VOTES

QUESTION: Our board allows owners of more than one property (rentals) to have equal voting rights for each property. Is this legal?

ANSWER: Your board is not the culprit. Voting rights are established by your governing documents, which ties them to ownership. As a result, owners of a separate interest in a common interest development have the right to cast votes for each property they own--that includes investors.

Problems. Allowing investors to own multiple properties can create problems for associations. The first is the higher rental population they bring to the development and the second is the voting power the investors wield. If an association has cumulative voting, the investor's influence is magnified even further.

Solutions. To contain the problem, associations can amend their CC&Rs to limit ownership to one or two properties per person or entity. At the same time, HOAs should consider adding a requirement that no buyer can rent his property until he has resided in the residence for at least one year (some associations make it two years). This will deter investors from buying units and immediately turning them into rentals. It will bring owner-occupants into associations, which is what you want. 

HARDWOOD FLOORS

QUESTION: An owner on the 2nd floor wants to install hardwood flooring. I can't find anything that says that the owner installing the floors must seek approval from the owner below, just the HOA board. Is this correct? I was always under the assumption that the owner that lives below would need to approve the floors.

ANSWER: Unless your governing documents provide otherwise, the architectural committee (or the board, depending on your documents) reviews and approves, modifies or disapproves the remodel application. Some associations (especially PUDs) require notification of surrounding neighbors when remodel applications are submitted so neighbors can attend the architectural meeting to observe the review process. Neighbors can voice their concerns but they cannot veto the proposed project. If the owner meets the association's architectural guidelines, he/she should receive approval for the proposed work. 

RECOMMENDATION: When it comes to hardwood floors you need to have objective standards that fit your building's particular construction. Some buildings, especial condo conversions, are so poorly constructed that there is no practical or cost effective way to install hardwood floors that would not create a nuisance to unit owners living below them. Your board should adopt strong architectural guidelines and then enforce them in a consistent and evenhanded manner.

FEEDBACK

Adrian's Angels. Kudos to Adams Kessler for their team of amazing lawyers! I have had personal experience with Karen Jacobs whom I found to be thoroughly knowledgeable. She listened to me instead of acting as if I was an intrusion in her day. I had great success with her in our dealings. If the rest of the team is as personable and competent, I offer that the women of AK are more than angels--dare I say it, they are GODDESSES. -Anita H.

Free Riders #1. I loved your answer to "FREE RIDERS"! Very well said! -Ken H.

Free Riders #2. Kudos on your response regarding suspension of common area privileges. I find this practice to be one of the most successful in collecting debt on behalf of my clients. Last month alone, I was able to secure over $30K between two associations either through payment in full or a one year payment plan. I find it funny that revocation of parking transponders, parking tags and pool use is more persuasive than legal action. This process is especially useful when there are tenants in a unit; as soon as tenants are copied on the hearing letter, they put pressure on the unit owner. -Vicki M.

Free Riders #3. Please tell Adrian that I send a HUGE thank you for his comment in yesterday’s column that pertained to “giving people a free ride.” Amen!!! -Phyllis H.

Free Riders #4. “Giving people a free ride at others' expense is a poor business practice we reserve for our federal government.” Bravo! And Amen!! -David C.

NOTE: I had two readers who took offense at the comment because they thought it had political connotations. In our current overwrought political season? Perish the thought! -Adrian

DRE Warning. Regarding the DRE "Consumer Warning," I noticed on page 3 under the second bullet that the DRE implies that an owner is entitled to the "Delinquent Report" from the association. Is that true or am I misunderstanding the intent? -Bob F.

RESPONSE: Yes, owners are entitled to financial information, including a delinquency report. Boards should already be receiving them in their monthly financial reports. However, if names are in the report they need to be redacted before giving copies to owners.

No Smoking #1. We are a 36-unit condo association that recently adopted a no smoking policy both inside the units and in any part of the common area EXCEPT for a designated smoking area in the common owners parking lot. We adopted the policy based on the nuisance clause in our CC&Rs. -Rick H., Canyon Lake, CA

No Smoking #2. Our association has the following restriction: "No owner, family member, tenant, resident, guest, business invitee or visitor shall smoke cigarettes, cigars, or any other tobacco product anywhere within the boundaries of BTH. This prohibition shall include the outside common area, enclosed common area, exclusive common area (balconies and patios) and all units within the project." -Jonathan P., Berkeley, CA

No Smoking #3. I have one association in Tiburon that doesn't allow smoking anywhere on the property, including inside units. "No Smoking Property" signs are at each property entry. -Trudy M.

Adrian J. Adams, Esq. Adams Kessler PLC

BOARD MEMBERS AS CC&R EXPERTS?

FREE RIDERS

QUESTION: While checking your website on suspension of common area privileges, I was shocked when I read, "If there are multiple owners of a unit/lot, the suspension of rights/privileges for one owner suspends the rights/privileges of all residents of that unit/lot. The suspension also extends to renters." With all due respect, an HOA is not a military organization where group discipline is used to demand compliance with an order.

ANSWER: If the owner of a unit is delinquent and his privileges are suspended, the people residing in his unit are also suspended, whether family members, guests or tenants. Otherwise, the suspension is meaningless. If residents were not included in the suspension, they would continue to enjoy the association's amenities without paying for them. Giving people a free ride at others' expense is a poor business practice we reserve for our federal government.

BOARD MEMBERS AS
CC&R EXPERTS?

QUESTION: As a board member, am I expected to be an expert on our CC&Rs? I wish I were but, for example, when a homeowner asks who is responsible for repairing damage caused by a water leak in a common wall, I don't feel qualified to give a definitive answer.

ANSWER: I know that some homeowners expect every board member to read and understand every line of their CC&Rs. That is an unrealistic expectation. Volunteer directors are not experts and can get themselves in trouble if they try to be. As a practical matter, boards should have a general understanding of how things work but should defer to an HOA attorney to interpret their CC&Rs.

Maintenance Chart. When it comes to maintenance duties, boards should have legal counsel prepare a maintenance chart that lays out all common maintenance issues and who is responsible for each--the association or owners. That requires a thorough review of your governing documents in conjunction with the Davis-Stirling Act and applicable case law. The chart is then published to the membership. Making everyone aware of their respective duties can minimize or avoid expensive litigation.

RECORDING MOTIONS
 IN MINUTES

QUESTION: Is there an established doctrine that the individual making a motion and the individual seconding the motion be identified by name in the minutes? I have seen this done by a professional minutes taker, however, my colleague disagrees. What is the accepted rule?

ANSWER: There is no law that requires the name of the person making the motion and the one seconding the motion. While some associations do, many associations simply state that a motion was made and seconded. Over the years, I have seen both practices and both are acceptable. Even though boards of directors are not required to use parliamentary procedures for their board meetings, Robert's Rules of Order serve as a useful guideline for taking minutes. According to Robert's Rules,

The name of the maker of a main motion should be entered in the minutes, but the name of the seconder should not be entered unless ordered by the assembly. (Robert's Rules, 11th ed. p. 470.)

For those associations that can afford it, a professional minute taker provides greater consistency and a quicker turn-around for minutes.

BOYFRIEND
CONFLICT OF INTEREST

QUESTION: We have a board member whose live-in boyfriend is a licensed contractor. She gives him copies of the bids we get on various projects so he can submit a lower bid. Is this legal or ethical? Can board relatives even bid on projects?

ANSWER: It is clearly inappropriate for your ethically-challenged director to provide insider information to her boyfriend.

Problems. It is not illegal for a director's relative to bid on projects ifdone properly but doing so is fraught with peril. Most boards wisely disallow the practice because of the inherent problems when directors benefit from contracts awarded to themselves or relatives.

Censure. Your self-serving director should resign from the board if she wants her boyfriend to bid on HOA projects. If she refuses to resign and continues to leak information, she can be censured by the board and an executive committee created to review bids. In addition, your board should adopt an ethics policy.

UNDERFUNDED HOAs

As boards everywhere already know, the recession has created significant funding problems for their HOA budgets. That has led to deferred maintenance and underfunded reserves.

The problem is serious enough that California's Department of Real Estate issued a "Consumer Warning."

SANTA MONICA BANS
SMOKING

In addition to San Rafael's no smoking ordinance I reported on last week, the city of Santa Monica banned smoking for new tenants of apartments and condos. The ordinance was approved on October 2 and included language giving neighbors the right to take smokers to court if they violate the ban.

Last week I asked if any condominium associations had banned smoking inside units. At least three have done so:

No Smoking #1. Our association prohibits smoking in all areas with the exception of a single location on the roof deck. Because we have a passive ventilation system that is constantly introducing fresh air into the units, smoking inside the units would quickly cause cigarette smoke to propagate between units and is therefore prohibited. In addition to our CC&R restriction, we have a separate smoking restriction policy. -Brian H., San Francisco

No Smoking #2. We amended our documents in 2010 to become a non-smoking facility both within individual units and in the common area. We made an exception for two older residents to continue smoking on their balconies only. These two have now passed away, so we are a smoke-free complex. -Angela D., Los Gatos

No Smoking #3. We successfully amended our CC&Rs to ban smoking throughout our seniors 112-unit condo (including inside units). -Steve R., Torrance

Adrian J. Adams, Esq. Adams Kessler PLC

CHAIN AND WHEEL HUB BOARD MEETINGS

CHAIN AND WHEEL HUB
BOARD MEETINGS

QUESTION: Board members can't discuss HOA business outside a meeting unless it's among less than a majority. Our board meets monthly and it is not enough time to discuss everything in our board packet. We have five board members, can I speak to one or two directors one day and the other one or two another day?

ANSWER: Not really. What you describe is known as a "hub & spokes" board meeting with you at the hub. This type of meeting is not directly addressed by the Davis-Stirling Act. Because it is a gray area, we can turn to the Brown Act for guidance. The Brown Act regulates the meetings of public legislative bodies and local public agencies and was used as a model for the Davis-Stirling Open Meeting Act.

Chain Meetings. The Brown Act prohibits such communications, whether direct, by intermediaries or electronically. Gov. Code §54952.2(b). In a chain meeting, also called a serial meeting, "A" talks to "B" who talks to "C" who, in turn, talks to "D." In a wheel hub, directors are spokes with "A" at the center--the directors never talk to each other, they all talk individually to A. When deliberations and decisions are made through chain communications or via wheel hubs, they deprive members of their right to see how board decisions are made. If a board were sued under the Davis-Stirling Act for a wheel hub or chain meeting, I suspect the courts would interpret Davis-Stirling using the same principles found in the Brown Act.

RECOMMENDATION. Directors should not discuss board business outside of noticed meetings. I know it puts a significant burden on directors who already have busy home and work schedules. To compensate for the restriction, many boards rely more heavily on their managers to handle day-to-day operations and they schedule more "quickie" board meetings between regular meetings, i.e., short meetings to address one or two issues (following proper notice to the membership).

SPECIAL ASSESSMENT
 CONFLICT

QUESTION: To approve special assessments, our CC&Rs require a majority of homeowners. Our bylaws require 75% to approve same. Does one supersede the other?

ANSWER: Both are superseded by the Davis-Stirling Act. The Act states that a majority of a quorum is sufficient to approve a special assessment. If the law had not addressed special assessments, then your CC&Rs would have trumped your bylaws. This hierarchy of authority was not previously spelled out anywhere. However the Davis-Stirling rewrite (effective January 1, 2014), states that any inconsistencies between governing documents and the law or between governing documents are resolved in the following order of authority: the law, the CC&Rs, articles of incorporation, bylaws and operating rules. (New Civil Code §4205.)

ADJOURNED
ANNUAL MEETING

QUESTION: In the event an annual meeting must be postponed on the day of the meeting, what is the procedure to postpone the meeting? And are mailed-in ballots still valid?

ANSWER: The meeting is simply adjourned to a later date by those in attendance at the meeting. Language to that effect is often found in most bylaws. In addition, it is covered by Robert's Rules of Order: 

... in the absence of a quorum, the assembly may fix the time to which to adjourn, adjourn, recess, or take measures to obtain a quorum.

... If there is important business that should not be delayed until the next regular meeting, the assembly should fix the time for an adjourned meeting and then adjourn.

... the chair calls the meeting to order, announces the absence of a quorum, and entertains a motion to adjourn [to a later date]. (Robert's Rules, 11th ed., pp. 347-349.)

If a date was not selected and announced when the meeting adjourned to a later date, the board sets the date (which usually requires coordination with the Inspector of Elections) and gives notice to the membership. As long as the ballots were not opened, they remain valid and are brought to the adjourned meeting by the Inspector. Once quorum has been achieved, the ballots are opened and counted.

RECOMMENDATION: If your governing documents are silent, you may want to amend them to address this and other election issues. 

SMOKING BANNED
INSIDE CONDOMINIUMS

The City of San Rafael, a suburb of San Francisco, passed an ordinance this week banning smoking in condominiums. They become the ninth city to ban smoking in multi-unit housing (which includes condominiums).

I believe this trend is irreversible and may accelerate. In addition, we will likely see associations amending their CC&Rs to ban smoking throughout their developments (including inside units). If readers are aware of condo associations that have already done so, please let me know. I would like to monitor the trend. -Adrian Adams

EMAIL NOTICE OF BBQ

QUESTION: Does the Davis-Stirling Act preclude our association from using member email addresses to invite members to an association organized neighborhood BBQ?

ANSWER: Yes, you can use emails to send invitations. Limitations on electronic notifications are on official notices and disclosures, i.e., those mandated by statute. The most common official notifications are notice of board meetings. Such notices cannot be given electronically unless members execute an "unrevoked consent" giving the association permission to give notice by email.

FEEDBACK

Relevant. Excellent newsletter. Hit some very relevant points. -Donald A.

Term Limits #1. Thank you for your newsletter. I continue to pass it along to my entire condo association so they can stay abreast of things. Meanwhile, the question about term limits is a good one. I've been president most of the last 25+ years. I would love term limits. I tried to resign but no one else wants the job. -Esme G.

Term Limits #2. Thank you for the article. I've been been on the board now for over 10 years. Every year elections come up and no one ever sends back their ballots, so the board remains the same. No one wants to take the extra time and energy to take care of problems and resolve issues that arise in the complex. It takes a lot of time and energy to do walk-thrus, get bids, watch the finances, etc. The homeowners never come to monthly meetings either, it's always just the board. -Barbara K.

Adrian J. Adams, Esq. Adams Kessler PLC

TERM LIMITS

TERM LIMITS

QUESTION: How long should a board member remain on an HOA board? We have a couple of members who have been on the board for several years and refuse to leave.

ANSWER: Refuse to leave? As long as the membership keeps electing them to the board, directors properly occupy their seats. Having long-term directors can be good or bad depending on the particular directors. Good directors bring institutional memory and a steady hand to the association's business. Their experience saves money for the membership. One director I work with has been on his board for over 20 years. He has consistently been one of the best business-minded directors I've ever dealt with.
On the other hand, some long-term directors start out sharp and then turn autocratic over time and slow to adjust to changing circumstances. When that happens, they need a nudge to step down and let someone else serve on the board.

Term Limits. To encourage "new blood" on the board, some associations amend their bylaws to implement term limits along with staggered two-year terms. The best term limits are those that allow directors to serve two consecutive terms and then step down for one year--provided someone else is willing to serve. If no one else runs for the board, the limit is lifted and the director can continue to serve.

ATTORNEYS' FEES

A recent appellate court decision dealt with attorneys' fees in a dispute over an election. A homeowner brought a challenge to an election and the association prevailed in the action. The court found some of plaintiff's actions, including filing a complaint barred by the statute of limitations, "frivolous." The association sought attorneys' fees under Civil Code §1363.09(b), which provides:

A prevailing association shall not recover any costs, unless the court finds the action to be frivolous, unreasonable, or without foundation.

The court awarded the association $15,000 in attorneys' fees. Plaintiff appealed. The appellate court agreed with the lower court that plaintiff's lawsuit was frivolous. Even so, it reversed the fee award. The court decided that the statute cited above did not explicitlyauthorize recovery of attorneys' fees. However, the court left open the door that an association could recover its fees under their own CC&Rs. See That v. Alders Maintenance Corp.

WHO PAYS FOR
BALCONY DAMAGE?

QUESTION: Who is responsible for paying for the deck when the owner tiled it without approval? The HOA or the owner?

ANSWER: The owner. However, the owner could have some defenses depending on the situation. To minimize any defenses (or avoid the problem altogether), boards should adopt written rules and regulations regarding the tiling of balconies and then strictly enforce those restrictions. Associations should either (i) ban tile altogether or (ii) implement tough installation guidelines pursuant to a consultant's specs written specifically for the association. In addition, the association should record a covenant making the owner (and future owners) responsible for all maintenance and damage that may arise from the installation of the tile.

CAN HOA CONTRACTOR
BUY A UNIT?

QUESTION: Can a contractor hired by the HOA buy in the same complex? Would this constitute a conflict of interest?

ANSWER: Yes he can buy into the complex. No, it’s not a conflict of interest . . . unless he is elected to the board and votes on his own contracts. Contractors are generally good to have around; it's the lawyers you have to watch out for.

SMALL HOAs

QUESTION: My daughter is president of a 9-unit HOA. With so few units, are they held to the same standards of larger associations? Do they have to send out annual disclosures?

ANSWER: Unfortunately, they are held to the same standards and subject to all compliance expenses even though small associations have very little money and are usually self-managed. 

During its rewrite of the Davis-Stirling Act, the California Law Review Commission recognized the burden the Act imposed on small HOAs. The CLRC looked at how to lighten the load and started by trying to define "small" HOAs. The project proved to be difficult and was tabled. The CLRC might take up the issue again at a later date, but I doubt it.

Neighbor-To-Neighbor Battles- Leave It Up To The Neighbors To Duke It Out?

Neighbor-To-Neighbor Battles- Leave It Up To The Neighbors To Duke It Out?

I say no. But I also say, seek a balance. A Board is not required to expend association sums to sue. The balance is somewhere in between doing nothing and taking aggressive action. And if you are one of the neighbors, don't count on the Board to be the "deep pocket" when you sue the neighbor. Try hard to diffuse the situation, or get the neighbor to mediation. Don't retaliate. If you end up in court you want to be the party that tried hard to resolve the situation. Here is why:

The problem: Neighbor A (single lady) lives in the upper unit and she has hardwood floors and walks like an elephant, even though she is 85 years old ... stomp, stomp, stomp. The local realtors know she didn't want anyone below her because when they were showing unit B, the "stomper" was always trying to chase off buyers. Neighbors B who bought the lower unit liked the location, the condo, and the price (lowered because of the nuisance disclosure) and felt like they could make friends with anyone by taking cookies upstairs. They endured some stomping, and they took lots of cookies upstairs. Things didn't work out exactly like they thought they would.

Neighbors B like to barbecue out on their front deck. Though they try hard to be good friends with the upstairs neighbor, they can't get neighbor A to stop "stomping". Neighbor A can't get neighbors B to stop barbecuing. She says she is allergic to barbecue smoke. They tell her to keep her sliding glass door shut. She says she does, and the smoke still gets into her unit. Neighbor A starts sweeping her deck when neighbors B barbecue. Since there are slats in the deck there is always a lot of dust raining down on neighbors B. Neighbors B start barbecuing more often, going from once or twice a week to every other day. Neighbor A starts showering late at night, claiming she has to wash off the barbecue smoke before bed. Neighbors B start flushing the toilet when neighbor A is in the shower and playing TV late at night, very loud. They claim they need to "drown out" the shower noise. Neighbor A starts stomping more, .... And ... you get the picture.

They both file complaints with the Board and neighbor A wants a development-wide ban on barbecuing, neighbors B want the stomping, the sweeping and the late night showering to stop - what would you do?

The solution: The Board invites the parties to a meeting - there are 12 board members, me, and neighbor A and neighbors B. The Board listens carefully to all parties, then we confer, sending the parties on their way. We brainstorm a solution, and I am asked to issue a "demand" in writing, to the parties.

Neighbor A is to lay rugs and pads down in the traffic areas, and remove her hard soled shoes when in the unit. She can wear supportive slippers or soft soled shoes (she is 85 after all). She is to stop stomping and stop sweeping when neighbors B are barbecuing. The Board offers to have the association's maintenance worker add a strip of insulation around the sliding door to help keep out the barbecue smoke. She is to shower by 10pm.

Neighbors B are to limit barbecuing to no more than 2 days a week (which was the pattern before the fight heated up). Alternatively they could move the barbecue to the back porch which is not below neighbor A's deck (although the board believes she never used the deck) and barbecue every day if they want. They are to stop flushing purposefully when neighbor A is in the shower and turn down the TV.

The decision letter stated that these were viable solutions but if these neighbors did not follow the Board's directives, and either continued to cause a nuisance, the Board would consider disciplinary action. The letter also noted that if they continued to "prod" each other in the same ways, and both remained part of the problem, there was going to be no further action on the part of the Board, and that they would have to sort it out themselves without the help of the Board. The Board suggested that if the problems continued, the parties should go to mediation and provided contact information for local mediators.

These people continued to fight, no one gave an inch, and neighbor A got a lawyer and sued neighbor B and the Association. Neighbors B got a lawyer and cross-complained against neighbor A and sued the Association.

On behalf of the Association I filed a motion for summary judgment to extricate it from the dispute and recited the facts, offering the letter (written by me on behalf of the Association) to the court as evidence of the board's attempt to get the parties to resolve the matter.

The court granted the motion and the Association was let out of the litigation. This had happened once before in my career and in that case the parties deflated, once the deep pocket was out of the picture. But that didn't happen here. The parties fought viciously in court spending a lot of money until the Judge "nonsuited" both parties (and dismissed the case), and there was an article in the local newspaper entitled "Judge Douses Barbecue Case."

Both parties then demanded an audience before the Board. The Board listened to each party's attorney, neither party would come, neither was willing to be in the same room with each other. The first attorney made her case to the board claiming failing health of the now 86 year old woman. The second attorney did much the same, but also asked to show the board a video tape (yes, this was quite a few years ago) of the neighbors B and their doctor stating that Mr. B's health was threatened. I and the Board graciously declined to watch any video tapes and noted that we could certainly believe that the parties' health had deteriorated during this long and arduous battle, between them.

Another letter was issued, and this time the parties were told this: One of the board members had volunteered to meet with the parties together with a mediator or with each party separately if they couldn't stand to be in the same room with a social worker (this was a seniors' development where there was such a person available) to try to come to an agreement. If they refused, they would be back on their own. She (the Board member) would opt out.

Neighbors A's attorney had the gall to call me and threaten to sue the Board if it did not take action against the stomper. I told her I thought not and asked her how she intended to do that when the judge had thrown the case out of court? She dropped the subject and went away. Maybe she didn't know I knew.

Both parties suffered greatly in health but apparently neighbor A was as strong as a grisled old bird. Mr. B died within 6 months of a heart attack or stroke. Mrs. B moved back East to live with one of her adult children. Unit B went back on the market. I never heard another peep from anyone. Maybe the stomper was too tired to stomp anymore.

What is the moral of this story?

If you are the board: if the Board recognizes a duty to investigate the situation and attempts to resolve the problem via reasonable demands, it may be vindicated and even let out of any litigation the parties file against each other. If unable to get out on a summary judgment motion, it will certainly be more likely to get a defense verdict if sued, if it has made an effort! I have learned this through two cases, different associations, where neighbors were being unreasonable, and continued to be even after the boards proposed very reasonable solutions. In these two cases the association and board members were let out on summary judgment motions. The court recognized there was nothing the board could do. And in many other cases, boards received reasonable treatment in court  (namely beneficial verdicts and attorney fees awards) after being able to show the attempts made to help two disputing parties resolve their differences.

If you are one of the neighbors: escalating the dispute by retaliating and creating a vicious circle doesn't resolve the fight; it makes things worse! An escalated fight adversely affects one's life, one's peace-of-mind and ultimately, one's health. And for a double whammy, it creates a necessary adverse disclosure issue if one wants to sell or rent their home to get out of the situation!

These kinds of battles in court require endless sums of money and often leave the parties battered and bruised. Don't let it happen to you.