WINTER 2021
COVID REDUX PREPARING FOR ANOTHER WAVE OF INFECTIONS. PAGE 4
TOWERING DOWN ADDRESSING ISSUES FROM THE SURFSIDE TRAGEDY. PAGE 6
MANAGING THE MEDIA HOW TO RESPOND AFTER A MAJOR INCIDENT. PAGE 8
FIRE, WATER, EARTH.
GEARING UP FINANCIALLY FOR WILDFIRES, FLOODS, EARTHQUAKES. PAGE 10
SURFSIDE TO CALIFORNIA THE POTENTIAL FUTURE OF CIVIL CODE §5551. PAGE 12
DEFERRED
MAINTENANCE EDUCATE BOARD MEMBERS ON RISKS AND SOLUTIONS. PAGE 14
Winter 2021
A PRACTICAL REVIEW OF COMMUNITY MANAGEMENT LAW
2021 CACM Winter Law Journal Editorial Committee Chief Editor Attorney Guest Editor
Fred Whitney, Esq. Whitney | Petchul John Hansen, Esq. Baydaline & Jacobsen LLP
Winter Law Journal Committee Members Allison Andersen, Esq. Angius & Terry LLP
Eric Kazakoff, CAMEx, CCAM Canyon Lake POA
Mark Guithues, Esq. Community Legal Advisors, Inc.
Jill Morgan, CCAM Allure Total Management
Howard Silldorf, Esq. Berding | Weil LLP
Hamlet Vazquez, MCAM-HR Action Property Management, ACMC
An archive of past issues can be found under Member Resources at CACM.org. The CACM Law Journal is a digital publication distributed four times per year to all members, in addition to supporters of the California Association of Community Managers. DISCLAIMER: CACM does not assume responsibility for the accuracy of articles, events or announcements listed. Please be advised that the opinions of the authors who contribute to the Law Journal are those of the author only, and do not necessarily reflect the opinions of CACM and other industry attorneys. Please note that in a constantly evolving industry there are frequently multiple interpretations of the controlling statutes and case law. The information contained in these articles is of a general nature and not intended as legal advice. If you have any questions, please discuss them with your association’s legal counsel.
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2 The Law Journal Winter 2021 | cacm.org
For several years, your Law Journal team has placed a particular emphasis on writing articles focused on mastering the foundational areas of expertise applicable to community managers. These foundational areas are found in Business and Professions Code section 11502 and are the subjects that a certified common interest development manager must complete at least 30 hours of coursework in as part of the certification process. These include financial issues, contract negotiation and administration, maintenance, rules enforcement, risk management, ethics, and many others. It is these foundations that not only provide a level of expertise but also elevate a community manager to a professional who can shepherd a board through the legal, practical, emotional, and mental challenges that come with governing a common interest development.
Elevate –
our goal with each article we publish.
That word “elevate” was a theme of one of our law conferences a few years back, and that is our goal with each article we publish. That elevated skill builds a level of confidence in the community manager that engenders trust and reliability. There is always more to learn and ways we can sharpen one another.
John D. Hansen, Esq., is an attorney for Baydaline & Jacobsen LLP that specializes in litigation. He’s worked for the industry for 12 years.
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covid x u d e R
aja, Esq.
R By Kumar S.
Preparing for another wave of infections and round of restrictions.
“Why should we look to the past in order to prepare for the future? Because there is nowhere else to look.” - James Burke
people and vaccine hesitancy could mean that COVID-19 (and its variants) will exist for some time.
Medical research suggests that new waves of COVID-19 infections are likely to occur, which could give rise to the possibility of additional restrictions within the next six months. The CDC’s Interim Public Health Recommendations for Fully Vaccinated People advises that “preliminary evidence suggests that fully vaccinated people who do become infected with the Delta variant can spread the virus to others” and recommends that fully vaccinated people should wear a mask in indoor settings if they are in [geographic] areas where there is a substantial or high rates of COVID-19 community transmission.
The purpose of this article is to address how community associations can prepare for the new waves of COVID-related infections and restrictions based upon the lessons learned from 2020.
On July 28, 2021, one county in California reinstated indoor mask requirements regardless of vaccination status because of high community transmission of COVID-19. Many more have done so since that time, and many have imposed additional restrictions, including requiring vaccinations or negative COVID-19 test results before engaging in certain activities. According to the CDC, “variants of SARS-CoV-2, the virus that causes COVID-19, are expected to continue to emerge. Some will emerge and disappear, and others will emerge and continue to spread and replace other variants.” Breakthrough infections in fully vaccinated
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In March 2020, there was no playbook to manage California’s response to COVID-19. While there may have been some historical records related to the 1918 global epidemic for government, schools, businesses, and similar institutions, there weren’t any instructions for community associations, which did not exist at that time.
SOURCING ACCURATE COVID-19 PUBLIC HEALTH UPDATES Governmental authorities can and will impose stay-at-home orders at a moment’s notice for public health reasons. State and local authorities adopted restrictions and mandates, which applied directly and indirectly to common interest developments. Many boards of directors and management professionals throughout the state scrambled to identify accurate sources of information in that regard. At the outset of the pandemic, many homeowners turned to social media (i.e. Facebook and Nextdoor) and news outlets to learn how their communities would be altered by evolving conditions. Some of those sources contained accurate information that was based on health policies while many others reported inaccuracies. As a result, confusion became prevalent at board meetings and during homeowner interactions.
Within a short time after the imposition of the original Stay-At-Home Order, the state and many regional counties and city governments published COVID-19 health restrictions on their websites. Those resources identified COVID-19 infection rates, included press releases from public health officers, and described the extent of closures within a particular geographic territory. A critical lesson to remember while preparing for the next wave of restrictions is to recognize where to go to find accurate public health information – and why. The information on state, county, and city websites is more credible than the content available on the news or social media, because it is produced directly from the entities that are responsible for developing policies. The statements from public health officials are beneficial, because they could directly apply to community associations within a particular neighborhood (e.g. pool closures, pool occupancy, etc.). If not directly applicable, the guidelines could help boards develop safe practices for their individual communities (e.g. occupancy limitations for indoor meetings). Staying informed regarding public health updates is just as important as knowing where to locate accurate information. Throughout the pandemic, the content of the state’s COVID-19 website changed over time. Among other changes, the state’s tier/classification system changed from the ‘Resilience Roadmap’ to the ‘Blueprint for a Safer Economy.’ When coupled with the fact that guidance evolves with new medical research, it may be a good idea to regularly monitor COVID developments by reviewing trusted public resources. HOAs may wish to consider forming COVID-19 committees, which would track COVID-19 developments and make recommendations to boards and management regarding current public health mandates.
WHAT CAN WE DO VS. WHAT SHOULD WE DO? Permissible actions or amenity openings under public health orders do not necessarily mean that HOAs should open without restriction. In view of the original Stay-At-Home Order, community associations can now rely upon practical experience and prior COVID-related expenditures to drive decision making. During the first few months of the pandemic, management professionals experienced various levels of cooperation and upset with COVID restrictions. HOAs spent unbudgeted money to comply with COVID mandates (i.e. pool monitors, deep cleaning, etc.) due to pressure from homeowners to reopen. With the benefit of hindsight, boards are now in a stronger position to balance homeowners’ desires along with the possibility of incurring COVID-related expenses that may become necessary with new restrictions.
IMPORTANCE OF MEMBER COMMUNICATION In 2020, community managers throughout the state experienced a surge of complaints. Some communities experienced recall elections
past expenditures for COVID-related costs.
as homeowners challenged the decisions to open or close amenities. Community managers faced an uptick in emails, and homeowners felt emboldened to challenge directors during Zoom calls about COVID related issues. Communities that were transparent about their decision-making experienced relatively less opposition from their residents.
· Monitoring credible government resources to understand whether new restrictions have been or will be adopted by local health authorities and to identify recommended practices for maintaining a safe environment.
Developing proactive member communication plans can help reduce complaints. Effective ways to educate residents about potential risk while also protecting the community will continue to be important for new infections - waivers for amenity use, HOA signage at common entry points, and periodic status updates to the homeowners.
Unlike March 2020, community managers now possess a bank of resources and experiences to draw upon. Preparing for the next wave of infections and restrictions requires an appreciation of the past and an understanding that an effective response depends on proactive collaboration with your board and industry partners.
Why wait for the next round of possible COVID-related infections and restrictions to assemble a response plan? Management professionals can begin to prepare for the next possible wave of restrictions before they even occur. Plan ideas to consider include: · Identifying the lessons learned during the original wave of restrictions by holding a roundtable with board members and vendors. · Creating a dedicated file of COVID resources that include documents that reference
Kumar S. Raja, Esq., is a senior associate at Beaumont Tashjian that specializes in litigation and general counsel. He has been in the industry for 11 years.
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Lessons From Florida How California’s legislature could address the systemic problems that surfaced from the Surfside tragedy.
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Over time, engineers and fact-finders will teach us the specific causes of the failure(s) and find responsible parties for the sudden and unexpected collapse of the 40-year-old Champlain Tower structure. Until then and with admitted self-assured hubris, I offer my thoughts on what occurred, who is responsible, and how California’s legislature could constructively address this horrific tragedy. The Towers represented so much. At once, they were people’s homes, dreams, their respite, their life savings, their worldly achievement, retirement account, place at the beach, escape from the heat, and as of now, the last breath for 98 souls. As an industry and as humans, we need to slow our blame on individuals and instead focus attention on mitigating some obvious systemic problems – the invisible elephants which march through our industry like unlit rail cars moving through the night.
repairs. While nobody saw the sudden and unexpected collapse of a 40-year-old concrete building coming, most members knew there were significant and expensive structural challenges ahead. With no prescient dictator to demand immediate repair, members (logically) assumed there was space to disagree with methods, costs, and processes of repair. In that space and time, the board was nothing more or less than a microcosm of the membership which elected it – a conflicted group of folks doing their best to quantify overwhelming operating and maintenance costs in the face of limited finances.
FIRST, LEAVE THE BOARD ALONE
So as an industry, we need to pause and accept that the most palpably amazingly cool aspect of our community associations – its self-governance – is also a likely culprit here. The very design of allowing owners to elect their representatives, regardless of professional experience and sometimes based on nothing more than a promise “not to raise assessments,” has real and continuing implications.
One failure at the Towers appears to have been an “us vs. them” mentality of owners vs. the volunteer directors trying to raise assessments to make
That doesn’t mean that the legislature should step in and change this design; it means that the legislature needs to acknowledge that such a
of die-hard directors who threaten to fire any manager daring to suggest a special assessment for building maintenance, but then, a community’s serial replacement of trained and certified managers will serve as a significant red flag to folks looking to purchase therein.
2.
LEGISLATE 100% RESERVE FUNDING
Civil Code §5600 requires “the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this act.” This needs to include reserves. The legislature should require 90100% funding of reserves to be accomplished over the next five years. Here’s the common scenario: the manager identifies common area maintenance failures and proposes repairs which the board agrees with; the manager obtains three bids, and the board stops all forward motion with the question, “Where are we going to get the money to pay for this?” Suddenly, the manager is the pariah for beautifully performing their job for their client, and all momentum and trust is lost for the communities’ members and vendors.
design has a propensity to underappreciate and underfund the continuing care requirements of the property, perhaps leading to its failure. Here are some structural elephants (within our industry) that the legislature can help with.
1.
LEGISLATE MANAGEMENT CERTIFICATION
The first area the legislature could help would be to require all association managers to be “certified.” This isn’t a guarantee of competence, but it at least signifies the person taking direction from the board has some minimum amount of training. When we legislate its requirement, we validate the need for even more advanced management training, raising respect, professionalism, and esteem for our managers. The legislature got close once with B&P 11504, which defines certifications and requires board disclosure when the manager is not so certified but then fumbled the ball by not requiring the person advising HOAs to actually possess a certificate from their local elementary school, let alone a professional training entity. To be sure, such a certification will not invite the ear
Instead, let’s have that money waiting in the reserve account. Reserve studies occur when a third party is retained to evaluate the condition of the common area, analyze a repair protocol, and develop an assessment schedule that addresses upcoming required maintenance for the community’s next 30 years. While acknowledging that such reports may be flawed (either high or low) in their predictions, it is both common and unconscionable for a 30-year-old condominium association to have two or three thousand dollars of reserves per unit when a single balcony costs ten times that to replace. Such communities grind through professional managers like a millstone through wheat, because there is no money available to address their substantive maintenance needs. We need the legislature to do the unpopular heavy lifting here and give these boards the financial resources they need to fund the maintenance obligations assigned to them.
3.
under 10 years old while 50-year-old communities pay full price while searching for competent inspectors. I now think, at least for multi-family buildings, we need a law that requires regular inspection to meet minimal structural safety standards. The argument will be made that we are legislating the price of housing out of the reach of median California earners. After watching the Towers collapse, I realize our industry cannot sit by while owners routinely vote to imperil themselves and other residents by underfunding the entity charged with maintaining their housing, tying the hands of the volunteer directors and their managing agents. As leaders, now is the time to act.
4.
REQUIRE BOARD TRAINING
There have been quite a few bills, most recently AB 1410, designed at imposing ethics training, fair housing training, and more on those who volunteer their time to serve as directors of their community. The legislature should require directors attend a one or two-hour board boot camp to receive training on the maintenance obligations and corporate requirements of the association. These classes are widely available (and often free) through professional organizations and local law firms. When directors understand the scope of their duties, they generally focus on how best to accomplish them rather than politicking and grandstanding. In the end, we need to recognize that the design of our self-governance has a predictable failure point which can and should be addressed with simple legislative requirements for manager licensing, adequate reserve funding, minimal safety inspection standards, and board training.
LEGISLATE BUILDING CERTIFICATION
I’ve long been an outspoken critic of the “balcony bill” authored by the condominium defect bar. I was wrong. I felt it unnecessarily robbed fixedincome retirees who should be allowed to vote as a community not to increase assessments as necessary to fully maintain their properties and pointed to how balcony inspections are offered free by construction defect attorneys to communities
Mark Guithues, Esq., of Community Legal Advisors Inc., which serves the Orange County and San Diego areas, has more than 20 years of experience in HOA general counsel and assessment collections.
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Managing the Media
H o w to resp o nd af t er a m a j o r incident.
By Sandra L. Gottlieb, Esq. and Rachel M. Miller, Esq.
Building collapses, deck collapses, landslides, earthquakes, live shooters, and sinking towers are all real-life examples of HOAs under the media spotlight with reporters and cameras waiting on the associations’ doorsteps. While newsworthy events are often unexpected, association managers can be prepared with organized, accurate, and calm guidance after a major incident.
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WHEN THE MEDIA SHOWS UP The devastating collapse at Surfside’s Champlain Towers captured the world’s attention, uncovering reports of alleged lack of maintenance and board scrutiny. The Millennium Tower is no stranger to frontpage news. “San Francisco’s Leaning Tower” has made headlines since the story broke about its sinking and tilting. When a window on the 32nd floor broke, glass shattered on the pedestrian walkways, putting a spotlight on the HOA for weeks. In Berkeley, a deck collapse left six people dead and seven severely injured, bringing international media attention and demanding increased oversight in deck conditions. In Laguna Niguel, a giant hillside crumbled alongside the homes built on top of it. While these stories sound legendary, they are real-life examples of what you could potentially face and need to address with the media.
WHOSE JOB IS IT? NOT THE MANAGERS! The media isn’t knocking down your door to talk to you about your good deeds and the things you do right every day. That doesn’t make for much of a story. That means whatever is going on will likely result in your responses having liability risks for the association. REMEMBER! Everything you say and do can be used against you! This is why you have to enlist experts that know what they can and cannot divulge to the media. For example, it would be a mistake to divulge anything protected by the attorney-client privilege, such as a strategy for addressing the catastrophe. Whatever the association does, the spokesperson should not be the manager. You don’t want that liability nor does your management company want this kind of attention. BEST PRACTICE: Include terms in management agreements that specifically exclude response to media inquiries.
MEDIA RESPONSE When catastrophe strikes, funnel all inquiries to the designated spokesperson. The spokesperson will be prepared to set the narrative for the HOA. Depending on the circumstance, the spokesperson should be the HOA’s attorney or a PR firm. These experts are qualified to answer questions from the media. When caught by the media, the board and management team should be prepared with a script response. For example, “Our representative is taking all questions on this matter.” We are preparing a written response. Please provide your contact information so that we can get back to you.” What we have learned over the years is that the media is nothing to be afraid of. Reporters just want the truth. There are two ways to consider your approach to media response: an offensive approach and a defensive approach. First and foremost, never say, “no comment,” to a reporter. Studies have shown that saying “no comment” makes the public believe you are hiding information. Reporters need facts to write their stories. In the offensive position, a spokesperson takes an active role in providing information to the media and controlling the calls, interviews, and site visits. This creates the story instead of having an outsider create it for you. The best format is a press release that:
EMERGENCY RESPONSE & MEDIA PLAN In today’s environment of fires, floods, and other catastrophic losses, an association’s board could potentially be derelict and in breach of its fiduciary duties if it is not prepared to take action to protect the association’s interests. Have the management and the board establish a response team and media plan in preparation. The public will want to know “Why did this happen?” and “Who is responsible?,” and the media will be relentless. The Surfside condo collapse is an example of why you need a plan in advance. As more information came out about the building’s defects, the headlines of Champlain Towers South collapse read “Condo Wars: Surfside Association Fighting Was Extreme,” “Leadership Lacked Stability,” and “Tumultuous Years Before Collapse.” The association has been sued for negligence, and criminal charges are being investigated.
What does this message do? It retells the story from the board’s viewpoint and casts a wider net of who may be responsible. These events are typically outside of our control; they can happen anytime and anywhere. Reduce stress in the heat of the moment with an advance media plan, including whom the HOA will use for the spokesperson, what triggers the PR response, information gathering protocols, establishment of an executive committee, assessing the damage, evaluating liability exposure, and dealing with toxic comments. Unfortunately, one community’s bad press can reflect on the entire industry. When faced with a media event, rely on experts, public relations, and a community association counsel. Get out ahead of the story with a solid plan and follow through on that plan without exception.
To their credit, the board did not act out of emotion to the frenzy of media inquiries and hired a PR firm who put out the short message, “The board is comprised of resident volunteers, one of whom is still missing. They themselves are mourning the loss of loved ones, friends, and neighbors. They are not engineers or safety experts. They hired experts, trusted experts, and at no time did the experts indicate that there was a threat of imminent collapse.”
Educates and informs, Increases awareness, Provides a perception, and Responds to critics. Defensive media response begins with the unplanned visit, but this gives you the chance to provide your HOA’s point of view or statement to a large audience. At the Millennium Tower and after Berkeley’s deck collapse, it gave us the opportunity to educate the media and public about HOAs. We explained who is responsible for common area repairs, what an association’s duties are to its owners, and why a reporter should not contact an owner for a comment.
Sandra L. Gottlieb, Esq., is a founding and senior partner in the law firm of SwedelsonGottlieb that limits its practice and specializes in the representation of community associations throughout California.
Rachel Miller, Esq., has practiced law with The Miller Law Firm for over 22 years with the primary role of Senior Partner with a focus on client communication, providing immediate contact and communication to current and prospective clients, board members, and community association managers.
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C
alifornia has a history of natural disasters including wildfires, floods, and earthquakes. These disasters may cause unanticipated damage or destroy entire communities or a portion thereof. Oftentimes in the aftermath of these disasters, associations are asking what it will take to rebuild and what options are available. Many associations are not financially prepared to deal with the aftermath of a disaster due to insufficient insurance coverage, reserve funds, or other funds to cover the rebuilding costs. When an association is damaged or destroyed and there is insufficient funding, a board may levy a special assessment. Boards of directors may levy special assessments to fund the cost of minor repairs; however, if there are substantial rebuilding costs due to major damage or destruction, a board’s statutory authority to levy special assessments will be limited. In this regard, California Civil Code §5605(b) prohibits boards from levying special
assessments which in the aggregate, amounts to more than 5% of their association’s budgeted gross expenses for that fiscal year unless a majority of a quorum of the members approve the special assessment. An association’s governing documents may have more restrictive limitations on its board’s authority to levy special assessments, so it is important for boards to review their governing documents and check for any additional restrictions. A board may also levy an emergency special assessment if there is an “emergency situation.” The Civil Code defines an emergency situation in several ways. Pursuant to California Civil Code §5610(b) and (c), an “emergency situation” exists if there is an extraordinary expense that is necessary to maintain or repair all or part of a development that an association is responsible for. If either of the following circumstances exist: (1) there is a threat to personal safety on the property, or (2) the expense could not have been reasonably foreseen by its board when preparing and distributing the annual budget report, there is no statutory cap on emergency assessments and membership approval is not required. That means that the 5% limitation in Civil Code §5605(b) for special assessments do not apply to emergency assessments. Alternatively, an association may look to a bank loan to finance the cost of repairing or rebuilding all or part of their development. It is important to review the association’s governing documents for
WHEN DISASTER STRIKES How to financially prepare for wildfires, floods, earthquakes and other natural disasters and their impact on associations. By Darren M. Bevan, Esq. and Raihane A. Dalvi, Esq.
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any restrictions regarding its ability to borrow money. Generally, bank loans are secured by the association’s ability to collect assessments from their members. Associations that secure a loan to fund major rebuilding costs will likely need to repay the loan by increasing regular assessments or levying special assessments. Assuming that the total special assessments exceed the 5% limitation in Civil Code §5605(b), member approval is required, except in the case of an emergency as provided for in Civil Code §5610. In some cases, such as in the aftermath of recent wildfires, natural disasters can decimate entire communities. When an association is severely damaged or destroyed to the point where the value of the remaining property is outweighed by the cost of reconstruction, an association may not find it practical to rebuild its development (as financed by either special assessments or a loan). Under these circumstances and subjected to any restrictions in their governing documents, associations may consider a partition lawsuit to sell their development in order to resolve and settle obligations of the association and its members. Once the court approves the “partition,” a court-supervised process occurs where the association’s common area is sold, and the proceeds are divided among the members.
is required to obtain. A board’s ability to obtain additional insurance coverage, such as for earthquake, flood, or landslide protection, is limited by their association’s budget, statutory limitations on increasing assessments, and governing document restrictions. As a reminder, boards should take the time to review their “Damage and Destruction” and “Dissolution” clauses in their governing documents. These clauses typically address the damage or destruction of common area elements, rebuilding costs, insurance, and membership approval requirements regarding reconstruction or dissolution. Once a board has investigated their exposure, taken necessary measures to help mitigate any risk, reviewed their insurance policies, and obtained additional insurance coverage as needed, it should take the time to educate its members of the association’s disaster preparedness. Such communication will lead to greater transparency and understanding of the association’s efforts to prepare for natural disasters.
Darren M. Bevan, Esq., and Raihane A. Dalvi, Esq., are attorneys with Baydaline & Jacobsen LLP and have worked for the industry for 18 years and 4 years, respectively. They specialize in general counsel and work out of Sacramento.
As detailed above, associations have different options when dealing with the aftermath of a disaster; however, boards can take steps to help prepare for and mitigate disasters before they happen. To prepare for a disaster, boards must investigate their exposure to natural disasters such as wildfires, floods, earthquakes, landslides, and others. As part of this investigation, boards can retain experts to determine their community’s vulnerability and what measures can limit their risk. For example, associations located in heavily forested areas prone to wildfires may be advised to mitigate their risk by clearing flammable debris and cutting back vegetation from their community’s perimeter. As another example, older condominium buildings in earthquake-prone areas can undergo seismic retrofitting as advised by the appropriate experts. Additionally, boards of directors must review existing insurance policies with their insurance professionals and attorneys to ensure sufficient insurance coverage against relevant disasters. When reviewing their insurance, boards should get an appraisal for the cost to rebuild in order to ensure that their current coverage limits are sufficient. Boards should also review their governing documents to determine what insurance their association
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Will the Surfside Tragedy Lead to Changes in the California Balcony Law? The future of Civil Code §5551 and the practical concerns facing boards of directors. BY TYLER BERDING, ESQ., AND STEVEN WEIL, ESQ.
Much has been written about the Champlain Towers collapse in Surfside, Florida. We won’t speculate on what caused the collapse. We’re not structural engineers. We do understand how buildings are constructed and how community associations deal with the maintenance and repair of their projects in California and across the country. We also know the role that the laws of each state play in the decisions boards of directors must make. Like the balcony failure in Berkeley before it, the Champlain Towers incident will likely lead to some legislative action. California has already acted. California Civil Code §5551 (CC §5551), enacted in 2019, put in place what we believe is the first-ever requirement that structural components in condominium buildings be inspected for safety. But Surfside has raised questions as to the future of CC §5551 as do the practical issues encountered when complying with the existing statute. For example, CC §5551 applies only to wood frame buildings. Should it be expanded to include other types of condominium buildings or planned developments where an association has some responsibility for maintenance? The law only requires that “exterior elevated elements” be inspected. Should other structural components be included? Why isn’t the reserve study required by California Civil Code §5550 enough to protect the occupants of condominium buildings? What should directors expect when complying with CC §5551—inspector contracts, disclosures, and obtaining membership support for added expenses? What are the responsibilities and risks of a managing agent?
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LIMITATIONS OF THE CALIFORNIA RESERVE STUDY STATUTE California Civil Code §5550 (a) states: “(a) At least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development.” There are two words in that statute that greatly limit its effectiveness, “visual” and “accessible.” It is impossible to adequately inspect critical structural components that are not visible or readily accessible. Joists and ledgers that support balconies, shear walls that limit earthquake damage, roof sheathing, and foundation supports are normally hidden behind other components in a building (e.g., soffits, siding, and roof coverings). Unless these covers are removed or opened for inspection, the condition and service life of the hidden components cannot be evaluated. The cause of the failed balcony in Berkeley was not visible. The same may very well be true of the internal structural components that failed in Florida. DOES CALIFORNIA CIVIL CODE §5551 CLOSE THE GAP? The California balcony inspection statute requires that certain structural supports, those carrying occupant “loads,” be inspected whether they are readily visible or not. The “load-bearing” components themselves, not just the surrounding construction, must be inspected in new condominium buildings within six years and every nine years after that. The inspector must report the condition of those components, and that condition and likely service-life must be considered in the CC §5550 reserve study. But there are limitations to CC §5551. First, it only applies to structures built primarily of wood. Second, it only applies to “exterior elevated
CC&R AMENDMENTS: Someone is likely to propose amendments to the CC&Rs that shift balcony responsibility to each owner. In theory, this might relieve the association of the responsibility, but the issue is complex, because it needs to consider the current “untested” condition of components. To be completely effective, the amendment would need to shift responsibility for all relevant elevated components and their waterproofing elements. POTENTIAL CLAIMS: Obviously, if injuries happen because of the failure to make repairs that a proper investigation would have revealed, there is exposure to associations and directors. Other kinds of claims are also possible: loss of sales if a buyer balks because the board violated the statute or other economic losses based on increased repair costs when inspections or repairs are finally made.
elements”—essentially balconies, entry structures, decks and similar components attached to the exterior of a building. Finally, it leaves to the inspector the number of such components inspected to provide a report on. Left out of that statute are other condominium buildings, those built of concrete and steel for example and components internal to a building, such as shear walls, reinforcing steel, and supporting columns. The Champlain Towers building was constructed of concrete with steel reinforcing on a “podium slab.” There are hundreds of such buildings in California, but they are exempt from inspection under CC §5551. That statute was written for low-rise, wood frame buildings, but even in those buildings, hidden structural components that are not part of an exterior element may need to be inspected. This leaves critical gaps in the coverage afforded by CC §5551. At this writing, there has been no effort in the California legislature to expand that coverage, but losing life in Florida is leading many states to examine the safety of condominium buildings of all types. California may be next. WHAT PRACTICAL CHALLENGES ARE FACED IN IMPLEMENTING THE REQUIREMENTS OF CC §5551? Speculation as to future legislation won’t help boards that must address the practical aspects of Civil Code §5551 now. Surfside has greatly raised awareness of possible building failures, so what do
boards of directors and management companies want to know? Here are some issues each board needs to consider and address on a case by case basis:
Condominium associations acting through their boards always had the duty to prudently inspect and make repairs to common areas to minimize risks of harm. CC §5551 merely codifies this responsibility in a specific context and with specific obligations. By doing so, the law forces associations to take the inspection and repair obligations more seriously than ever before and creates significant liability risks for those who do not and whose failure to implement the law results in personal injury or other claims. The Surfside tragedy makes the obligation to perform adequate inspections even more compelling.
INSPECTION CONTRACTS: These are likely to strictly limit the liability of the inspector, construction manager, and contractors performing the inspections and should be reviewed carefully with assistance from counsel. MANAGEMENT’S ROLE: Management is not responsible for decisions as to the scope of testing or repairs, but where they can add value is in obtaining documents needed by the inspector, alerting a board to its responsibilities and generally keeping the process “on track.” DISCLOSURES: The report must be “incorporated” into the reserve study, but otherwise the nature of the disclosure obligation and when it must be made is not addressed in CC §5551. MEMBERSHIP SUPPORT: Some associations will not have enough money to pay for the testing, let alone the repairs. A funding strategy, possibly involving reserve borrowing, special assessments imposed by the board or approved by the members, and/or obtaining bank loans will need to be considered at the outset of the project.
Tyler Berding, Esq., and Steven Weil, Esq., are founding principals of Berding | Weil, LLP. They worked for more than 40 years in the industry.
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DEFERRED MAINTENANCE
HOW A MANAGER CAN EFFECTIVELY APPROACH THE BOARD. By John F. Baumgardner
T
he recent tragic collapse of the
maintenance guidelines can lead to delayed
Champlain Towers in Surfside, Florida
inspection or maintenance cycles. Many
has renewed focus on addressing
times, these problems are exacerbating and
deferred maintenance in community associations. Performing required maintenance and repairs is necessary to ensure that associations are financially secure while also reducing the potential for costly special assessments or litigation.
interconnected. While rarely resulting in major catastrophe, there are many negative outcomes associated with deferred maintenance. The most obvious effect often is the declining aesthetic of the community (i.e., faded paint, stained
There are many causal factors resulting in
deck edges, and dying landscaping). These
deferred maintenance, including lack of
observable conditions can cause decreased
funding, poor maintenance practices by
property values and increased owner
hired contractors, and/or the failure to follow
complaints. However, these are not always
recommended maintenance guidelines.
the most expensive consequences.
Community associations often fail to adequately raise assessments over the years when necessary, or they rely on inadequate reserve studies, which results in a lack of reserve funds to pay for maintenance or repairs. Deficient construction or defective building components can also lead to premature failure and unexpectedly reduced useful life. Additionally, missing maintenance manuals or manufacturers’ recommended
14 The Law Journal Winter 2021 | cacm.org
Deferring necessary maintenance can reduce the useful life of building components, increase the potential repair costs, expand the scope of repair, and compromise other building materials, such as wood framing or other structural components. Additionally, homeowners may bring expensive and timeconsuming litigation against the association as well as individual board members seeking
court orders requiring repairs or emergency
licensed structural engineer or architect of a
Parth (2016) 248 Cal.App.4th 268, 280.) Some
assessments.
random and statistically significant sample
board members may also be held to higher
of exterior elevated elements for which
standards by courts if they have special
the association has maintenance or repair
expertise (i.e. contractor, accountant, lawyer,
responsibility.” Boards must plan accordingly
etc.). The business judgment rule also “does
to ensure that proper reserve funds are set
not apply when . . . the director is acting under
aside since there will be potential repair
a material conflict of interest” (Coley, supra, 51
costs associated with the required balcony
Cal.App.5th at 959.).
Lastly, there are potential worst-case scenarios that can result in life-safety issues, condemnation of common areas or buildings, and damage to personal property. Based on these outcomes, board members must be educated regarding the causes, risks, and solutions for tackling this compounding problem.
EDUCATING BOARDS THROUGH INSPECTIONS AND RESERVE STUDIES Although most managers are not on-site daily, they possess a wealth of information that can assist boards in determining proper maintenance schedules. During site inspections, managers observe and detail potential common area maintenance issues. Additionally, through their communication with owners, either directly or at board meetings, managers receive information regarding problematic or failing building components, common area issues, and owners’ general satisfaction with their community. These personal observations allow managers to identify problem areas and engage appropriate consultants to perform appropriate evaluations.
inspections. Both Civil Code §§ 5550 and 5551, provide managers with the opportunity to address identified inadequacies in prior reserve studies, inspection and maintenance timelines, and funding levels.
EDUCATING BOARDS REGARDING THEIR DUTY TO ASSOCIATION Even the most experienced boards should be reminded regarding their duties to
(Coley v. Eskaton (2020) 51 Cal.App.5th 943, 958.). “Generally, fiduciary duties owed by a homeowners association to its members are limited to those arising from its governing documents and relevant statutory requirements” (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, 425.). However, this “fiduciary relationship . . . requires directors to exercise due care and undivided loyalty
Cal.3d 490, 513.). Although they are also
maintenance timelines. Pursuant to Civil
individual owners, these directors have been
Code § 5550, “[a]t least once every three
elected to make tough decisions on behalf
years, the board shall cause to be conducted
of the entire association and must act in
a reasonably competent and diligent visual
a reasonable and diligent manner when
inspection of the accessible areas of the major
making these decisions in the best interest of
components that the association is obligated
the community.
periods, life expectancy based upon actual performance, reserve requirements, and the repair/replacement costs.
is critical as it can protect board members from being personally liable for damages “in excess of the coverage of insurance” (Civil
Regardless of the cause or scope, potential
of the corporation and its members”
components and determine appropriate
necessary maintenance inspection
well as for the individual board members. This
fiduciaries who must act for the benefit
T. v. Village Green Owners Assn. (1986) 42
contractor/consultant can assist in identifying
statutorily required insurance coverage for
Code § 5800.).
with tools to identify problematic building
a licensed and experienced construction
must ensure that they have the minimum
the association. Association directors “are
for the interests of the corporation” (Frances
of a study of the reserve account.” Using
eliminate the potential for litigation, boards
both the general liability of the association as
The Davis-Stirling Act also provides managers
to repair, replace, restore, or maintain as part
Since not even the best-run associations can
solutions to deferred maintenance issues must be presented to boards to mitigate worst-case outcomes. Even if it does not result in injury or condemnation, there are significant negative outcomes associated with delaying necessary inspections, maintenance, and repairs. Using their own personal observations and the experience of trusted vendors, managers can highlight potential issues and resolve the maintenance problems before they manifest into larger challenges.
While board members and associations can be protected under the business judgment rule (Corporations Code § 7231) and the rule of judicial deference, these are only defenses and not absolute protections from liability. Furthermore, board decisions and individual board members will not be shielded from liability if their decisions are outside their
Similarly, Civil Code § 5551 requires that “at
authority under the governing documents
least once every nine years, the board of an
or California law. Boards also cannot simply
association of a condominium project shall
ignore an association’s problems and hope
cause a reasonably competent and diligent
to be protected by these defenses. (See Palm
visual inspection to be conducted by a
Springs Villas II Homeowners Assn., Inc. v.
John F. Baumgardner is an attorney with Chapman & Intrieri, LLP in their Roseville, California office. His practice focuses on representing homeowners associations in general counsel matters, construction defect disputes, general civil litigation, and revision of governing documents. He has been serving the community association industry for the past six years.
cacm.org | The Law Journal Winter 2021 15
2021-2022 LEGAL DIRECTORY ASSESSMENT COLLECTION SERVICES ALLIED TRUSTEE SERVICES Assessment Collection & Judgment Recovery Services Stefan Murphy Serving All of California For Over 27 Years 990 Reserve Dr., Ste. 208 Roseville, CA 95678 (800) 220-5454 smurphy@alliedtrustee.com www.alliedtrustee.com ALTERRA ASSESSMENT RECOVERY Assessment Collection Services Steven J. Tinnelly, Esq. Your Association’s Assessment Collection Partner 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (888) 818-5949 ramona@tinnellylaw.com www.alterracollections.com FELDSOTT & LEE, A LAW CORPORATION Community Association Law Stanley Feldsott, Esq. Laguna Hills | San Diego 23161 Mill Creek Dr., Ste. 300 Laguna Hills, CA 92653 (949) 729-8002 • Fax (949) 729-8012 feldsott@gmail.com www.cahoalaw.com
16 The Law Journal Winter 2021 | cacm.org
UNITED TRUSTEE SERVICES Trusted Partners In Assessment Collections Lisa E. Chapman HOA Assessment Collection Services 696 San Ramon Valley Blvd., Ste. 353 Danville, CA 94526 (925) 855-8554 • Fax (925) 855-8559 lisa@unitedtrusteeservices.com www.unitedtrusteeservices.com
ATTORNEYS
BEAUMONT TASHJIAN General Counsel and Assessment Collection Services Jeffrey A. Beaumont and Lisa A. Tashjian Woodland Hills, Laguna Hills, San Luis Obispo, Palm Desert, San Diego 21650 Oxnard St., Ste. 1620 Woodland Hills, CA 91367 (866) 788-9998 • Fax (818) 884-1087 info@HOAattorneys.com www.hoaattorneys.com BERDING | WEIL Construction Defect Litigation Steven Weil, Tyler Berding, Chad Thomas, Daniel Rottinghaus, Andrew Baugh, Paul Windust Walnut Creek, San Diego, Orange County, Sacramento 2175 North California Blvd., Ste. 500 Walnut Creek, CA 94596 (800) 838-2090 • Fax (925) 820-5592 jjackson@berdingweil.com www.berdingweil.com
COMMUNITY LEGAL ADVISORS, INC. General Counsel & Assessment Collections Mark Guithues, Esq. & Mark Allen Wilson, Esq. Inland Empire | Orange County | San Diego 509 N. Coast Hwy. Oceanside, CA 92054 (760) 529-5211 • Fax (760) 453-2194 mark@attorneyforhoa.com www.attorneyforhoa.com DELPHI LAW GROUP, LLP Community Association Law, General Counsel, Litigation, Assessment Collections James McCormick, Kyle Lakin, Christina DeJardin, Zachary Smith Full Service Law Firm Serving All of Southern California 1901 Camino Vida Roble, Ste. 100 Carlsbad, CA 92008 (844) 433-5744 • Fax (760) 820-2696 info@delphiLLP.com www.DelphiLLP.com EPSTEN, APC Community Association Law, Construction Defect, Litigation & Assessment Recovery Jon Epsten, Esq. & Susan Hawks McClintic, Esq. San Diego | Inland Empire | Coachella Valley 10200 Willow Creek Rd., Ste. 100 San Diego, CA 92131 (858) 527-0111 • Fax (858) 527-1531 jepsten@epsten.com www.epsten.com FIORE RACOBS & POWERS, A PLC Community Association Law and Assessment Collections Jacqueline D. Foster, Esq., Peter E. Racobs, Esq., & John R. MacDowell, Esq. The Recognized Authority in Community Association Law Orange County | Inland Empire | Coachella Valley l San Diego County (877) 31-FIORE • Fax (949) 727-3311 dweissberg@fiorelaw.com www.fiorelaw.com FLANAGAN LAW, APC General Counsel TIM FLANAGAN, ESQ. San Diego l Orange County l Coachella Valley l Inland Empire 8880 RIO SAN DIEGO DR., STE. 800 SAN DIEGO, CA 92108 (619) 489-1340 TIM@FLANAGANHOALAW.COM WWW.FLANAGANHOALAW.COM
GURALNICK & GILLILAND, LLP Association Law, Assessment Collections, General Counsel Wayne S. Guralnick, Robert J. Gilliland Jr. Serving Community Associations for Over 30 Years 40004 Cook St., Ste. 3 Palm Desert, CA 92211 (760) 340-1515 • Fax (760) 568-3053 wayneg@gghoalaw.com www.gghoalaw.com
THE NAUMANN LAW FIRM, PC Construction Defect Litigation Construction Defect Analysis William Naumann l Elaine Gower San Diego l Orange County l Los Angeles l Riverside l San Bernardino 10200 Willow Creek Road, Suite 150 San Diego, CA 92131 (858) 522-0763 • Fax (858) 564-9300 elaine@naumannlegal.com www.naumannlegal.com
HICKEY & ASSOCIATES, P.C. Community Association Law David E. Hickey, Esq. 27261 Las Ramblas, Suite 120 Mission Viejo, CA 92691 (949) 614-1550 • Fax (949) 748-3990 dhickey@hickeyassociates.net www.HickeyAssociates.net
PRATT & ASSOCIATES, APC Community Association Law Sharon Glenn Pratt Los Gatos, CA 634 North Santa Cruz Avenue Suite 204, Los Gatos, CA 95030 (408) 369-0800 • Fax (408) 369-0752 spratt@prattattorneys.com www.prattattorneys.com
HUGHES GILL COCHRANE TINETTI, P.C. Community Association & Construction Defect Law Michael J. Hughes, Esq., John P. Gill, Esq., Amy K. Tinetti, Esq. Complete representation of community associations 2820 Shadelands Dr., Ste. 160 Walnut Creek, CA 94598 (925) 926-1200 • Fax (925) 926-1202 atinetti@hughes-gill.com www.hughes-gill.com LOEWENTHAL, HILLSHAFER & CARTER, LLP Construction Defect Litigation Robert Hillshafer | David Loewenthal Los Angeles, San Luis Obispo, Santa Barbara, Ventura 5700 Canoga Avenue, Suite 160 Woodland Hills, CA 91367 (866) 474-5529 • Fax (818) 905-6372 info@lhclawyers.net www.lhclawyers.net THE MILLER LAW FIRM Construction Defect Analysis & Litigation Thomas E. Miller, Founding Partner Rachel M. Miller, Senior Partner Serving Homeowners Associations Statewide for Over 40 Years San Francisco l Bay Area l LA l Orange County l San Diego l Inland Empire (800) 403-3332 rachel@constructiondefects.com www.constructiondefects.com
RAGGHIANTI FREITAS LLP Community Association Law, Construction Defects & Mediation David F. Feingold, Esq. Matthew A. Haulk, Esq. Serving Bay Area Communities Since 1986 1101 Fifth Ave., Ste. 100 San Rafael, CA 94901 (415) 453-9433 • Fax (415) 453-8269 dfeingold@rflawllp.com www.rflawllp.com RICHARDSON OBER DENICHILO LLP Community Association Law, General Counsel, Assessment Recovery Kelly G. Richardson, Matt D. Ober, Robert M. DeNichilo Throughout California (877) 446-2529 matt@rodllp.com www.rodllp.com
SWEDELSONGOTTLIEB Community Association Law, Construction Defect, Assessment Collection David C. Swedelson, Esq. Sandra L. Gottlieb, Esq. Los Angeles | Orange County | Palm Desert | San Francisco l Ventura 11900 W. Olympic Blvd., Ste. 700 Los Angeles, CA 90064 (800) 372-2207 • Fax (310) 207-2115 slg@sghoalaw.com www.lawforhoas.com
cacm.org | The Law Journal Winter 2021 17
2021 LEGAL DIRECTORY, Continued from page 17
TINNELLY LAW GROUP Community Association Law Richard A. Tinnelly, Esq. Steven J. Tinnelly, Esq. Orange County | Los Angeles | Palm Desert | San Francisco | San Diego 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (949) 588-0866 • Fax (949) 588-5993 ramona@tinnellylaw.com www.tinnellylaw.com WHITE & MACDONALD, LLP COMMUNITY ASSOCIATION LAW, CONSTRUCTION DEFECT LAW Steven M. White, Esq., Rob D. MacDonald, Esq., James P. Hillman, Esq. COST EFFECTIVE SOLUTIONS BASED ON EXPERIENCE 1530 The Alameda, Ste. 215 San Jose, CA 95126 (408) 345-4000 • Fax (408) 345-4020 info@wm-llp.com www.wm-llp.com WHITNEY PETCHUL APC Community Association Attorneys Fred T. Whitney, Esq. l Dirk E. Petchul, Esq. From Inception To Build-Out And Beyond 27 Orchard Rd. Lake Forest, CA 92630 (949) 766-4700 • Fax (949) 766-4712 info@whitneypetchul.com www.whitneypetchul.com WOLF, RIFKIN, SHAPIRO, SCHULMAN & RABKIN, LLP Community Association Law Michael W. Rabkin, Esq. 11400 W. Olympic Blvd., 9th Floor Los Angeles, CA 90064 (310) 478-4100 • Fax (310) 479-1422 mrabkin@wrslawyers.com www.wrslawyers.com
CONSTRUCTION DEFECTS
BERDING | WEIL Construction Defect Litigation Steven Weil, Tyler Berding, Chad Thomas, Daniel Rottinghaus, Andrew Baugh, Paul Windust Walnut Creek, San Diego, Orange County, Sacramento 2175 North California Blvd., Ste. 500 Walnut Creek, CA 94596 (800) 838-2090 • Fax (925) 820-5592 jjackson@berdingweil.com www.berdingweil.com
18 The Law Journal Winter 2021 | cacm.org
CHAPMAN & INTRIERI, LLP General Counsel & Construction Defect Litigation John W. Chapman, Esq. & Mark G. Intrieri, Esq. Alameda l Roseville l Orange County l San Diego 2236 Mariner Square Dr., Ste. 300 Alameda, CA 94501 (510) 864-3600 • Fax (510) 864-3601 jchapman@cnilawfirm.com www.cnilawfirm.com FENTON GRANT MAYFIELD KANEDA & LITT, LLP Construction Defect Litigation & CID Education Charles R. Fenton, Esq. Joseph Kaneda, Esq. California & Nevada 2030 Main Street, Ste. 550 Irvine, CA 92614 (877) 520-3455 • Fax (949) 435-3801 cfenton@fentongrant.com www.fentongrant.com THE MILLER LAW FIRM Construction Defect Analysis & Litigation Thomas E. Miller, Founding Partner Rachel M. Miller, Senior Partner Serving Homeowners Associations Statewide for Over 40 Years San Francisco l Bay Area l LA l Orange County l San Diego l Inland Empire (800) 403-3332 rachel@constructiondefects.com www.constructiondefects.com
ELECTION ADMINISTRATION THE INSPECTORS OF ELECTION Providing Superior Election Support for California HOA’s Since 2006 Kurtis Peterson Completely Independent Full-Service Election Provider 2794 Loker Ave. W., Ste 104 Carlsbad, CA 92010 (888) 211-5332 • Fax (888) 211-5332 kurtis@theinspectosofelection.com www.theinspectorsofelection.com
LIBERTY HOA ELECTION SERVICES, LLC Inspector of Election We Make Association Voting Management Easy 1900 Camden Avenue San Jose, CA 95124 (408) 482-9659 www.hoaelection.com
RESERVE STUDIES
ASSOCIATION RESERVES Reserve Study Firm Carol Serrano Reserve Studies for Community Associations 6700 Fallbrook Avenue, Suite 255 West Hills, CA 91307 (800) 733-1365 cserrano@reservestudy.com www.reservestudy.com THE HELSING GROUP, INC. Reserve Study Firm Ryan Leptien Serving All of California 4000 Executive Pkwy., Ste. 100 San Ramon, CA 94583 (925) 355-2100 • Fax (925) 355-9600 reservestudies@helsing.com www.helsing.com SCT RESERVE CONSULTANTS Reserve Study Firm Mike Graves, RS Finding Solutions, Maintaining Communication, and Providing Triage P.O. Box 890129 Temecula, CA 92589 (951) 296-3520 • Fax (951) 296-5038 info@sctreserve.com www.sctreserve.com
VENDOR COMPLIANCE
ASSOCIATION SERVICES NETWORK Vendor Compliance David Jeranko Vendor Compliance & Risk Management 24000 Alicia Pkwy., Ste. 17-442 Mission Viejo, CA 92691 (949) 300-3702 • Fax (877) 404-2008 davidj@asn4hoa.com www.asn4hoa.com
cacm.org | The Law Journal Winter 2021 19
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