ECHO Journal - February 2013

February 2013

A Journal for California Community Association Leaders

echo-ca.org

Maintenance, Repair and Replacement Complete Matrix Form Downloadable from the ECHO Web Site See Details Inside!

ECHO Oakland Seminar and Trade Show Coming April 5–6 See Details on Page 3

Change Service Requested ECHO 1602 The Alameda STE 101 San Jose, CA 95126

PRSRT STD U.S. Postage PAID Modern Litho 210

ECHO Oakland Seminar and Trade Show

A New HOA Educational Opportunity in the East Bay Saturday, April 6, 2013 Oakland Marriott Hotel We are excited to host our firstever seminar and trade show in the East Bay—ECHO Oakland! If you’ve ever attended our Santa Clara event, you know how valuable this experience can be for your association. ECHO Oakland will feature three tracks of educational topics. We will offer our updated Board Essentials course in addition to expert advice from across the HOA community. Meet hundreds of HOA professionals on the trade show floor, and be a part of the camaraderie and excitement of our first ever Oakland event.

What’s New? This year, lunch is included in the cost of your registration. Enjoy a buffet lunch on the trade show floor with your neighbors and colleagues.

Where is ECHO Oakland?

ECHO Oakland is at the Oakland Convention Center. Lodging is available for a special rate at the adjoining Oakland Marriott Hotel.

Please visit the ECHO Oakland website for directions and room reservations.

Members: $89 Nonmembers: $119 Registration includes lunch and validated parking.

Prices increase $10 after March 10.

BTC

.

Bob Tedrick Construction Inc. Quality and Service 925-454-0360

How Do I Register?

You may register online, by fax or mail, or by contacting the ECHO office. Please visit the event website for complete event information including speakers, topics, and venue information. www.echo-ca.org/ echo-oakland-2013

Join us at the

ECHO Marin Educational Seminar Saturday, February 9, 2013 Embassy Suites San Rafael 101 McInnis Parkway San Rafael, CA 94903 8:30 a.m.–1:30 p.m.

You Be the Judge!

Speaker: David F. Feingold, Esq.

Putting “Unity” Back in “Community” Speaker: Wanden Treanor, Esq.

The New Davis-Stirling Act: What You Need to Know Speaker: Glenn Youngling, Esq.

Q&A Session Price: $49 Members $59 Non-Members Register online at www.echo-ca.org or fill out the form on this page.

Yes, reserve _____ spaces for the ECHO Marin Educational Seminar.

Amount enclosed: $__________ (attach additional names) Name: Email Address: HOA or Firm: Address: City:

State:

Zip:

Phone: Visa/Mastercard No.

Exp. Date:

Signature: Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

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ECHO Journal | Februar y 2013

The ECHO Journal is published monthly by the Executive Council of Homeowners. The views of authors expressed in the articles herein do not necessarily reflect the views of ECHO. We assume no responsibility for the statements and opinions advanced by the contributors to the magazine. It is released with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Acceptance of advertising does not constitute any endorsement or recommendation, expressed or implied, of the advertiser or any goods or services offered. We reserve the right to reject any advertising copy.

Copyright 2013 Executive Council of Homeowners, Inc. All rights reserved. Reproduction, except by written permission of ECHO, is prohibited.

Contents 10

Maintenance, Repair and Replacement Matrix A maintenance matrix is practical and preemptive, and can eliminate the need for your attorney to give you an opinion on who is responsible to maintain the deck.

16

Winter Thoughts for Spring In a few short weeks, trees will begin to bloom, and daffodils and tulips will poke their heads up after the long winter. What should you be doing now to prepare your landscape for spring?

20

Assigning Responsibility for Maintenance and Repair Understand one of the most confusing areas a homeowner association must deal with: where the lines should be drawn allocating association and individual responsibility for the maintenance and repair of certain aspects of their buildings.

26

Making Ends Meet: Fiduciary Duty on a Limited Budget Protecting reserves from financial losses must be the top priority of the board, the manager and the treasurer at any time but especially coming through the meltdown tunnel and when facing under-funded reserves and repair needs deferred during the crisis.

The ECHO membership list is never released to any outside individual or organization.

ECHO 1602 The Alameda, Suite 101 San Jose, CA 95126 408-297-3246 Fax: 408-297-3517 www.echo-ca.org info@echo-ca.org Office Hours: Monday–Friday 9:00 a.m. to 5:00 p.m.

Board of Directors and Officers President David Hughes Vice President Karl Lofthouse

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16

20

Treasurer Diane Rossi Secretary Jennifer Allivato Directors Jerry L. Bowles Stephanie Hayes Robert Rosenberg Brian Seifert Steven Weil

26 John Garvic David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Brian Kidney

Departments 6

Director of Marketing & Membership Jennifer Allivato

News From ECHO

32 Directory Updates 34 ECHO Bookstore

Director of Communications Tyler Coffin

36 ECHO Volunteers

Legislative Consultant Government Strategies, Inc.

37 Advertiser Index

37 ECHO Marketplace 38 Calendar of Events

Design and Production George O’Hanlon

On the Cover ECHO Mission Statement Serving Community Associations ECHO Journal | Februar y 2013

Maintenance, Repair and Replacement Matrix—page 10 5

News from ECHO Dear ECHO Members, As most of you know, a massive rewrite of the Davis-Stirling Act becomes effective in 2014.

While any change to the law may cause a period of confusion, the breadth of this particular rewrite has the potential to create all sorts of difficulties for California associations. Association boards may need to reexamine governing documents to update Civil Code section references, clarify language, and rework policies.

As we get closer to 2014, we fully expect to see some technical and substantive changes to this “New Davis-Stirling Act.” You can continue to rely on ECHO to keep you informed through the ECHO Journal, at our many regional events, and on the ECHO website upon its re-launch. Our goal is to ease your transition to these new statutes.

Because California HOA law is in transition, we are updating our annual Statute Book to cover the “New Davis-Stirling Act” language and numbering. The Statute Book containing the new (and finalized) language will be printed and distributed in the Fall.

We also continue to monitor other pieces of association legislation. February 22nd is the final day for bills to be introduced in the Legislature, and we expect another crop of bills that impact your associations. We will publish our first Legislative Update in March, and ask for your valuable input.

While you can always rely on the Journal to provide important information, I do want to encourage each of you to see what else ECHO has to offer. We’ve added quite a few new events (page 7), including our first ever trade show in Oakland (page 3). We’re also drawing closer to the launch of our new online services, and I hope you will take a few moments to set up your new account so that you can enjoy ECHO’s new educational benefits (page 8).

We are grateful for your continued membership, and your commitment to education and your communities.

Best regards,

Tyler Coffin Director of Communications

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ECHO Journal | Februar y 2013

2013 ECHO Educational Calendar Santa Rosa

ECHO Seminars Now there’s one near you.

Sacramento

San Rafael

Walnut Creek Oakland San Francisco

San Jose

If you’ve ever wished that ECHO would hold a seminar closer to your association, chances are that we’ll be nearby during 2013. We are adding more seminars during more times of the year than ever before. Take a look and mark your calendar. We can’t wait to see you there!

Santa Cruz

Fresno Monterey

Locations and Dates of New ECHO Events Feb 9

Marin Educational Seminar

Embassy Suites, San Rafael

Mar 2

Santa Cruz Educational Seminar

Hotel Paradox, Santa Cruz

Mar 23

Wine Country Educational Seminar

Fountain Grove Inn, Santa Rosa

Apr 5–6

ECHO Oakland Seminar/Trade Show Oakland Marriott City Center, Oakland

May 4

South Bay Educational Seminar

Orchard City Banquet Hall, Campbell

May 18

Fresno Educational Seminar

Park Inn by Radisson, Fresno

Jun 15

Walnut Creek Educational Seminar

Embassy Suites, Walnut Creek

Aug 23–24 ECHO San Jose Seminar/Trade Show San Jose Convention Center, San Jose Sep 7

Sacramento Educational Seminar

Le Rivage, Sacramento

Sep 21

Monterey Educational Seminar

Hilton Garden Inn, Monterey

ECHO Journal | Februar y 2013

7

Get More from Your ECHO Membership!

Set up your account today. Sign up at http://www.echo-ca.org/email We are building a new website with tons of new information and features.

These features are for members only, and that means you. In order to extend these services to you, you need to set up your new ECHO membership profile online.

How Do I Sign Up? Option 1: Go to www.echo-ca.org/email. Fill out and submit the form. Done!

Option 2: Email us. If you aren’t a fan of the online form, just send an email to info@echo-ca.org. Please include your • full name; • HOA name; • primary email address; • and whether you are a board member or homeowner.

If you have any questions, please feel free to call us at (408)297-3246.

What are the New Features?

Your membership account will open up access to a continually growing library of HOA information and advice.

For starters, your ECHO membership will allow you to connect with other associations and your own members, and 8

to easily manage your account. In 2013, look forward to: Online Video We’re working on dozens of videos about common legal questions and HOA best practices. All of our presenters are HOA industry experts who offer unique insight into common problems.

Online ECHO Journal Can’t find that one issue of the Journal with that great article about pets?

Don’t worry! All of our ECHO Journals will soon be accessible to ECHO members on our website.

Search for your article, pull up the Journal, and flip through it.

Online Reference Library We are building an unparalleled reference library for California HOA board members and homeowners. Whether you are looking for the current codes, new legislation, explanations of confusing laws, definitions, guides, etc.—we’ve got you covered. You’ll get instant access when we launch our new site.

Members will enjoy a constantly renewed and updated resource of the best HOA information.

Stay tuned for the unveiling of our new web site.

ECHO Journal | Februar y 2013

Jot this event on your calendar!

ECHO Santa Cruz Educational Seminar Saturday, March 2, 2013 Hotel Paradox 611 Ocean Street Santa Cruz, CA 95060 8:30 a.m.–1:30 p.m.

Practical Management Speakers: Rob Rosenberg, CCAM and Lisa Esposito, CCAM

Protect Your Landscape Investment Speaker: Paul Schultz Yes, reserve _____ spaces for the ECHO Santa Cruz Educational Seminar.

The Downside of Keeping it Casual

Amount enclosed: $__________ (attach additional names) Name: Email Address:

Speakers: Sharon Pratt, Esq. and Rosalia Tapia, Esq.

HOA or Firm: Address: City:

State:

Zip:

Phone: Visa/Mastercard No.

Exp. Date:

Signature: Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

ECHO Journal | Februar y 2013

Price: $49 Members $59 Non-Members Register online at www.echo-ca.org or fill out the form on this page.

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ECHO Journal | Februar y 2013

By Robert Rosenberg, CCAM; Lisa Esposito, CCAM and Betty Jones, Esq.

Maintenance, Repair and Replacement Matrix s former management company executives, we frequently found that practical association management and the expert advice we received were at odds. Even though we were willing to follow the advice of the association’s experts, there was often no practical way to do it. We would come up with workarounds to try to achieve the same results. These workarounds

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ECHO Journal | Februar y 2013

combined with the frequent changing of board members and service providers (including legal counsel) can leave associations very little consistency.

A way to be vastly more successful in managing a community association is consistency. Part of consistency is to communicate important details to the homeowners repeatedly. Unfortu-

nately, many boards and management professionals believe that the average homeowner is not listening to/reading the communication from the association. Regardless, boards and managers have the obligation to communicate and the homeowners have the obligation to listen or read. A failure to communicate by either party leads to consequences.

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Management Service ˜ Financial Service ˜ Customer Service ACE Property Management, Inc. ‡ 1625 The Alameda, Suite 917, San Jose, CA 95126 Phone: 408-217-2882 ‡ Fax: 408-886-9474 ‡ Email: Info@acepm.net

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We find that we often struggle to communicate consistently about responsibility. That is, who is responsible for what in the association? Whether it is for maintenance, repairs, and/or replacement, it is always a question of who is responsible. The ECHO Journal has featured several articles in the past by prominent association attorneys on the topic of determining who is responsible for what in a community association. That is indeed an important and challenging task itself, but equally important is communicating those responsibilities to the homeowners. The best way to handle this is for the association to create a simple maintenance matrix that assigns responsibilities in a chart.

A maintenance matrix is practical and preemptive, and can eliminate the need for your attorney to give you an opinion on who is responsible to maintain the deck. To do this right it will take some time and cost a little money (or a lot if you do not want to do the leg work) because you will need your attorney to review your final matrix before publication. If you are taking the easy way out by having your attorney draft the matrix you can skip to the sample matrix and simply ask the association’s attorney to create one for you.

The ideal time for your attorney to do this task is when they are in the process of re-writing your governing documents. For everyone else please read on.

Start by gathering your governing documents, reserve study, any legal opinion regarding responsibility and any other document the association has published to the membership about this topic. Begin by using your reserve study and describing each and every component in your study. To a degree you can assume that if it is in your reserve study, then the association is responsible for the component, but this should be confirmed by your governing documents (responsibility should be in your CC&Rs). Next add anything in your governing documents ECHO Journal | Februar y 2013

that your reserve study may have missed. Then add components that you have discussions, disputes, and/or legal opinions about and mark whether the association or the homeowner is responsible. Lastly, add the material that you wish to clarify (even if it appears obvious) that could lead to disputes.

Remember that ownership and maintenance responsibilities do not necessarily track. For example, in a “Planned Development,” the individual owner may own his entire lot, but the association has a maintenance responsibility for the front yard. Conversely, in some “Block Condominiums”, an association might “own”’ the exterior surface of the building, but the individual unit owners might have the painting responsibility.

Rarely do the governing documents refine the maintenance responsibilities to the degree that you will want to list in your Maintenance Matrix. The lack of detail in most governing documents is precisely why this matrix fulfills such an important need. To break out the window frame, the interior window sill, the glass, the exterior trim, etc. are frequently the details that cause arguments, waste time, and can be avoided.

How often we struggle with decks, balconies and patios: who maintains the railings, the deck boards, the supporting beams, the treatment of the decking material, etc? The matrix is your opportunity to clarify these responsibilities once and for all.

At the end of this article you will find a very detailed Sample Maintenance Matrix which will give you some idea of the amount of detail that this process will require. Try gathering the information first from your documents before relying on the sample matrix.

This detailed list becomes a road map, not only for the board, but for the homeowners. One of the benefits of creating, adopting and publishing your Maintenance Matrix is that it will help you avoid unnecessary requests for repairs. It will prevent the board from authorizing work that is not the ECHO Journal | Februar y 2013

• Detailed Financial Reporting • Short Sale Negotiations • Lender Servicing and Collection • Bankruptcy Monitoring • Personal Obligation Program • Online Case Set Up

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Phone (408) 363-9600 • Fax (408) 225-8864 • Toll Free (877) 363-9600 • ContactUs@asaspcollect.com

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responsibility of the association, and homeowners will not take on the responsibilities of the association.

When you think about the management of an association, there are truly only three main areas: managing finances (including collecting assessments), enforcing compliance with the governing documents, and maintaining and repairing the common elements. This Matrix theoretically addresses one third of the board’s obligations!

A Maintenance Matrix sets clear policy on who is responsible for what in a very simple format. This document should evolve over time since it is unlikely that you will list every item on your first try. Again, this is a board document, and if you find you have over looked an item, or have mistakenly assigned the wrong responsibility, simply adopt a corrected version, date it and publish it. Frequent publication is key to achieving the greatest result. Publish it annually in your Annual Disclosure Packet along with your other policies and procedures. Highlight it in newsletter articles and if you have a website, by all means, get it online for easy reference.

Time invested now will be time well spent and will be the foundation of a well governed association. Now you have an invaluable tool that you can provide to everyone involved in your association:Board Members, Homeowners, Professional Management, and your Reserve Analyst. Homeowners will appreciate the clarity, organization, and consistency of the homeowners association and will be in a better position to plan for and accept their obligations as members of the association.

Robert Rosenberg, CCAM is CFO for Medallion Landscape Management, Inc. and President of Advance Construction Technology, Inc. Lisa Esposito, CCAM, is a leader in the professional management of homeowner associations and is a featured speaker for ECHO, CAI and CACM. Betty Jones, Esq. an attorney with Russel & Mallett, LLP graciously provided the sample maintenance matrix.

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ECHO Journal | Februar y 2013

ABC Associa Association tion Maintenance, e, Repair Repair,r,, and Replacement Rep Matrix

Download the complete 8-page matrix at www.echo-ca.org/downloads/SampleMaintenance-Matrix.docx

T This his mat matrix rix is intended intended as a guide for association association residents residents who who have have questions questions about the the distribution distribution of maintenance, maintenance, repair, repair, replacement betweeen themselves themselves and ABC Association.

Association. This This is not intended intended to to be a complete complete list of every every and re placement responsibilities responsibilities between ss eevery very maintenance maintenance situation. situation. Please Please contact contact ABC Association’s Association’s designated designated contact contact if you you ccomponent, omponent, and ma mayy not addre address ha ve any que stions. have questions.

Item

Association’s Associa tion’s Responsibility

Unit/Lot Owners’ Responsibility

A/C pads (for Units)

Air cond conditioning itioning eq equipment uipment

(all parts servicing system, including condenser/compressor servicing the Unit and all pipes, conduits and wires regardless of location)

Air cond conditioning itioning weep lines Ap Appliances pliances

(including water supply lines to/from appliances)

Arbors Arb ors

Asphalt Asphalt paving paving

(maintenance & repair)

Attics

(cleaning & maintenance)

Attics

(repair, maintenance of any Owner improvement)

Attics

(repair, maintenance of un-improved)

Balconies (cleaning)

Balcony structure

(maintenance, repair & replacement)

Bathtubs

Beach portion of Common Area Berms Bicycle/Pedestrian path Boilers

(hot water)

Brick

(exterior building surface(s))

Bridge(s)

Building directory signs Building structure Bulletin boards Cabinets & Cabinetry (within Units)

Carbon monoxide detectors (within Units)

Carports

(cleaning)

Carport structures

(maintenance & repair) info@echo-ca.org info@echo-ca.or g www.echo-ca.org www.echo-ca.or g 408.297.3246

he weather is cold and frosty, and those warm summer evenings and fall leaves are a distant memory. Spring feels very far away, but is actually just around the corner. In a few short weeks, trees will begin to bloom, and daffodils and tulips will poke their heads up after the long winter. What

T

16

should you be doing now to prepare your landscape for spring?

Irrigation System Start early by making sure that your irrigation system is up for the demands of spring and summer. Plan to check your irrigation system for proper operation. Check for the following:

• Ensure that the irrigation controller is operating properly. • Check that all irrigation valves are operating automatically from the controller. • Check each irrigation sprinkler for proper coverage and clogs.

ECHO Journal | Februar y 2013

• Check for broken or leaking pipes, valves or irrigation heads/nozzles.

• Trim any shrubs or ground cover that might block the sprinkler coverage.

• Replace any components that are not working properly.

• Set your controller with “a spring time program.” One day per week with two start times should do it.

• Replace the battery for back-up operation.

This should do it! Once the system has been checked and components repaired or replaced, just switch the con-

troller on in the spring and you are ready to grow!

Existing Plantings Your landscape probably looks dormant right now. The cold weather and short days slow plant growth and most bloom is a distant memory. Here are a

By Oliver Diaz

Winter Thoughts for Spring

ECHO Journal | Februar y 2013

17

few things you can do to help your landscape weather the winter: • Your irrigation system should be turned off. The rain in most northern California micro-climates should be enough to sustain your plantings over the winter season.

• Make sure all old bloom and dead wood are trimmed away. This will lead to healthier fuller growth come spring.

• Review the shape and size of the plant. Early spring is a good time to use natural pruning techniques to reshape woody shrubs and reduce plant “legginess.”

• Watch the overnight low temperatures and try to cover plants that are sensitive to cold. Succulents, citrus and hydrangeas are common plants that don’t do well in the cold.

• Consider adding mulch to your planting beds. A 3- to 4-inch layer of mulch can act as insulation, protecting plant roots for extreme temperatures.

New Plantings Now is a good time to review the plants in your landscaping. You may want to replace poorly performing, or aging plants in the spring with better varieties or to augment your existing landscape. Depending on your personal horticultural skills, you may want to consult your landscaper or your local nursery for recommendations.

Planting in spring will give the plants time to acclimate prior to the hot weather. It will also allow the rain to help water the plants, rather than just relying on the irrigation system. The following are considerations to increase the success of your new plantings: • Plant size at maturity is critical to avoid over crowding in the future.

• Group plants by sun and water requirements, as this allows for efficient irrigation programming when plants reach maturity.

• Use plants with varying foliage color such as variegated or purple leaves.

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ECHO Journal | Februar y 2013

(Light colored foliage will stand out in shady places!)

• Try to plant in-groups of 3, 5 or 7.

This gives the planting purpose and meaning.

COMPA S S

Guiding your HOA in the right direction

MANAGEMENT GROUP

Choosing California native plants will help your landscape look great in all seasons. Natives do well in our soil types and climate, usually with less water and fertilizer required. Some of our favorite varieties include: Monkeyflower—several varieties available. A fast-growing small shrub. It grows 2–3 feet tall with narrow leaves and showy, two-lipped pale yellow or orange flowers that attract bees.

With our growing team of experienced HOA management professionals, Compass has the resources and depth of understanding to resolve the challenges facing your association. We deliver creative solutions, clarity of vision, customized technologies and superior management.

Discover why our clients trust Compass to provide the management guidance and direction for their communities.

Yarrow—These plants can be used to cover a large territory with sagescented ferny foliage that dies back in winter. Six-inch to foot high flowering stalks carry flat-topped clusters of tiny white pink daisies from late spring to summer.

Matilija poppy (Romenya Coulteri)— Perennial that can grow to over 6 feet tall. Bluish-green leaves and huge flowers with crumpled white petals and golden stamens makes a stunning addition to any garden. It blooms from early summer to fall and is attractive to bees.

Hummingbird fuchsia (Epilobium canum and E. septentrionale)—Fuchsialike blossoms attractive to hummingbirds, grows about 3 feet high. Gray to bright green leaves and arrow trumpet shaped scarlet flowers that bloom from August to late Fall.

California wild rose (Rosa californica)—This lovely shrub has compound leaves and stems without prickles. Flat-topped clusters of fragrant, pink, single rose flowers appear throughout the summer. Bright red hips attract wildlife in fall.

Taking these steps now will ensure your irrigation system and landscape are in top shape come spring.

Oliver Diaz is an Account Manager at Cagwin & Dorward.

ECHO Journal | Februar y 2013

www.GoCompass.com 408.226.3300 | 510.226.0300 | 650.563.9900 | 831.583.9900

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ECHO Journal | Februar y 2013

By Glenn H. Younging, Esq.

Assigning Responsibility for Maintenance and Repair ne of the most confusing areas a homeowner association must deal with is where the lines should be drawn allocating association and individual responsibility for the maintenance and repair of certain aspects of their buildings. This is especially true of condominium exclusive use common

O

ECHO Journal | Januar y 2013

areas and in planned unit developments where buildings have aged significantly and need more than just exterior paint and reroofing.

At the outset, it is important to understand that where the lines are drawn depends a lot on whether the development is a 21

condominium or a planned development (which may broadly include townhouses, cluster homes and even single family detached homes). Although it may be an overgeneralization, with a condominium, the association is responsible for all that is not specifically assigned to the individual owner. With a PD, the opposite is generally true, i.e. the owner is responsible for all that is not specifically assigned to the association. The first part of this article will address condominiums and draws on precedent set in the DavisStirling Act. The second part of the article will address PDs and offer suggestions as to how the Davis-Stirling Act might be applied by extrapolation to this second type of home. The DavisStirling Act is a set of statutes located in the California Civil Code commencing with Section 1350.

Condominiums In the simplest sense, the condominium association is responsible for all common areas, individual owners are responsible for all unit areas, and there is an overlap in responsibility for exclusive use common area. To understand how these areas interface with each other, it is helpful to start with a traditional concept. When a person purchases a condominium, that person is really buying a cube of air (often expressly including cabinets, plumbing fixtures, a hot water heater, a furnace, etc.) and the thin finish surfaces that surround that cube of airspace. Everything else is common area. The owner is responsible for the unit area and the association is responsible for everything else.

Problems arise when the “black and white” of the traditional notions of unit versus common area responsibility are unclear because the governing documents (and more specifically, the Covenants, Conditions and Restrictions or CC&Rs) are not clear. The DavisStirling Act attempts to mitigate some of these problems with the concept of exclusive use common area which is essentially a “gray area” between unit and 22

common area. The key to understanding the statutes dealing with exclusive use common area is that the act applies unless the governing documents provide otherwise. In other words, these sections only come into play if the CC&Rs are silent on the point or are ambiguous. Civil Code Section 1364 (a) states: Unless otherwise provided in the declaration (CC&Rs) of a common interest development, the association is responsible for repairing, replacing or maintaining the common area, other than exclusive use common areas, and the owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common areas appurtenant to that separate interest. (emphasis added)

“

Even to exclusive use common areas, the owner maintains and the association still has responsibility to repair and replace.

”

Examples of exclusive use common area are also set forth in the DavisStirling Act in Civil Code Section 1351(i)(1) which states: “...any shutters, awnings, window boxes, door steps, stoops, porches, balconies, patios, exterior doors, door frames, and hardware incident thereto, screens and windows or other fixtures designed to serve a single separate interest, but located outside the boundaries of the separate interest, are exclusive use common areas allocated exclusively to that separate interest.”

It is important to note that, even as to exclusive use common areas, the owner maintains and the association still has responsibility to repair and replace. Just what is entailed in “maintenance” as opposed to “repair” or “replacement” may raise issues that are not addressed.

ECHO Journal | Februar y 2013

Even the Davis-Stirling Act does not address all of the facets of construction your association may want to address. If your governing documents are ambiguous, unclear or fail to address other “borderline” areas, you should consider making your own policy. Consider such areas as: • Elastomeric coatings, planks and other deck surfaces and components • Chimney flues (where creosote builds up) • Sprayed-on acoustical ceilings (that may contain asbestos in buildings constructed up to the mid 1970s) • Skylights • Fences and balcony railings.

In trying to define and draw the lines reasonably, every association (whether condominium or PD) should consider the following: • Are there economies of scale present if the association takes broad responsibility for this component?

ECHO Journal | Februar y 2013

• Is access by association representatives or contractors a problem?

• Is the component one that is traditionally thought of as an association responsibility?

• Is it an area subject to widely different levels of use (and abuse) by owners? If there is a casualty loss, is this a component that is covered by owner insurance, association insurance, neither or both?

• How has your particular association handled it in the past?

• Is the component readily visible from public areas?

If your governing documents are unclear, the best way to deal with the omission is to amend that portion of your CC&Rs. You might want to take the opportunity to update and make specific the entire issue of exclusive use common area. Remember, in doing so, you are not bound by the Davis-Stirling guidelines. If a different approach is more reasonable, you may deviate from

the statutory approach but be sure to be clear and unambiguous.

Planned Developments In most PDs, the individual homeowner owns the ground under his or her home and owns the building itself.

The association traditionally is responsible to paint the exterior walls, maintain and replace the roof and perhaps maintain some areas of the landscaping adjacent to the home. Few governing documents go beyond reference to painting or reroofing. This opens many questions for the older association. Does painting include caulking?

Does it include preparation of the surface for painting? Does it include patching or replacing any part of the surface that receives the paint? Does it include waterproofing windows, doors and other openings? What if the governing documents provide that the association shall maintain all of the “exterior”? Does this apply to components such as those included in the condominium references of Civil Code Sec23

tion 1351(i)(1) (i.e. shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, exterior doors, door frames, and hardware incident thereto, screens and windows or other fixtures designed to serve a single separate interest)?

These are all good questions and few PDs have governing documents that help in drawing lines and defining areas of responsibility to this degree.

“

Civil Code Section 1364 expressly addresses the role that associations may play in addressing the presence of wood-destroying pests.

”

Some PD associations assume responsibility for maintaining, repairing and replacing the construction components necessary to weatherproof the “envelope” of the building. If this is the case, it logically includes paint, flashing, trim, caulking, stucco, rain gutters and downspouts, substrate such as plywood or shingles, and any other facet necessary to keeping the structure protected from water. Other associations will assume as little responsibility as possible and this may be limited to painting and roof work. There, individual owners must play a greater role in preserving their homes. Assuring that these owners live up to their responsibilities is a task that requires foresight, education and policing by the association.

Although the Davis-Stirling Act does not provide direct guidance in this area to PDs, you may find it helpful to extrapolate as you decide how to “reasonably” interpret and implement the provisions of the governing documents that address responsibility for the “exterior.” Consider applying the criteria mentioned above in deciding who can most efficiently and fairly carry out 24

ECHO Journal | Februar y 2013

some aspect of maintenance, repair, or replacement of a particular component of the building.

If you live in a PD, you should be aware that Civil Code Section 1364 expressly addresses the role that your association may play in addressing the presence of wood-destroying pests. If you are aware of insect or vermin infesting any homes in your association, you should read the specific provisions of Civil Code Section 1364. Generally, these sections provide that a majority of the owners in a planned development can vest their association with the power to deal with such pests on a building by building or project wide basis. This includes the power to levy special assessments against the owners of homes affected.

As with the condominium association, ambiguities or lack of specificity in governing documents are good reasons to amend the governing documents. Common sense, foresight, the quality of construction and the personECHO Journal | Februar y 2013

ality of your membership are important factors in drawing lines and defining responsibility.

In Summary If you find areas of your governing documents are less than models of clarity in assigning responsibility for certain building components, you are not alone. The key to good association management is not as dependent on where you draw the lines or assign responsibilities as it is on anticipating how best to assure that your buildings are preserved for the long run.

This always involves anticipating gray areas, making clear by amendment or policy what responsibility is assigned to whom, and following up to be sure that owners and the associa-

tion are working together to preserve the quality of life and value of your property.

Glenn H. Youngling is an attorney with offices in San Rafael whose practice includes a sizable number of common interest developments. He is a member of the ECHO Legal Resource Panel and a frequent speaker at ECHO seminars.

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Making sdnE t wasn’t so long ago that delinquencies were up, assessment payments were down and the bad economy strained many aspects of homeowner association operations. The only thing that didn’t stop were the bills directors received and were requested to pay: insurance bills became due, lawns had to

I

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be mowed, roofs needed fixing, reserves had to be funded, owners demanded enforcement of the CC&Rs and the list went on and on. Many boards were forced to prioritize what services might have to be cut and which were too essential. This process

began for many in late 2008 in anticipation of a bleak 2009.

Things are better now; the economy appears to be improving and the degree of optimism has notably increased. Even so, we are not yet “out of the woods” and some associations still face significant financial problems. We ECHO Journal | Februar y 2013

By Steven S. Weil, Esq.

Fiduciary Duty on a Limited Budget

Ends Meet revisited an earlier article intended to assist directors facing the budget crunch; the principles and considerations seem as fresh and necessary today as they did a few years ago. What follows are some ideas on how to maximize income and reduce expenses.

ECHO Journal | Februar y 2013

Protect the Money Members expect it and the association needs it; protecting reserves from financial losses must be the top priority of the board, the manager, and the treasurer at any time but especially when facing under-funded reserves and repairs deferred during the crisis.

Investment goals are, in order of importance: 1. Protect principal from risk by investment in FDIC-insured or Certificate of Deposit Account Registry Service (“CDARS�) accounts.

2. Layer investments to permit withdrawals with little or no penalty.

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3. Higher yields are not as important as preserving principal.

Adopt an Investment Policy One way to protect association funds and to assure members the board has done so is by adoption of an investment policy. The policy should identify the association’s goals and objectives, require periodic (at least quarterly) review of investments, require consultation with professionals, limit investments to insured accounts (such as T-Bills, CDs and Money Markets) maintained in the association’s name. The policy should also be based on safety, liquidity, reasonable investment costs and diversification, limit withdrawals to those authorized by the board with signatures by the president and treasurer, and permit policy exceptions for good cause and emergencies following board approval.

Monitor the Money The treasurer is not just another association director or officer. Under most bylaws, the treasurer (also known 28

as the “Chief Financial Officer”) has specific duties which can include being responsible for the receipt and deposit of funds, signing checks and promissory notes, keeping or causing to be kept proper books of account and assisting in presenting the budget and financial statement to the members. As a practical matter this means the treasurer should regularly communicate with the manager and the association’s CPA and be prepared to make oral presentations at board and membership meetings.

The Manager’s Role Managers who are members of the California Association of Community Managers or the Community Association Institute bind themselves to comply with ethical and financial management obligations. Also, the manager’s duties with respect to the receipt, accounting and handling of association funds will (or should) be spelled out in the management contract. The manager should not be responsible for how

those funds are spent, that duty rests with the board.

Indemnification and Limited Immunity It would be hard to attract board volunteers if their decisions concerning prioritization and reduction of services could trigger lawsuits for breach of fiduciary duty or other claims. To encourage volunteerism, an association can “indemnify” directors, officers and committee members from claims that their decisions caused financial harm.

This means that either through insurance or association assets, these volunteers will, assuming they act in good faith and within the scope of their power under the governing documents and the law, be protected. Also, both the Civil Code and Corporations Code provide limited immunity protections to directors sued for decisions made on behalf of the association. Since “good faith” is one of the predicates for statutory immunity, it is essential that decisions are intended to be made for the good of the community. Doing this reECHO Journal | Februar y 2013

quires that a director “investigate” and obtain information. If directors are not trained in financial issues, they may need to get investment or other advice from those who are.

Prioritization of Expenses Some expenses can be eliminated; some can be reduced. Some services can be cut altogether, others provided less frequently. Prioritization decisions should be based on a careful (and documented) analysis of many factors.

They include safety, obligations imposed by contracts, the CC&Rs and conditions of approval, membership expectations, property values, shortand long-term financial consequences resulting from “cutting back” on services, maintenance or reserve funding.

The advice of counsel should be obtained. Membership input should be considered and decisions made in open session. It is especially important that meeting minutes reflect the reason behind cost cutting measures adopted by the board.

Getting the Most for the Money Prioritizing is sensible; being “penny wise and pound foolish” is not. Restructuring payment arrangements, revising scopes of work, and timing the delivery of services can all be effective ways of preserving relationships with key professionals and vendors. They can be essential partners in the board’s effort to “ride out the storm” and candid discussions about how the board can partner with them could be one of the most important tasks a board can accomplish this year.

Transferring or “Diverting” Reserves A board can authorize the “transfer” of reserve funds to pay for current expenses. The decision to transfer (what is generally referred to as “borrowing”) must be made at an open meeting that is properly noticed and agendized. The Civil Code requires that resolutions authorizing the transfer and a “restoration plan” must also be adopted at the meeting. The transferred funds must, in theory, be restored within a year; a longer period is permitted provided ECHO Journal | Februar y 2013

29

the board finds that more time is necessary and prudent.

Does the board have the power to “divert” monies to an operation account before the funds are deposited into reserves as intended by the budget? If so, the diverted funds would never have made it to reserves and thus, it could be argued, the “borrowing” rules would not apply. In reality, there is hardly a difference between “borrowing” and “diverting” reserve funds. Both decisions will usually be made at open meetings; the posted agenda for the meeting must specify the intended action (to borrow or divert funds); and whether required by statute or not, the use of funds in or designated for reserves must be justified on the basis of legitimate short term cash flow needs.

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Special assessments can be imposed by the board without membership approval in four situations.

”

Special Assessments Special assessments can be imposed by the board without membership approval vote in four situations: for safety emergencies or unforeseen expenses; in an amount up to five percent of the budget or if otherwise allowed by the CC&Rs; or by court order. All other special assessments require the approval of a simple majority of members. The educational “campaign” to gain membership support for a special assessment creates the opportunity to involve the members in understanding and contending with the financial challenges the current economy has wrought.

Bankruptcy and Receivership We get this question a lot: can an association file for bankruptcy to avoid its debts? Almost always, the answer is “No” in part because the association is an ongoing entity with the power—at ECHO Journal | Februar y 2013

least theoretically—to “tax” its members to finance its obligations. Likewise, the association cannot change its name or reorganize as a different legal entity to avoid debts. The association has ongoing obligations to the members and the ability—by special assessment authorized by the members or imposed by a Court—to satisfy its legal obligations.

Prudence and Documentation Directors must act in good faith and make decisions that are reasonably intended to benefit the short- and longterm interests of the association. Inevitably, many of these decisions will be difficult and cannot satisfy everyone.

Thus, it is all the more important that boards act in open session and document, with properly drafted minutes and resolutions, the basis for decisions relating to services, expenses and investments.

The Newest Wrinkle Many associations are emerging from the fiscal crisis by applying the principles and techniques above. The strategy of deferring repairs though is only a temporary fix; buildings do not get “better” on their own; building decay doesn’t “go away”; leaks don’t stop.

Sooner or later reality may set in: repairs and replacement of waterproofing and other common area components will be required to protect residents and property values. Prudent planning, as the economy improves, will entail less “conservation” and more “proper” and appropriately targeted spending. Future ECHO articles will contain legal and practical tips on how to help.

Steven Weil is a founding partner at the law firm of Berding|Weil in Walnut Creek. He is a member of the ECHO board of directors. His practice focuses on legal issues affecting community associations. An earlier version of this article appeared in Berding|Weil’s Community Association Alert.

ECHO Journal | Februar y 2013

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Join us at the

ECHO Wine Country Educational Seminar Saturday, March 23, 2013 Fountaingrove Inn 101 Fountaingrove Parkway Santa Rosa, CA 95403 8:30 a.m.–1:30 p.m.

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Price: $49 Members $59 Non-Members Register online at www.echo-ca.org or fill out the form on this page.

Prices increase $10 after March 10.

Yes, reserve _____ spaces for the ECHO Wine Country Educational Seminar.

Amount enclosed: $__________ (attach additional names) Name: Email Address: HOA or Firm: Address: City:

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Beyond Privatopia $20.00 Non-Member Price: $25.00 The rise of residential private governance may be the most extensive and dramatic privatization of public life in U.S. history. In Beyond Privatopia, attorney and political science scholar Evan McKenzie explores emerging trends in private governments and competing schools of thought on how to operate them, from state oversight to laissez-faire libertarianism.

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To make these a sustainable investment, new buyers, owners and board members need to understand “best practices basics” of how this form of housing works and have more realistic expectations of this form of “carefree, maintenance free” living.

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The Board’s Dilemma $10.00 Non-Member Price: $15.00

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The Handbook is an in-depth guide to all aspects of association finances, including accounting methods, financial statements, reserves, audits, taxes, investments and much more. Not for the accounting novice, this is a tool for the treasurer or professional looking for specific information about association finances.

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ECHO Journal | Februar y 2013

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Bookstore Order Form Board Member’s Guide for Contractor Interviews $20.00 Non-Member Price: $25.00

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35

About

ECHO Honor Roll

ECHO Honors Volunteers

ECHO What is ECHO? Serving Homeowners to Build Strong Community Associations

ECHO Resource Panels

Regional Seminar Speakers

Accountant Panel

Central Coast

Marco Lara, CPA 650-632-4211

John Allanson Sharon Glenn Pratt, Esq. Wanden P. Treanor, Esq. Glenn H. Youngling, Esq.

Central Coast Panel

John Allanson 831-685-0101 East Bay Panel

Beth Grimm, Esq., 925-746-7177 Mandi Newton, 415-225-9898 Legal Panel

Mark Wleklinski, Esq. 925-280-1191 Maintenance Panel

Brian Seifert, 831-708-2916 North Bay Panel

Diane Kay, CCAM, 415-846-7579 Stephany Charles, CCAM 415-458-3537 San Francisco Panel

Jeff Saarman, 415-749-2700 South Bay Panel

George Engurasoff, 408-295-7767 Wine Country Panel

Maria Birch, CCAM, 707-584-5123

Legislative Committee Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry Bowles Oliver Burford Joelyn Carr-Fingerle, CPA Chet Fitzell, CCAM John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.

36

Marin

David F. Feingold, Esq. Wanden P. Treanor, Esq. Glenn H. Youngling, Esq. Peninsula

Sandra Bonato, Esq. Omar Hindiyeh Wanden P. Treanor, Esq. South Bay

Sandra Bonato, Esq. Stephanie Hayes, Esq. Rick Coats & Sandra Long Alan Crandall Larry Russell, Esq. Wine Country

Kirk Denebeim David Hughes Roger Doncaster Mark Dunia Bill Mann Barbara Zimmerman, Esq. Bill Gillis, Esq.

Annual Seminar Speakers

Beth Grimm, Esq. Allan Henderson David Kuivanen David Levy, CPA Helen Loorya Richard Lowenthal Kerry Mazzoni Mike Muilenburg Andrea O’Toole, Esq. Ann Rankin, Esq. Larry Russell, Esq. John Schneider Brian Seifert Jim Shepherd Dean Shibler Richard Tippett Steven Weil, Esq.

Dawn Anderson, AIA Jeffrey Barnett, Esq. Brad Barroso Tyler Berding, Esq. Sandra Bonato, Esq. Wendy Buller Ian Brown Jeff Draeger Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Vic Giacalone Sandra Gottlieb, Esq.

Who Should Join ECHO? If your association manages condominiums or a planned development, it can become a member of ECHO and receive all of the benefits designated for homeowner associations.

Recent Contributing Authors

Benefits of ECHO Membership

October 2012

• Updates to the Association Statute Book

James H. Ernst, CPA, MS-Tax, CCAM David F. Feingold Esq. Matthew A. Haulk, Esq. Geri Kennedy Jeffrey T. Smith AIA, NCARB November 2012

Tom Fier, Esq. Beth A. Grimm, Esq. Matt J. Malone Mike Muilenburg December 2012

June 23, 2012 ECHO Annual Seminar

The Executive Council of Homeowners (ECHO) is a nonprofit membership corporation dedicated to assisting California homeowners associations.

ECHO provides help to homeowners associations on many fronts: finances, legal issues, insurance, maintenance and management.

Members receive help through conferences, trade shows, seminars, a monthly full-color magazine and discounted publications.

Tyler P. Berding, J.D., PhD. John Ceragioli, PRA Burt Dean Beth A. Grimm, Esq. Janis Lee, CCAM, CMCA Randolph M. Paul

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ECHO Journal | Februar y 2013

How Do You Join ECHO? Over 1,800 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for membership, call ECHO at 408-2973246 or visit the ECHO web site (www.echo-ca.org) to obtain an application form and for more information.

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A collection of “Condo Q&A” published in the Los Angeles Times Questions & Answers About Community Associations

By Jan Hickenbottom

Ace Property Management . . . . . . .12 American Management Services . . .22 Angius & Terry . . . . . . . . . . . . . . . . .2 A.S.A.P. Collection Services . . . . . .13 Association Reserves . . . . . . . . . . .31 Bay Community Management . . . . .31 Berding | Weil . . . . . . . . . . . . . . . . .44 BTC Bob Tedrick Construction . . . . .32 Cityscape Property Management . . .24 Collins Management . . . . . . . . . . . .14 Community Management Services . .32 Compass Management . . . . . . . . . .19 Cool Pool Service . . . . . . . . . . . . . .14 Cornerstone Community Mgmt. . . . .18 Ekim Painting . . . . . . . . . . . . . . . . .31 Eugene Burger Management Co. . . .25 First Bank Association Bank Srvcs . .19 Flores Painting . . . . . . . . . . . . . . . .18 Helsing Group, The . . . . . . . . . . . . .12 M&C Association Mgmt. Services . .39 Massingham and Associates . . . . . .28 Mutual of Omaha Bank . . . . . . . . . .12 PGS . . . . . . . . . . . . . . . . . . . . . . .14 PML Management Corp. . . . . . . . . .29 Pollard Unlimited . . . . . . . . . . . . . .30 R. E. Broocker Co. . . . . . . . . . . . . .29 Rebello’s Towing Service . . . . . . . . .23 RealManage . . . . . . . . . . . . . . . . . .24 REMI Company . . . . . . . . . . . . . . . .30 Saarman Construction . . . . . . . . . .13 Statcomm . . . . . . . . . . . . . . . . . . .30

Member Price: $18.00 Non-Member Price: $25.00 For 12 years, Jan Hickenbottom answered homeowners’ questions in her Los Angeles Times column on community associations. Now collected in one volume, readers can find answers to almost any question about CIDs. Order today from ECHO!

Call 408-297-3246, fax at 408-297-3517 or order online at store.echo-ca.org

ECHO Journal | Februar y 2013

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ECHO Events Calendar

Important resource meetings...

Wednesday, February 6 Maintenance Resource Panel 12:00 Noon ECHO Office, San Jose

Wednesday, March 20 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. Rohnert Park

Friday, February 8 East Bay Resource Panel 12:00 Noon Massimo Restaurant, Walnut Creek

Wednesday, April 3 Maintenance Resource Panel 12:00 Noon ECHO Office, San Jose

Wednesday, February 13 South Bay Resource Panel 12:00 Noon Buca Di Beppo, Campbell

Wednesday, April 10 South Bay Resource Panel 12:00 Noon Buca Di Beppo, Campbell

Wednesday, February 20 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co., Rohnert Park

Friday, April 12 East Bay Resource Panel 12:00 Noon Massimo Restaurant, Walnut Creek

Thursday, March 7 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, San Rafael Tuesday, March 12 Central Coast Resource Panel 12:00 Noon Michael’s on Main, Soquel

Thursday, May 2 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, San Rafael Monday, May 13 Accountants Resource Panel 6:00 p.m.

Scott’s Seafood, Oakland Tuesday, May 14 Central Coast Resource Panel 12:00 Noon Wednesday, May 15 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. Rohnert Park

Wednesday, April 17 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co., Rohnert Park Wednesday, April 17 Legal Resource Panel 6:30 p.m.

Porterhouse, San Mateo

Regularly Scheduled ECHO Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal

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Meeting First Wednesday, Even Months First Thursday, Odd Months Second Friday, Even Months Second Monday, Odd Months Second Tuesday, Odd Months Second Wednesday, Even Months Third Wednesday, Monthly Quarterly

Location ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Massimo Restaurant, Walnut Creek Scott’s Seafood Restaurant, Oakland Michael’s on Main, Soquel Buca Di Beppo, Campbell Eugene Burger Management Co., Rohnert Park Varies

ECHO Journal | Februar y 2013

BEYOND MANAGEMENT Our passion for community management starts our day so yours may end with the peace of mind knowing we have taken care of everything.

Contact us today to learn how M & C goes beyond management.

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