Journal_07_07 by Echo

July 2007

A Journal for Community Association Leaders

echo-ca.org

ALSO INSIDE THIS ISSUE:

• Budgeting for HOAs • Contractor or Employee? • 2007 ECHO Seminar

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

PRSRT STD U.S. Postage PAID Sundance Press 85719

Contents Contractor or Employee? on page 24

Primer on Duties and Authority of Association Boards This article on the duties and authority of a condominium board is an ideal primer for new board members and a good refresher for veteran board members.

Under the California Civil Code, associations must undertake certain disclosures to their membership about the association’s budget. Community associations can be caught up in the disclosures, rather than letting them be just a part of a solid budgeting process.

30 16

Budgeting for Community Associations

Independent Contractor or Employee?

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

2007 ECHO Seminar Photo Highlights

Vice President Karl Lofthouse

Every board of directors, at one time or another, has had to deal with either teenagers or younger children who break the rules. This article suggests ways to get young residents working with the association.

Departments

29 Directory Updates 31 2007 Disclosure Checklist 34 ECHO Bookstore 36 News from ECHO 38 ECHO Volunteers 38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

On the Cover Primer for Boards Page 6

July 2007 | ECHO Journal

Office Hours: Monday–Friday 9:00 a.m. to 5:00 p.m.

28 Calendar of Events

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.

Every board of directors needs to understand the differences between association employees and contractors. This article gives guidelines to help board members perform this important analysis correctly.

21 2007 Legislation at a Glimpse

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.

Board of Directors and Officers President David Hughes

Treasurer David Levy Secretary Dorothy Kopczynski Directors Paul Atkins John Garvic Robert Rosenberg Richard Tippett Steven Weil

Jerry L. Bowles Robert Hood Diane Rossi Wanden Treanor

Executive Director Oliver Burford Communications Coordinator Tyler Coffin Legislative Consultant Government Strategies, Inc. 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 and related services to board members, homeowner members, government officials and the professionals in the industry.

ECHO Annual Seminar

Sponsors of the 2007 ECHO Seminar ECHO Gives Thanks To Its Sponsors Platinum Benefactors Angius & Terry, LLP

Silver Benefactors Accountants Resource Panel

First Bank

Arborwell Bayridge Group, Inc.

Gold Benefactors American Management Services, Inc.

Community Management Services, Inc. Legal Resource Panel

Berding & Weil, LLP

Merit Property Management, Inc.

Community Association Banc/CondoCerts

Wanden Treanor, Esq.

Cool Pool, Inc. Draeger

Patrons Aragon Commercial Landscaping

Hughes & Gill, PC

Cagwin & Dorward

Massingham & Associates

County Bank

Old Country Roofing Richard Avelar & Associates Russell & Mallett, LLP Saarman Construction, Ltd. Statcomm, Inc.

ECHO Journal | July 2007

By Jeffrey A. Goldberg, Esq.

Primer on Duties and Authority of HOA Boards

any new board members want a primer that states in one place what their duties are and by what authority they operate. The primer in this article discusses general concepts and law related to the powers and duties of association boards. You should be aware that the law differs between the various states, and therefore a board member should seek legal advice before acting.

Compliance with Governing Documents and Applicable Law Each board member is obligated to know the applicable law and to faithfully follow the governing documents of the association. For condominiums, the state statutes on condominiums must be strictly followed. In addition to the express requirements of law, a board member must be familiar with the declaration (the CC&Rs), the bylaws, or other controlling docu-

July 2007 | ECHO Journal

ments which form a contract between and among the homeowners within the association. Sometimes the governing documents will conflict with the provisions of the applicable statutes. In general, the condominium or association statutes will prevail over conflicting provisions of the declaration or bylaws (except when the statute specifically authorizes the declaration or bylaws to provide otherwise). The CC&Rs generally rule over conflicting provisions of the bylaws, and the bylaws generally govern over conflicting provisions of any rules and regulations or house rules adopted by the board. Although at first the concept of following the law and governing documents may appear simple, in practice, this can be a difficult and confusing undertaking, and it may require professional assistance.

ECHO Journal | July 2007

Maintenance of Common Areas/ Building Exteriors Perhaps the main function of most associations is the repair and maintenance of common areas and building exteriors. The maintenance responsibility for an association is established in the CC&Rs or bylaws. In most associations, those parts of the property that are shared between the homeowners are maintained by the association. Responsibility for those portions of the property over which an owner has an exclusive right to use or possess will fall upon the individual owner. In almost every association, there are almost

unlimited needs and desires among the membership for repair and maintenance work. The difficult task for the board is to prioritize these tasks and decide how and when the various maintenance tasks are to be performed. This means that the board must become familiar with the property and what is needed. Then, the board must carefully consider what are its budgetary restraints. Finally, the board must develop a plan for meeting its responsibilities. The plan should include periodic inspections of the property, a schedule for performing various repair and maintenance tasks in an orderly and compre-

hensive manner, and a plan for emergency expenditures. If the board does not plan adequately, what typically occurs is a breakdown of various components and an onslaught of emergency expenditures. For example, if the board delays replacement of a roof, it may find that it is spending an inordinate amount of money patching a deteriorating roof on an emergency basis. Over time, the cost of patching can become more expensive than the re-roofing job would have been in the first place. A great deal of money could be saved by careful planning. Budgets Related to the duty to maintain the property is the duty to adopt budgets and collect assessments from the homeowners. In a way, an association is merely a conduit for the homeowners to pay for the various expenses of operating the property. The budget process is not one whereby an arbitrary figure is created that will be the monthly assessment and then the board tries to figure out how to best spend the money. The correct process is a reversal of that. The board must first determine what are the necessary expenses and costs of operation and administration, plus a reasonable reserve, and then the monthly assessment is determined by dividing the annual budget among and between the unit owners. The budget process therefore must involve a careful review of past budgets and the actual costs plus a careful examination of anticipated costs and expenses, including obtaining bids and quotes for various services. Of course, in determining the budget, it is appropriate and necessary for the board to consider the amount of money that can reasonably be collected from the homeowners. The amount of the monthly assessment must not be so high that it would adversely affect the property values in relation to other associations in the area or cause economic hardship to the owners. At the same time, the assessment must not be so low that the association is unable to meet its basic responsibilities for repair and maintenance of the property, to keep the property in good condition, and to have an adequate reserve for emergencies and future repair or replacement. Reserves The issue of reserves is often neglected by the board. It is not enough for the board to budget for the existing costs and expenses. It also must establish a reserve for three purposes.

July 2007 | ECHO Journal

1. Emergencies Unless the board has a fund from which to handle emergency or unexpected costs, the association will be vulnerable. The board must assume that some unexpected expenditures will be necessary. 2. Capital Expenditures and Deferred Repair or Replacement The board must find out what the estimated useful life of its structural and mechanical components, surfaces of the buildings and common areas, energy systems and equipment are, and then determine a reasonable amount for the ownersâ&#x20AC;&#x2122; monthly contributions to a reserve. Unless this reserve is established, the homeowners who use the property will not be contributing towards the replacement of the property in the future. Instead future owners will bear the full cost of major repair or restoration (such as roofing, paving, siding, HVAC, and other major components). The most fair way of handling deferred maintenance (and one that keeps the assessments from going too high) is for the board to divide the cost of future repairs among the current owners (through a reserve or through financing whereby the cost of restoration is spread out over time) and to the future owners (through a special assessment levied at the time of the restoration work).

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3. Bad Debt An association does not have â&#x20AC;&#x153;deep pockets.â&#x20AC;? The only money it generally receives is the assessment payments of the owners. If some of the homeowners go into bankruptcy or simply cannot make payment, there will be a budgetary shortfall. Because the budget is determined and then divided among the homeowners, bad debt will cause a shortfall. It is necessary for the board to determine the anticipated shortfall from bad debt and to budget accordingly. The history regarding bad debt can be useful in determining the expected shortfall, but other factors such as the number of cases in collections and the general condition of the economy also may be considered. Assessment Collection Once one understands that an association budget is nothing more than dividing up the expenses among the homeowners, it becomes readily apparent that the failure of one homeowner to pay his or her fair share

Continued on page 11 ECHO Journal | July 2007

Primers for Board Continued from page 9

of the expenses means that the neighbors are the ones paying the delinquent ownersâ&#x20AC;&#x2122; bills. This is not an acceptable situation. Therefore, the board has a duty to take every reasonable action to collect the assessments. The board may not waive, excuse, or otherwise forbear the payment of assessments. Those homeowners who refuse to pay their assessments should be pursued in court, and every reasonable action should be taken to compel payment. In California associations have lien rights in the units and can foreclose, take ownership or possession of the property, or garnish the wages or bank accounts of the delinquent owners. Most associations have the ability to recover from the delinquent owner the costs of collection, including attorneysâ&#x20AC;&#x2122; fees and legal costs. In addition, because it is unfair for some owners to pay on time, and others to cause the association to incur expense from late payment, it is appropriate for the board to charge a reasonable late charge (in accordance with its governing documents and applicable law).

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Business Judgment The board members owe a fiduciary duty to the homeowners to manage and operate the association using the care that an ordinarily prudent person would use under the same or similar circumstances. This means that the board must exercise business judgment in making decisions while operating or managing the association. Business judgment involves making rational, informed decisions in good faith. The board must strictly follow the law and its governing documents and apply and enforce them in a fair and uniform manner. The board must obtain and consider all of the relevant facts and circumstances, identify the various options available to the board, and carefully weigh which course of action would be in the best interests of the association and its membership as a whole. The board members cannot act out of passion or prejudice, personal self-interest or gain, or through revenge or other negative motivations. The rational basis for all decisions must be the best interests of the association consistent with its purposes. This fiduciary duty owed by each board member to the homeowners is the same one that directors of publicly traded corporations owe to their shareholders. Of course, the directors of major corporations are sophisticated and ECHO Journal | July 2007

experienced business persons and they have professional executives, accountants and attorneys to assist them at every step. Although the extent and scope of activity of an association board is much more limited than the activities of a major corporate board, it still behooves the board to engage professionals to some extent before making major decisions. Most associations retain professional managing agents to operate the dayto-day affairs of the association and to guide and assist the board in setting policy and establishing procedures to meet its responsibilities. In addition, every association should have an accountant and an attorney, and consult them when appropriate. In addition, tax and financial advisors are necessary with respect to the handling and investment of funds. Adoption and Enforcement of Rules The board has a duty to enforce the governing documents uniformly against the owners and other residents of the property. A board does not have the authority to waive or excuse compliance with the requirements of the CC&Rs. Of course, it is not always clear whether specific actions violate the covenants. It is up to the board to reasonably interpret its governing documents, and to adopt rules and regulations to supplement, explain and administer the enforcement of the basic rules of the association. In deciding how to enforce the governing documents, the board must carefully consider the nature and scope of an infraction and try to address the situation in a manner that is reasonably related to the severity of the violation. In general, the board should first try informal approaches to obtain compliance, and then increase the severity of the consequences to an owner who continues to violate the rules. The purpose of all enforcement activity is not to punish the violator but only to encourage and obtain full and permanent compliance. Where the violation threatens the safety of person or property, or when there is a flagrant violation, the board may have no choice except to take the violator to court and seek a court order requiring compliance. Annual Elections, Politics, Board Meetings and Appointment of Officers One of the most important aspects of association membership is the need for the homeowners to organize politically and to elect their representatives to the board. It is the duty of the board to ensure a fair and free board election on an annual basis. The 12

July 2007 | ECHO Journal

board must establish procedures necessary to be sure that there are qualified candidates and that each homeowner has the opportunity to vote and participate in the political process. The board should share with the homeowners all of the information and facts of the problems and issues that face the association and patiently explain the rationale and reasoning behind board decisions. The homeowners are entitled to be fully informed about the conduct of the board and to exercise oversight through the political process. Associations must allow the homeowners to address the board at the regular meetings of the board and at the annual meeting. These meetings are a great opportunity for the board to communicate with the homeowners and to obtain input and advice from the members. Another duty of the board is to appoint board officers, such as the president, secretary or treasurer of the association. It is important for the board to exercise careful oversight of the actions of the officers between meetings of the board. The officers should account to the board for any decisions or actions taken on behalf of the association. It is necessary for the board to hold regular meetings in sufficient frequency to properly and efficiently handle the affairs of the association. Most boards meet monthly or quarterly. Representation of Homeowners/ Insurance/Property Rights The purpose of the board is to represent the interests of the homeowners as a whole, as these interests relate to the property. Therefore, the board is the appropriate entity to pursue claims and rights of the unit owners with respect to the entire property (such as claims against the developer for defects, tax relief, and dealing with third parties related to real property rights). In general, any matter that affects the collective interests of the unit owners (as opposed to the individual rights of an owner) is appropriately handled by the board. All amendments to the governing documents, easements, concessions, licenses, and dedication of the property must be handled by the board (although the approval of the owners may be necessary). In addition, the board must ensure that all tax obligations of the property as a whole have been met, and that the property has the necessary and required insurance. The requirements for insurance will be

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Continued on page 14 ECHO Journal | July 2007

Primers for Board Continued from page 13

set forth in the declaration and applicable statutes. On behalf of the association and its members, the board should insure the property against casualty and loss and should obtain liability coverage including directors and officersâ&#x20AC;&#x2122; liability insurance and bonding. In addition, the board should hold the proceeds of insurance or defect litigation in trust on behalf of the owners to ensure the proper restoration of damaged property. Books and Records Although the board is the entity responsible for making the decisions on behalf of the owners, the association still belongs to the homeowners and they have a right to be fully informed about the association. The board must keep detailed and accurate records. This includes accurate copies of the associationâ&#x20AC;&#x2122;s declaration, articles of incorporation (or charter), bylaws, plats of survey, rules and regulations (and all amendments of these), minutes of all board and owner meetings, insurance policies, contracts, leases, and other agreements in effect, a listing of the 14

July 2007 | ECHO Journal

names and addresses of the members, copies of ballots and proxies for past elections, and including the books and records of account (including an itemized accounting of the budgeted and actual receipts and expenditures of the association with supporting budgetary and financial documents). Home-

The operation of an association is a complex task that requires a great deal of knowledge and information owners should have reasonable access to these books and records for a proper purpose and consistent with the requirements of applicable law. Emergencies The board is not the insurer of the property and is not a police force. It need not

undertake to protect the owners from criminal conduct or casualty. However, in emergency situations, the association may be in the best position to minimize damage and to correct any problems. Most declarations authorize the board to enter the individual dwelling units for emergency purposes to protect the property or residents from harmful conditions. When acting under emergency authority, the board should limit its actions to only those made necessary by the emergency at hand and defer all other actions. For example, if the plumbing in a unit fails, the board may enter the unit and stop the water incursion and to take action to minimize the water damage to the unit and other property. Beyond what is reasonably necessary to alleviate the emergency at hand, the board should not infringe upon the authority of the individual owner to repair or maintain his or her unit. Emergency actions should be measured responses to the circumstances of a particular crisis, and the board should take care to limit its involvement to only what is necessary.

Human Rights and Accommodations The law requires that housing, and all associated services and facilities, must be available to persons without discrimination on the basis of race, color, religion, gender, familial status (children under 18), disability, or national origin. The board is the entity responsible for making sure that the association operates in a manner that does not unlawfully discriminate. The language of association rules and enforcement must be neutral as to the protected classes. Typical problem areas are rules and facilities that discriminate against children and families, or facilities or rules that fail to reasonably accommodate the needs of disabled persons (in rules, policies, practices, or services to afford a person with a disability equal opportunity to use and enjoy a dwelling). Other issues that arise are subtle forms of racial and ethnic discrimination as it relates to extended family living in a unit, celebration of holidays, or unequal treatment in making appointments to office, granting of privileges, or enforcement. In addition, depending upon the facts and circumstances, the board may have a duty to address and stop unlawful discrimination committed by the individual owners, residents, or vendors of the association. This area is one ripe for litigation, and therefore the board should consult with competent counsel when addressing these issues. We have attempted in this article to explore the duties and authority of an association board comprehensively. Readers should realize that the operation of an association is a complex task that requires a great deal of knowledge and information. Being a board member is not a casual undertaking. Although this primer does explore the basic responsibilities of the board, it should be noted that in practice the issues touched upon here can be much more complex than they appear. In addition, the laws of your locality and the specific facts and circumstances of your boardâ&#x20AC;&#x2122;s situation will have an impact upon what the boardâ&#x20AC;&#x2122;s duties are and how to meet them.

Jeffrey A. Goldberg is of counsel to the Illinois firm of Barnett Law Firm, Ltd. Mr. Goldberg has worked in the field of condominium and homeowners association law and real estate litigation since 1985. Barnett Law Firm, Ltd., is an Illinois law firm concentrated in the law of common interest developments. ECHO Journal | July 2007

By Joelyn Carr-Fingerle, CPA Thomas Hill and Robert Rosenberg, CCAM

Budgeting for Community Associations U

nder the California Civil Code, community associations must undertake certain disclosures to their membership about the association’s budget. You will find all those disclosures listed on the 2007 Disclosure List on page 31 in this issue. However, the Civil Code does not address the process by which an association should complete its effort in order to be able to publish its required budgetary disclosures. At times community associations are caught up in the disclosures, rather than having the disclosures as only a part of a solid budgeting process. The budgeting process should be viewed as a marathon, and not a sprint. “Knowledge is power,” and for community associations it is no different. The more knowledge and information gathered prior to starting the budgeting process, the easier and more accurate the process will be. Starting the Budgeting Process The gathering of information to prepare your next budget should have started on the first day of your current fiscal year. Every month the association prepares financial statements that become the basis for the future budget. These financial statements should be prepared with enough specificity that associations can analyze the information months later during budget time. For example, when an association has an unbudgeted expense, it should not get “buried” in an inappropriate line item, only to get lost at the next budget time. The ideal situation would to place the expense in the appropriate category, regardless if there is an existing budgeted amount.

July 2007 | ECHO Journal

The formal budget process for calendar yearend associations should start roughly five months prior to the start of the new fiscal year—that’s right now for a majority of you readers. At this point, you should gather all the documents necessary to complete a draft of the budget—the current reserve study, current financial statements, a projected income statement, and prior year financial statements. Once you have calculated “last 12 months” or estimated fiscal year-end expenses for each operating expense budget line, you can reasonably apply an inflation factor of 3% or so to each line as a first approximation for the next fiscal year. Discussions with the suppliers of your major expenses such as utilities, landscaping, pool service and management can help you adjust accordingly for these line items. If you don’t like what you hear, you may need to consider making inquiries of other potential providers. Hot Spots Hot spots in the current and recent past budgeting environments include utilities and insurance. Water and sewer rates continue climbing at a pace well in excess of inflation. Refuse disposal tends to jump radically every couple of years as waste companies reach agreements with local municipalities. Natural gas prices have changed dramatically up in recent years, and rate changes are reflected quickly in utility bills. Electricity, for all the reasons we read and hear about, has only gone up. Many associations have had the bulk of Continued on page 19

ECHO Journal | July 2007

July 2007 | ECHO Journal

Budgeting Continued from page 16

their common area electricity use charged at the Tier 5 penalty (300%) rate, often increasing their electricity costs by multiples. In January 2003, the California Public Utilities Commission (after much prodding by ECHO) gave common-area accounts the option of switching electric service from residential to commercial and choosing from several commercial rate schedules. The most advantageous rates per PG&E’s notices for association accounts that we have reviewed (relatively small ones) offer a reduction of almost 24% per year. These rates would require installation of a Time-Of-Use Meter.

Forecasting these expenses requires constant attention to the news. Associations can take some steps to minimize consumption, but changing venders is not a choice. For many associations, the time since “9/11” has added financial shocks from both availability and premium cost of insurance. The insurance industry was hit very hard by the destruction of the two World Trade Center Towers and the more recent hurricane disasters. Their income stream and reserves have also been severely hit by the decline in interest rates and stock prices. Together, these forces have decimated the reinsurance markets and limited the ability of the primary insurers to manage their risk exposure. Refusing to take on new business and canceling or non-renewal of existing

business have been their only options. When the supply goes down in the face of continuing demand, prices have a tendency to go up sharply. Associations can feel fortunate to have their policies renewed at increases of only 30–60%. Non-renewal, usually due to claims made, can leave an association with little choice but to seek coverage in the “surplus lines” market with lesser-known insurers, often with lower ratings by AM Best and others, and always at much higher premiums— perhaps 300% more! Tight control of claims opened, coupled with increased deductibles, will help keep an association in the Continued on page 20 ECHO Journal | July 2007

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Required Disclosures to the Membership CC Section 1365. Documents Prepared and Distributed by the Association This section of the California Civil Code is the heart-and-soul of financial reporting requirements in the Davis-Stirling Act. All board members and association managers need to feel comfortable with their level of knowledge of this section, because it drives the financial rhythms of associations. From our vantage point in June 2007, the first major item for calendar year associations to address is the annual pro forma operating budget that is to be distributed to all owners not less than 30 days and not more than 90 days prior to the beginning of the associationâ&#x20AC;&#x2122;s next fiscal year, 2008. Among other things, items included are: 1. estimated revenue and expenses on an accrual basis, 2. a summary of the associationâ&#x20AC;&#x2122;s reserves based upon the most recent review or study and disclosure of considerable detail of a. the major components of the common area the association is responsible for, b. their costs to repair or replace and expected timing thereof, and c. a tabulation such that the expected amount of reserve fund cash on hand at fiscal year end can be compared in the form of a ratio to the amount the association should have at that point. Continued on page 22

July 2007 | ECHO Journal

2007 Legislation at a Glimpse As of May 24, 2007 Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Amended April 10; Hearing cancelled in Assm. House Committee; Two year bill

Oppose Unless Amended

This bill would, until January 1, 2013, establish in the Department of Consumer Affairs the Common Interest Development Bureau. The Bureau would, among other things, provide board member education and training resources, investigate and impose fines for Davis-Stirling Act violations, and compel associations to disclose those violations.

SB 948

Harman

Mandatory Board Member Training

Amended May 1; On Senate Floor

Oppose

As of January 1, 2009, would require every member of the board of directors of an association to complete at least one course during his or her first full term of office, and at least one course every three calendar years after becoming a member of the board, relating to decisional and statutory law regarding common interest developments. Approved courses may not be offered at a cost higher than $25 and association reimbursement may not exceed $25.

AB 691

Silva

Certified Common Interest Development Managers

Amended May 1; On Assembly Consent Calendar

Support

Existing law requires a person to meet certain requirements in order to be called a “certified common interest development manager” and imposes other requirements with regard to common interest development managers. Under existing law, the provisions regulating certified common interest development managers become inoperative and are repealed on January 1, 2008. This bill would extend the operation of these provisions to January 1, 2012. The bill would modify the requirements in order to be called a “certified common interest development manager.” The bill would also revise various definitions.

AB 952

Mullin

BMR Owner Assessment Restrictions

Amended May 10; Passed Assembly, In Senate

Oppose

Would prohibit the board of directors from imposing a special assessment, or an increase in the regular assessment of more than 3% on units that are required by law to be provided to low- or moderate-income purchasers without a vote of the owners of those units in accordance with specified procedural requirements.

SB 528

Aanestad

Topic Amended Restrictions in April 26; Board Meetings Passed Senate, In Assembly

Oppose

Would require notices of board meetings to include an agenda for the meeting. Would prohibit the board of directors from considering any subject matter at a meeting unless the subject matter was placed on the agenda when the meeting was announced (emergency meetings are excluded). The bill would also make technical changes.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Amended May 1; On Senate Floor

Support if Amended

This bill would impose disclosure deadlines for the seller of a unit in a common interest development. It would require that all disclosures be made no later than 10 calendar days after the execution of a purchase agreement. Upon the seller’s request, it would also require an association to provide documents to the seller within 7 days. This bill affects both mobilehomes and CIDs.

AB 1173

Keene

Mandatory Submeter Installations

Amended April 24; On Assembly

Watch

This bill, with a certain exception, would require every water purveyor who furnishes water service to any person residing in a multiunit residential structure for which a construction permit has been issued on or after January 1, 2008, to require the installation of submeters as a condition of new water service to that person. The bill would authorize the owner or operator of a multiunit residential structure without water submeters to charge tenants separately for water service as determined by a prescribed allocation formula.

Appropriations

Committee Suspense File

For updates about these bills, please visit the ECHO web site regularly (echo-ca.org). ECHO Journal | July 2007

Budgeting Continued from page 20

Also to be included are four required statements: 1. “A statement as to whether the board of directors of the association has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves therefore.” 2. “A general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain.” 3. “The current deficiency in reserve funding expressed on a per-unit basis…” 4. “Whether the association has any outstanding loans with an original term of more than one year…” Such a reserve study is to be conducted at least every three years, and if it is not underway already for this year, it’s probably too late to start. Realistically, the annual budgeting 22

July 2007 | ECHO Journal

process needs to start in late summer in order to meet the December 1 deadline for budget distribution.

The gathering of information to prepare the next budget should start on the first day of the current fiscal year CPA-Reviewed Financial Statements “A review of the financial statement of the association shall be prepared in accordance with the generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000). A copy of the review of the financial statement shall be distributed within 120 days after the close of each fiscal year.” For calendar year-end associations this review should have been distributed April 30.

Other Disclosures Normally distributed at the same time as the pro forma operating budget because of the similar timing requirements are two more statements: 1. “A statement describing the association’s policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments against its members.” 2. “A summary of the association’s property, general liability, and earthquake and flood and fidelity insurance policies.” The requirements for both of these statements continue to expand and both should be reviewed and considered annually. Mid-Year Problems Notwithstanding your diligent efforts in the budgeting process, things will happen requiring action outside that process—an elevator hydraulic cylinder suddenly fails with $40,000 needed to replace it, or that 50% increase in the earthquake insurance renewal premium. What to do? Assuming the association has met all the requirements for the pro forma operating budget (including reserve study updates),

Section 1366. Levy of assessments; Limitation on Increases; Delinquent Assessments; Interest provides guidance. “Notwithstanding more restrictive limitations placed on the board by the governing documents, the board of directors may not impose a regular assessment that is more than 20% greater than the regular assessment for the association’s preceding fiscal year or impose special assessments which in the aggregate exceed 5% of the budgeted gross expenses of the association for that fiscal year without the approval of owners, …” “…This section does not limit assessment increases necessary for emergency situations.” Section 1365.5(c) provides for the temporary use of reserve funds for operating purposes: “(1) The board of directors shall not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components which the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established. (2) However, the board may authorize the temporary transfer of money from a reserve fund to the association’s general operating fund to meet shortterm cash-flow requirements or other expenses, provided the board has made a written finding, recorded in the board’s minutes, explaining the reasons that the transfer is needed, and describing when and how the money will be repaid to the reserve fund. The transferred funds shall be restored to the reserve fund within one year of the date of the initial transfer, except that the board may, upon making a finding supported by documentation that a temporary delay would be in the best interests of the common interest development, temporarily delay the restoration…” In brief, boards and homeowners have to face up to the fact that significant, unbudgeted expenditures must be recovered through assessments. While the Civil Code provides substantial flexibility, the homeowners will ultimately need to approve the assessment. Regular communications and meetings with the homeowners help make this process easier and more successful.

Joelyn Carr-Fingerle is a CPA with a large homeowner association practice. Tom Hill is the manager of finance for PML Management. Rob Rosenberg is the president of Massingham Management. ECHO Journal | July 2007

Independent Contractor vs Employee? By Robert L. Castle, CPA

hat’s at stake? Big dollars—e.g., employment taxes and withholding, fringe benefits, workers compensation, and various federal and state laws affecting employees. Clear answers are hard to find. The tax rules are a confusing patchwork of: 1. Common law 2. Code-based “statutory employees” 3. Statutory independent contractor rules We must deal with rules set forth by: 1. Internal Revenue Service—Federal 2. Employment Development Department— State 3. Workers Compensation rules as defined by the State of California Employee vs. Independent Contractor is the most contentious tax issue around. The Internal Revenue Service is prevented from issuing regulations and rulings dealing 24

July 2007 | ECHO Journal

with virtually all employment tax status issues except in cases of private letter rulings or technical advice memoranda. Common Law Employees—Principles developed by courts rather than carried in the Code. Employer has right to control and direct the worker regarding the job he is to do and how he is to do it. Employer doesn’t actually have to direct or control; it’s enough if he has the right to do so. By contrast, a worker who is subject to the control and direction by another only as to the result of his work, and not as to the means, is an independent contractor—not an employee. Relationship depends upon all facts and circumstances in each case. Written agreement is helpful in establishing parties’ intent to create a non-employee relationship. However, a contractual designation by itself doesn’t conclusively establish a

worker’s status as employee or independent contractor. Community associations should be very careful. If a person who is performing services covered by the State Contractor’s Licensing Board does not have a license, he is an employee! A holding by the National Labor Relations Board is not binding on the Internal Revenue Service for tax purposes. An employer who is entitled to safe harbor protection under Section 530 may continue treating him as a non-employee even if he would be an employee under common law rules. For this test, twenty factors or elements have been identified as indicating whether sufficient control is present to establish an employee-employer (EE/ER) relationship. These factors are based upon an examination of cases and rulings made in the past

Abbreviations Used in this Article IRC: Internal Revenue Code Treas. Reg.: Treasury Regulation Rev. Rul.: Revenue Ruling C.B.: Cumulative Bulletin regarding the EE/ER relationship. The degree of importance of each factor varies, depending on the occupation and the factual context in which the services are performed. The twenty factors are: 1. Instructions: If a worker is required to comply with instructions concerning when, where, and how he or she is to complete the work, that individual is generally an EE. This factor is considered present if the person for whom the services are performed has the right to require compliance; however, the right does not need to exercised. (Rev. Rul. 68-598, 1968-2 C.B. 464 & Rev. Rul. 66-381, 1966-2 C.B. 449.)

2. Training: Training of the worker, regardless of the method (i.e., on the job, by correspondence, required attendance at meetings), indicates that an individual is expected to perform his/her work in a particular method. This is an indicator that the worker is being controlled and thus, is an EE. (Rev. Rul. 70-630, 1970-2 C.B. 229.) 3. Integration: In applying the integration test, the scope and function of the business must first be determined and then whether the services of the individual workers are merged into it. When the success or continuation of a business depends to a large extent upon the performance of certain services, the workers who perform those services must, of necessity, be subject to a certain amount of control by the owner of the business and therefore is considered to be an EE. (U.S. v. Silk, 331 U.S. 704 [1947], 1947-2 C.B. 167.)

4. Services Rendered Personally: If the services must be rendered personally, presumably the business for whom the services are performed is interested in the methods used to accomplish the work as well as in the results. It is interested in not only the result, but also the worker. This is an indication that the worker is an EE. (Rev. Rul. 55-695, 1955-2 C.B. 410.) 5. Hiring, Supervising and Paying Assistants: If the business for whom the services are performed, hires, supervises and pays assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises and pays the other assistants pursuant to a contract under which that worker agrees to provide materials and labor and under which the Continued on page 26 ECHO Journal | July 2007

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July 2007 | ECHO Journal

Continued from page 25

worker is responsible only for the attainment of a result, this factor indicates an independent contractor status. (Rev. Rul. 63-115, 1963-1 C.B. 178 & Rev. Rul. 55-593, 1955-2 C.B. 610, Rev. Rul. 70-440, 1970 C.B. 610.) 6. Continuing Relationship: A continuing relationship between the worker and the business for whom the services are performed indicates that an EE/ER relationship exists. Continuing services may include work performed at frequently recurring, though somewhat irregular, intervals either on call or whenever the work is available. The relationship can be considered permanent even if the services are part-time, seasonal, or of short duration (U.S. v. Silk). 7. Set Hours of Work: The establishment of set hours of work by the business for whom the services are performed is a factor indicating control and therefore an EE/ER relationship exists. This condition bars the worker from being master of his/her own time, which is the right of the independent

contractor. (Rev. Rul. 73-591, 1973-2 C.B. 337.) 8. Full Time Required: If a worker must devote substantially full time to a business, the owners of that business have control over the amount of time the worker spends working and therefore restricts the worker from doing other gainful work. An IC, on the other hand, is free to work when and for whom he/she chooses. Full time does not necessarily mean an 8-hour day or a 5- or 6day week. Its meaning may vary with the intent of the parties involved, the nature of the occupation and the customs in the locality. Full time services may be required even though not specified in writing or orally. For example, to produce a required minimum volume of business may compel a person to devote all of his/her working time to that business. (Rev. Rul. 56-694, 1956-2. C.B. 694.) 9. Doing Work on Employer’s Premises: If the work is done on the employer’s premises, that factor suggests control of the worker, especially if the work could be done elsewhere. A person working in the employer’s place of business is physically within the employer’s direction and supervision. The

use of desk space and telephone services provided by the business places the worker within the direction and supervision of that business. Work done off the premises indicates some freedom from control. However, this fact by itself does not create an independent contractor. Control over the place of work is

blah blah blah blah blah blah blah blah blah blah blah blah blah blah blah blah indicated when the business for whom the services are performed has the right to compel the worker to travel a designated route, to canvas a territory within a certain time, or to work at specific places as required. (Rev. Rul. 56-660, 1956-2 C.B. 693 & Rev. Rul. 56694, 1956-2 C.B. 694.)

10. Order of Services: An EE/ER relationship exists if the worker is not free to follow his/her own pattern of work, but must perform the services in an order specified by the business for whom the services are performed. Often, because of the nature of the work, the business either does not set the order or sets it infrequently. This does not mean that there is an independent contractor relationship because, as long as the business has the right to control, there is an employee/employer relationship. Such a right to direct the worker supersedes the preferences over his/her routine and plans. (Rev. Rul. 56-694, 1956-2 C.B. 694.) 11. Oral or Written Reports: If a worker is required to submit oral or written reports to the business for whom the services are performed, this indicates that the worker is being compelled to account for his/her actions. This shows a desire to control and thus, an EE/ER relationship. (Rev. Rul. 70309, 1970-1 C.B. 199 & Rev. Rul. 68-248, 1968-1 C.B. 431.) Continued on page 33 ECHO Journal | July 2007

Calendar of Events

Participate in Resource Panels Thursday, July 5 North Bay Resource Panel 9:30 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael Friday July 6 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek Monday, July 9 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant, Oakland Tuesday, July 10 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, July 11 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose

Wednesday, July 18 Wine Country Resource Panel 11:45 a.m. Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa

Wednesday, August 15 Wine Country Resource Panel 11:45 a.m. Lanahan & Reilley 600 Bicentennial Way, Suite 300, Santa Rosa

Thursday, July 19 San Francisco Luncheon 11:45 a.m. St. Francis Yacht Club San Francisco

Thursday, September 6 North Bay Resource Panel 9:30 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

Wednesday, August 1 12:00 Noon Maintenance Resource Panel ECHO Office 1602 The Alameda, Ste. 101, San Jose

Friday, September 7 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

Friday, August 3 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

Monday, September 10 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant, Oakland

Wednesday, September 12 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose Wednesday, September 19 Wine Country Resource Panel 11:45 a.m. Lanahan & Reilley 600 Bicentennial Way, Suite 300, Santa Rosa Thursday, September 20 San Francisco Luncheon 11:45 a.m. St. Francis Yacht Club San Francisco Saturday, September 22 Central Coast Fall Seminar 8:00 to 1:00 p.m. Seacliff Inn, Aptos

Tuesday, September 11 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Regularly Scheduled Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 28

July 2007 | ECHO Journal

Meeting

Location

First Wednesday, Even Months First Thursday, Odd Months First Friday, Monthly Second Monday, Odd Months Second Tuesday, Odd Months Second Wednesday, Odd Months Third Wednesday, Monthly March, May, August, October

ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Angius & Terry, Walnut Creek Francesco’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Il Fornaio Restaurant, San Jose Lanahan & Reilley, Santa Rosa Varies

Directory

UPDATES Updates for the business and professional members listed in the 2005 ECHO Directory of Businesses and Professionals.

Additions County Bank 224 Airport Parkway, Ste. 100 San Jose, CA 95110 Contact: Kimberly Payne Tel: 408-200-8470 Fax: 408-200-8480 Email: Kimberly.payne@countybank.com Green Leaf Mapping & Control Systems 10295 Byrne Avenue Cupertino, CA 95014 Contact: David McLeroy Tel: 408-257-2221 Fax: 408-257-2271 www.greenleaf.com Email: dave@greenleaf.com

Water conservation and quality control in the landscape.

Changes Arborwell 2337 American Avenue Hayward, CA 94545 Tel. & Fax remain the same

ECHO Journal | July 2007

ECHO Annual Seminar

July 2007 | ECHO Journal

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'OV T #ODE e ECHO Journal | July 2007

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July 2007 | ECHO Journal

Disclosure Checklist Courtesy of Berding & Weil, San Ramon, California

Contractor vs Employee Continued from page 27

12. Payment by Hour, Week, Month: These methods of payment generally point to an EE/ER relationship, provided that the method of payment is not just a convenient way of paying a lump sum agreed upon as a cost of the job. Payment made by the job or on a straight commission generally indicates that the worker is an IC. (Rev. Rul. 74-389, 1974-2 C.B. 330.) 13. Payment of Business and/or Traveling Expenses: When these expenses are paid by the business for whom the services are performed, the worker is generally considered to be an EE since the ER must retain the right to regulate and direct the worker’s business activities in order to properly control expenses. Conversely, a worker who is paid on a job basis and who has to take care of all incidental expense is generally an independent contractor. Since he is accountable only to himself for his expenses, he is free to work according to his own methods and means. (Rev. Rul. 55-144, 1955-1 C.B. 483.) 14. Furnishing Tools and Materials: The fact that the business for whom the services are performed furnishes the significant tools, materials, and other equipment shows the existence of an EE/ER relationship. Such a business can determine which tools the worker is to use and, to some extent, in what order they are to be used. However, in some occupation (i.e., construction), the workers customarily provide their own hand tools. This does not indicate an independent contractor status. (Rev. Rul. 71-524, 1971-2 C.B. 346.) 15. Significant Investment: If the worker has made no significant investment in facilities and/or equipment used in performing services for another, there is a dependency on the business for whom the services are performed and, therefore, an EE/ER relationship exists. In order for an investment to be considered to be significant, it must be “real,” “essential,” and “adequate.” In order to be “real,” the worker must have legal ownership and true equity in the property. An investment in equipment or premises not required to perform the services in question is not “essential.” If the worker must rely appreciably on the facilities of others to perform the required services, his/her invest-

Continued on page 37 ECHO Journal | July 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, email addresses, and a short description are included. This directory is an invaluable tool for locating service providers that work with homeowner association.

Condominium Bluebook 2007 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.

This is a valuable guide to all aspects of community association living designed as a practical problem solving guide. Written by two long-time 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.

Home and Condo Defects— A Consumer Guide to Faulty $10.00 Construction

Finding the Key to Your Castle—Revised 2005 $12.50

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.

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 $10.00 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.

Dispute Resolution in Homeowner Associations $20.00 This publication has been completely revised to reflect new requirements resulting from passage of SB 137.

Publications to answer your questions about common interest developments Publication Order Form

Board Memberâ&#x20AC;&#x2122;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 CALIFORNIA SALES TAX (Add 8.25%) TOTAL AMOUNT

Board Memberâ&#x20AC;&#x2122;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 • Representation of homeowners/insurance/property rights • Maintaining association books and records • Handling emergencies • Assuring human rights and accommodations

Duties and Authority of HOA Boards The operation of a homeowner association is a complex task that requires a great deal of knowledge and information. Being a board member is not a casual undertaking. Some basic responsibilities for most boards are listed below, but it should be noted that in practice the issues listed here can be much more complex than they appear. In addition, the laws of your locality and the specific facts and circumstances of your board’s situation will have an impact upon what are the board’s duties and how they should be met. Here are the some of the most important board duties: • Compliance with governing documents and applicable law • Maintenance of common areas and building exteriors • Preparation and tracking of budgets and reserves • Assessment collection • Following the Business Judgment Rule • Adoption and enforcement of rules • Handling annual elections, board meetings and appointment of officers 36

July 2007 | ECHO Journal

Budgeting for Community Associations Under the California Civil Code, community associations must undertake certain disclosures to their membership about the association’s budget. You will find all those disclosures listed on the 2007 Disclosure List on page 31 in this issue. However the civil code does not address the process by which an association should complete its effort in order to be able to publish their required budgetary disclosures. At times community associations get caught up in the disclosures, rather than having the disclosures as only a part of a solid budgeting process. The budgeting process should be viewed as a marathon, and not a sprint. “Knowledge is power,” and for community associations it is no different. The more knowledge and information gathered prior to starting the budgeting process,

the easier and more accurate the process will be. Kids in Condos Every board of directors, at one time or another, has had to deal with either teenagers or younger children who break the rules. The board must find ways to reduce the liability from injury or loss of property due to children’s violations. Boards have complained of children who painted graffiti on walls and doors, pulled the fire alarm to see how many people would panic, thrown a lit cigarette into a garbage dumpster and scratched residents’ cars while riding a skate board or bike in an area restricted to them for play. The question is “Does the board or manager have an obligation to discipline?” Of course not! However, if a child does something that could result in personal injury or damage to the common areas, some form of action must be in place. Parents must be informed of their children’s actions. Children must be taught by their parents to respect the safety of other people as well as the property. They must be informed of the condominium rules within the common areas where they continue to live and play. The rules and regulations along with the condominium bylaws and declarations do give the board authority to require that parents control their children. These documents should also assign some obligations to the parents for acts of their children when violations occur within the condominium property. All board members should review their condominium policies to determine that

the responsibilities and obligations of parents are clearly laid out. If your policies are not clear in this matter, you may want to consider amending or modifying your documents.

New ECHO Publications Revised editions of two of ECHO’s most popular publications have just been released and may be ordered from the ECHO Bookstore. Board Members Guide to Management Interviews has been updated by former manager Geri Kennedy to reflect changes such as the new designation “Certified Common Interest Development Manager.” Attorney Tom Fier has completely revised Dispute Resolution in Homeowner Associations to explain Internal Dispute Resolution and dispute resolution in assessment collection. Upcoming ECHO Programs Thursday, July 19 San Francisco Luncheon 11:45 a.m.to 2:00 p.m. Ask An Attorney Glenn Youngling, Esq. St. Francis Yacht Club San Francisco Saturday, September 22 Central Coast Fall Seminar 8:00 a.m. to 1:00 p.m. Seacliff Inn, Aptos

Contractor vs Employee Continued from page 33

ment is not considered “adequate.” Ownership of equipment or premises points toward an independent contractor status. However, if the owner (worker), as part of the agreement, surrenders dominion over the equipment or premises and the right to decide how they shall be used by renting it to the business, “ownership” loses its significance. (Rev. Rul. 71-524, 1971-2 C.B. 346.) 16. Realization of Profit or Loss: A worker who can realize a profit or suffer a loss because of his/her efforts is generally an IC,

Employee vs. independent contractor is the most contentious tax issue around but a worker who cannot is an EE. This implies the use of capital by the individual in an independent contractor status. Thus, the opportunity for higher earnings, such as from pay on a piecework basis or the possibility of gain or loss from a commission arrangement is not considered profit or loss. Whether a profit is realized or a loss suffered generally depends upon management decisions. That is, the one responsible can use his/her own ingenuity, initiative and judgment in conducting his/her business. (Rev. Rul. 70-309, 1970-1 C.B. 199.) 17. Working for More Than One Firm At a Time: Persons who work for a number of individuals or firms at the same time are generally ICs because they are usually free from control by any of the individuals or firms. It is possible, however, for a person to work for a number of businesses at the same time and still be an employee of each of them. (Rev. Rul. 70-572, 1970-2 C.B. 221.) 18. Making Services Available to the Public: The fact that a worker makes his/her services available to the general public on a regular and consistent basis indicates an IC relationship. An individual may hold his/her services out to the public in a number of ways: by hanging out a “shingle” in front of his home or business; by holding a business license; by being listed in business or telephone directories, or by advertising in the ECHO Journal | July 2007

Honor Roll

About

ECHO Honors Volunteers 2007 Volunteer of the Year Jeffrey Barnett ECHO Resource Panels Accountant Panel William Erlanger, CPA, 415-981-9350 Central Coast Panel Darrel Louis, 831-212-0300 East Bay Panel Scott Burke, 408-536-0420 Legal Panel Mark Wleklinski, Esq., 925-691-1191 Maintenance Panel Mike Muilenburg, 408-996-3897 North Bay Panel Diane Kay, CCAM, 415-846-7579 Stephany Charles, CCAM 415-458-3537 San Francisco Panel Jeff Saarman, 415-749-2700 South Bay Panel Ann Philipp, 408-536-0420 Wine Country Panel Ron Hamann, 707-584-4788

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. 38

July 2007 | ECHO Journal

2007 Annual Seminar Speakers Adrian Adams, Esq. John Allanson Dan Angius, Esq. Frank Arms Jeffrey Barnett, Esq. Tyler Berding, Esq. Sandra Bonato, Esq. Timothy Cline Karen Conlon, CCAM Burt Dean Bill Erlanger, CPA Tom Fier, Esq. John Gachina Michael Gartzke, CPA John Garvic, Esq. Beth Grimm, Esq. Geri Kennedy, CCAM Karl Lofthouse Kerry Mazzoni Hermann Novak Dan Rottinghaus, Esq. Steven Weil, Esq.

SF Luncheon Speakers John Allanson Tyler P. Berding, Esq. Ronald Block, PhD. Doug Christison Karen Conlon, CCAM Rolf Crocker Ross Feinberg, Esq. David Feingold, Esq. Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Beth Grimm, Esq. Brian Hebert, Esq. Roy Helsing Julia Lave Johnston Garth Leone

Nico March Larry Russell, Esq. Steve Saarman Nathaniel Sterling, Esq. Glenn Youngling, Esq.

Recent ECHO Journal Contributing Authors February 2007 Tyler P. Berding, Esq. Michael Gartzke, CPA Beth A. Grimm, Esq. Geri Kennedy, CCAM Gene Simpson Steven S. Weil, Esq. March 2007 Jeffrey A. Barnett, Esq. Tyler P. Berding, Esq. Robert Booty Michael Gartzke, CPA April 2007 Jeffrey Barnett, Esq. Sandra L. Gottlieb, Esq. Hermann Novak Richard Tippett May 2007 Julie Adamen Tyler P. Berding, Esq. Graham Oliver Dick Tippett June 2007 Adrian Adams, Esq. Tyler P. Berding, Esq. Tom Douma Beth A. Grimm, Esq. David L. Hughes

ECHO

What is ECHO? ECHO (Executive Council of Homeowners) is a California non-profit 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 1,525 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 1,525 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 $125 Businesses & Professionals

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 or visit the ECHO web site (echo-ca.org) to obtain an application form and for more information.

newspaper or trade journals. (Rev. Rul. 56660, 1956-2 C.B. 693.) 19. Right to Discharge: The right to discharge is a factor indicating that the worker is an EE and the person possessing the right is an ER. An IC, on the other hand, cannot be fired so long as he/she produces results that meet the contractual specifications. What it comes down to is that if the work done by an individual is substandard and the business fires him/her, there is an EE/ER relationship. If the business can sue the worker, there is an independent contractor relationship. (Rev. Rul. 75-41, 1975-1 C.B. 323.) 20. Right to Quit: If the worker has the right to end his/her relationship with the business for whom services are performed at any time without incurring liability, that factor indicates an EE/ER relationship exists. (Rev. Rul. 70-309, 1970-1 C.B. 199.) It is important to note that none of these factors of control needs to be exercised by the employer as long as he/she maintains the right to them, there is an employer employee relationship. No one of these factors is the deciding factor by itself. They are looked at as a whole and weight is given to each factor depending upon the industry and the work involved. 21. Industry Practice or Custom in the Area of the Parties. 22. The Intent of the Parties. 23. Whether Written, Signed Independent Contractor Agreements were Executed. 24. Whether Employee-Type Benefits were Provided. The fact that workerâ&#x20AC;&#x2122;s compensation benefits are provided DOES NOT indicates an employer-employee relationship where no other employee-type benefits are provided. With regard to employee-type benefits Internal Revenue Service stated in Letter Ruling 1999 23014 that the fact that a worker is excluded from a benefits plan because he is not considered an employee by the employer is a relevant, although not conclusive, factor in determining the status of a worker as an employee or independent contractor. Use form SS-8 if you need to ask Internal Revenue Service for a determination.

Bob Castle is the principal at the accounting firm of Robert L. Castle, Certified Public Accountant, in Oakland, CA. He is a member of the ECHO Accountants Resource Panel. ECHO Journal | July 2007

ECHO Announcement

Nominating Committee Seeks Candidates for ECHO Board of Directors

he Nominating Committee for the ECHO Board of Directors is seeking names of persons who are interested in being considered as candidates for positions on the ECHO Board of Directors. Four positions on the board will be up for election at the ECHO Annual Meeting that will be held in October. These positions are for threeyear terms. Current directors whose terms expire in 2007 are John Garvic, David Levy, Karl Lofthouse and Wanden Treanor. Board members are expected to attend all of approximately six three-hour board meetings held each year, generally at the ECHO Office in San Jose. Each board member also serves on one or more committees that hold regular meetings throughout the year. These two activities involve a commitment of four to six hours per month plus travel time. In addition, members are expected to attend the Annual Seminar, Annual Meeting and a two-day board retreat each November. Board members receive no reimbursement for these activities. Nominees will also be expected to have been recent active participants in ECHO activities and to have thorough familiarity with the organization and the CID industry. Persons interested in being considered for nomination should obtain and complete a nomination and qualifications form, available by request from the ECHO office. Every potential candidate, including incumbents, must submit a full form. All forms should be submitted to the ECHO office no later than July 15, 2006, to be considered by the nominating committee. Those requesting nomination may be requested to interview with the nominating committee. The committee will meet in August to prepare recommendations for board consideration.

July 2007 | ECHO Journal

Visit ECHO online at www.echo-ca.org for the most current news and information on homeowner associations

ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association

Your Ad Can Be Here You read this, didn't you? Thousands of officers and directors of homeowner association boards will also read your ad each month in the ECHO Marketplace. Your ad can be here for as little as $60 per month. Marketplace Ads must run a minimum of six consecutive issues. To place your ad in the ECHO Marketplace and for more information about other advertising opportunities, please call 408-297-3246 or visit the ECHO web site at echo-ca.org/media_kit.php Reserve Studies and Mold Sampling Foundation and Drainage Analysis

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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. ECHO Journal | July 2007

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Serving Northern California since 1993

San Francisco Luncheon Thursday, July 19 St. Francis Yacht Club

Ask An Attorney Speaker:

Glenn Youngling, Esq. Luncheon Price: $55 Advance Reservations Required for this Event

Yes, reserve _____ spaces for the ECHO San Francisco Luncheon. 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

4IMES ARE CHANGING

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