Focus Magazine

LEGISLATION

DISPUTE RESOLUTION

Assembly Bill 1836 – Fair, Reasonable and Expeditious Dispute Resolution

This bill revises the dispute resolution procedures applicable to owners and Associations. This bill creates a new dispute resolution procedure for specified conflicts between owners and Associations. Associations are now required to provide a “fair, reasonable, and expeditious procedure” for resolving specified disputes. This bill defines a “fair, reasonable, and expeditious procedure” by defining certain minimum standards. This bill provides a specific dispute resolution procedure for Associations that do not adopt a “fair, reasonable, and expeditious procedure”. This bill also requires Associations to provide notice to its members of its dispute resolution process.

Associations must now provide a “fair, reasonable, and expeditious procedure” for resolving disputes with owners. Boards must fulfill the requirements of Civil Code Sections 1357.130 and 1357.140 when adopting such procedures, such as providing owners with written notice of the exact text of the proposed procedure at least 30 days before an open meeting at which the Board will vote to adopt same. Civil Code Section 1363.830 defines a “fair, reasonable, and expeditious procedure” by setting forth seven minimum requirements. Section 1363.840 actually sets forth a “fair, reasonable, and expeditious procedure” that will control if an Association fails to adopt same. The procedure, which, at a minimum, should be adopted by all Associations, is as follows:

Either party to a dispute may invoke the following procedure:

(a) The party may request the other party to meet and confer in an effort to resolve the dispute. The request shall be in writing.

(b) A member of the association may refuse a request to meet and confer. The association may not refuse a request to meet and confer.

(c) The association’s board of directors shall designate a member of the board to meet and confer.

(d) The parties shall meet promptly at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute.

(e) A resolution of the dispute agreed to by the parties shall be memorialized in writing and signed by the parties, including the board designee on behalf of the association.

An agreement reached under this section binds the parties and is judicially enforceable if both of the following conditions are satisfied:

(a) The agreement is not in conflict with the law or the governing documents of the association.

(b) The agreement is either consistent with the authority granted by the board of directors to its designee or the agreement is ratified by the board of directors.

A member of the association may not be charged a fee to participate in this process.

Lastly, Civil Code Section 1369.590 requires Associations to provide members, at the time of distributing their pro forma budgets, the following new resolution disclosure, in addition to the internal dispute resolution procedure adopted by the Association (such as the one above), if any:

“Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 1369.520 of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law.”

Assembly Bill 2376 – Rule Changes Regarding Physical Changes to Property

This bill adds Civil Code Section 1378. Similar to certain provisions of Assembly Bill 1836 this bill requires Boards to fulfill the requirements of Civil Code Sections 1357.130 and 1357.140 when adopting operating rules relating to procedures for the review and approval of physical changes to a member’s separate interest or common area. This bill also requires procedures for an Association’s approval of applications for physical changes to property to be fair, reasonable, and expeditious. This bill requires Associations to fulfill various requirements when responding to members’ applications. This bill does not apply to Associations limited to industrial or commercial use.

If governing documents require Association approval before an owner can make physical changes to his or her separate interest or to the common area, the Association must provide a fair, reasonable, and expeditious procedure for making decisions. Decisions must be in writing and, if the member’s request is denied, the decision must explain the reason for denial and set forth the procedure for reconsideration of the decision by the Board. Owners are now entitled to reconsideration at an open meeting of the Board. Also, Associations must provide notice to their members on an annual basis of the procedure for obtaining Association approval for physical changes to property. This must accompany the pro forma operating budget.

MANAGEMENT AND RESERVES

Assembly Bill 2718 – Reserve Disclosures

This bill revises existing law governing an Association’s obligation to prepare and distribute to the membership financial and reserve reports. This bill requires Associations to prepare and distribute to the membership on an annual basis a new form regarding assessment and reserve funding disclosures. The disclosure must now be done not less than 30 days nor more than 90 days prior to the beginning of the Association’s fiscal year. Associations may charge members requesting copies of the required documents reasonable fees, and may make said documents available in electronic form. This bill applies to reports and disclosures made after July 1, 2005.

Associations must now prepare a new, detailed form regarding the disclosure of assessment and reserve funding. Civil Code Section 1365.2.5 contains the required form, which is as follows:

(f) The current assessment per unit is $__________ per ____________________. Note: If assessments vary by size or type of unit, the assessment applicable to this unit may be found on page _____ of the attached report.

(g) Additional assessments that have already been scheduled to be imposed or charged, regardless of the purpose, if they have been approved by the board and/or members:

Note: If assessments vary by the size or type of unit, the assessment applicable to this unit may be found on page _____ of the attached report.

(h) Based upon the most recent reserve study and other information available to the board of directors, will currently projected reserve account balances be sufficient at the end of each year to meet the association’s obligation for repair and/or replacement of major components during the next 30 years?

Yes____________ No____________

(c) If the answer to #3 is no, what additional assessments or other contributions to reserves would be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years?

(5) The following major components, which are included in the reserve study, are NOT included in the existing reserve funding:

(6) As of the last reserve study or update, the current balance in the reserve fund is $_____________. Based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5, the required amount in the reserve fund is $_____________, and if an alternate, but generally accepted, method of calculation is also used, the required amount is $______________. (See attached explanation).

NOTE: The financial representations set forth in this summary are based on the best estimates of the preparer at that time. The estimates are subject to change.

The form must accompany the pro forma operating budget or summary distributed to the members on an annual basis. Associations must now ensure that they retain qualified, experienced reserve study professionals to assist in the preparation of reviews, reports and disclosures consistent with the law.

GOVERNING DOCUMENTS

Assembly Bill 224 – Fire Retardant Roof Materials

This bill adds Civil Code Section 1353.7 to the Davis-Stirling Common Interest Development Act, in essence stating that Associations may not require owners to install or repair a roof in a manner that violates Health & Safety Code Section 13132.7.

Boards must now be sure that their Association’s governing documents, and especially architectural guidelines, do not require owners to use roofing materials prohibited by Section 13132.7 of the Health & Safety Code. In essence, an owner of a residence within a “very high fire hazard severity zone”, as designated by the Director of Forestry and Fire Protection, who replaces more that 50 percent of the total roof area must use fire retardant roof covering that is at least class A as defined by the Uniform Building Code. In some situations, roof covering may be class B and C.

ASSESSMENT COLLECTIONS

Senate Bill 1277 – Notice to Third Parties.

This bill makes certain revisions to existing law governing the recording of a notice of default or sale and the disclosure of information to third parties holding an interest in the subject property. This bill requires, among other things, notice of defaults and sales to be provided to any person requesting said notice pursuant to a recorded instrument.

Associations, and their agents, enforcing assessment liens must provide very specific information regarding the notice of sale or default to all third parties claiming an interest in the subject property via a recorded instrument requesting same. Associations, and their agents, must also provide the same parties with information at selected stages of the foreclosure process. Associations cannot, however, be subject to liability for disclosing the required information. Associations utilizing non-judicial foreclosure must adhere strictly to the notice requirements. Associations utilizing judicial foreclosure, on the other hand, need not worry as the Sheriff’s office must follow strict compliance with all notice requirements, pursuant to the court’s order to foreclose.

CASE LAW

ENFORCEMENT

Villa De Las Palmas Homeowners Assn. v. Paula Terifai (2004)

A defiant owner continued to frequent her vacation condominium with her dog Lucy, despite an unrecorded rule prohibiting pets. Lucy died and the owner acquired another dog and continued to frequent her condominium. The Association’s attempt to gain the owner’s compliance by the levying of fines proved fruitless. The Association filed a lawsuit to enforce the rule. Interestingly, the members approved an amendment to the CC&Rs, during the pendency of the lawsuit, also prohibiting pets. The trial court ruled in favor of the Association, and the owner appealed. The Court of Appeal agreed with the trial court.

The owner appealed again to the California Supreme Court, arguing that the CC&R amendment did not apply to her as it was enacted and recorded after she purchased her unit.

The California Supreme Court held that use restrictions in amended in CC&Rs, recorded after an owner’s purchase, could be used against the owner, can be enforced by an injunction, and are entitled to the same consideration as a restriction recorded prior to an owner’s purchase. The court stated that “[a]nyone who buys a unit in a common interest development with knowledge of its owners association’s discretionary powers accepts ‘the risk that the power may be used in a way that benefits the commonality but harms the individual’”. “There is no basis to argue that purchasers of units within common interest communities have an expectation that there will be no changes at all.”

This case can be broadly construed, to be interpreted to apply to any amendments being applicable to all existing owners. However, I caution one from taking this approach in that there exists many situations where an amendment being applied to an existing owner may be deemed unreasonable and therefore unenforceable. For example, an amendment prohibiting swimming pools likely would be deemed unreasonable and therefore unenforceable as against existing owners with pools.

PREMISES LIABILITY – WRONGFUL DEATH

Jaylee Titus v. Canyon Lake Property Owners Association (2004)

An intoxicated man drove his car into a tree and killed his passenger. The minor of the passenger sued the Canyon Lake Property Owners Association and its security company for, among other things, wrongful death, arguing that the Association should have ejected the intoxicated driver from the community. The driver was a member of the Association and known to abuse drugs and alcohol and, in fact, was previously arrested by the security company.

The Court of Appeal held that the Association and security company had no duty to protect the passenger of the car from the driver. The court stated that there were no facts showing that the Association knew of the driver’s intoxication, that the Association could stop the owner from driving, or that it had a duty to do so.

Although it appears that the court held that Associations owed no duty to protect its members from intoxicated drivers, it appears that a duty may so exist if an Association has knowledge of a driver’s intoxication. However, the court did state that even if an Association could eject a resident from the community or stop him or her from driving the procedure to do so would be burdensome and require court intervention.

INSURANCE

Alicia Palacin v. Allstate Insurance Co. (2004)

An owner of a unit within the Casablanca Condominium Association purchased an individual policy from Allstate Insurance Company, covering items that were her responsibility. She made a claim to the Association’s carrier after experiencing two water losses. The carrier asserted a “flood” exclusion and denied the claim. She then submitted a claim under her Allstate policy. Allstate denied the claim stating the Association’s policy was the primary insurance. The Allstate policy provided coverage for “items of real property which are the owner’s insurance responsibility as expressed in the governing documents.”

The Court of Appeal held that: 1) the CC&Rs should be given a reasonable interpretation so as to provide insurance coverage to an owner who purchases an individual policy wherever possible without providing double coverage; 2) the provisions of the policy covering improvements added by the owner could include carpeting and painting but not the structure of the condominium; and 3) an owner may have a cause of action against his or her carrier if the Association’s master policy does not cover the claim.

This case clarifies the fact that Association’s may limit their exposure, or their policies’ exposure, to claims by amending the CC&Rs to make the owners’ insurance policies primary for any and all damage and claims regarding the interior of their units.

By Jeff A. Beaumont, Esq.