HOA Records

THE GUIDING PIECE IN CONSTRUCTION DEFECT LITIGATION

By Aaron J. Ehrlich, Esq.

Community managers are very aware of the records that homeowners’ associations must retain to comply with the Davis Stirling Act. A topic of understandably less attention, records retention also plays a critical role in many other contexts for homeowners’ associations, including in construction defect claims.

This article focuses on record retention best practices in the context of construction defect claims. Ensuring relevant records are preserved in a favorable manner will help community managers protect their young communities and minimize distractions commonly employed by developers’ defense counsel in defect claims.

WHY ARE ASSOCIATION RECORDS IMPORTANT?

Construction defect claims for new projects in California are governed by Title 7 aka The Right to Repair Act (Civil Code § 895 et seq.). Title 7establishes a broad range of performance standards for newly built communities and holds the developer liable to the property owners (either the homeowners’ association or unit owners) when a performance standard is violated.

In exchange for developers’ compliance with the performance standards, Title 7 precludes property owners from making many types of claims usually available when dealing with property damage (like negligence.)

Title 7 lists the defenses available to a developer when defending against a Title 7 violation claim(Civil Code § 945.5.). Since there are limited defenses available to a developer, and many of the listed defenses rarely apply to a homeowners’ association’s claim (like a violation due to an“unforeseen act of nature” or a violation being subject to a valid release), the focus of a developer’s defense counsel is highly predictable.

The two available defenses that typically become contentious are: (1) A violation caused by the property owner’s “unreasonable failure to minimize or prevent those damages in a timely manner”; and(2) A violation caused by the property owner’s“failure to follow the builder’s or manufacturer’s recommendations, or commonly accepted homeowner maintenance obligations”.

A developer’s defense counsel will look to a homeowners’ association’s records trying to find support for those two common defenses. Thus, it is important for community managers with young multi-family projects to understand what records may be relevant to those two common defenses.

BOARD OF DIRECTORS MEETING MINUTES

Both the Open Session and Executive Session meeting minutes of a board of directors are usually the starting point when a developer’s defense counsel looks to support one of the permitted Title 7defenses. While Executive Session meeting minutes are protected from members’ inspection under the Davis Stirling Act (see Civil Code § 5215), they are discoverable in a lawsuit or arbitration, so a developer has a right to obtain those minutes under Code of Civil Procedure § 2017.010.

Only attorney-client privileged, or certain private information (like sensitive financial information), may be redacted in the Executive Session meeting minutes before being provided to the developer’s defense counsel.

Sometimes, community managers mistakenly presume that Executive Session meeting minutes are protected in all circumstances, and thus the content can never be used against a homeowners’ association. That is not true and extra care is required when drafting Executive Session meeting minutes since the contents may be disclosed in a lawsuit or arbitration.

A developer’s defense counsel is looking for any evidence in the meeting minutes that may support either a lack of maintenance or inspection defense. For example, when meeting minutes reference complaints about construction conditions, complaints about maintenance vendors, a board of director’s failure to approve vendors’ maintenance proposals, a board of director’s decision to change maintenance vendors, or similar types of critical entries, a developer’s defense counsel will try to seize upon such in hopes of supporting a permitted defense.

It is often difficult to remember these discussions years down the road when a defect claim is pending, and thus, it is important for community managers to carefully draft minutes to avoid any appearance of board of directors’ inaction.

A community manager should consider including the board of directors’ response to such situations in the minutes so it is clear that appropriate action was taken. Otherwise, it may be wrongly interpreted that the board of directors had knowledge of certain conditions and failed to timely take remedial action or failed to timely inspect portions of the project, thereby potentially supporting a permitted Title 7 defense.

INSPECTION, MAINTENANCE, AND REPAIR RECORDS

Developers typically draft a lengthy homeowners’ maintenance manual for newly built multi-family projects. Those manuals specify the recommended inspection and maintenance protocols for a project’s systems and components, including those that the homeowners’ association and individual owners are required to maintain.

It is critically important that community managers familiarize themselves with the manual and ensure that the inspection and maintenance protocols are timely followed. To document compliance with the manual, it is the best practice to keep records of all inspections and maintenance completed consistent with the timing and process specified in the manual, and to regularly provide written reports to the board of directors of such undertakings.

Some manuals include a checklist for the inspection schedule and can be used to easily document compliance. If no checklist is included, it is advisable to create and use one for consistent reporting and records keeping. Inspection and maintenance reports from vendors for specialized areas of the manual should also be regularly provided to the board of directors. Vendor contracts should require that written reports be provided after work is completed so appropriate records are preserved.

Following this process will eliminate a developer’s defense counsel from making a case that the homeowners’ association has failed to follow the manual’s protocols. These same recommendations should also be followed when vendors complete work consistent with the homeowners’ association’s reserve study or when other project repairs arerequired.

EMAILS AND WORK REQUESTS

Similar procedures should be followed for any emails and work requests submitted to the community manager. Any inspection, maintenance, or repair requests should be maintained and responses to the same should be documented (and reported to the board of directors) to also avoid an appearance of inaction which the developer’s defense counsel could use to support a defense based upon failure to act or noncompliance with the manual.

Understanding the importance of the records discussed in this article, and following the above recommended procedures, will help protect young multi-family projects and ensure that construction defect claims are not compromised by the limited Title 7 defenses available to developers.

Aaron Ehrlich, Esq.

Aaron Ehrlich, Esq., is a Litigation Partner at Berding & Weil LLP and has practiced construction defect litigation for 15 years.