The Law Journal, Fall 2022 by CACM-California Association of Community Managers

FALL 2022 PAGE 4 I“FINE,GUESS” EFFECTIVE TIPS AND STRATEGIES FOR MEDIATION. PETITIONPOWER UNDERSTANDING THE MEMBER PETITION PROCESS PAGE 6 IT’S PROCESSA A REFRESHER ON ARCHITECTURAL REVIEWS AND APPROVALS. PAGE 14 OWNRENT?OR PROS AND CONS OF OWNERS AND RENTERS INSURANCE. PAGE 10 ABC’S OF ADR’S WHAT YOU NEED TO KNOW ABOUT ALTERNATE DISPUTE RESOLUTIONS. PAGE 12 PROTECTIONHOA YOUR NAVIGATION THROUGH INSURANCE CLAIM AND POLICIES. PAGE 8

Chief Editor Attorney Guest Editor Fall 2022 Law Journal Committee Members Garrett Wait, Esq. Kriger Law Firm Mark Guithues, Esq. Community Legal Advisors, Inc. Jill Morgan, CCAM Allure Total Management Fred Whitney, Esq. Whitney | Petchul John Hansen, Esq. Baydaline & Jacobsen LLP Fall 2022 Hamlet Vazquez, MCAM-HR Wilshire Terrace Co-Op Cory Gorham, CCAM Canyon Lake POA

Follow @CACMchat A PRACTICAL REVIEW OF COMMUNITY MANAGEMENT LAW Interested in advertising in CACM’s Law Journal? Reach out to us at marketing@cacm.org 2022 CACM Fall Law Journal Editorial Committee www.HeritageBankofCommerce.bank Member FDIC • Treasury Services • Web-Based Payment Portal • Integration Services • Operating and Reserve Accounts • Local Lockbox Processing • HOA Loans • Placement Services for Excess Reserves Your HOA Banking Specialist MemberSupportingof Give us a call today 844.489.0999 A Dedicated HOA Department Here For You Community Legal Advisors Inc. COMMUNITY ASSOCIATION ATTORNEYS Toll AttorneyforHOA.com833.938.1877Free General Counsel • ADA & DFEH Compliance • CC&R & Bylaw Amendments • Architectural Matters • Contracts & Insurance • Elections & Recalls • Employment Law • Legal Opinions Assessment Collection • Timely Status Reports • Responsive Paralegals • Collectibility Analysis • Judicial or ForeclosuresNon-Judicial • Money Judgment Lawsuits • Small Claims Assistance • Post Judgment Recovery SanServingDiego County, Orange County, Inland Empire and Coachella Valley

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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.

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.

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John D. Hansen, Esq., is a partner with Baydaline & Jacobsen LLP that specializes in general counsel to community associations and has 13 years of experience in the industry. Law Journal articles are centered on mastering the foundational areas of expertise applicable to community managers found in Business and Professions Code §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.

Community managers do not manage communities in a vacuum, but rather in

Finally, with everything that changes, renters and the architectural process will never stop creating challenges, so these subjects are always relevant to discuss. This issue will cover these topics in a way that equips managers to more effectively handle and successfully resolve them. There is always more to learn and ways we can sharpen one another.

Letter from the Guest Editor an environment that is always changing, from laws, to temperaments, to technology, to the natural environment. In the last several years, we have seen the progression (or digression) of the way people manage conflict or dissatisfaction with their circumstances, which leads to the dispute resolution process.

“In the last several years, we have seen the progression (or digression) of the way people manage conflict ”

Dissatisfaction can also take a different path, and lead to a member petition for a recall, or something entirely outside of what the law contemplates. Disputes, as well as our natural environment and aging buildings, are leading to more insurance claims, but these claims are often confusing to navigate and manage.

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While selecting a date for mediation, the parties are often subject to the whims of everyone’s calendar.

While some associations and homeowners prefer to get the mediation done quickly, the better approach is to give the parties time to gather information and prepare for negotiations at the Next,mediation.theparties must agree on whether the mediation will occur in person or via video conference. Certainly, video conference mediations are more convenient for the parties.

Your association has found itself in a dispute headed for mediation. Now the association, through its legal counsel and board of directors, must prepare and present the association’s case and then attempt to reach a settlement using the assistance of a third-party neutral. This is the time to set the association’s goals and preferred outcome.

Selecting a mediator and coordinating a date for mediation: Ideally, the association’s attorney and opposing counsel are well-acquainted with the local mediators. If not, the association and its counsel should look for cost-effective mediators with significant experience mediating homeowners association disputes.

By Garrett Wait, Esq.

Based on anecdotal evidence, however, an in-person mediation may be more likely to produce a settlement. Feeling trapped in a conference room during mediation often leads to Oncecompromise.thoselogistical matters are taken care of, the association should ensure that its attorney has all of the facts related to the dispute. Depending on the nature of the conflict, that generally includes all relevant dates, invoices, witnesses, documentary and audio-visual evidence.

Effective Mediation Strategies OR HOW TO GET TO “FINE, I GUESS”

cacm.org | Law Journal Fall 2022 5 Garrett Wait, Esq., of Kriger Law Firm specializes in community association law and has 11 years of experience in the industry.

The parties should use their time with the mediator wisely because the day can go by quickly. Presenting arguments should be relatively minimal and limited to the first hour.

The mediation process can be daunting for those who have never participated, but it’s merely an negotiation.assisted

The association’s attorney will use this information to prepare a mediation brief, which should then be reviewed and approved by the board of directors. That brief is intended to inform the mediator of the facts and law, and to outline the association’s settlement position. This settlement position is a concrete demand that anchors the association’s initial offer for the Oncemediator.theassociation’s attorney has drafted the brief, and possibly received and reviewed the opposition’s brief, it is an appropriate time to sit down with the board, conduct a risk assessment of the case and set their expectations. The board should then designate a director to attend the mediation on the association’s behalf alongside the manager and its counsel. Importantly, the board should grant that director broad settlement authority and freedom to bind the association to a reasonable agreement. That may include specific written instructions such as dollar amounts and dealbreakers. The director’s authority should be broad enough not to need other directors’ input during mediation. Some boards may want more than one director to attend, but our experience is that can lead to a “too many cooks” situation.

All participants should be prepared to compromise, and counsel’s initial risk assessment should help guide the board on whether an offered compromise is reasonable. The association should be aware that litigation is not the preferred outcome unless you have a “no-doubt” case.

Finally, on the day of mediation, the attending director should be on time and dressed for the occasion. During mediation, the mediator may ask the parties to participate in a joint session to address the mutually agreeable facts. The mediator may even ask the parties if they are willing to share briefs, even if they are confidential. Finding as much common ground as possible is one of the mediator’s primary goals to move the matter toward a Assettlement.important as it is to present a strong case, the association and its representatives should listen to the mediator. Most often, they are retired judges with significant trial experience. Their perspective can be invaluable. They can offer specific strengths and weaknesses that both sides should address. More often than not, the association may not be able to convince the other side that the association is correct, but it can soften their position using the mediator’s assistance.

The mediation process can be daunting for those who have never participated, but it’s merely an assisted negotiation. The association should do everything possible to assert its position while finding room for an agreement that avoids litigation. Prepare adequately, listen to the mediator, and do what you can to resolve the matter without going to court.

Substantive negotiations should take up most of the remainder time. The key is to try to narrow the issues and the sticking points. Attempt to determine what is on or off the table in any negotiation.

The

Too often, people think of mediation as a win-or-lose situation. Depending on your mediator, they may remark that a good outcome is a settlement where both parties are “equally unhappy.” To get to “fine, I guess,” the association may need to get creative. Is there something besides money the HOA can offer? Be flexible, but remember the limits of the director’s authority and any limitations on the board in the law or governing documents. If the parties reach an agreement, the best practice is to prepare and sign a written agreement in the mediation session. Preferably, the association’s attorney will come to the mediation with a template settlement and release agreement. Preparing settlement language during mediation can lead to a quicker resolution and avoid the potential for a party to back out. After the mediation, the association’s representative should report the outcome to the board in an executive session. If the parties settled, great! Finalize the settlement agreement if that did not occur during mediation, sign it, and comply with the material terms. If parties did not settle, then additional follow-up may be necessary. Occasionally, the mediator may agree to continue the mediation to a later date. If that’s the case, the parties should take advantage. If the parties could not settle, the association should prepare for litigation.

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Membership petitions are becoming increasingly common for associations, and the relevant statutory authorities do not provide the clearest picture of how associations should handle them. Many owners believe they can demand anything they want through a petition, which is simply not the case.

These are just some of the questions you might have when receiving a petition, and there are many others to consider.

Petitions are primarily governed by the California Corporations Code. Section 7510(e) of the Corporations Code states that 5% or more of the owners of a corporation can submit a petition for a special meeting of the members for any lawful purpose. Section 7511(e) of the Corporations Code states that the petition must be in writing and submitted to the board chair, president, vicepresident, or secretary. When receiving a petition, there are a few threshold issues to confirm. First, is the petition signed by 5% or more of the owners? Related to this, do the signatures on the petition belong to actual owners? If 5% or more of the owners have not signed a petition, you By Cyrus Koochek, Esq.

MasteringMEMBERUnderstandingthetheAtoZofPetitions PETITION Process;

Your board of directors is conducting a regular board meeting when a disgruntled owner hands over a petition to the board. Now what? Is it valid? Do you have to hold an election or meeting? If so, by when? Where do you go from here?

The law allows owners to recall boards, fill board vacancies, and reverse rule changes –these are some of the most notable and common scenarios where a petition is for a lawful purpose, given that the law recognizes these. Even in these instances, remember that there are still quorum and approval requirements that must be met for the underlying action to be approved, based on the governing documents or law.

When reviewing a petition, confirm that the signatories are record owners on title (i.e., the owners listed on the unit grant deed).

Many owners believe they can demand anything they want through a petition, which is simply not the

++case.+

Cyrus Koochek, Esq., of SwedelsonGottlieb specializes in community association law and has 10 years of experience in the industry. required to hold the meeting or what happens at the meeting is based on the underlying purpose of the petition, and this is where many petitioners get things wrong.

When owners attempt to use a petition to terminate approved contracts (including management), propose a governing document amendment, or take some other action not directly delegated to the membership, the petition is not for a lawful purpose. Sometimes petitions seek no specific action other than to discuss association issues. This is typically viewed as being for a lawful purpose. The special meeting will be similar to a town hall where owners have the right to discuss a particular topic on a set agenda without taking any vote or Whenaction.avalid petition is received, the association has 20 days from the date of receipt to set a meeting date and notify all owners of the special meeting. The meeting must be held between 35 and 150 days after the petition is received. The board ultimately determines the meeting date despite what the petitioners may want. Depending on the purpose of the meeting, election materials, such as a call for candidates for a recall election, should accompany the meeting

Maintaining an accurate membership list is crucial so that you do not have to spend time or money researching unit grant deeds each time a petition is received. Also, remember that in any association with 20 or fewer owners, it just takes one owner to submit a Apetition.common misconception about petitions is that it only takes 5% of the owners to compel an action to take place (or not take place). In other words, can 5% of the owners really make an association decision simply by submitting a petition? The answer is no - the 5% threshold simply refers to the percentage of owners needed to submit the petition to call a meeting. Whether the board is

A valid petition allows owners to call a special membership meeting for a lawful purpose. Not every purpose, however, is lawful. The fact is that most meeting petitions are requested for matters that the owners do not get to vote on/decide. Under the Corporations Code, except for actions requiring owner input, all other actions rest with the board. If the law or an association’s governing documents do not expressly assign owners a right to take action through a petition, it is not for a lawful purpose. This means that owners cannot reverse a board decision through a petition because board decisions are not decisions to be made by owners.

cacm.org | The Law Journal Fall 2022 7 can stop there because the petition is invalid. Of course, sometimes this is difficult to tell.

Sometimes you will see multiple persons signing from one unit, which is only permissible if all such persons are actual owners. If not, only the owner(s) listed on the grant deed should be counted. Tenants and non-owner family members also do not count toward the 5% requirement.

Manynotice.associations include a copy of the petition with the notice to provide full transparency as to the identity of the petitioners. Some associations also offer owners the ability to retract their signatures, as many owners are often unaware of what they are signing. If the number of retracted signatures results in a petition of less than 5% of owners, the petition is arguably no longer valid. The above measures are ultimately board decisions; however, associations should consult with legal counsel to confirm the appropriateness of such Petitionsactions.serve a legitimate purpose for association owners, but they can also be abused. They certainly create some confusion. As with many association issues, boards and managers should consult with legal counsel if there are questions upon receipt of an owner petition.

By Darren M. Bevan, Esq. & Raihane A. Dalvi, Esq.

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To determine whether or not to report this type of claim, associations should follow a series of steps. First, evaluate the nature and extent of the damages based on factors including: • the cost of the deductible, • the risk of the carrier increasing the premium, • the risk of the carrier not renewing the policy in subsequent years, and • the risk of the carrier canceling the policy if it decides that the association is too high-risk.

A first-party property damage claim is a claim filed with an association’s insurance company for damages to its common area property covered by the policy. Examples of this type of claim are when an association files a claim for losses resulting from a fire or flood or a water leak in a condominium building.

A ssociations are encouraged to obtain insurance to protect them from liability from claims. There are different types of claims, including the following:

CLAIMSNAVIGATINGINSURANCEANDPOLICIES

• third-party property damage liability claims, and directors and officers liability claims.

Second, evaluate whether the association is responsible for the loss and paying the deductible by retaining experts, reviewing its governing documents, and engaging legal counsel. Third, determine if the responsible party is insured (if the responsible party causing the damage is not the association). Fourth, the association should evaluate its obligations under its governing documents.

• first-party property damage claims,

The next two types of claims are “liability claims” made by the association where a third party suffers a loss, and the association may be responsible. To this end, a third-party property damage liability claim occurs when an association’s common area property causes damage to a third party’s property. For example, the association may file this type of claim if a common area tree falls onto an owner’s house or car or if the common area roof in a condominium building causes water damage to an owner’s unit.

Failure to inform the carrier of a claim within a reasonable period of time may result in severe consequences. The carrier could deny the claim, meaning that the association may lose coverage and have to pay out-of-pocket for any damages or other expenses.

Additionally, associations may consider increasing their deductibles to decrease their insurance premiums. Boards should also work proactively with their insurance carrier to identify and mitigate future risks to protect the association as much as possible.

Meanwhile, directors and officers (“D&O”) liability claims are made against an association or its board of directors for “wrongful acts.” A wrongful act is broadly defined as any act, omission, negligence, breach of duty, breach of contract, or Somediscrimination.common claims against associations or their boards include the failure to maintain the common area, a violation of the state or federal fair housing laws, challenging an association’s architectural control decisions, a violation of the Civil Code, or challenging the validity of an amendment of the association’s governing documents. These types of claims can seek non-monetary (that is, a court order for the association to do or not do something) or monetary relief, such as money. These insurance policies do not cover claims for property damage or bodily injury.

So, when do you report these types of claims? As a general rule, boards should report all “actual” and “potential” claims to the appropriate insurance carriers as soon as possible. An “actual” claim is one where the claim has already occurred (such as when the association has been sued or suffered a loss resulting in property damage). A “potential” claim is where a lawsuit has not been filed but may be threatened or anticipated. ”Potential” claims include instances where the association has received a written threat of a lawsuit or claim for money because of alleged damages, or where the association becomes aware that its tree caused damage to property belonging to a third-party. Importantly, reporting a “potential” claim still preserves the association’s right to coverage without triggering higher premiums, whereas reporting an “actual” claim may result in higher premiums. When an event loss or liability occurs due to an event covered by an insurance policy, the insurer “indemnifies” and “defends” the association. “Indemnify” means the insurer compensates the association for losses or damages sustained by a covered event. “Defend” means the insurer provides the association with funds to defend against claims made under an insurance policy.

coverage needed. A good rule for boards of directors is to evaluate their association’s insurance policies and the coverage provided, including policy limits and types of coverage to ensure that the association will not be underinsured or overissued.

Maintaining insurance coverage for these types of claims is necessary and helpful in protecting associations against the unexpected. When renewing an insurance policy or obtaining a new policy, associations should balance the rate of insurance and the Darren M. Bevan, Esq., and Raihane A. Dalvi, Esq., of Baydaline & Jacobsen LLP specialize in general counsel to community associations and have 19 and 5 years of experience in the industry, respectively.

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For an association’s insurance carrier to indemnify and defend the association against a claim, the association must first “tender” the claim to the insurance carrier. An association tenders a claim when it reports the claim to its insurance carrier when the association is sued, or alternatively, when a major loss has Byoccurred.tendering the claim, the association triggers the insurance carrier’s responsibility to investigate and determine in good faith whether to indemnify or defend the association from the claim. Typically, either the association’s board of directors or its manager tender claims on behalf of the association.

The first step in the manager’s analysis is looking to the law and governing documents to determine what coverage is needed for the association. For third party liability purposes, the law provides that the volunteer director will be subject to personal liability if the of Owners and

ProsInsuranceRenters&Cons

If your governing documents do not require these coverages, consider amending them. See Civil Code §5805 for additional details on these last two categories of common interest developments and Thecoverage.governing documents will set forth what insurance is required (and sometimes what is “recommended”). Usually, this will include at least “Fire & Casualty” Insurance, Liability Insurance, and Directors and Officers Insurance. Sometimes, the governing documents will also recommend fidelity bonds, umbrella policy, earthquake insurance, or flood insurance. The manager will need to then crossreference what’s required with what the association currently has in place.

What do sunscreen and insurance policies have in common? You’re never really covered as much as you think.

Without putting you to sleep, this article will attempt to inform you about insurance policies for associations, owners and renters, and key exclusions.

By Colin McCarthy, Esq. association does not carry general liability insurance for the association and directors and for the officers with certain limits.

Do you know what the insurance salesperson said to his potential customer after describing all of her insurance policy options, what they were for, and what they did? He said, quietly, “Call me tomorrow when you wake up . . .”

For developments with 100 or less separate interests, there must be a minimum of $500,000 in coverage for both types of policies. The minimum rises to $1,000,000 if the development has more than 100 separate interests. If the 100 or fewer separate interest association does not have $2,000,000 in general liability coverage, its members can be personally sued for losses occurring in the common areas ($3,000,000 for developments with more than 100 separate interests).

As unexciting as the topic may be, (some of us love this stuff – you know who you are!) it is an important one for a manager, as knowing the insurance requirements and the types of coverages for your association and your members can save both money and Withheadaches.nogapsin coverage between an association, a member, and a renter, the astute manager can cover casualty, property damage, and personal injury loss without resorting to reserves, or worse, special assessments.

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What the insurance company gives, it also takes away. Excluded from the association “Fire & Casualty” Insurance and homeowners insurance is earthquake coverage and flood insurance. Walls-in coverage will not cover upgrades to the unit. Liability policies frequently exclude injuries related to mold or fungi. Separate policies or endorsements will be needed for these coverages.

A tenant should obtain renters insurance to insure against liability and personal property loss while occupying the unit. If a visitor gets bitten by the renter’s dog, the tenant will need renter’s insurance to protect against such suits. If a casualty event damages all his personal property, renter’s insurance will cover up to the limits obtained.

Did you hear about Fleetwood Mac’s special insurance policy? They got it for landslides. Checking the insurance means knowing what the different kinds of insurance do. Call your broker if you can’t read the policy declaration pages or don’t understand something.

Why did the insurance company deny the church coverage after a lightning strike? They said it was an act of God.

cacm.org | The Law Journal Fall 2022 11 Colin McCarthy, Esq. of Angius & Terry specializes in insurance and association law and has 25 years of experience in the industry.

DIRECTORS AND OFFICERS INSURANCE protects the directors from lawsuits related to their decisions as a board. A lawsuit for breach of fiduciary duty is protected by this insurance. Without such insurance, the association would have to indemnify the director – pay her legal fees and any judgment. The member will have different insurance. Homeowners insurance will include casualty and liability insurance for the owner. This protects the owner against gaps in “walls-out” coverage, personal property damage, and third party lawsuits stemming from injuries inside the Coveragesunit. for dues payments and lost business income (if renting the unit) can be added to protect the member against having to pay dues while the unit is being repaired and is not occupiable.

Regardless of whether an association has walls-in or walls-out coverage, homeowners will need to secure coverage for personal property, because the association’s property and casualty will not usually cover personal property within the unit.

LIABILITY INSURANCE protects the association against third party claims and lawsuits related to injuries or property damage sustained by said third parties at the development. If Larry trips on a sprinkler head in the common area and breaks his ankle, the association will utilize the insurance to pay that third party claim. If an association’s tree falls on several parked cars or a neighboring fence, this liability insurance will operate to defend any lawsuit and pay the claim.

“FIRE & CASUALTY” INSURANCE is for the buildings and property repair and replacement after a fire, storm, or other “casualty” event. For condominium or townhome associations, these policies will either be “walls-out” or “walls-in”. They will either cover the building and structure down to the structural walls and no further, or will include repair and replacement inside the unit to “as-built” condition. “Walls-in” coverage does not cover upgrades – a new kitchen countertop – but such policies can be endorsed to include upgrade coverage. “Walls-out” coverage means members need homeowners policies with casualty coverage of components in the interior of the unit.

12 The Law Journal Fall 2022 | cacm.org Quick! What does “ADR” stand for? And what does it mean, really?

If a party files suit without offering ADR, or refuses ADR if it is offered, they may be barred from recovering attorneys’ fees at the end of the case. It would be foolhardy not to participate in ADR and face this consequence.

1. When it works, it saves time and money and fosters a cooperative relationship between associations and homeowners.

“ADR” is an abbreviation for “alternative dispute resolution,” an alternative to going to court to resolve a dispute. Over the past decades, ADR has become an essential litigation tool, and was adopted wholeheartedly by the authors of the Davis-Stirling Common Interest Development Act (the “Act”) starting at §5925. Community associations participate in ADR for two reasons.

2. When it doesn’t, it is a legally required precursor to a lawsuit.

ADR is an important, and mandatory, part of the association enforcement process. If letters, hearings, and fines don’t work, the logical and legal next step is a demand that the homeowner participate in ADR.

A THERDLTERNATIVEISPUTEESOLUTION:BASICS,ANDWHATMANAGERSNEEDTOKNOW

ADR should not be confused with Internal Dispute Resolution or “IDR.” IDR is not mandatory unless the homeowner demands it. The Act defines ADR as a non-judicial process involving a neutral party. When this neutral works with the parties to help them come to mutual agreement – this process is called mediation. When the neutral is asked by the By John R. MacDowell, Esq.

The Act requires that the parties attempt ADR first, before filing a lawsuit, in disputes between owners and the association involving the governing documents, the Act or the Corporations Code. There are exceptions. If a court order is needed immediately, the association or owner can file suit and ask the court to enter a temporary restraining order or preliminary injunction. If the amount sought is over the small claims limit (now $5,000 for corporations), ADR is not required, but generally is conducted anyway.

If a homeowner has a dispute with the association, they too must offer ADR (unless an exception applies). The offer can be sent by mail, by the owner or their attorney, and can be in the form of a letter. If an association receives any written communication that talks about ADR, association counsel should be involved, and quickly. You only have 30 days to agree, and missing the deadline is an automatic rejection with the serious consequences mentioned above. The association’s insurer should be notified as well. Most directors and officers liability policies will pay for an attorney to represent the association in ADR if the claim is otherwise covered. So why ADR? It is legally required and it is an effective alternative to going to court.

“It was so great to meet the neighbors and resolve our differences.”

parties to simply make a decision, like a judge would, this process is called arbitration. Most of the time, associations and homeowners use mediation. It is relatively quick and inexpensive. Most importantly, parties tend to prefer an agreed-upon outcome over one imposed on them by a third party. The neutral in a mediation is the mediator. Attorneys usually recommend a professional mediator who devotes most or all of their time to dispute resolution. The retired judges and attorneys who do this work are skilled, and their professional reputations depend on their success in settling cases. Your attorney needs to attend, and so do witnesses and board members with authority to make binding decisions. I often recommend that a quorum of the board attend (with a special executive session noticed for the time and place of the mediation). In the mediation session, each side will have its own room (physically or virtually) and the mediator will shuttle back and forth with questions and comments, offers and demands. Expect the mediator to point out weaknesses in your case (every case has some), which helps everyone gain perspective. If the parties come to agreement, a written agreement should be prepared then and there. It’s best to sign an agreement right away –it’s human nature to have second thoughts.

The party seeking ADR begins by sending a demand, and the other party has 30 days to agree. Often, an owner will soften their position when they get the demand and realize the process will cost several thousand dollars. (The parties split the mediator’s fee and pay their own lawyers.) A skilled mediator can help both sides view their positions realistically. Sometimes, a party just needs to tell their story, and the mediator can be a sounding board. Statistics show that about 90% of cases settle, so it is a benefit to both parties to reach an agreement early.

cacm.org John R. MacDowell, Esq., of Fiore, Racobs & Powers, A Professional Law Corporation, specializes in community association law and has 28 years of experience in the industry.

Although arbitration may seem attractive, it can be a long and expensive process and for various evidentiary reasons, may not be better than going to court.

Perhaps most importantly, your relationship with the owner will continue, regardless of the outcome, because of the amicable nature of the process.

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If there is no agreement, the mediation ends. Everything that is said must remain confidential. However, an unsuccessful mediation usually sets the stage for further dialog. Your mediator will often agree to stay involved, talk to the parties by phone, and hold another session. If there is no agreement, the parties are then free to go to court.

While “mediation” and “arbitration” sound similar, they are very different. In arbitration, the neutral is the arbitrator. The arbitrator hears witnesses testify, reviews documents, and makes a decision. Someone will win and someone will lose.

Most CC&Rs require owners of the separate interests to obtain association approval prior to making structural alterations or alterations to the exterior of their separate interests or common area.

The inadvertent approval of alterations can result in alterations that are detrimental to the appearance of the community and property values, or that undermine the structural integrity of a building. Inadvertent approval of alterations can also lead to potential liability for the association and, in some instances, individual board or ARC members.

ArchitecturalRefresherontheApprovalProcess

Directors should be encouraged to review their association’s CC&Rs so they are well-versed on the architectural approval process (“Process”) they must follow. Likewise, if the CC&Rs provide for an architectural review committee (“ARC”), ARC members should be encouraged to review the Process.

By Lindsay J. Anderson, Esq. and Karyn A. Larko, Esq.

Having said this, “knowing” the Process is not enough. The board and ARC, if any, must also comply with the Process. Failure to do so can lead to the inadvertent approval of alterations that are not acceptable to the board or ARC.

Many CC&Rs state that if an application is not approved or denied within a specified time period, the application is automatically approved or association approval is no longer required.

In some instances, the language is vague, imposing the obligation on owners, but providing few details. In other instances, the CC&Rs set forth in detail the process owners (and the association) must follow.

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ANNUAL DISCLOSURE CC §4765(c) requires associations to notify their members annually of any requirements for association approval of physical changes to property. This notice must describe the types of changes that require association approval and include a copy of the association’s process.

If owners are entitled to appeal, the board must promptly consider their appeal at a duly noticed open session board meeting, subject to any additional requirements imposed by the governing documents.

Your boards and ARCs may impose reasonable conditions when approving applications, subject to any limitations imposed by the governing documents. If any conditions are imposed, these conditions should be clearly set forth in the notice of approval.

Therefore, if any of your clients have CC&Rs that do not include a detailed description of the architectural review process or have concerns about the current process, they should consult with legal counsel. If authorized by the governing documents, your boards should adopt architectural guidelines that set forth any standard restrictions on commonly requested alterations. By doing so, they reduce the potential for inconsistent application decisions and claims of wrongdoing.

Lindsay J. Anderson, Esq., and Karyn A. Larko, Esq., of Epsten, APC specialize in community association counsel and have 2 and 14 years of experience in the industry, respectively.

On a related note, be sure your boards and ARCs know the time periods imposed by California law for reviewing solar energy systems and electric vehicle charging station applications. California Civil Code (“CC”) §714(e) (2)(B) provides that unless a solar energy system application is denied in writing within 45 days of submission, it is deemed approved.

REVIEWING APPLICATIONS

The CC&Rs generally identify the factors the board or ARC is to consider when evaluating applications, such as conformity of the alterations with the governing documents, the quality of the proposed workmanship, the design and harmony of the alterations with existing structures, the location of the alterations in relation to surrounding structures, topography, and finish grade Itelevation.isimportant that boards and ARCs understand the scope of their authority and duty when evaluating applications, and perform their evaluation in keeping with this Ifscope.anapplication contains a disability related request for a reasonable accommodation, the board or ARC should consult with the association’s legal counsel on how best to evaluate the application.

The Civil Code controls in the event the governing documents grant a longer review Federalperiod. law also imposes a deadline for reviewing applications for qualifying satellite dishes and antennas. If your clients require approval for the installation of these devices, encourage your boards to consult with their association’s legal counsel on this matter

If applications are denied by an ARC, other committee, or subcommittee of less than the whole board, CC §4765(a)(5) grants owners the right to appeal the denial of their application to the board. Section 4765(a)(5) does not extend this same right of appeal to other owners who may object to the approval of a neighbor’s application. Some governing documents provide an appeal process regardless of the composition of the body reviewing applications. In such instances, this process must be followed even if the right to appeal is not imposed by the CC.

GUIDELINESARCHITECTURAL

CC §4765(a)(1) requires associations to have a fair, reasonable, and expeditious procedure for deciding applications, including the maximum time for responding to applications and appeal requests. This procedure must be set forth in the governing documents, which include CC&Rs and rules or guidelines.

cacm.org | The Law Journal Fall 2022 15

APPLICATIONSAPPROVING/DENYING

Boards and ARCs must act reasonably and not in a capricious or arbitrary manner when deciding applications. This does not mean that if they have previously approved an alteration, they must approve all future applications for the same or similar alterations. Nor does it mean that if they have previously denied an alteration, they must do so in the future. However, they should have objective reasons for treating the applications differently and these reasons should be noted in the meeting minutes. For example, the location of a proposed alteration in relation to other structures might be a basis for denying a request that was previously approved elsewhere in the CCcommunity.§4765(a)(4) mandates that applications be approved or denied in writing, and that if an application is denied, the notice of denial must include the reason(s) for the denial and a description of any procedure the owner must follow to appeal the denial.

APPEALS

CC §4745(e) provides that if an electric vehicle charging station is not denied in writing within 60 days of submission, it is deemed approved.

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Articles inside

Refresher on the Architectural Approval Process

Alternative Dispute Resolution

Pros & Cons of Owners and Renters Insurance

Navigating Insurance Claim and Policies

Mastering the Member Petition Process

Effective Mediation Strategies

Letter from the Guest Editor