ECHO Journal - January 2007

JANUARY 2007

A Journal for Community Association Leaders

echo-ca.org

SECOND HAND SMOKE ALSO INSIDE THIS ISSUE:

• To Amend or Not to Amend • Exempt or Nonexempt?

• Corporate Status Suspended?

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

PRSRT STD U.S. Postage PAID Sundance Press 85719

WHERE THERE IS SMOKE, THERE IS CONTROVERSY . . . . . . . . . . . .

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CONTENTS

No concern comes up more frequently in associations than dealing with second-hand tobacco smoke. A board of directors confronted with a second hand smoke issue dispute between adjoining neighbors needs to ensure a proper investigation is conducted regarding the specific facts of that case. Reasonable accommodations and working with the owners to resolve the dispute without litigation is always the goal. This article explores this issue and discusses possible approaches that boards and managers may use.

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 person should be sought.

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Copyright 2007 Executive Council of Homeowners, Inc. All rights reserved. Reproduction, except by written permission of ECHO, is prohibited.

TO AMEND OR NOT TO AMEND . . . .

Sooner or later every homeowner association is faced with the question of whether or not to amend its legal documents. Noted association attorney John Hanna poses some frequently asked questions and gives answers to guide board members and managers.

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EXEMPT OR NONEXEMPT . . . . . . . . . .

Employer misclassifications of employees can quickly erupt into class action lawsuits sparked by just one disgruntled former or current employee.

California and federal laws are onerous in this area, and both permit personal liability upon the officers and managers who controlled the decision not to pay overtime. This article will help associations and businesses with employees review the practices that their organizations use concerning employee classifications.

IS YOUR ASSOCIATION’S CORPORATE STATUS SUSPENDED? . . . . . . . . . . . . .

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Every corporation formed in California is registered with the California Secretary of State’s office. The corporation is required to file a statement of officers on a biennial basis with the Secretary of State and to file tax returns with the Franchise Tax Board and pay taxes as required. Failure to meet these corporate filing obligations can eventually lead to corporate suspension or revocation of powers.

Learn the potential impacts on your association of a suspension.

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.

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

EXECUTIVE COUNCIL OF HOMEOWNERS, INC. 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 Treasurer David Levy Secretary Dorothy Kopczynski Directors Paul Atkins Jerry L. Bowles John Garvic Robert Hood Robert Rosenberg Diane Rossi Richard Tippett Wanden Treanor Steven Weil Executive Director Oliver Burford Legislative Consultant Government Strategies, Inc.

FEATURES Calendar of Events . . . . . . . . . . . . . . . .26 Ask The Maintenance Panel . . . . . . . . . .28 Business/Professional Directory . . . . . . .30 ECHO Bookstore . . . . . . . . . . . . . . . . . .32 News from ECHO . . . . . . . . . . . . . . . . .34 JANUARY 2007

Letter to the Editor . . . . . . . . . . . . . . . .36 ECHO Volunteer Honor Roll . . . . . . . . .38 About ECHO . . . . . . . . . . . . . . . . . . . . .38 ECHO Marketplace . . . . . . . . . . . . . . . .41 Advertisers Index . . . . . . . . . . . . . . . . . .41 Feature: Exterior Water Damage . . . . . .42 4

Publication Design and Production George O’Hanlon ECHO MISSION STATEMENT The mission of ECHO is to advance the concept, interests and needs of homeowner associations through education of and related services to board members, homeowner members, government officials and the professionals in the industry.

ECHO JOURNAL

Tyler P. Berding, Esq.

COMMON

SENSE

Balancing Responsibility and Authority in CIDs

T

here is a tendency in many people to equate responsibility with power. They are clearly not the same. Responsibility is a legal obligation. Power is legal authority. A popular maxim among management types is that you should not assign responsibility without also delegating the necessary authority.

That, however, is an ideal, not necessarily reality, nor is responsibility that exists without the corresponding authority always a bad thing.

Take the case of your homeowner’s association. The Conditions, Covenants, and Restrictions assign responsibility to the association for maintenance of portions of the project, for example. It is typical for certain associations to be responsible for painting, caulking, and sometimes repair of exterior siding. But do those same CC&Rs always give the association board of directors the authority to take whatever steps are required to raise funds to perform what is required? If you think about it, the answer is usually “No.” The board is limited in its ability to assess the members of the association by such things as the requirement that members vote on assessments, whether regular or special.

These limitations are found in the CC&Rs, and also in the Davis-Stirling Act. So it would seem that associations labor under a conflict in good management practice—we have assigned responsibility without also granting the requisite authority. If that’s so, then logic would dictate that we either cut responsibility or increase authority. But we must be careful not to be so rigid in our thinking that we miss some creative opportunities.

As you know if you have read some of my articles on the future of homeowner associations, I believe in the principal that voluntary “taxation” leads to bad results. Members canECHO JOURNAL

Responsibility is a legal obligation.

Power is legal authority. not usually be depended upon to vote in the community’s interest. That’s because their self interest is so compelling, and self interest and the community interest, like certain signs of the Zodiac, are only occasionally in alignment.

So, should we empower boards of directors to levy assessments sufficient to operate and maintain the development without getting the authority to do so from the members? A chilling thought to some, perhaps, but that is precisely what is done in several other states, Florida for one. I learned this in a discussion about my concern for the eventual obsolescence of common interest developments with a Florida attorney. “That could never happen in Florida” was her reply, “because in Florida, an association is obligated to assess whatever is required to operate and maintain the association.”

Perhaps California will adopt that thinking in the future. If it did, however, and even if associations were given a long time, say five years or more, to fund their maintenance reserves fully, the obligation would crush some associations. Their members simply could not afford to contribute the level of assessments that would be required to retire the shortfall.

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A short-term solution might be getting creative and looking for ways to increase operational and reserve funding without smacking the members with a large assessment. Starting to save earlier in an association’s life for the repair of a greater number of components would be one example.

Managing repairs to get a longer life out of existing components is another. In our quest for a solution to this never-ending dilemma, however, board members must be careful not to push the envelope too far. “Creative” solutions must also be legal ones. Buying new fencing from your brother-in-law might in fact be the cheapest solution, but have you considered your own conflict of interest?

Saving on insurance costs by raising the deductible or cutting the coverage may be tempting, but what about the bylaw provisions or sections of the Civil Code that require certain levels of deductibles and coverage? Deciding to maintain the pool yourselves rather than hiring a professional service might actually save the association a lot of money, but what about the liability it faces if you fail to chlorinate the water adequately?

Restrictions on the exercise of power can force a board to find creative and innovative solutions to management challenges. But that benefit cannot be taken too far. In the long run, there may be an inherent conflict between a board’s responsibility and its authority that cannot be resolved through creative thinking or the best of intentions. In such a case, legislation may be necessary not only to protect the equities of owners, but to relieve board members from the fear of their own liability in trying to deal with what may be an insoluble problem. A lot of the stress

Continued on page 40 JANUARY 2007

Where There is Smoke, There is Controversy Larry F. Russell, Esq.

S

omewhere George Orwell, Aldous Huxley and Sir Walter Raleigh are enjoying a smoke and a good laugh. Over the last ten years the number of multi-residential housing projects has increased dramatically. As people are brought into closer proximity there has been a spike in the number of complaints of second hand smoke wafting between units. Recent scientific findings indicate that second hand smoke can, among other things, increase the likelihood of a heart attack, high blood pressure or cancer. As these scientific studies continue to find health risks from exposure to second hand smoke, governments on different levels have continued to respond by banning smoking in many public forums. There are indications that one of the next targets on the list is JANUARY 2007

to curb or ban smoking in multi-residential housing projects. When a neighbor complains that second hand smoke from their neighbor is invading their home and endangering their lives, should the board of directors become involved? This article will explore this issue and discuss possible approaches to be used.

People talk about second hand smoke as if that were the problem, saying “We are going to ban second hand smoke.” A noble sentiment, but the real problem is the act of smoking that caused the second hand smoke. So, in order to deal with a second hand smoke problem, you need to address the first hand smoker. There are people with strong convictions lined up on both sides of this argument. “You cannot ban a legal activity in a person’s 6

home” or “a person’s home is his castle.” Another argument goes if you are going to ban cigarette smoking, why not other smells? For example, a family has moved in next door to your condominium unit and has continued in the tradition of their ancestors to bury the family kimchi pot in their exclusiveuse planter box. When ripened, it is cracked open to savor the salty, garlicky goodness of the ripened cabbage. The stench has now wafted into their neighbor’s unit; where it has awakened their ancestors who are now angry. On the face of this how do you differentiate between kimchi and second hand smoke?

That is where the science comes in.

A recent newspaper article stated that if current trends hold true, tobacco will kill a billon people over this century. In November 1988, ECHO JOURNAL

California voters approved the California Tobacco Tax and Health Promotion Act (Proposition 99), the first in the nation to implement a comprehensive tobacco control act. Starting about ten years ago California began to ban smoking in most bars, restaurants and work places. In 2003, Assemblyman Joe Nation, introduced AB210 that would have stopped smoking in multi-family common areas and then later inside the dwelling units. (This law did not pass that time, but it is very likely there will be more efforts from the legislature in this regard.) On June 30, 2004, a study published in the British Medical Journal found that second hand smoke was significantly more dangerous than previously thought, increasing the risk of heart disease in those exposed to second hand smoke. In January 2006, the California Air Resources Board declared second hand smoke a toxic air contaminant joining benzene, arsenic and diesel fumes as toxic air pollutants.

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California became the first state to declare that secondhand smoke is a toxic air pollutant, citing links to breast cancer and heart disease. The California Air Resource Board has declared that the next steps will be to reduce the public exposure to second hand smoke including smoking bans in multi-family housing common areas and outdoor separate interests. So that you do not think it is a slam-dunk, there are many scientists on the other side of the fence that claim the research and findings regarding the risks of second hand smoke are nothing more than voodoo science. (The articles and references are too numerous to list here; simply perform your own Google search for “Second Hand Smoke bogus science.”)

Other states have passed laws to either ban smoking in certain public places, or to make it easier for neighbors to file a lawsuit for nuisance to stop their neighbor from smoking.

In Utah, a law that is the first of its kind was passed that states, “A nuisance is anything which is injurious to health, indecent, offensive to the senses, or an obstruction to the fee use of property, so as to interfere with the comfortable enjoyment of life or property. A nuisance may be the subject of an action… A nuisance may include the following… A nuisance under this section includes tobacco smoke that drifts into any residential unit a person rents, leases, or owns, from another residential or commercial unit…” (Utah Code 78-38-1) Under this law, a non-smoker who has a problem with second hand smoke emanating from their neighbors unit can ECHO JOURNAL

now sue their neighbor for nuisance to stop them from smoking inside of their unit. If the project’s governing documents contain nuisance language, as most do, the board will need to be prepared to analyze the issues and respond appropriately.

Recently local governments in California have joined the fray. As a first in California, the City of Dublin recently gave preliminary approval for an ordinance declaring second hand smoke to be a public nuisance. (We have not seen this law and it is uncertain if it will only apply to public nuisance.) We understand that similar ordinances are being considered by Emeryville, Pleasanton, San Francisco and other municipalities. In the future any common interest development dealing with a second hand smoke issue between unit owners will need to determine if there are local ordinances that have been passed that could alter the legal responsibilities of the parties, such as contained in the Utah code described above.

Suppose that you have an elderly lady with an allergy to secondhand smoke. Her neighbors are chain smokers with a prodigious output of smoke, rivaling an industrial smoke stack. To make matters worse, they are also out-of-work insomniacs; so the smoking goes on 24/7. There has been dialogue between the owners, but these discussions have broken down and the non-smoker has now sent a letter to the board asking for their intervention to help resolve the situation. She delivers an ultimatum to the board: if the board does not get involved she is going to sue the neighbor and the board for not addressing a serious nuisance that is making her sick. Due to the amount of smoke in her unit, she is now seeing her doctors every other day. What is a board to do? Unfortunately there is little case law to help guide the board in this area, as almost all of the cases deal with matters between tenants and landlords. On top of this there may now be a local statute making smoking a nuisance.

What should a board do if they are confronted with a member complaining about a smoke fiend neighbor?

I N VESTI G A T E

Contact each of the members and ask for them to attend separate hearings at a board meeting. Ask them to provide any documentation and history regarding the complaint.

Find out if the member complaining about the smoke has a medical condition that would make them susceptible to second hand smoke such as emphysema, asthma or ECHO JOURNAL

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similar condition. Ask if the non-smoking resident has a letter from her doctor detailing her condition and the impact that second hand smoke has on her health. Contact any other unit owners near the smoker and determine if there are any other unit owners that complain about the smokers. Try and locate the source of the second hand smoke.

Are the smokers out on their balcony smoking and the wind blows the smoke next door?

Is it when they smoke in a certain area of their unit?

TEST

There are companies that can perform air quality tests to provide subjective data regarding the levels of smoke being transferred between units. This can be helpful in determining the level of the various toxic gases, and whether it meets or exceeds specific guidelines. There are experts in the field that can conduct the tests and advise the board of directors regarding the levels of toxicity and to advise them on how to proceed in regards to possible ways to remedy the transfer of smoke between units. It will be very important to consult with the CID’s attorney to work with the expert to keep the board within the safe harbor rules of the Davis-Stirling Act and the California Corporations Code.

A C C O MMOD A T E

Does the smoke infiltrate the neighbor’s unit or property line? If the area where the smoke is being transferred can be identified, try to reach a mutually agreeable accommodation. Maybe the smokers can go outside the front door to smoke, or keep their windows closed. There are structural modifications that can be made such as sealing gaps in electrical outlets; weatherproofing doors and windows, or installation of fire-stopping in party walls should an owner remodel their unit. The owners can also have their ductwork checked to determine if there are any leaks. While smokeless ashtrays and air-purifiers are available, their effectiveness has been questioned. If it is possible to resolve the matter at this level, it is prudent and will avoid the potential legal fees and costs should the matter proceed to court.

M EDI A TE/ A R B IT R A T E

If the issue cannot be resolved between the unit owners, suggest that they go to a neutral mediator or arbitrator to see if they can work out their differences to avoid the time and expense of litigation.

JANUARY 2007

LI T I GAT E

If none of these options resolve the issue, the non-smoker may resort to filing a lawsuit against the smoking neighbor and possibly the CID. The few cases that have been filed by a non-smoker against a CID have not been successful. There have been instances where courts have ruled against the smoker and have issued an injunction to prohibit the smoking. We were not able to locate any cases that found a CID liable for the second hand smoke. Most of the cases involve landlord/tenant disputes and the case law may not apply to CIDs. If a non-smoker decides to sue a CID at this present time, they would have little or no case law to rely on. This can change if state or local ordinances are passed, at which time it will depend on how the statute is written. With the mounting scientific challenges to the safety of second hand smoke, a court in the future could rule in favor of the non-smoker on a public safety basis. We advise our clients that there are two words they need to avoid being: “test case.”

The cost of litigating such a case of first impression, and the likely appeal to follow would be in the hundreds of thousands of dollars. The prevailing party would also be entitled to an award of reasonable attorney fees, which could add significantly to the damages.

Assuming testing has occurred and demonstrated toxic levels of second hand smoke, how do you remedy the situation? If the board has determined that the smoking rises to the level of a nuisance under the law or an ordinance, and the project governing documents contain nuisance language, the board may be required to take reasonable steps to abate the nuisance. Either the smoker has to stop smoking in that unit, or there must be some accommodation that stops the transfer of smoke between units. If the unit owners have unsuccessfully tried to make accommodations, and the attempts at mediation have failed, it may require a lawsuit to be filed to resolve the situation.

AMEND

There is a wide range of options available to a CID that is considering whether to ban smoking. These range from banning smoking in common areas, exclusive use common area, or even in the separate interest if it rises to the level of a nuisance. It is also possible to convert the entire project to a smoke free status. There is no constitutional right to smoke, nor are smokers a protected class under the Equal Protection Clause of the 10

United States or California State Constitution. So, smoking could be banned if the project governing documents are properly amended. For existing CIDs the governing documents would need to be amended by the appropriate number of votes of the membership. This should be done with the assistance of legal counsel to ensure the proper smoking limitations are achieved, and to discuss whether to grandfather in the application of the amendment to allow smokers who currently reside at the project to continue to smoke until they sell their unit.

F ED ER AL F AIR HO USING AND AMER I C AN WITH DISAB ILITIES ACT

A final concern pertains to claims under the Federal Fair Housing Act (FHA), or under the American with Disabilities Act (“ADA”). As indicated earlier, it is important for board members to understand what type of complaint they may be dealing with. If the non-smoker has a medical condition that meets the baseline requirement of either of these federal statutes, it will require the board to take precautions to protect the rights of the non-smoker and to make reasonable accommodations to alleviate the exposure to second hand smoke. A suit filed against a CID by HUD (or, in California, the DFEH), under the ADA (or in the state equivalent) and Fair Employment and Housing Act (FEHA) carries with it the threat of civil monetary damage. It is also a fact that the government has much deeper pockets than normal civil litigants do, and the legal fees and costs in defending such an action can be substantial.

A precautionary tale can be found in the recent case of Housing Rights Center vs. Los Felix Towers Homeowners Association, 426 F. Supp. 2d 1061. In this case an association denied an owner the use of its general manager’s parking space so the owner could selfpark a specialty vehicle that accommodated her wheelchair lift. The case was resolved short of trial and the association paid $214,000 in damages and attorney fees. It is not stated how much the association’s legal and expert fees were, but they were likely in excess of $100,000. In looking at whether the association had done enough to accommodate the member’s special needs, the court stated that the question of accommodation is a highly specific fact-based analysis to be determined on a case-by-case basis. For these reasons, any time you are dealing with an accommodation from an owner that may fall under the FEHA or ADA it heightens the ECHO JOURNAL

need for a careful analysis of the specific facts involved and implement reasonable accommodations (the issue of whether a CID’s common area falls under the ADA is beyond the scope of this article; consult your association counsel). If the board decides not to make some accommodations be sure to set forth, in specific detail, the grounds for denying the accommodation(s).

Any association that has had to fight an action brought against them by the FEHA or the ADA can attest to the fact that it is very expensive—win or lose. A board should determine if their insurance would provide a defense or indemnity in the event such a lawsuit is filed. Every board should understand the depth and breath of the potential legal and monetary ramifications for denying accommodations.

C O N C LUS ION

In 2006 (well past 1984), it is a brave new world, albeit a little smoke filled and hazy, when it comes to deciding how to deal with the issue of second hand smoke. A board of directors confronted with a second hand smoke issue dispute between adjoining neighbors needs to ensure a proper investigation is conducted regarding the specific facts of that case. Reasonable accommodations and working with the owners to resolve the dispute without litigation is always the goal.

Note: Anyone interested in this topic should read “Analysis of the Voluntary and Legal Options of Condominium Owners Confronted with Secondhand Smoke from Another Condominium Unit,” by Susan Schoenmarklin, Esq. This article may be found at tcsg.org/sfelp/memo_06.pdf. The author of the article is associated with the Smoke-Free Environments Law Project (SFELP) in Ann Arbor, Michigan. SFELP is a statewide project, funded by the Tobacco Section of the Michigan Department of Community Health, that provides information, consultation and advice for businesses, local units of government, and individuals in Michigan on policies and practices to protect employees and the general public from the harmful effects of environmental tobacco smoke (ETS) and to address the legal requirements and liability issues related to ETS.

Larry Russell is a principal at the law firm of Russell & Mallett in Walnut Creek. He is a frequent speaker at ECHO events.

ECHO JOURNAL

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TO AMEND OR NOT TO AMEND THAT IS THE QUESTION! John Paul Hanna, Esq.

Efaced with the question of whether or not to ventually every homeowners association is

What is the effect if HOA documents conflict with new legislation or new case law?

amend its legal documents. Here are some common questions and answers:

In cases of conflict between the association legal documents and the law (statutory or case law), the law will, in most cases, prevail.

Are associations legally required to amend their documents?

No, but— • Directors can be misled as to their duties and responsibilities by relying on outdated provisions.

• The legal documents may not accurately set forth the legal requirements for preparation and distribution of financial reports.

• The legal documents may provide certain time limits for notices of meetings that may no longer be legally correct because of statutory changes.

• Members may be misled into believing the documents accurately’ describe members’ rights, legal procedures, etc.

• Documents may fail to take advantage of liberalized rules regarding meetings, participation by members, telephone meetings, etc.

What documents will the attorney need to review in order to update the association legal documents?

In addition to the three basic documents (Articles of Incorporation, Bylaws, and Covenants, Conditions and Restrictions), the attorney should also review the subdivision map creating the project and, in the case of a condominium, the condominium plan. The attorney should also be given a current preliminary title report showing how title is held to the common area, and what the title company indicates is the status of title to a lot or unit in the project. In some cases, particularly in projects that are 15 or 20 years old, mistakes may have been made that were never corrected. The ideal time to correct the old records is when the association legal documents are being given their first major overhaul. There may be inconsistencies between the

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subdivision map and the condominium plan, on one hand, and the Declaration of Covenants, Conditions and Restrictions, on the other. There may also be inconsistencies between the project legal documents and the grant deeds by which title was conveyed to the original purchasers of units or lots; this may require amendments to the condominium plan, and occasionally amendments may be required to the subdivision map.

What documents should be amended?

The basic HOA legal documents that may need amending are: • Articles of Incorporation • Bylaws • Declaration of Covenants, Conditions, and Restrictions (CC&Rs) Why should HOA documents be amended?

• To eliminate obsolete provisions.

• To eliminate provisions no longer observed or enforced.

• To eliminate provisions that conflict with current laws.

• To eliminate provisions required by the Department of Real Estate in a start-up project that are no longer needed.

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• To eliminate developer privileges no longer being used, such as two-class voting or exemption from use restrictions.

• To improve poorly drafted documents by clarifying ambiguous provisions.

• To tailor documents to fit the living experience of owner/members.

• To provide for changes in technology (satellite dishes, home office use, etc.).

• To make documents more “user friendly”—better organization, add a table of contents and descriptive paragraph headings, etc.

• To eliminate or correct mistakes and errors.

How often should association documents be amended?

Association documents should be updated approximately every 5 years to incorporate all the changes in statutory and case law.

Is it necessary to retain counsel to amend, or can the members do it by themselves?

The analysis of HOA documents to determine whether or not amendments are desirable, and, if so, how the documents should be amended, requires a degree of expertise that can only be provided by a legal specialist, that is, an attorney who specializes in the 14

drafting of HOA documents. Unless an association has such an attorney as a member, and that attorney is willing to contribute his or her time to amend the documents, the association should retain legal counsel for that purpose.

Can an association save money by creating a first draft in-house?

Attempts by boards or committees appointed by boards to save on attorneys’ fees by creating an initial draft of the documents seldom, if ever, result in any savings.

An experienced association attorney can quickly review a set of documents that was drafted some years ago and determine whether they are salvageable or should be scrapped in favor of a more modern format.

However, when presented with a draft that purports to update the project legal documents, the attorney is forced to read every sentence very carefully and to compare it with his own checklist of current legal requirements. This process can be quite time-consuming.

If an association wants to be helpful in providing its attorney with some suggestions or amendments, it should provide a list of points to cover, such as the number of directors, the length of the term of office, the number of pets, the number of vehicles, etc.

In other words, give the attorney the basic facts, or the basic principles, but do not try to draft the actual language. That is what you are paying the lawyer to do.

What should it cost to amend association documents?

The cost to amend can vary widely, depending upon the type of common interest development and the age and condition of the legal documents. The fees can be as low as $500 for a simple amendment of one or two provisions, and anywhere from $3000 or higher for a complete updated set of the three basic legal documents.

What is better—a fixed fee or an hourly rate?

The advantage of a fixed fee is that the association can budget for that amount, and the membership knows what to expect. But fixed fees do not always result in lower fees because attorneys tend to set fixed fees based upon their estimates of how much time it will take at their hourly rate. Most attorneys will include some “cushion” in the fixed fee to protect themselves against unanticipated variables.

Beware of fixed fees that are set unrealistically low, because they may be “loss leaders” intended just to get the association’s busiECHO JOURNAL

ness, with the expectation that other business will follow for which higher rates can be charged. Like everything else in life, the rule is: “You get what you pay for.” The hourly rate is not always determinative of how much the job will cost. The “bottom line” should be the total fee charged, regardless of hourly rate, but equally important are the quality of the job and the efficiency of the service.

What variables determine the cost of amending project documents?

The following are examples of variables that can affect the total cost of amending legal documents: • Repeated revisions.

• Multiple editions.

• “Wordsmithing” efforts by the directors, committees or members.

• Asking an attorney to explain in writing the reason for a particular amendment or amendments.

• Asking an attorney to appear at a question and answer session.

• Asking an attorney to help the board “sell” the amendments to the membership.

• Asking an attorney to write a detailed summary of the amendments to the members.

• Asking the attorney to draft a letter to the members, or a ballot, proxy, notice of meeting to vote on amendments, etc.

• Misjudging the members’ desire and willingness to have the project documents amended.

Boards would be well advised to seek member approval before committing association funds to the amendment process.

Ideally, the association will get the money up front, that is, have enough funds on hand, either through a special assessment or funds “earmarked” for the purpose of amending the documents, before authorizing an attorney to start drafting.

Is it better to record amendments to existing documents or revise the entire document?

If the legal documents are reasonably upto-date and in fairly good shape, only one or two sections may need to be amended; in such cases it is preferable to attach some simple amendments rather than to create a whole new document. However, if the documents are in need of multiple amendments, or are extremely outdated (for example, over 10 years old), it is far better to start with a brand new up-to-date set of documents. It is more efficient, and therefore less expensive, for an experienced attorney to provide an up-to-date modern format for the project legal documents, tailored to fit the project, ECHO JOURNAL

You don’t know what the day will bring.

That’s why you need Russell & Mallett, LLP. We’re experts in all aspects of community association law, construction defect litigation and general corporate matters, including rewriting governing documents.

You’ll find us accessible, resourceful, affordable and very, very effective. Call us today at 925.947.4915 to see how our practical, expert advice can work for you.

Russell & Mallett, LLP 2900 Camino Diablo, Suite 200, Walnut Creek, CA 94596 • 925.947.4915 • Fax 925.947.4920

We believe you’re better served when you’re better informed. Call today for your free copy of the Russell & Mallett, LLP Law Library. Everything you need to know about community association law.

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than to try to review every paragraph of existing documents and decide which paragraphs to keep, delete or modify.

What is grandfathering?

An association may wish to amend its documents but be reluctant to impose new restrictions on current members. For example, an association may wish to prohibit keeping more than one pet on the premises but will allow members who presently have multiple pets to keep their pets until the members move out, or until the pets die. A “grandfather� clause is used to exempt current owners from a particular rule, for a specified period of time.

How long should it take to amend HOA documents?

Two to four weeks is a reasonable time for an attorney to produce an acceptable first draft of updated and amended documents.

What happens after the documents are revised?

The current documents will indicate what vote is required for approval of amendments.

Some older documents require a super majority vote such as 75 or 80 percent of the total membership. As part of the amendment process, that requirement should be changed to a simple majority vote. If the association can get a simple majority to vote for an amendment, but not the higher percentages, there is a statutory procedure for lowering the voting requirements. Certain lender protection provisions may require a two-thirds or three-quarter vote of the members. There may also be provisions requiring that certain amendments be approved by the city or county in which the project is located. There are some basic legal rights that cannot be changed by amendment without 100 percent approval.

Some legal documents require a vote of the members to change them. Others require written consent. Some documents provide for either a vote or written consent.

Where written consent is required, the acknowledged signatures of all the members do not have to be set forth in the original amendment that will be recorded. The recorded document can be executed by the President and Secretary of the association, who certify and declare, under penalty of perjury, that the requisite number of members have given their written consent to the amendments. In the case of an amendment approved by written consent, the text of the amendment can be circulated to the members, with a special form of written consent JANUARY 2007

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accompanying the text of the amendment.

Once the minimum number of written consents has been obtained, the President and Secretary can then execute the original amendment document and cause it to be recorded (in the case of the Declaration), filed in Sacramento (in the case of the Articles of Incorporation), or simply adopted (in the case of the Bylaws).

What can be done to obtain member support for amending documents?

To enhance the chances of a favorable response from the membership to proposed amendments, appoint a committee, broadly based, to solicit input and support from members.

If the association documents can be amended by either vote or written consent, the directors have to make a choice as to which process to use. If directors decide to have the vote taken at an annual or a special meeting, then the association must follow the established procedures for noticing and holding a meeting, and conducting the election. This usually involves the use of proxies, with the vote at the meeting being a combination of proxies and votes of members who are present at the meeting. If written ballots are permitted, a form of ballot may be circulated to the members with an appropriate notice indicating what the time frame is for collecting a sufficient number of written ballots, so that the President and the Secretary can declare that the amendment has been approved.

The amended Declaration, with the recorder’s stamp on it, should be kept with the official records of the association. The certified amended Articles of Incorporation should also be kept in the association’s minute book. The original executed copy of the amended Bylaws should also be kept in the association’s minute book. Copies of the documents should be provided to all of the members. Only the Declaration must be recorded in the county. The Articles and the Bylaws do not need to be recorded.

The old documents should be kept in the association’s archives for historical reference purposes.

John Paul Hanna is a principal in the law firm of Hanna and Van Atta in Palo Alto, CA. The firm, an ECHO member, has counseled homeowners associations for many years. Hanna is a member of the ECHO Legal Resource Panel and is the author of a number of publications relating to real property law.

ECHO JOURNAL

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JANUARY 2007

Pwealthiest clients settled for $22 million. ersonal bankers for Bank of America’s

Farmers Insurance Exchange claims adjusters were awarded more than $90 million.

Starbucks, PacBell and Radio Shack “working” managers are poised to receive millions.

To what do employees owe these sizable awards? Their employers failed to properly classify them as exempt or nonexempt from overtime pay. As a result, the employers find themselves saddled with costs that include up to four years of unpaid wages—plus interest, statutory penalties and attorney fees.

JANUARY 2007

Employer misclassifications of employees can quickly erupt into class action lawsuits sparked by just one disgruntled former or current employee. California and federal laws are onerous in this area, and both permit personal liability upon the officers and managers who controlled the decision not to pay overtime.

C O NS I D ER YOU R S ELF WAR NED

Employers who look to others in their industry and rationalize, “They don’t comply, so I won’t either” or “Our industry is too 18

important to the state to be a target” should beware.

Over the past several years, California’s Department of Industrial Relations, the federal Department of Labor (DOL) and employee-side class action law firms have targeted working managers in a variety of industries, and it’s not letting up.

The legal profession once perceived the work performed by paralegals to be exempt.

Yet, in 1998, the DOL said that paralegals more appropriately fit into the category of nonexempt employees who apply particular skills and knowledge in carrying out assignECHO JOURNAL

EXEMPT OR NONEXEMPT? MISSING THE MARK ON EMPLOYEE CLASSIFICATION OR COMPENSATION WILL COST YOU Mark E. Terman, Esq. & Lin M. Meyer, Esq.

ments, but do not regularly exercise independent judgment or discretion.

The lesson learned is that this is a risk employers can’t ignore. Dealing with this risk means employers must analyze and satisfy two basic tests to determine whether or not an employee is exempt. The tests, among other wage and hour rules, can be found in the California Industrial Welfare Commission wage orders posted at dir.ca.gov/IWC/WageOrderIndustries.htm.

Employers are required to conspicuously post applicable wage orders in the workplace.

Wage Order 1, for example, applies to manuECHO JOURNAL

facturing companies. Wage Order 7 applies to mercantile businesses. Wage Order 4 applies to professional, technical, mechanical and clerical occupations, including professional service firms. The focus of this article is on the essence of Wage Order 4’s overtime and exemption rules.

T HE S ALAR Y BAS I S T ES T

As of January 1, 2007, to satisfy the first test, the “salary basis” test, the employee, whether full or part time, must be paid at least a $2,600 per month salary. This is based on the rule’s twice minimum wage require19

ment. The salary amount cannot be deducted from or added to because of actual hours worked.

T HE DUTIES TEST: T HE R OOT OF MANY PRO B LEMS

The duties test requires that employees routinely spend more than 50 percent of their working time performing exempt duties. Most of the overtime litigation is borne from this more difficult test.

Keep in mind that the law and the California Department of Industrial Relations state that job titles, large salaries JANUARY 2007

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and highly skilled work are not determinative. Instead, employers must analyze the work performed by each employee under professional, administrative and executive exemptions.

EXEMP T DUTIES UNDER THE P R OF ES S I ONAL EXEMPTIO N

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To be considered exempt from overtime pay under the professional exemption, employees must be: • Licensed in California and spend more than 50 percent of their time engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting; or primarily engaged in an occupation commonly recognized as a learned or artistic profession as defined in Wage Order 4; and • Customarily and regularly exercising discretion and independent judgment when performing that work.

Unlicensed professionals typically must satisfy one of the other exemptions.

EXEMP T DUTIES UNDER THE AD MI NI S T RATIV E EXEMPTIO N

For the administrative exemption, employees must spend more than 50 percent of their time performing the following duties: • Office or non-manual work directly related to management policies or general business operations of the employer or its customers; • Regularly exercise discretion and independent judgment; and • Regularly and directly assists a proprietor, other executive or administrator; or perform, under only general supervision, specialized work requiring specialized training, experience or knowledge; or executes, under only general supervision, special assignments and tasks.

EXEMP T DUTIES UNDER THE EXEC U T IV E EXEMPTIO N

The executive exemption applies to employees who spend more than 50 percent of their time performing the following duties: • Managing a unit, department or enterprise of the employer; • Directing or supervising the work of at least two full-time employees; • Exercising authority to hire, fire, promote or change the status of other employees or their recommendations for such changes are given deference; and • Customarily and regularly exercising discretion and independent judgment.

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A N A LYSI S O F THE D U T IE S T E S T S

Let’s take a typical office-based business.

The officers, department heads, certain licensed professionals and even the office manager probably are exempt. The receptionist and file clerks are clearly nonexempt.

The secretarial, payroll, payables and receivables employees are typically nonexempt. But what about everyone in the middle, including those who may be called “managers” and have a high job responsibility and skills?

Determining if these employees are exempt is not easy. Job titles alone, the employee’s stated desire to be treated as exempt and what others in your profession do have been made nearly irrelevant in overtime exemption litigation.

A helpful starting place in exemption analysis is to list, for all employees, how much of their working time is spent: • Administering business affairs of the company or producing the goods or services that the company is in business to produce; • Using their head more than their hands; • Innovating or directing innovation more than merely applying sophisticated skills to technical work; • Making the company’s rules and policies more than following them; • Exercising authority to act outside the rules and policies rather than being disciplined for doing so; • Supervising others and making supervisory decisions more than personally doing the work; and • Being the trusted adviser to the client rather than just doing the client’s work proficiently.

Do the five or six most important “exempt” job functions exceed 50 percent of the employee’s time? Test your preliminary conclusions by asking: Do the five or six least important “nonexempt” job functions take more than 50 percent of the employee’s time?

A LTER N A TI VES T O L IM IT O VER TI ME P A Y

Since you always have nonexempt employees, you have four primary ways to limit overtime pay exposure: Limiting Overtime Manage your business so that employees do not work more, or much more, than the eight-hour-a-day threshold for daily overtime pay entitlement. For employers with seasonal workloads, this is easier said than done.

During busy season, overtime is a given and ECHO JOURNAL

layoffs during slow times may frustrate the ability to recruit and retain skilled employees.

Make-Up Time Make-up time exists under California law to encourage employers to permit employees to work up to three hours extra in one day to make up for work they missed because of a personal obligation in the same week.

These make-up hours are paid at straight time and not at the time and a half overtime rate if some basic rules are followed: • The employee must request the time off and the make-up time in writing in advance and the employer may grant the request in its discretion; • Make-up time must be taken in the same week in which the time off was taken; • The employer cannot solicit employees to ask for make-up time to avoid overtime pay; and • The employer pays overtime on hours worked in a week in excess of 40 anyway.

Alternative Work Schedules On a two-thirds secret vote of employees in a work unit, an alternate work schedule (AWS) can be adopted that permits employees to work longer days at straight time pay in 21

exchange for fewer days in a work week. For AWS purposes, “work unit” means employees in a readily identifiable group, such as a division, a department, a job classification, a shift, a separate physical location or a recognized subdivision of one of those groups. An AWS must have a straight time maximum of 10 hours in one day and 40 in one week.

Among several AWS rules contained in the wage orders, the employer must: • Report results to the Department of Industrial Relations within 30 days of the vote; • Provide reasonable accommodation to employees who are unable to work the AWS; • Conduct a secret repeal vote on petition of one-third of affected employees and then repeal the AWS if two-thirds of the employees vote to repeal; • Pay daily overtime in any day that the employer requires an employee to work less hours than the AWS, but more than eight hours; and • Not reduce the regular rate of pay because of adoption, repeal or nullification of an AWS. JANUARY 2007

In addition, employers are permitted to give new employees who are unable to work the AWS an eight-hour schedule. Finally, certain AWS in effect July 1, 1999 are exempt from some of these rules if the work schedule complied with prior wage orders.

employees for work in regular payrolls when or shortly after the work is done.

Comp Time-Off

The Federal Fair Labor Standards Act (FLSA) essentially bans CTO for nonexempt employees who do not work for the government, although in some cases the FLSA permits CTO accrual and use within a two-week period. The FLSA applies to:

A make-up time program can help employers manage overtime exposure in a given week. An AWS basically recasts work week hours to possibly improve work efficiency and morale, while protecting against overtime exposure. Yet, neither of these methods give employers the flexibility to limit overtime pay, normalize payroll expense over the course of a year, and have employees available or on paid time off depending on seasonal workloads.

In lieu of overtime pay, some employers use statutory compensatory time off (CTO) programs to “bank” extra hours worked during busy times, while paid time off is given during slower times. However, the Legislature intended CTO law to be difficult to comply with because CTO is a form of compensation deferral that is inconsistent with basic labor rules that require employers to pay JANUARY 2007

Both California and stricter federal rules apply. Some say that it is nearly impossible to leap through all the required flaming compliance hoops and not be burned.

• Employees who are engaged in commerce or the production of goods for commerce; and • Employers with at least $500,000 annual revenue and have employees engaged in commerce or in the production of goods for commerce, or who handle, sell or work on goods or materials that have been moved in or produced for commerce.

The interstate commerce analysis is easier for vessel and marine equipment builders, electrical power suppliers and companies that ship their products or provide services across state lines. They are typically FLSA governed.

22

The analysis can be tricky for others since “commerce” includes trade, transportation, transmission and communication directed outside the state. “Goods” includes tangible products, as well as written materials, such as brochures, newsletters and lawyers’ briefs that move in interstate or foreign commerce.

For example, a provider of professional services from a single California office who does little or no work for out-of-state clients and who does little or no out-of-state marketing may not be FSLA governed, while a provider with offices in multiple states probably is FLSA governed.

If the FLSA does not apply, California law permits CTO for nonexempt employees if all of the following conditions are met: • The employer is not covered by one of five wage orders (i.e. manufacturing; canning, freezing, and preserving; public housekeeping; amusement and recreation; and agricultural, farm product preparation and post-harvest product handling); • The employer and employee must sign a written agreement, or be subject to a collective bargaining agreement, permitting CTO before the work is performed; ECHO JOURNAL

• The employee can accrue a 240-hour maximum of CTO and overtime pay must be paid each payroll period after that; • The employee requests CTO in writing in lieu of overtime pay; and • The employee must be regularly scheduled to work no less than a 40-hour week.

Among the numerous rules affecting CTO program operation that employers frequently neglect is that CTO must be granted at the applicable overtime rate (i.e., 1.5 or two times hourly wage) of each overtime hour worked. For example, an employee who works two hours of overtime in a day must be credited three CTO hours.

The employer also must keep records of all CTO accrual and use. Employees must be permitted to use CTO within a reasonable period after making a request to their employers as long as the CTO does not unduly disrupt the employer’s operations. If requested by the employee, the employer must pay overtime compensation in lieu of CTO that has accrued in the last two payroll periods. On termination of employment, unused CTO must be paid in full at the higher of the final wage or the employee’s average wage rate for the last three years.

CTO seems like an attractive option to manage OT pay and retain great employees.

Yet, an employer needs an asbestos coat to avoid being burned by all the rules that it may be breaking.

E VER YO N E’ S D OING IT I S N O T A DE F E NS E

Anyone who ignores these rules or thinks they are easily applied is asking to be a defendant. If you are taken to court or the labor board on overtime issues, the employer has, what litigators call, the “burden of proof.”

Employers need experienced labor counsel or human resource professionals to effectively deal with these risks.

Mark E. Terman is the partner-in-charge of the Employment Law Practice Group at the law firm of Reish Luftman McDaniel & Reicher in Los Angeles. He is an active member of the California Society of Certified Public Accountants. Lin M. Meyer focuses her practice at Reish Luftman on representing employers. The authors can be reached at www.reish.com.

Reprinted with permission from the California Society of Certified Public Accountants.

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JANUARY 2007

IS YOUR ASSOCIATION’S CORPORATE STATUS SUSPENDED? Michael Gartzke, CPA W HAT IS C O R P O R A T E S U S P E NS ION?

Every corporation formed in California, whether a mutual benefit corporation such as a homeowners association, a professional corporation or a major corporation, is registered with the California Secretary of State’s office.

Upon incorporation, the corporation is assigned a corporate number and is required to file a statement of information (SI-100) on a biennial basis with the Secretary of State and to file tax returns with the Franchise Tax Board and pay taxes as required on an annual basis. In addition, all homeowners associations are now required to file a Statement of Common Interest Development (SI-CID) with the Secretary of State every two years as well. Failure to meet any of these corporate filing obligations can eventually lead to corporate suspension or revocation of corporate JANUARY 2007

powers by the California Secretary of State or the California Franchise Tax Board.

Some commentators have opined that 10 percent or more of California’s homeowners associations are suspended. Some of these associations may only exist on paper (i.e., articles were filed to establish the association but the project has never been built). With over 40,000 homeowners associations in California, that means that 4,000 to 5,000 associations may be suspended.

W HY I S T HI S I MP OR T ANT ?

Under California Revenue and Taxation Code (R&TC) Section 23304.1(a), “Every contract made in this state by a taxpayer during the time that the taxpayer’s corporate powers, rights and privileges are suspended or forfeited pursuant to Section 23301, 23301.5 or 23775 shall, subject to Section 24

23304.5, be voidable at the instance of any party to the contract other than the taxpayer.” Section 23304.5 requires that a lawsuit be brought by the other party in order for the contract to be voided. This could be problematic for a suspended association in the following situations: 1. A dispute arises in a maintenance contract (roofing, painting, landscaping, etc.) and cannot seem to be worked out other than through the courts. If the association’s corporate powers are suspended, the other party could void the contract and/or the association has no ability to enforce the provisions of the contract since the association is suspended.

2. The association is involved in construction defect issues that lead to litigation. Should the corporation be suspended, it cannot ECHO JOURNAL

pursue the legal remedies permitted until the corporation is “revived.”

3. The association is attempting to collect delinquent assessments from a homeowner. Liens could not be enforced or small claims could not be pursued if the association has its corporate powers suspended.

The inability to secure the association’s assessments during a suspension period could result in lost assessments by the association.

4. Without corporate powers, the association may not be able to enforce any provisions of its governing documents.

5. Board members may not have the immunities provided by the Davis-Stirling Act if the corporation is not in “good standing.”

Continued on page 27 ECHO JOURNAL

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JANUARY 2007

CALENDAR OF EVENTS MONDAY, JANUARY 8 Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant, Oakland TUESDAY, JANUARY 9 Central Coast Resource Panel 12:00 Noon Pasatiempo inn, Santa Cruz WEDNESDAY, JANUARY 10 South Bay Resource Panel 12:00 Noon Il Fornaio 302 S. Market St., San Jose WEDNESDAY, JANUARY 17 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa WEDNESDAY JANUARY 17 Legal Resource Panel 6:30 p.m.

Scotts Jack London Square, Oakland Contact the ECHO Office

THURSDAY, JANUARY 18 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

THURSDAY, MARCH 1 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

FRIDAY, FEBRUARY 2 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

FRIDAY, MARCH 2 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

WEDNESDAY, FEBRUARY 7 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Suite 101, San Jose

TUESDAY, MARCH 13 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz WEDNESDAY, MARCH 14 South Bay Resource Panel 12:00 Noon Il Fornaio 302 South Market St., San Jose

WEDNESDAY, FEBRUARY 21 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way, Suite 300, Santa Rosa

SATURDAY, MARCH 17 North Counties Seminar 8:00 a.m. to 1:00 p.m.

Community Center 5401 Snyder Ln., Rohnert Park

SATURDAY, FEBRUARY 24 Central Coast Winter Seminar 8:00 a.m. to 1:00 p.m.

Seacliff Inn, Aptos

WEDNESDAY, MARCH 21 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa THURSDAY, MARCH 22 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco SATURDAY, MARCH 31 San Francisco Spring Seminar 8:00 a.m. to 1:00 p.m.

Fort Mason Center San Francisco SATURDAY, MAY 12 Marin County Spring Seminar 8:00 a.m. to 1:00 p.m.

Embassy Suites 101 McInnis Parkway, San Rafael THURSDAY, MAY 17 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

REGULARLY SCHEDULED RESOURCE PANEL MEETINGS PANEL

MEETING

LOCATION

Maintenance

First Wednesday, Even Months

ECHO Office, San Jose

North Bay

First Thursday, Odd Months

Contempo Marin Clubhouse, San Rafael

East Bay

First Friday, Monthly

Angius & Terry, Walnut Creek

Accountants

Second Monday, Odd Months

Francesco’s Restaurant, Oakland

Central Coast

Second Tuesday, Odd Months

Pasatiempo Inn, Santa Cruz

South Bay

Second Wednesday, Odd Months

Il Fornaio Restaurant, San Jose

Wine Country

Third Wednesday, Monthly

Lanahan & Reilley, Santa Rosa

Legal

March, May, August, October

Varies

JANUARY 2007

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Corporate Status Suspended Continued from page 25 HOW D O ES SUSP EN S ION OCC U R ?

Listed below are several scenarios that have occurred in my practice that I believe are not unique but occur regularly: 1. Suspension soon after incorporation— The association was incorporated by the developer’s attorney in 1983 and but was suspended in 1985 for failure to file tax returns or pay the California minimum tax. This five-unit association was built, had a bank account with the manager’s tax ID number. Mailing addresses had changed from the attorney to one or more of the owners to the manger over the years. Notices sent by the FTB may not have been received or returned to the FTB due to the change in address. The suspension was discovered when management changed in 1999.

2. Suspension due to failure to file Statement of Officers—As noted in the first scenario, association mailing addresses can change frequently. If the association uses an officer’s mailing address or its management company’s address as its mailing address, there is a strong possibility that the mailing from the Secretary of State will not be forwarded to the correct address when officers or managing agents change. Follow-up notices, penalty notices and suspension notices will likewise not be forwarded. This was a problem when the Statement of Officers was an annual filing. Now that the statement is filed every two years, nonfiling will probably increase, resulting in more suspensions. Filing forms and requirements can be found at the Secretary of State’s website—www.ss.ca.gov. Missing one filing but making the subsequent filings does not “revive” the corporation. The penalty for failure to file the nonprofit statement of officers is $50 and is assessed through the Franchise Tax Board.

Recommendation—The Statement of Officers can be amended at any time during the two-year filing period at no cost.

This form could be revised at the same time that signature cards are changed to reflect new officers, corporate mailing address change or change in agent for service of process. A fill-in form is available Continued on page 29 ECHO JOURNAL

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JANUARY 2007

ASK THE PANEL Each month this column addresses a specific maintenance concern that every association faces. Our panel of experts is here to help answer questions you might have. We hope that you will find this page to be informative and—please—Ask The Panel!

Q

uestion: Our association buildings are in need of painting. Are there steps we can take to make this as inexpensive as possible without compromising quality?

A

nswer: The answer to this month’s question is from Mike Muilenburg of EKIM Painting:

The onset of the rainy season presents costsaving opportunities for homeowners associations faced with tight maintenance budgets. The mechanism triggering the potential savings is the economic principle of supply-and-demand: the construction companies that maintain your properties are less busy in the winter and spring than in the summer and fall. Confronted with the prospect of losing key personnel, many contractors offer slow-season discounts—intentionally or otherwise—in an effort to keep their companies intact for the peak seasons ahead. In fact, in trades such as painting and roofing, where rain directly affects scheduling, the busiest months of the year are not necessarily the driest ones, but those leading up to the winter, as procrastinators try to complete projects by year’s end.

Implementing a painting program during the winter is an organizational challenge, with its inherent delays, canceled appointments, and protracted homeowner inconvenience; however, many projects are well suited for off-season completion. For example, common area surfaces such as pool house exteriors and interiors, perimeter walls, curbs, light standards, pool fencing, vehicle entry gates, mail kiosks, mailboxes, hallway interiors, and street signs can be painted in the winter with little homeowner JANUARY 2007

involvement. Since metal does not absorb water like wood components, consider painting all wrought iron surfaces in the slow season.

Getting competitive bids on any small project for a September or October completion is nearly impossible. Call the same contractors in February and they will do cartwheels down the freeway to get you a proposal.

Schedule trim-only jobs, newly installed gutters and downspouts, new flashing (after a roofing project), or new fences in the winter. Make sure to let the bidders know of your intentions to schedule painting during their slow season so that they can bid accordingly.

Those associations choosing not to paint during the wet months will still benefit by using this interim period to prepare the site and perform the preliminary organization necessary for spring or summer painting. To start, proper specifications must be drafted, followed by the bidding process. Walking the job with the selected contractor in the winter will allow time for dry rot repairs, ivy removal, and wrought iron repairs by other vendors.

Many decisions are often left until the last minute, creating unnecessary urgency, delays, and confusion. Color schemes and paint formulations chosen well in advance allow time for “brush-out” samples of the colors for pre-approval. Changes can then be made before actual painting begins, or paint is ordered.

In addition, details attended to early, such as storage tank placement, trash disposal, and toilet facilities for the workers, assist in a smooth start to the project. Finally, maps of projected painting “routes” and schedules from the contractor, assembled in advance, greatly aid boards and management companies in providing better service to residents concerned with their personal schedules.

Along with “on-paper” planning, actual preparatory work may begin on individual 28

units, including stucco repair and caulking.

Performing this work in the wet season in no way negatively affects its value and may benefit contractors because they are free to concentrate solely on this critical component of the total project. The relative speediness in completing the preparatory work minimizes inconvenience to the homeowners. In addition, advance preparation facilitates advance inspection, once again enabling contractors to make changes efficiently and properly, if necessary.

Whatever option a board may choose, sitting idly in anticipation of spring or summer need not be one of them. Certainly everyone involved benefits by the increased efficiency achieved by performing as much advance surface preparation and planning as suits each different painting project. And what’s wrong with saving money at the same time?

Please use this information as a guide. It is recommended that you seek advice from your professional association manager or affiliated service provider. Should you have a question for the ECHO Maintenance Panel, please contact ECHO via email at info@echo-ca.org, or fax the panel at 408-297-3517.

ECHO JOURNAL

Corporate Status Suspended Continued from page 27

on the Secretary of State’s website— www.ss.ca.gov.

3. Suspension for failure to file Form 199— An association was suspended in 1987 because it had not filed a Franchise Tax Board Form 199 form for 1986. 1986 was the last year that filing of the 199 was required of all nonprofit corporations regardless of revenues received. The $25,000 annual revenue minimum filing requirement for Form 199 was effective in 1987. In order to revive, the association had to file a 1986 Form 199 (in 2001!). My 1986 forms book was in storage so a colleague came to the rescue. The association did not have a 1986 income statement so we used a 1987 one. (The FTB suggested that the form be filled in with “zeroes”) The 199 has a $10 filing fee. If the form is filed late, the fee increases to $65 plus interest.

4. Suspension for failure to file forms 100 and 199 and pay resulting penalties— While this can happen due to the address, officer or management changes noted ECHO JOURNAL

above, it can also happen due to the negligence of the financial managing agent.

There are companies in California that provide financial management to associations. Some are owned by tax and accounting professionals who hold themselves out as providing all the necessary financial statement and tax preparation services needed by an association. This scenario can be attractive to a small association board as it allows them to feel confident that these matters are being taken care of by a professional and that the board has nothing to worry about.

What happens when the tax returns are not filed? Demand notices and penalty notices are sent by the FTB. If no response is received, a series of letters threatening forfeiture of the corporation commence leading to the eventual suspension of the corporation.

I have seen a number of instances in recent years of the former financial manager providing 3–10 years worth of Federal and California income tax returns for filing by the association at the time of the changeover in financial management. I have received numerous calls over the years outlining this scenario. The managers know that tax returns are due annually and the 2000 29

returns are now five years late. These associations are going to incur late filing penalties as well as late payment and interest charges on any taxes due for both Federal and California. These associations have been suspended. Once these associations are revived, then they will have to go to small claims court to recover the penalties and interest incurred as a result of the negligence of the former financial manager. This is not an isolated incident. Many notices have to be ignored and thrown away for a corporation to be suspended.

HOW D O YO U FIND O UT IF AN AS S OC I AT I ON IS SUSPENDED?

Some information from the Statement of Officers filing is maintained on a database on the Secretary of State’s website— www.ss.ca.gov. Access “business filings” through the California Business Portal from the homepage. From there enter into “California Business Search.”

Enter the corporation’s name or a portion of the name (if you are not sure of the exact name) to obtain name matches and corpoContinued on page 31 JANUARY 2007

CHANGES Allana Buick & Bers 990 Commercial St. Palo Alto, CA 94303 Tel: 650-543-5600 Fax: 650-354-8828 (remains the same)

UPDATES ADDITIONS Summit Properties 179 Butcher Rd. Vacaville, CA 95687 Contact: Theresa C. Hite, CMCA, CPM Tel: 707-448-8906 Fax: 707-446-2441 Email: tchcpm@sbcglobal.net Local full service real estate and property management services since 1976. Consistently providing high quality personalized client services.

JANUARY 2007

Nature First Tree Care, Inc. 5738 Soquel Dr. Soquel, CA 95073 Contact: Dick Scoppetone Tel: 831-462-8233 Fax: 831-462-8236 Email: dick.naturefirst@sbcglobal.net www.naturefirsttreecare.com

Pruning, removal, diagnosis. Certified Arborists offering a Tree Management Plan with full tree inventory, annual recommended servicing and five-year budget forecast.

ANSI pruning standards, Members ISA, TCIA, BBB. Fully licensed and insured.

Law Offices of Mark J. Wleklinski 1800 Sutter St., # 460 Concord, CA 94520-2563 Tel: 925-691-1191 Fax: 925-691-1181

30

ECHO JOURNAL

Corporate Status Suspended Continued from page 29

rate information. For example, I entered “Summerland Association” and six matches were returned, one of which was a suspended homeowners association, the Summerland Villas Homeowners Association. A “click” on the corporate name generated another report showing the corporation mailing address and the agent for service mailing address. It does not show when the corporation was suspended, just that it is suspended.

H OW DO YO U RE T U RN T H E A SSOCIA TI O N TO A CT IV E S T A T U S ?

If your association is suspended, you need to contact the California Secretary of State and the Franchise Tax Board to determine what triggered the corporate suspension.

Secretary of State Officers@ss.ca.gov

Phone: 916-657-5448 1500 11th Street Sacramento, CA 95814 My experience has been that you can get prompt email responses if you inquire why a corporation was suspended.

If the corporation was suspended by the Secretary of State simply because the last Statement of Information or Statement of Common Interest Development was not filed, you may revive the corporation by sending a letter to the Secretary of State along with the delinquent Statements and the payment of any fees or penalties imposed. The Secretary of State will send a “Notice of Revivor” to the association and notify the Franchise Tax Board.

Franchise Tax Board Phone: 800-852-5711 P.O. Box 942840 Sacramento, CA 94240-0000 My experience has been that speaking to one of the FTB Corporate telephone representatives has been fruitful in obtaining the information as to why the corporation was suspended.

The telephone representatives have information concerning why the FTB has suspended the corporation or whether the Secretary of State has suspended it. All required tax forms, tax payments, penalties and interest must be made with the FTB Form 3557 “Application for Certificate of Revivor.”

Continued on page 37 ECHO JOURNAL

31

JANUARY 2007

Books and DVDs from ECHO

Working With Your HOA $22.00 2005 ECHO Business & Professional Directory $10.00 This directory lists all business and professional members of ECHO as of September 2005. Current addresses, telephone and fax numbers, e-mail addresses, and a short description are included. This directory is an invaluable tool for locating service providers that work with homeowner association.

Condominium Bluebook 2006 Edition $18.00 This well-known compact guide for operation of common interest developments in California now includes a comprehensive index of the book and a chapter containing more than 200 frequently-asked questions about associations, along with succinct answers.

Robert’s Rules of Order $7.50 Homeowners Associations— How-to Guide for Leadership $35.00* This well-known guide and reference is written for officers and directors of homeowner associations who want to learn how to manage and operate the affairs of their associations effectively.

Questions & Answers About Community Associations $18.00 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.

A step-by-step guide to the rules for meetings of your association, the current and official manual adopted by most organizations to govern their meetings. This guide will provide many meeting procedures not covered by the association bylaws or other governing documents.

Home and Condo Defects— A Consumer Guide to Faulty Construction $10.00 This guide is prepared by attorneys Tom Miller and Rachel Miller for anyone having problems with faulty construction on a home or condominium. It explains the various technical aspects of determining who is at fault and who to go after to rectify the situation.

This is a valuable guide to all aspects of community association living designed as a practical problem solving guide. Written by two longtime association residents, it uses easily readable language and provides an insightful overview of community living from the viewpoint of experienced owners.

The Uncertain Future of Community Associations $10.00 For 30 years, attorney Tyler Berding has had a unique vantage point in observing new, aging and “evolving” community associations confront the issues they face. The basic premise is: without clarity, wisdom and “tough love,” community associations are doomed to failure.

Finding the Key to Your Castle—Revised 2005 $12.50* An easy-to-read guide to cooperative living in common interest housing developments, this book covers key points relating to member rights, member responsibilities, association finances, and even to rentals. Answers to many frequently-asked questions about CID operations are included.

Community Association Statute Book—2007 Edition Available January 2007 This booklet contains the 2007 version of the Davis-Stirling Common Interest Development Act, the Civil Code sections that apply to common interest developments, and selected provisions from the Civil, Corporations, Government and Vehicle Codes important to community associations.

California Building Performance Guidelines for Residential Construction $52.50* This easy-to-read manual is an excellent tool to understand a new home. It contains chapters covering more than 300 conditions that have been sources of disputes between homeowners and builders, offers homeowner maintenance tips, and defines the standards to which a residence should be built.

CID Leadership Two-Disc DVD set

$30.00

Board—An orientation for new board members and a refresher for current members. Meetings—How to conduct effective meetings that stay focused and achieve results.

Reserves—How adequately-funded reserves prevent problems in associations. Insurance—Considers insurance to protect multi-million dollar community assets.

Alternate Dispute Resolution in Homeowners Associations Available late Fall 2006. This publication is being revised to reflect new requirements resulting from passage of SB 137.

Publications to answer your questions about common interest developments PUBLICATION ORDER FORM

Board Member’s Guide for Contractor Interviews $20.00 This report is a guide for directors and managers to use for interviews with prospective service contractors. Questions to find out capabilities and willingness of contractors to provide the services being sought are included for most of the contractor skills that associations use.

Executive Council of Homeowners 1602 The Alameda, Suite 101, San Jose, CA 95126 Phone: 408-297-3246 Fax: 408-297-3517 TITLE

QUANTITY

SUBTOTAL (Tax included in prices)

SHIPPING COST:

*Add $3.00 per copy for mailing **Add $10.00 per set for mailing

SHIPPING AND HANDLING TOTAL AMOUNT

Board Member’s Guide for Management Interviews $10.00 This guide for use by boards for conducting complete and effective interviews with prospective managers takes the guesswork out of the interview process. Over 80 questions covering every management duty and includes answer sheets matched to the questions.

Yes! Place my order for the items above. q CHECK q VISA q MASTERCARD CREDIT CARD NUMBER EXP. DATE

SIGNATURE

NAME (please print) ASSOCIATION (OR COMPANY) ADDRESS CITY DAYTIME TELEPHONE

STATE

ZIP

AMOUNT

NEWS FROM ECHO

WHE RE THER E I S SM OK E , TH ERE IS C O N TR O VE R S Y

Somewhere George Orwell, Aldous Huxley and Sir Walter Raleigh are enjoying a smoke and a good laugh. Over the last ten years the number of multiresidential housing projects has increased dramatically. As people are brought into closer proximity there has been a spike in the number of complaints of second hand smoke wafting between units. Recent scientific findings indicate that second hand smoke can, among other things, increase the likelihood of a heart attack, high blood pressure or cancer. As these scientific studies continue to find health risks from exposure to second hand smoke, governments on different levels have continued to respond by banning smoking in many public forums. There are indications that one of the next targets on the list is to curb or ban smoking in multi-residential housing projects. What should a board do if they are confronted with a member complaining about a smoke fiend neighbor?

A board of directors confronted with a second hand smoke issue dispute between adjoining JANUARY 2007

The few cases that have been filed by a non-smoker against a CID have not been successful.

There have been instances where courts have ruled against the smoker and have issued an injunction to prohibit the smoking.

Amend: There is a wide range of options available to a CID that is considering whether to ban smoking. These range from banning smoking in common areas, exclusive use common area, or even in the separate interest if it rises to the level of a nuisance. It is also possible to convert the entire project to a smoke free status. There is no constitutional right to smoke, nor are smokers a protected class under the Equal Protection Clause of the United States or California State Constitution.

neighbors needs to ensure a proper investigation is conducted regarding the specific facts of that case. Reasonable accommodations and working with the owners to resolve the dispute without litigation is always the goal.

Investigate: Contact each of the members and ask for them to attend separate hearings at a board meeting. Ask them to provide any documentation and history regarding the complaint.

Contact any other unit owners near the smoker and determine if there are any other unit owners that complain about the smokers. Try and locate the source of the second hand smoke.

Test: There are companies that can perform air quality tests to provide subjective data regarding the levels of smoke being transferred between units. This can be helpful in determining the level of the various toxic gases, and whether it meets or exceeds specific guidelines.

Accommodate: Does the smoke infiltrate the neighbor’s unit or property line? If the area where the smoke is being transferred can be identified, try to reach a mutually agreeable accommodation.

Mediate/Arbitrate: If the issue cannot be resolved between the unit owners, suggest that they go to a neutral mediator or arbitrator to see if they can work out their differences to avoid the time and expense of litigation.

Litigate: If none of these options resolve the issue, the non-smoker may resort to filing a lawsuit against the smoking neighbor and possibly the CID.

Associations are not legally required to amend their documents. BUT— Directors can be misled as to their duties and responsibilities by relying on outdated provisions.

The legal documents may not accurately set forth the legal requirements for preparation and distribution of financial reports.

The legal documents may provide certain time limits for notices of meetings that may no longer be legally correct because of statutory changes.

Members may be misled into believing the documents accurately describe members’ rights, legal procedures, etc.

Documents may fail to take advantage of liberalized rules regarding meetings, participation by members, telephone meetings, etc.

UPCO MING EV ENTS T O AMEND OR NOT T O AMEND ?

Eventually every homeowner association is faced with the question of whether or not to amend its legal documents. In cases of conflict between the association legal documents and the law (statutory or case law), the law will, in most cases, prevail.

34

Thursday, January 18 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco Saturday, February 24 Central Coast Winter Seminar 8:00 a.m. to 1:00 p.m.

Seacliff Inn, Aptos ECHO JOURNAL

San Francisco Luncheon Thursday, January 18, 2007

What’s New with Association Insurance Speaker: John Allanson President Allanson Insurance Thursday, January 18, 2007 11:45 a.m.

St. Francis Yacht Club San Francisco, California Registration $55 Advance Reservations Required Tickets will not be mailed

ECHO JOURNAL

35

JANUARY 2007

LETTER TO THE EDITOR

Numerous Inaccuracies in “Back to Basics” September 2006 ECHO Journal ECHO should be applauded for the theme of this article (Reserve Studies are good... update yours annually and ensure it is accurate). But below the theme’s surface, the number of inaccuracies in the September 2006 Reserve Study “Back to Basics” article was surprising. These are not “point of view” issues. Civil Code is misrepresented and key concepts are misstated.

For instance, per National Reserve Study standards (in circulation since 1998) and California Civil Code (Section 1365.1.2.C), Percent Funded is defined as a measure of Reserve Fund size at a particular point in time, not a time or circumstance dependent measure of contribution size or rate as claimed by the author. In addition, the Cash Flow “method” is fundamentally a multi-year analysis of an association’s Reserve income and expenses (hence the name, as cash “flows” from year to year), not as the author states an evaluation of just the initial year, ignoring the needs of future years. Nowhere does Civil Code state a requirement that “100% of the money needed for next year’s expenditures” be available. It should also be noted that it is Civil Code Section 1365.a.4 (not Section 1365.5) that requires the Reserve Study to be distributed with the budget 30–90 days prior to the Fiscal Year End (not “at least 45 days”).

JANUARY 2007

Inaccuracies in Reserve Study Article

These inaccuracies, and more like them, are troubling. Can you imagine the confusion if a CPA or attorney were to ignore their industry standard definitions and utilize their own personal definition for “audit” or “foreclosure” in a published article and totally misrepresent Civil Code on the matter? ECHO members rely on the Journal for guidance on numerous topics. While in general the ECHO Journal has met that objective, in the case of this article I believe ECHO failed its membership.

Robert M. Nordlund, P.E., R.S. Association Reserves, Inc. The article’s author replies: This is in response to the letter from Robert Nordlund [printed above]. I appreciate the opportunity to respond to the letter.

Robert Nordlund is an experienced reserve-funding specialist, and we have talked at several trade shows and seminars regarding the issues he raises. I have found that there are significant differences among reserve consultants regarding the specific wording and definitions used in this field. My article was a very basic article, and I did not want it to be a detailed discussion on terms and semantics.

First, I must agree with Robert that the deadline for distribution of the Pro Forma budget including the Reserve Study informa36

tion is not less than 30 days nor more than 90 days prior to the start of the new fiscal year. I used language from an older article and should not have let this error pass by undetected. [Editor’s Note: Equally, this error should have been corrected by the editor.]

However, on the other points, I must disagree. First, my points regarding the definition of Cash Flow Method vs. Per Cent Funded are valid points. Yes, the Per Cent Funded method is an attempt to measure the degree to which an association is keeping pace with the necessary funding. That is why it is expressed in a per cent, for example.

Secondly, of course the minimum requirement for the Cash Flow Method is that the association must have sufficient cash to meet the next year’s reserve expenditures. That is the reason reserve funding was established originally.

[I would like to suggest that] ECHO start a forum among reserve study consultants regarding these differences of opinion on definitions and interpretations. This would be helpful in developing a broader based input into this discussion, which I am sure would benefit both the readers and those of us who work in this field.

Thomas Douma, MBA, RS SBI LLC ECHO JOURNAL

Corporate Status Suspended Continued from page 31

If the association is small, with little or no taxable income, the process is fairly straightforward and should not be too costly. I did have an FTB representative contact me once regarding the filing of a Form 100 for an association that had less than $100 in nonmembership income in the year in question (e.g., interest income). The association is not required to file Form 100 when nonmembership income is less than $100 (See Form 100 instructions and Publication 1028— Guidelines for Homeowners Associations.)

He wanted to know my authority. I cited the above FTB publications and never heard back from him.

Some associations, like the one cited in my first example, are suspended for failure to pay the minimum tax. This is because California tax-exempt status was not requested during incorporation. Form 3500 must be filed and approved by the Franchise Tax Board to obtain this status. It is not an automatic election like the Federal Section 528 election. A brief questionnaire regarding association activities must be completed and four years’ financial information and signed copies of the association’s governing documents much be provided with the application. Upon qualification, the FTB will refund up to four years’ minimum tax for associations that qualify. Most residential associations should have no trouble qualifying for exempt status.

Do we have to disclose the suspension?

While the CIRA Guide (Accounting Standards for HOAs) does not provide any specific guidance, it is my opinion that an audited or reviewed financial statement should disclose suspended status in the notes to the financial statements. An association without corporate powers could have its financial situation severely impacted if it cannot collect its assessments or sue for damages incurred. This is a very significant disclosure.

Michael Gartzke, an ECHO member, is a Certified Public Accountant with a large homeowner association practice in the Santa Barbara area. He is also the coordinator of the South Coast Homeowners Association with a membership of about 140 associations.

ECHO JOURNAL

Arborist OnSite

TM

Professional Tree Management Inc.

Consulting Services: ISA Certified Arborists Structural Tree Pruning Tree Removal Annual Tree Maintenance Programs Emergency Services

Arborist Reports Structural Tree Health Evaluations Root Mapping Using Ground Penetrating Radar Tree Health Evaluations Educational Seminars

Direct: 1-877-808-8733 Fax: 408- 227-9901 Website: www.arboristonsite.com Member ECHO Maintenance Panel State Contractors License #662409

ABBEY, WEITZENBERG, WARREN& EMERY At Abbey, Weitzenberg, Warren & Emery we have developed one of the most active and successful construction defect practices in Northern California.

Here’s why: • Our clients are represented with a total commitment to seeking maximum compensation through effective mediation and aggressive litigation.

• A superior litigation record, resulting in more multimillion dollar jury verdicts and settlements for our clients than any other firm in the area.

• The financial strength and necessary personnel to properly fund and staff major litigation against large corporations and insurance companies.

• Innovative alternatives to structuring the attorney’s fees and costs in order to avoid special assessments.

Heading up our Construction Defect Department is partner Bart Weitzenberg, who has garnered one of the most impressive trial records in the State. In the past few years alone, Bart has won jury verdicts and negotiated favorable settlements totaling in excess of $80 million.

When the stakes are high, don’t settle for less. Call Bart for an initial consultation with no fee or obligation.

Specialists in construction defect litigation

ABBEY, WEITZENBERG, WARREN& EMERY

Attorneys and Counselors at Law Telephone: (707)542-5050 • Facsimile: (707)542-2589 100 Stony Point Road, Ste 200 • P.O. Box 1566 Santa Rosa, CA 95402-1566 37

JANUARY 2007

ECHO VOLUNTEER HONOR ROLL 2006 Volunteer of the Year Jerry L. Bowles Central Coast Fall Seminar Speakers

SF Luncheon Speakers Tyler Berding, Esq. Doug Christison Karen Conlon, CCAM Rolf Crocker Ross Feinberg, Esq. David Feingold, Esq. Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Brian Hebert, Esq. Roy Helsing Julia Lave Johnston Garth Leone Nico March Steve Saarman Nathaniel Sterling, Esq. Glenn Youngling, Esq.

John Allanson Sandra Bonato, Esq. James Harmon Stephanie Hayes, Esq. Mike Muilenburg Maintenance Fall Seminar Speakers ECHO Resource Panels ACCOUNTANTS PANEL Edward Riback, CPA, 510-865-5865

Bob Booty Rick Hanson David Hughes Mike Muilenburg Brian Seifert Wayne Scott

CENTRAL COAST PANEL Darrel Louis, 831-212-0300 EAST BAY PANEL Nikki Affinito, 800-660-4053 LEGAL PANEL Mark Wleklinski, Esq., 925-943-1191 MAINTENANCE PANEL

ECHO Journal Authors

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

October 2006 John Allanson Beth Grimm, Esq. James Ernst, CPA, MS(Taxation) Rod O’Neal Judy O’Shaughnessy Steve Saarman November 2006 Tyler Berding, Esq. Sandra Bonato, Esq. Michael Gartzke, CPA Susan Green Ann Krilanovich David Levy, CPA

Mark Greening, 408-536-0420 NORTH BAY PANEL Diane Kay, CCAM, 415-435-3467 Stephany Charles, CCAM 415-458-3537

December 2006 Adrian Adams, Esq. Jeffrey Barnett, Esq. Tyler Berding, Esq. Gerald Bowden, Esq. Beth Grimm, Esq. Pete Sacco Glenn Youngling, Esq.

SAN FRANCISCO PANEL Jeff Saarman, 415-749-2700 SOUTH BAY PANEL Ann Philipp, 408-536-0420 WINE COUNTRY PANEL Ron Hamann, 707-584-4788 JANUARY 2007

38

ABOUT ECHO What is ECHO? ECHO (Executive Council of Homeowners) is a California nonprofit corporation dedicated to assisting community associations. ECHO is an owners’ organization. Founded in San Jose in 1972 with a nucleus of five owner associations, ECHO membership is now 1,480 association members representing over 150,000 homes and 325 business and professional members.

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.

If your company wants to reach decision makers at over 1,500 homeowner associations, you can become an associate member and join 325 other firms serving this important membership.

What are the Benefits of ECHO Membership?

• Subscription to monthly magazine for every board member • Yearly copy of the Association Statute Book for every board member • Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento

ECHO Membership Dues HOA Size 2 to 25 units 26 to 50 units 51 to 100 units 101 to 150 units 151 to 200 units 201 or more units Business/Professional

Rate $120 $165 $240 $315 $390 $495 $425

ECHO Journal Subscription Rates Members $50 Non-members/Homeowners $75 Businesses & Professionals $125

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 408-297-3246 to obtain an application form and more information.

ECHO JOURNAL

ECHO JOURNAL

39

JANUARY 2007

CommonSense Continued from page 5

on board members comes from trying to balance responsibility and authority—when there is too much of one, and not enough of the other. That stress sometimes leads to individual board members avoiding their responsibilities or abusing their authority— always a bad situation for everyone.

Understanding the imbalance of responsibility and power in a homeowner’s association will at least insulate board members from the stress of believing that they must find an answer to every problem. Like so many things in life, it would be nice, but not always possible. Recognizing that the system is inherently imperfect will let board members get down to the real business of making the most of what they have.

Tyler Berding is a founding partner of Berding & Weil, a construction defect and homeowner association law firm and a former member and the immediate past president of the ECHO board of directors.

MINIMUM WAGE INCREASES IN 2007

I

n September 2006, Governor Schwarzenegger signed into law an

increase in the minimum wage in California from $6.75 per hour to $7.50 per hour, effective January 1, 2007. The minimum wage will increase again on January 1, 2008 to $8.00 per hour.

These increases will affect the budgets of many associations. Vendors used by associations, such as landscape companies, painters, roofing companies, pool maintenance, housekeeping, etc., may be increasing their fees to their clients. Boards should take this into account in their budgets.

JANUARY 2007

40

ECHO JOURNAL

ECHO MARKETPLACE

ADVERTISERS INDEX Abbey, Weitzenberg . . . . . . . . . . . . . . . . . . . .37 All Seasons Roofing . . . . . . . . . . . . . . . . . . . . .15

Swedelson & Gottlieb Community Association Attorneys Bay Area

Alpha Restoration & Waterproofing . . . . . . . . .25 American Management Services . . . . . . . . . . .20

(800) 838-6370

Angius & Terry . . . . . . . . . . . . . . . . . . . . . . . . .3

LawForHOAs.com

Applied Reserve Analysis . . . . . . . . . . . . . . . . .27 AquaTek Plumbing . . . . . . . . . . . . . . . . . . . . .40 A.S.A.P. Collection Services . . . . . . . . . . . . . . .31 Arborist Onsite . . . . . . . . . . . . . . . . . . . . . . . . .37 Association Lien Services . . . . . . . . . . . . . . . . .40 Association Reserves . . . . . . . . . . . . . . . . . . . . .39

Reserve Studies and Mold Sampling Foundation and Drainage Analysis

Reach thousands of HOA decision makers with your ad in the ECHO Marketplace

Bank of Alameda . . . . . . . . . . . . . . . . . . . . . . .17 Bayridge Group . . . . . . . . . . . . . . . . . . . . . . . .41 Berding & Weil . . . . . . . . . . . . . . . . . . . . . . . .44 Community Association Banc . . . . . . . . . . . . .27 Community Management Services . . . . . . . . .31

SBI, LLC

Compass Management Group . . . . . . . . . . . . .14

800-710-3774 • www.sbiusa.net

Cool Pool Service . . . . . . . . . . . . . . . . . . . . . . .39 Cornerstone Community Management . . . . . .16 Corum Painting . . . . . . . . . . . . . . . . . . . . . . . . .2 Draeger Construction . . . . . . . . . . . . . . . . . . .11

Construction Project Management and Architecture for Home Owners Associations Construction administrative services including bidding process Pre-construction consulting & coaching Over 25 years experience in architecture, construction and engineering environments

B

AYRIDGE GROUP

INC

1777 Borel Place Suite # 314 San Mateo, CA 94402

Phone: (650) 345-2744 Fax: (650) 292-4926 www.bayridgegroupinc.com

Ekim Painting . . . . . . . . . . . . . . . . . . . . . . . . . .30 First Bank Association Bank Services . . . . . . . . .20 Flores Painting . . . . . . . . . . . . . . . . . . . . . . . . .27 GET Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .8 Greater Bay Bancorp . . . . . . . . . . . . . . . . . . . .23 Helsing Group . . . . . . . . . . . . . . . . . . . . . . . . .41 M. L. Nielsen Construction . . . . . . . . . . . . . . .11 Management Cost Controls . . . . . . . . . . . . . . .35 Nature First Tree Care . . . . . . . . . . . . . . . . . . . .9 Pelican Management Group . . . . . . . . . . . . . .31 PML Management Corp. . . . . . . . . . . . . . . . . .21 Pollard Unlimited . . . . . . . . . . . . . . . . . . . . . . .30 Pratt & Associates . . . . . . . . . . . . . . . . . . . . . . .9 R. E. Broocker Co. . . . . . . . . . . . . . . . . . . . . . .16 Rebello’s Towing Service . . . . . . . . . . . . . . . . .29 REMI Company . . . . . . . . . . . . . . . . . . . . . . . .39 Russell & Mallett LLP . . . . . . . . . . . . . . . . . . . .15 Saarman Construction . . . . . . . . . . . . . . . . . . .17 Statcomm . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Steve Tingley Painting . . . . . . . . . . . . . . . . . . .22 Steve’s Painting Services . . . . . . . . . . . . . . . . .25 W. E. Lyons Construction Co. . . . . . . . . . . . . . . .8

ECHO JOURNAL

41

JANUARY 2007

EXTERIOR WATER DAMAGE Paul McLaughlin ater causes more damage in the United States than fire, and California has more water damage than any other state. Flooding and storm damage are considered to be sudden disasters and are often covered by insurance policies. On the other hand, water damage caused by dry rot occurs over a longer period of time and is not usually covered by insurance. Water damage to wood and masonry surfaces can often be avoided.

boards should not be caulked but remain open for drainage to prevent water getting inside from being trapped.

Block and stucco masonry: Water damage to masonry usually appears in the form of efflorescence, caused when water enters the masonry. Upon leaving the surface of the wet masonry, the water leaches out some of the material in the masonry. The result will usually appear as a blistered, often powdery, white material.

SUR F A CE S

ELAS T OMER I C C OAT I NGS

Wood Siding: T1-11 siding (the plywood siding with vertical grooves) often can be treated with elastomeric paint to prevent cracking, which leads to water intrusion and rotting. The elastomeric will bridge the cracks and remain flexible unlike regular latex paint that will crack.

Masonite siding (or other man-made fiber board siding) is usually a lapped horizontal siding. Water damage occurs in two areas on this siding, the vertical joints and the bottom edge of the siding.

Damage to the vertical joints can prevent by caulking whenever the joints open up.

The bottom edge of the boards is usually very porous, which leads to water being absorbed up and damaging the boards.

To prevent this it is important to “back brush” the paint, which will work the paint into the bottom of the boards to seal the surface. Simply spray painting will not accomplish the sealing. Although back rolling the siding is better than simply spray painting, it will not do as adequate a job as back brushing.

Elastomerics are commonly applied to masonry surfaces but are often overused.

An elastomeric is a waterproofing material that forms a layer on a surface being painted similar to a coat of rubber. These coatings are designed to keep water out but, if not used correctly, they can also keep water in. Elastomerics should not be used on retaining walls that have earth behind the wall. The back side of such walls may not be properly sealed, resulting in water leaking through the wall.

Typical latex paints allow a certain amount of water to pass through the paint; but elastomerics will not allow this to happen with the result that surface bubbles similar to water balloons can form on the wall. Elastomerics should be applied only to keep water from entering through small surface cracks. If a building has other defects, such as a block wall without a metal cap that can allow water to enter, then elastomerics should not be used.

Wood trim: Window casings should be caulked on the top. The bottom of

For the concerns previously discussed, water coming from above the structure is

W

JANUARY 2007

WAT ER S OU R C ES

42

the source which is typically covered under insurance policies. However water damage is also caused from water coming from the ground. The cause for this type of damage is often considered by insurance companies to be flooding and thus is not covered unless you have flood insurance. Some common causes of such water damage are improper grading of surrounding grounds, earth piling up and touching wood so that moisture may enter. Many building codes require there to be at least six inches clearance between earth and siding or other wood components. Structures without gutters can result in splashing up of rain water, allowing wood to become wet and then rot.

P AI NT I NG S PECIFICATIO NS

An upcoming painting project is the opportune time to consider both the repair of past damages as well as protection of your property for future wear and tear. Specifications for a painting job should be specific to your individual project. All too often, details that are unique to the needed protection for a project are omitted from specifications that the painting contractor will use. Having too many generalized specifications “just thrown in” can add to the cost of a painting project without adding to its value.

Paul McLaughlin is a principal at McLaughlin Painting, a new member of ECHO. He has been performing wood repairs, preparing specifications and painting for community associations for over thirty years.

ECHO JOURNAL

Central Coast Winter Seminar Saturday, February 24, 2007 8:00 a.m. to 1:00 p.m.

Seacliff Inn, Aptos CID CHALLENGES IN 2007 Seminar Agenda 8:00 8:45 9:00 9:45 10:30 10:50 11:35 12:20 12:50

Registration and Sponsor Tables Introduction 2006 Legislative and Case Law Summary The California Legislature and CIDs —Assemblyman John Laird Break Dealing with Major Construction Concerns Second Hand Smoke—A Real Issue?

Questions and Answers Drawings for Sponsor Prizes Ticket Price $35

Yes, reserve _____ spaces for the ECHO Central Coast Winter Seminar.

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