Journal_08_11

November 2008

A Journal for Community Association Leaders

echo-ca.org

Parking Wars!

ALSO INSIDE THIS ISSUE:

• Court Whacks Directors • Doing It Right • Avoiding Reserve Planning Mistakes

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Contents Court Whacks Directors page 18

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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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Parking Wars!

It is no secret that parking enforcement is a sensitive issue for associations. Where authorized in the governing documents, associations can regulate parking on private roads within the development. An association may also have authority to regulate parking on public streets. The article discusses this essential difference.

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Doing It Right Learn how one board managed to do the right things to prevail in an expensive lawsuit brought by a dissident member. The author shows that, if a board’s actions are in compliance with governing documents, and in the best interests of the association, courts should defer to the board’s authority.

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Court Whacks Directors This article analyzes a recent Appeal Court decision on an association’s duty to maintain common area that is a “must know” for all condominium directors and managers. This case confirms that, while boards have the right to decide how maintenance is performed, they cannot use that right to do nothing.

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Avoiding Reserve Planning Mistakes Reserve planning can be simple, if you know what you are trying to accomplish. Avoiding reserve planning mistakes helps to keep an association on the path to success. This article will help guide you to a good reserve study.

Departments 23 News from ECHO 34 ECHO Bookstore 36 Calendar of Events

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38 ECHO Volunteers 38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

On the Cover Parking Wars!

Page 6 4

November 2008 | ECHO Journal

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

Copyright 2008 Executive Council of Homeowners, Inc. All rights reserved.

Reproduction, except by written permission of ECHO, is prohibited.

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 John Garvic Diane Rossi Richard Tippett Steven Weil

Jerry L. Bowles Robert Rosenberg Kurtis Shenefiel 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.

2008 Legislation at a Glimpse Final Session Summary Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Amended.

Passed by Legislature.

Vetoed

Support

Until January 1, 2014, would 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, and would be paid for by a biennial fee on associations.

Authority to enforce CID law has been removed.

AB 952

Mullin

Mandatory Payment Plans

Amended.

Passed by Legislature.

Vetoed

Oppose

Would compel associations to provide payment plans to any owner who can provide documentation of a need for such a plan. The plan must be granted within 45 days of the request, provided the need is justified. An association must suspend lien enforcement proceedings against the delinquent owner, and may not impose a fee for the administration of the payment plan.

AB 1892

Smyth

Solar Energy Equipment Restrictions

Signed

Neutral

This bill would render void and unenforceable any restriction in the governing documents of an association that effectively prohibits or restricts the installation or use of a solar energy system.

AB 1921

Saldana

Statutory Revision of CID Law

Withdrawn for further study. To be introduced later.

Watch

This bill would renumber, consolidate, make minor changes to, and remove discrepancies in those sections of California law that govern common interest developments. If passed, the bill would replace the existing Davis-Stirling Act.

AB 2180

Lieu

Solar Equipment Approvals

Amended.

Passed by Legislature.

Signed

Support

This bill would compel associations to provide written approval or denial of an application to install a solar energy system. The approval or denial must be given within 60 days of the receipt of the application, or the application is deemed approved, unless the delay is the result of a reasonable request for additional information.

AB 2259

Mullin

Rental Restrictions

Amended.

Passed by Legislature.

Vetoed

Oppose

This bill would prevent common interest developments from imposing rental or lease restrictions upon an owner, unless that owner expressly consents to the impairment of that right. Would require owners to provide to the association verification of the date that the title was acquired.

AB 2806

Karnette

Board Member Education

Amended.

Passed by Legislature.

Vetoed

Support

Will require every member of the board serving at least 12 consecutive months, and each candidate for the board, to provide a statement indicating whether or not they have completed an educational course on the law of common interest developments. This information must be included in the ballot material for a board member election.

AB 2846

Feuer

Dispute Resolution Procedures

Amended.

Passed by Legislature.

Signed

Support

This bill would permit homeowners who are involved in a dispute over assessments with their association to pay under protest and commence an action in small claims court, provided the amount of the dispute does not exceed the court’s jurisdiction.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Amended.

Passed by Legislature.

Vetoed

Support

This bill would impose disclosure deadlines for the seller of a unit in a common interest development. Unless the parties agree otherwise in writing, it would require that all disclosures be made no later than 20 calendar days after the execution of a purchase agreement or the opening of escrow, whichever is later. An association must continue to provide documents to the seller within 10 days. The bill affects both mobile home and CID owners.

SB 1511

Ducheny

Super Liens

Amended.

Passed by Legislature.

Signed

Support

Would allow an association to request that the mortgagee of a property provide the name and address of anyone who purchases that property at a foreclosure sale. The mortgagee or trustee must provide the information within 15 business days.

ECHO Journal | November 2008

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November 2008 | ECHO Journal

By Andrea L. O’Toole, Esq.

Parking Wars!

Association Parking Regulation on Private and Public Streets is no secret that parking enforcement is a senItsitive issue for homeowner associations and their boards; and few issues can compete for the title of “most aggravating” amongst association members. An association’s most potent remedy—towing—can lead to frustration, anger and lawsuits. Take, for example, last year’s case where a jury awarded $108,000 to a woman who was assaulted by a tow truck operator after the operator attempted to tow a vehicle from the complex and the two got into a nasty fight.1 That was obviously an extreme case, and fortunately parking

enforcement and towing do not usually result in an assault. There can, however, be disagreement over what restrictions should be implemented, how they should be enforced, and whether the association has the authority to enforce them.

Most homeowner associations have CC&Rs and rules that restrict where its members may park, what types of vehicles are permitted to be parked within the development and for how long. Rules generally differ depending on 1 Brenda Alva v. Beaumont Company, Orange Superior 05CC06287, April 25, 2007.

ECHO Journal | November 2008

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whether it is a condominium project or single-family planned development,2 whether the area is urban or rural, and whether parking is abundant or in demand. Although associations typically have the authority to regulate the private streets within its development, one particularly thorny issue is how and whether an association can enforce parking restrictions on public streets located within the geographic boundaries of a common interest development (CID).

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An association typically has the authority to regulate the private streets within its development.

Association Regulation of Private Streets Some developments consist of private streets that are not open for use by the public and are owned or maintained by the association. Generally, under state law and the governing documents, the association may regulate parking as to both members and nonmembers in these developments. Typical regulations might restrict the number of allowable vehicles; prohibit or limit commercial or recreational vehicles; and require that vehicles be parked in garages. The association will generally have the authority to enforce those parking restrictions by levying fines, suspending member rights, and by towing.

Association Regulation of Public Streets Although an association may have authority to enforce parking rules on its private streets, its authority to adopt and enforce internal parking restrictions applicable to public streets within the development is less clear. Public streets, which are those publicly maintained and open for use by the public, are generally the responsibilty of the government; and, an association may not interfere with that regulation, except to the extent authorized by law.

2 For purposes of this article, “development� refers to condominium projects and single-family home developments.

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Currently, no California statute expressly authorizes (or prohibits) an association from regulating parking on public streets located within the development’s geographic boundaries; but, an association has the power to enforce its recorded CC&Rs.3 Owners, by purchasing property subject to such CC&Rs, relinquish certain individual property rights they might otherwise have and accept the risk that an association’s discretionary power to enforce restrictions or create new ones may be used in a way that harms the individual owner but benefits the development as a whole.4 Further, associations have a compelling interest in preserving property values through enforcement of the governing documents. How terms are defined in those documents may make a difference in providing an association the authority to regulate the public streets; however, an absence of language specifically granting an association authority over the public streets should not be construed to mean that no authority exists. The governing documents must be considered as a whole and consideration given to the intent of the drafters of the documents.

In addition to the absence of a statute authorizing such regulation, no published California case directly addresses the issue either. At least two out-of-state cases, however, have addressed the issue of a homeowner association regulating the public streets in its development.5 Both of those cases dealt with the prohibition on parking of commercial vehicles in the development, and the courts concluded that the associations had the power to control its members’ use of the public streets within the development. Although these cases do not have precedent in California courts, they perhaps lend some guidance on how a court here might rule.

But, because the law in this area is not settled, there is a risk that such enforcement may later be found invalid and the rules unenforceable.

Enforcement by Towing As with any use restriction, the real challenge is in enforcement. To make parking enforcement less challenging, the association should adopt fair and reasonable parking 3 Civil Code section 1354 4 Nahrstedt v. Lakeside Village Condo. Assoc., Inc. (1994) 8 Cal.4th 361.

5 Maryland Estates Homeowners’ Association v. Puckett (1996) 936 S.W.2d 218 and Verna v. The Links at Valleybrook Neighborhood Association (2004) 371 N.J.Super. 77.

ECHO Journal | November 2008

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restrictions that are consistent with its governing documents, ensure that the members are aware of the restrictions and apply and enforce those restrictions in a fair and reasonable manner. Where applicable and authorized, an association can tow the unauthorized vehicle; however, towing requires compliance with Vehicle Code section 22658, which provides detailed procedures that must be followed when towing from private property. In most cases, an association must do the following three things in order for tows to be procedurally proper under section 22658: 1. Provide vehicle owners with prior notice of their inability to park on the property; 2. Provide proper written authorization for the tow; and 3. Comply with the statutory reporting requirements.

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Notice—the notice requirement can be met either by posting signs at all entrances to the development or by issuing a parking violation notice at least 96 hours before towing the vehicle. The statute provides specific size and content requirements for the signs that must be met where that form of notice is used by the association.

Authorization—valid authorization for the tow can be achieved by a general towing authorization or by a specific towing authorization. A specific authorization is a specific

request by the association to remove an unauthorized vehicle from the development.

It further verifies to the towing operator that the person requesting the tow has the authority to have the particular vehicle removed. On the other hand, a general authorization permits a towing operator to monitor the development and tow vehicles without having to obtain a specific authorization from the association. However, the circumstances under which a tow operator may remove a vehicle under a general authorization are extremely limited, and most tows will occur under a specific authorization.

Reporting—certain reporting requirements to the owner and to the local traffic law enforcement agency are also required.

The association must notify the local traffic law enforcement agency by telephone within one hour after authorizing the tow. The association must further notify the vehicle owner of the basis for the tow but is only required to do so upon the vehicle owner’s request.

The towing statute includes many other details that could not be covered in this article including many requirements that apply only to the towing companies; e.g., how to handle tows interrupted by vehicle owners, permitted towing charges, proper money handling, requirements for vehicle storage facilities, and standards for releasing vehicle to their owners.

Conclusion Associations have the authority to regulate parking on private roads within the development, where authorized to do so in the governing documents. An association may also have the authority to regulate parking where the streets are public in nature. In either case, a review of the governing documents is necessary in making such a determination, and, in the latter, the decision may ultimately lay with the California courts. The association has available to it the important and powerful remedy to tow unauthorized vehicles from the development. The towing statutes are procedurally complex; but they are not insurmountable if the association takes the time to understand and follow the statutory requirements, create reasonable and clear internal policies, and apply those policies in a fair and consistent manner.

Andrea O’Toole is an attorney at Berding & Weil, Alamo. Her practice is concentrated on association transactional affairs. This article first appeared in the California Association of Community Managers 2008 Summer Law Journal.

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By Tom Fier, Esq., and Kerrington Fier

How One Association Did It Right!

T

he recent case of Harvey v. The Landing HOA (2008) 162 Cal.App.4th 809 is instructive of how one California homeowner association did it right. The board’s actions were upheld by the Court of Appeal.

Case Facts The Landing is a 92-unit four-story condominium building in Coronado, California.

On the fourth floor, each of the 23 units has attic space adjacent to its unit that is designated common area on the condominium plan.

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November 2008 | ECHO Journal

For years, several fourth floor homeowners used the attic space for storage. In 2002, a homeowner complained to the board about this use. The board then inspected the fourth floor units and discovered that 18 of the 23 units were in fact using the common area attic space for storage. One fourth floor owner had even converted a portion of the common area attic into habitable space.

What the Board Did Right Conducted an Investigation Harvey (later the Plaintiff), who was president of the board, and two members of The Landing Architectural Review Committee

(ARC) wrote a memorandum detailing the results of the inspection.

Used Its Architectural Review Committee The ARC memo revealed that some homeowners had been using the attic space for over 15 years. Some had improved the space by adding wallboard, lights, floors, carpeting, closets, shelves and doors.

The CC&Rs, Article IV, section 12, stated: The Board shall have the right to allow an Owner to exclusively use portions of the otherwise non-exclusive Common Area on nominal in area and adjacent to the Owner’s Exclusive Use Areas or Living Unit, and, provided further, that such

use does not unreasonably interfere with any other Owner’s use or enjoyment of the Project.

The ARC memo found that the use of the attic common area by fourth floor homeowners did not violate the applicable section of the CC&Rs and that the use was “nominal.”

The ARC recommended that The Landing enter into a license agreement with each of the fourth floor homeowners using the attic space. The ARC also recommended a onetime assessment of $350 to cover the costs and fees associated with the drafting and recording of the license agreement.

Harvey decided to meet with legal counsel. Legal counsel concluded that The Landing lacked authority to grant the homeowners the right to use the common area, because using an attic for storage was not a “nominal” use. Based on legal counsel’s opinion, Harvey requested that the board issue notices of violation to the 18 fourth floor homeowners who were using the attic common area. The board refused, and Harvey resigned as president but remained on the board.

The City of Coronado became involved.

After it received a complaint, it issued a

notice of violation under the California Building Code and served board members, including Harvey, with two building inspection notices from the City. The inspectors said the attic space could be used for storage but not living space.

Cooperated With the City At its next meeting, the board voted 4 to 1 in support of a motion finding a violation of the CC&Rs and the building codes by the fourth floor homeowners using the attic space. The board then decided that 120 square feet or less of the attic space common area could be used for “rough storage” ECHO Journal | November 2008

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(boxes, Christmas decorations, luggage, etc.). Eighteen homeowners were using between 50 and 288 square feet of the attic spaces. The board agreed to hold a workshop for homeowners to discuss restoration of the units that had violations.

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Helped Homeowners Abide by the CC&Rs and the Law Fourth floor units averaged 2,250 square feet. The Landing had approximately 265,479 square feet, including 80,000 square feet of common area. The total area approved for attic storage for all fourth floor units was 2,760 square feet (23 x 120) or a little over one percent of the total building area, or approximately 3.5 percent of the total common area.

The board issued notices of violation to the fourth floor homeowners, telling them of the violation, directing them to restore the attic spaces to their original condition. The owners could make a formal request to the board for permission to use up to 120 square feet of the attic space for rough storage. In response, several homeowners retained legal counsel, who claimed those owners had obtained irrevocable rights to use the attic space that could not be disturbed by the board.

To avoid litigation, the board prepared a standard “permission form.” The form stated that the homeowner could use no more than 120 square feet of common area and that the attic space was subject to the governing documents and all laws. The board then reserved the right to terminate its approval of such use “for cause.”

Tried to Avoid Litigation by Compromise The board then consulted its insurance broker who determined that the use of the attic space did not impact the association’s insurance. The board also required each fourth floor owner who used the attic space to obtain liability insurance of one million dollars.

Thought of All the Possibilities and Consulted an Expert In 2004, the City conducted an inspection and found full compliance. In late 2005, the City conducted another inspection and found some minor noncompliance items.

In 2005, the board amended the Rules and Regulations of The Landing to state that residents could not store property in the common area other that in the garage storage lockers, in cabinets installed in the pillars of entry patios, or in the attics of the fourth

floor living units. The rule change was approved by a 56 to 7 vote of homeowners.

Conducted a Vote of Homeowners In 2006, the board transferred to fourth floor homeowners the “exclusive right to use the common area attic space in that owner’s unit,” as allowed under Civil Code section 1363.07. The board’s resolution stated: • All fourth floor common area attic space is accessible only from the inside of a condominium; • All fourth floor common area attic space is freely accessible only by the owner of the unit in which it is located; • All fourth floor common area attic space is inaccessible to owners other than the owner of the unit in which it is located; • All fourth floor common area attic space is of no general use to the membership at large, but only to the owner of the unit in which it is located; • The maintenance and management of fourth floor common area attic space is a burden to the association.

• Because such space is located inside of the condominium, it is generally inaccessible

to the membership, and is of little use or benefit to the association.

Complied With Civil Code 1363.07 and Did Not Exceed Its Scope of Authority What happened next? Harvey filed a lawsuit for trespass, breach of fiduciary duty and injunctive relief. Defendants moved for summary judgment. At that point, The Landing stated, as a matter of law, that it was correct in its actions and had done nothing wrong.

The Court agreed and found that the CC&Rs granted the board authority and discretion to determine whether to allow an owner to exclusively use portions of the common area and this necessarily included determining which portions were “nominal” in area. The Court found that the board acted within its scope of authority, conducted a reasonable investigation, and acted in good faith with regard for the best interests of the community association and its members.

The Court also found that the directors who voted in favor of allowing limited use of the attic space common area had no conflict of interest with the association merely because they owned units on the fourth

floor, and that the vote of the homeowners overcame any potential conflict.

Harvey’s trespass claim failed because the attic space was being used by fourth floor homeowners with the board’s express permission. The Court then awarded The Landing attorney fees of $116,794 and $10,220 for costs.

Important Court Reasoning The Court held that the rule of judicial deference applied to the board’s decision allowing fourth floor homeowners to use up to 120 square feet of inaccessible attic space common area for rough storage.

In making its ruling, the Court relied on Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal.4th 249 and Haley v. Casa Del Rey Homeowners Assn.

(2007) 153 Cal.App.4th 863. The rule of judicial deference is as follows: there must be a duly constituted board, in good faith, and with regard for the best interests of the community association and its members, that exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and ECHO Journal | November 2008

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repair a development’s common area. If this exists, then the court should defer to the board’s authority and presumed expertise.

The Lamden court adopted a rule of judicial deference to community association boards’ decision-making that affords homeowners, community associations, courts and advocates a clear standard for judicial review of discretionary economic decisions by community association boards, mandating a degree of deference to the board’s business judgments sufficient to discourage meritless litigation. (Lamden dealt with a board’s decision not to fumigate plaintiff’s unit for termite infestation.)

The Court held that the rule of judicial deference applied to the board’s decision...

The Haley case expanded Lamden’s rule of judicial deference from “ordinary to community board decision-making not involving maintenance decisions.” As long as the board undertakes a reasonable investigation and acts in the best interests of the association, its decisions will be defended by the courts.

Reasons the Court Deferred to the Board’s Authority The Court deferred to the board’s authority because the board did all of the following things: • Conducted an investigation of fourth floor attic use; • Met with city officials to ensure compliance with building codes; • Consulted its insurance broker; • Conducted workshops for homeowners to discuss compliance; • Had homeowners sign a “permission form;” • Took steps to correct minor noncompliance items discovered by the city;

• Called for a special election to determine whether the board should permit homeowners to use the attic space; and • Passed a resolution transferring to fourth floor homeowners the exclusive right to use the common area attic space.

Harvey, through his cause of action for breach of fiduciary duty, asserted that the various resolutions failed to obtain the required three votes for adoption unless the votes of the directors owning a unit on the fourth floor were counted.

Harvey also maintained that various board members who authorized the use of the attic spaces for storage constituted a thinly veiled maneuver to gain a valuable asset for themselves. The Court concluded that there was no evidence to support Harvey’s argument that the fourth floor directors obtained a “material financial interest,” as required by Corporations Code section 7233, when they voted in favor of allowing the attic space common area to be used for storage.

The Court also concluded that a disinterested majority approved the resolution with full disclosure by fourth floor board members. The Court further upheld the board’s actions because they were “just and reasonable” as to the association.

State Assembly member Dave Jones and ECHO Executive Director Oliver Burford shown together recently in Sacramento.

Assemblyman Jones is the chair of the

Assembly Judiciary Committee, which reviews much of the proposed legislation that relates to California common interest developments.

Conclusion When faced with a decision that is controversial, a board needs to step back from the conflict and take measures to correctly assess the situation: Listen to all sides. Investigate.

Consult experts (legal counsel, insurance, contractors, etc.). Do everything in writing to create a paper trail to document your findings. Poll homeowners. Act within the governing documents and the law.

If a board’s actions are taken in good faith, done within the scope of its authority, in compliance with governing documents and laws, in reliance upon reasonable investigation, and with regard to the best interests of the association and its members, courts should defer to the board’s authority and presumed expertise.

Tom Fier is an attorney practicing community association law for over 30 years in San Mateo. He is a member and past chair of the ECHO Legal Resource Panel. Kerrington Fier is a legal researcher with the Law Offices of Tom Fier.

ECHO Journal | November 2008

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By Steven S. Weil, Esq.

Court Whacks Directors With a $500,000 Attorney Fee Award!

T

his actually happened in Ritter & Ritter v Churchill Condominium Association 2nd District, Div. 8, Case B187840, 7/22/08. The case is also the newest judicial statement on the scope of an association’s duty to maintain common area and its rules are a “must know� for all community association directors and managers of condominiums as well as planned developments and coops. Many of the case facts are likely to be familiar.

Background Facts An owner complained about cigarette smells coming from other units.

Experts determined that the odors were coming from holes in the common area concrete slabs that separated one floor from another in this 111-unit ECHO Journal | November 2008

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midrise condo project. The experts also said that the existence of the holes posed a “significant” fire safety risk. Although these “slab penetrations” violated the building code when the project was constructed, they were not “caught” by building officials then or when the project was later converted to condominiums. The owners of two adjoining units (a trust) who were remodeling their units demanded that the board fix the problem; the board refused and demanded that the owners do so based on a bid it obtained indicating the cost was $4,070. When the owners refused, the board started imposing fines of $200 per day.

This case is the newest judicial statement on the scope of an association’s duty to maintain the common area.

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Who Was Sued for What?

The owner sought an injunction forcing the association to repair the slab problem, for damages of $200,000 for diminution in value and, at the end of trial, for attorney fees of $531,000. And if that were not enough, the owner demanded a court order requiring the association to fix all of the slab penetration problems throughout the project.

The association sued back, filing a cross complaint for its own injunction requiring the owner to seal the slab underneath its units. It also sued to recover $77,000 in fines plus its own attorney fees of $775,000.

What Did the Jury, the Judge and the Membership Do? Based on the facts, the Jury determined that the association was “negligent” and breached the CC&Rs by failing to fix the slab; that the plaintiff was 25 percent responsible for the problem and that the directors breached no duties. The Jury rendered an award of $4,620 for loss of value.

Continued on page 22

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Court Whacks Directors Continued from page 20

The Judge then made legal rulings that the association should immediately fix the slab under plaintiff’s units and that a membership vote be taken on whether all other units in the building should be repaired. The judge also ordered the association and the directors to pay the plaintiffs’ full attorneys’ fees of $531,159.

The board had the unit fixed and conducted the mandated vote. Of the project’s 110 units, 81 votes were cast; of those, 78 voted against repairing the project and one (other than plaintiff) voted in favor. The board also adopted an architectural control policy requiring that owners remodeling their units must add fire stopping beneath their units.

Why Were the Directors Liable for Legal Fees If They Did Nothing Wrong?

The prevailing party in a suit to enforce the CC&Rs is entitled to an attorney fee award. So, the question was whether plaintiff prevailed and if so, against whom. The association and the directors argued that the main 22

November 2008 | ECHO Journal

What led to liability in Churchill was that the board did nothing to carry out the association’s duty to maintain the common area. relief sought by the plaintiff was the repair of the entire project (which they said was the main objective of their defense and why the 1 Lamden v La Jolla Shores Clubdominium HOA; (1999) 21 Cal.4th 249.

case became so “intense”). The Appeal Court affirmed the trial court’s conclusions that the owners prevailed simply because the jury found the association “negligent,” and determined that the owner was not liable for the fines or to fix the slab and also because the trial court itself granted the injunction that forced a vote on the issue.

The Appellate Court refused to consider “allocation” arguments (as between the association and the directors) because those arguments were not properly raised on appeal; the Court apparently did conclude, however, that fees against the directors were proper because the association could act only through its directors.

Maintenance, the Business Judgment Rule and Attorney Fees What led to liability in Churchill was that the board did nothing to carry out the association’s duty to maintain common area. We can compare this to the famous Lamden1 Continued on page 37

News from ECHO

Parking Wars!

It is no secret that parking enforcement is a sensitive issue for homeowner associations and their boards; and few issues can compete for the title of “most aggravating” among association members. An association’s most potent remedy—towing—can lead to frustration, anger and lawsuits. Take, for example, last year’s case where a jury awarded $108,000 to a woman who was assaulted by a tow truck operator after the operator attempted to tow a vehicle from the complex and the two got into a nasty fight.

That was obviously an extreme case, and fortunately parking enforcement and towing do not usually result in an assault. There can, however, be disagreement over what restrictions should be implemented, how they should be enforced, and whether the association has the authority to enforce them.

Most homeowner associations have CC&Rs and rules that restrict where its members may park, what types of vehicles are permitted to be parked within the development and for how long. Rules generally differ depending on whether it is a condominium project or singlefamily planned development, whether the area is urban or

rural, and whether parking is abundant or in demand.

Although associations typically have the authority to regulate the private streets within its development, one particularly thorny issue is how and whether an association can enforce parking restrictions on public streets located within the geographic boundaries of a common interest development.

Associations do have the authority to regulate parking on private roads within the development, where authorized to do so in the governing documents. An association may also have the authority to regulate parking where the streets are public in nature. In either case, a review of the governing documents is necessary in making such a determination, and, in the latter, the decision may ultimately lay with the California courts. The association has available to it the important and powerful remedy to tow unauthorized vehicles from the development. The towing statutes are procedurally complex; but they are not insurmountable, if the association takes the time to understand and follow the statutory requirements, create reasonable and clear internal policies, and apply those policies in a fair and consistent manner.

Court Whacks Directors With a $500,000 Attorney Fee Award!

This actually happened in Ritter & Ritter v Churchill Condominium Association (published August 21, 2008). The case is also the newest judicial statement on the scope of an association’s duty to maintain common area and its rules are a “must know” for all community association directors and managers of condominiums as well as planned developments and coops. This case confirms that, while boards have the right to decide how maintenance and repairs are performed, they cannot use that right to do nothing, especially in situations in which the association’s own expert confirms common area safety risks.

The duty to act arises in the face of conditions that can be expected to create safety risks, even if those risks were created by the project converter, developer or others. The association and the directors will still have an obligation to eliminate or minimize the risk if it exists on common area or components of a project maintained by the association. This rule applies whether the condition relates to landslides, fires, mold, asbestos or other situations that could threaten a condominium, planned development or housing cooperative development.

Further, in situations where the association has a specific duty to inspect common areas (as is true in many new CC&Rs for high-rise and other projects built after 2003), there could be liability for failing to address an unknown condition that could have been

discovered had the inspection been properly made.

The imposition of attorney fees and costs against the Churchill association and the board was a terrible result. But as a practical matter, directors can protect themselves by making sure they have the best possible insurance for themselves and their associations and by obtaining indemnification from the association and its members (most bylaws provide for this).

Do It Right When a board is faced with a decision that is controversial, its members need to step back from the conflict and take measures to correctly assess the situation.

Listen to all sides. Investigate.

Consult experts (legal counsel, insurance, contractors, etc.). Do everything in writing to create a paper trail to document your findings. Poll homeowners. Act within the governing documents and the law.

If a board’s actions are taken in good faith, done within the scope of its authority, in compliance with governing documents and laws, in reliance upon reasonable investigation, and with regard to the best interests of the association and its members, courts should defer to the board’s authority and presumed expertise if a lawsuit arises.

ECHO Journal | November 2008

23

By Derek Eckert

utside of major reconstruction, Reserve expenses are the largest expenses an association will face. Too often, more immediate tasks are on the desk of an association manager, and the important task of preparing the community for inevitable major expenses is neglected. Whether the manager, staff, or the board likes it or not, every day the association is slowly approaching its own future. Every day major association assets are

O

24

November 2008 | ECHO Journal

deteriorating and drawing closer to their replacement date, whether the association is financially prepared or not. Reviewing the operating and management behavior of our clients, we have a few suggestions to help associations understand and avoid the top Reserve Funding mistakes.

Mistake #1: It’s Just Another Accounting Task.

Often managers and directors associate Reserve planning with an accounting task.

While both involve the finances of the association, any direct comparison is flawed.

Accounting is a field that fundamentally looks backwards in time to bring order and clarity to a business or association’s finances.

Reserve planning, on the other hand, fundamentally looks forward into the unknown.

One is based on the concept of accuracy and confidence, the other on predictions about future events that may or may not occur as planned. To prepare a successful Reserve

Plan, one needs to be comfortable about creating the future, leading and planning. This is not a task for someone who is comfortable only when documenting the past. Creating a successful Reserve Plan involves strategic thinking, perhaps some market research, and trend analysis. Assigning the preparation of the Reserve Study to the wrong volunteers or staff dooms the project from the start.

Mistake #2: Confusing Red Letter Information with Red Herring Information.

Special assessment risk can be measured.

Choices can be made, and plans implemented, that direct an association towards or away from special assessments. Special assessments are financially disruptive and politically destabilizing, and unfair to those owners hit by the special assessment (for deterioration that occurred years before they became owners).

The “red letter” information is the association’s Percent Funded. This is a parameter that measures the strength of the Reserve Fund. The “red herring” information is the association’s cash balance. Focusing on the cash balance without knowing the Percent Funded is a tremendous oversight.

Percent Funded tells a board member, owner and manager the Reserve fund strength, and therefore the risk of an upcoming special assessment. Percent Funded ECHO Journal | November 2008

25

Funding Strength

Special Assessment Risk Strong: 70% or greater

0.28%

Fair: 30%–70%

11.13%

Weak 0%–30%

0%

45.83% 5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Risk Data based on 5,716 national clients, of which 1,055 needed special assessments to avoid short fall in funding. Data compiled 1/1/2000 to 5/1/2008.

Association Reserves, Inc.

reveals how the cash Reserve balance matches against the fractional deterioration of community’s assets. Twenty years of experience over thousands of associations has revealed a direct match between Percent Funded and special assessments, and no correlation between Reserve Fund cash balance and special assessments. Sorry, but it’s true. 030% Funded means a high chance of a special assessment, while over 70% Funded means a very low chance. Knowing Reserve Fund cash (“We have $1.25 million dollars…”) without knowing the Percent Funded is a mistake.

Mistake #3: Failure to Update.

But we just did a major review two years ago! We had a Reserve Study done three years ago; should we do one again? Both these statements reveal a misunderstanding about different types of Reserve Studies, and how they can be used to an association’s advantage. Due to physical issues (deterioration due to weather or owner usage and wear, damage, defects, or unexpected failures) or financial issues (Reserve contribu26

November 2008 | ECHO Journal

tions not made, interest different than planned, inflation higher than planned, some unplanned expenditures or expenses higher than planned), your Reserve Study becomes inaccurate months after it is completed. It is a plan, after all, and as the association moves forward in time the plan needs to be updated. Continuing to use an outdated plan for financial guidance is foolish.

To help an association plan effectively, there are three different “types” of Reserve Studies. An association can select the right “type” of Reserve Study to select the right level of service needed to gather or update their Reserve plan.

Full Reserve Study: a comprehensive topto-bottom inventory and evaluation of the entire physical facility.

Update With-Site-Visit Reserve Study: a physical inspection performed to update projections about how many years each major common area asset will serve the needs of the association, and how many of those years are left.

Update No-Site-Visit Reserve Study: a financial update where costs are updated, the

starting balance is updated, and information on recent projects/expenditures is updated without a physical site inspection.

A Reserve Study comes in three types.

Select the “type” needed by the association to update the association’s plan. Reserve contributions are large. A Reserve Study update doesn’t have to be a big deal. There are different Reserve Study types to fit an association’s different planning needs from year to year. If you use a credentialed Reserve Study professional, you’ll find Reserve Study updates significantly less expensive than a “Full” Reserve Study.

Mistake #4: Doesn’t Interest Equal Inflation?

Probably the classic mistake is that too often our clients fail to appreciate and acknowledge that interest and inflation are very real effects, very influential to the Reserve plan. Because inflation has its effect on the total value of an association’s asset (the roof system), while interest only has its Continued on page 28

Avoiding Reserve Planning Mistakes Continued from page 26

effect on the fraction of roof replacement funds actually on deposit, inflation is a much more powerful effect than interest. For instance, a 1% fluctuation in the assumed inflation rate requires a 13% change (on average) in the size of Reserve contributions.

For associations maintaining a low Reserve Fund balance, this effect is even more pronounced. Interest does not equal inflation.

Using a rough or bad estimate for interest and inflation is more accurate than choosing to neglect the influence of these powerful economic factors.

28

November 2008 | ECHO Journal

Mistake #5: Confusing Trivia with Significance.

Within a Reserve Study, the Reserve Component List contains life and cost estimates for the major assets the association is obligated to maintain. Typically, this list gets longer and more complicated as stray projects got added to the Reserve Study, making the Reserve Study gradually more unwieldy, unworkable, and unimportant. This can be avoided with a Reserve Study that specifically focuses on the objective of helping the association plan for the repair and replacement of major components instead of becoming an inventory and history of every asset that has been purchased.

Fundamentally, a Reserve Study is a budget preparation guide and forward plan-

ning tool. There are and always will be, exceptions to every well-laid plan. The wisdom is in knowing when the plan needs to be adjusted by excluding projects that are the exception and can be better served outside the Reserve Study. Time is saved, and money is saved, when projects can be accomplished with economies of scale and in a consistent, repeatable manner. The opposite is what we call “checkerboarding.� This is when exceptions are allowed to become the norm, and uniqueness becomes commonplace. The association becomes more difficult to manage because replacements begin to occur at different points in time, styles don’t match, and economies of scale are lost. Fundamentally, it begins to take more time to manage

Reserve planning can be simple... the assets, and it begins to take more money to replace the assets.

Accidents will always happen. A chair will be broken, roof tiles will break, and a water leak will stain a wall and a carpet. Memorializing an exception by adjusting the Reserve plan is a mistake. Make the repair, make the room usable and attractive, and move on.

Yes, the newer carpet will not need to be replaced when it is time to replace the carpet in all the other rooms, but go ahead and replace the still “fair” condition carpet in the formerly water-damaged room. When an exception is made, that does not mean you should revise the Reserve Study or your plan to replace all assets as one project at the next opportune cycle. This is where you choose to control the Reserve assets, instead of letting them begin to control you. The Reserve Study is a budget plan. Let exceptions remain exceptions. Keep the integrity of the plan. The key is seeing the Reserve Study as a planning guide, not a record book. And this brings me back to my first point, confusing Reserve planning with an accounting or asset-tracking task.

Summary Reserve planning can be simple, if you know what you are trying to accomplish. Any athlete will tell you that avoiding errors or turnovers is a key to success. Avoiding Reserve planning mistakes helps to keep an association on the path to success.

Derek Eckert is president of Association Reserves–San Francisco, LLC. The San Francisco office handles Reserve Studies in the Northern California region. Association Reserves, Inc. is a national Reserve Study company, specializing in the preparation of Reserve Studies and Disclosures for its residential and association client base.

Association Reserves is a long-time member of ECHO.

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2008 2:35:17 29 ECHO Journal | November 4/23/08 PM

Officers and Directors Update Association Presidents or Secretaries

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to:

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Please complete and send to: ECHO 1602 The Alameda, Suite 101 San Jose CA 95126-2308 Tel: 408-297-3246 | Fax: 408-297-3517 Or email changes to: info@echo-ca.org

)

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Please complete the items listed below. This information is for use in the ECHO Office and will assist us in the planning of future programs.

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Please provide information for additional board members on an attached sheet.

Note: All officers and directors are entitled to receive copies of the ECHO newsletter. A special subscription rate of $50/year is available to those homeowners who live in an ECHO member association but are not on the board.

By Mike Muilenburg

A Trick of the Trades: Saving Money Off-Season

T

he onset of the rainy season presents cost-saving 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 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 Continued on page 33 ECHO Journal | November 2008

31

Directory

UPDATES Updates for listings in the 2008 ECHO Directory of Businesses and Professionals.

Changes to Member Listings S. L. Kindt Management 5880 Commerce Blvd., Ste. 212 Rohnert Park, CA 94928 Tel: 707-588-8698 Fax: 797-588-8618 Email: sally@slkindtmanagement.com Levy, Erlanger & Company, CPAs 290 King Street, Suite 12 San Francisco, CA 94107 Tel. & Fax remain the same Richard Joseph & Co. 6251 Quartz Pl. Newark, CA 94560 Contact: Neal Lopes Tel: 415-596-1744

Trick of the Trades Continued from page 31

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.

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Also, 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.

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

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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?

Mike Muilenburg is a principal at Ekim Painting, Cupertino, CA. He is the chairperson of the Maintenance Resource Panel and a former member of the ECHO Board of Directors. He is the ECHO Volunteer of the Year for 2008.

ECHO Journal | November 2008

33

Books and DVDs from ECHO

Homeowners Association and You $13.00 2008 ECHO Business & Professional Directory $20.00 This directory lists all business and professional members of ECHO as of December 2007. 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 2008 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.

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 provides an insightful overview of community living from the viewpoint of experienced owners in readable language.

Recently revised and expanded.

The Board’s Dilemma 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.

Robert’s Rules of Order $7.50 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.

Reserve Fund Essentials $18.00 This book is an easy to read, musthave guide for anyone who wants a clear, thorough explanation of reserve studies and their indispensable role in effective HOA planning.

The author gives tips to help board members mold their reserve study into a useful financial tool.

This edition contains the 2008 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.

$10.00

In this essay, attorney Tyler Berding confronts the growing financial problems for community associations. Mr. Berding addresses board members who are struggling to balance their duty to protect both individual owners and the corporation, and gives answers to associations trying to avoid a funding crisis.

The Condo Owner’s Answer Book

Community Association Statute Book—2008 Edition $5.00

California Building 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 $15.00

An excellent guide to understanding the rights and responsibilities of condo ownership and operation of homeowner associations. The question-and-answer format responds to more than 125 commonly-asked questions in an easy to understand style. A great resource for newcomers and veteran owners.

$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 Now Order Online at echo-ca.org

Bookstore 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 CALIFORNIA SALES TAX (Add 8.25%) TOTAL AMOUNT

Board Member’s Guide for Management Interviews $20.00 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.

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Calendar of Events

Mark these events in your calendar Saturday, November 1 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m.

Hyatt Regency 1333 Bayshore Hwy. Burlingame Thursday, November 6 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael Friday, November 7 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1900 N. California Blvd., Suite 950, Walnut Creek Monday, November 10 Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant, Oakland Tuesday, November 11 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

the r o f e t a d is Keep th Seminar l a u n n A O ECH 2009 , 3 1 – 2 1 e n u J

Wednesday, November 19 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Tuesday, January 13 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Wednesday, December 3 Maintenance Resource Panel 12:00 Noon Location TBD

Wednesday, January 21 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Wednesday, February 11 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose

Saturday, January 31 Marin County Seminar 7:30 a.m. to 1:30 p.m.

Embassy Suites Hotel 101 McInnis Parkway San Rafael

Wednesday, February 18 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt Co. 6600 Hunter Dr., Rohnert Park

Friday, December 5 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1900 N. California Blvd.

Suite 950, Walnut Creek Wednesday, December 10 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose

Wednesday, February 4 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Ste. 101 San Jose

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

Friday, February 6 Eugene Burger Mgmt. Co. East Bay Resource Panel 6600 Hunter Dr., Rohnert Park Angius & Terry 1900 N. California Blvd.

Monday, January 12, 2009 Suite 950, Walnut Creek Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant Oakland

Saturday, February 21 Central Coast Winter Seminar 7:30 a.m. to 1:30 p.m.

Best Western Seacliff Inn 7500 Old Dominion Ct., Aptos

Regularly Scheduled Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 36

November 2008 | 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, Even Months Third Wednesday, Monthly Quarterly

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 Eugene Burger Management Co., Rohnert Park Varies

Court Whacks Directors Continued from page 22

case in which that board considered various methods of repairing termite problems and determined that limited spraying was preferable over tenting of the building. The Court refused to “second-guess” that determination, concluding that good faith decisions concerning ordinary maintenance activities are best left to the board (this principle applies to things like the decision to replace a roof or patch it; to slurry seal or reconstruct a road; to paint this year or next). By contrast, in Churchill, the board did not weigh or implement repair alternatives; it simply refused to act at all. Under Churchill, there was no basis for “judicial deference” to the board’s repair choice because there wasn’t one.

The duty to act arises in the face of conditions that can be expected to create safety risks...

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Is it an anomaly that the association was liable, but the directors were not liable for the owners’ damages (other than the attorney fees)? The Court indicated that it was not: that the “business judgment” rule protects directors from liability even when (as in this case) they acted in good faith but erroneously (because they didn’t authorize the association to make the fire stop repair).

Thus, in some situations, directors may not be held liable though the association itself might.

Does the attorney fee award against the directors make sense? Not to us and not to one of three Court of Appeal Justices who decided the appeal. He pointed out that the

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Continued on page 39

* Call (800) 811-0841 x22 by December 31, 2008 and receive one month's Management Fee FREE. ECHO Journal | November 2008

37

Honor Roll

About

ECHO Honors Volunteers Mike Muilenburg 2008 Volunteer of the Year ECHO Resource Panels Accountant Panel Richard Schnieder, CPA 707-576-7070 Central Coast Panel Jim Harmon 831-425-3622 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 Geri Kennedy, CCAM 650-348-2691 ext. 1006 Kimberly Payne, 408-200-8470 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.

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2008 Annual Seminar Speakers Jeffrey Barnett, Esq. Sandra Bonato, Esq. Lori Burger, PCAM, CCAM Doug Christison, PCAM, CCAM Rolf Crocker, CCAM Jeffrey Draeger James Ernst, CPA Lisa Esposito, CCAM John Garvic, Esq. John Gill, Esq. Sandra Gottlieb, Esq. Walt Grady, CPA Beth Grimm, Esq. Robert Hall, Esq. Linnea Juarez, PCAM, CCAM Geri Kennedy, CCAM David Kuivanen, AIA Karl Lofthouse Kerry Mazzoni Ann Rankin, Esq. Rob Rosenberg, CCAM Kurtis Shenefield, PCAM, CCAM Dennis Socher Paul Terry, Esq. Wanden Treanor, Esq. Stephen Weil, Esq. Glenn Youngling, Esq.

SF Luncheon Speakers John Allanson Tyler P. Berding, Esq. Ronald Block, PhD. Doug Christison, PCAM, CCAM Karen Conlon, CCAM Rolf Crocker, CCAM 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 Kerry Mazzoni Larry Russell, Esq. Steve Saarman Nathaniel Sterling, Esq. Debra Warren, PCAM, CCAM Steven Weil, Esq. Mark Wleklinski, Esq. Glenn Youngling, Esq.

Recent ECHO Journal Contributing Authors July 2008 Doug Christison, PCAM, CCAM Mary Filson, Esq. Monty Hollingsworth Brian Seifert August 2008 Tyler P. Berding, Esq. Molly A. Foley-Healy, Esq. Geri Kennedy, CCAM Hermann Novak Dick Tippett September 2008 Linda Alexander, CCAM, PCAM Tyler P. Berding, Esq. Michael J. Gartzke, CPA Diane Marie Rossi, CCAM Chris Seeger October 2008 Tyler P. Berding, Esq. Paul Collins, PCAM, CCAM John Paul Hanna, Esq. Jan A. Kopczynski, Esq. Larry J. Pothast, PCAM, CCAM David Van Atta, Esq.

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.

Court Whacks Directors Continued from page 37

directors had no liability because they acted in good faith in a manner they believed was in the best interests of the association and prevailed on the claims asserted against them. He went further and argued that the directors were entitled to their litigation expenses against the plaintiffs. He also felt that the association was the prevailing party; as he put it, “The Ritters asked for much… but obtained little.”

Churchill’s Lessons for Old and New Community Associations This case confirms that, while boards have the right to decide how maintenance and repairs are performed, they cannot use that right to do nothing, especially in situations in which the association’s own expert confirms common area safety risks.

The duty to act arises in the face of conditions that can be expected to create safety risks, even if those risks were created by the project converter, developer or others. The association and the directors will still have an obligation to eliminate or minimize the risk if it exists on common area or components of a project maintained by the association. This rule applies whether the condition relates to landslides, fires, mold, asbestos or other situations that could threaten a condominium, planned development or housing cooperative development. Further, in situations where the association has a specific duty to inspect common areas (as is true in many new CC&Rs for high-rise and other projects built after 2003), there could be liability for failing to address an unknown condition that could have been discovered had the inspection been properly made.

The imposition of attorney fees and costs against the Churchill association and the board was a terrible result. But as a practical matter, directors can protect themselves by making sure they have the best possible insurance for themselves and their associations and by obtaining indemnification from the association and its members (most bylaws will provide for this).

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

ECHO Journal | November 2008

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November 2008 | ECHO Journal

ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association Affirmative Management . . . . . . . . . .16 Alpha Restoration and Waterproofing .8 American Asphalt . . . . . . . . . . . . . . .20

Advertise your business to thousands of association directors in California in the ECHO Journal.

American Management Services . . . .10 Angius & Terry . . . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . . . .33 A.S.A.P. Collection Services . . . . . . . . .9 Association Reserves . . . . . . . . . . . . .20

Your Ad Seen Here You read this, didn’t you? Thousands of officers and directors of homeowner association boards also read the ads each month in the ECHO Marketplace.

Bayridge Group . . . . . . . . . . . . . . . . .16 Berding & Weil . . . . . . . . . . . . . . . . . .44 Collins Management . . . . . . . . . . . . .33 Community Management Services . . .32 Compass Management . . . . . . . . . . .33 Cool Pool Service . . . . . . . . . . . . . . . .37 Cornerstone Community Mgmnt . . . . .8 County Bank . . . . . . . . . . . . . . . . . . . .2 Discovery Play Systems . . . . . . . . . . . .22 Draeger . . . . . . . . . . . . . . . . . . . . . . .11 Ekim Painting . . . . . . . . . . . . . . . . . . .28 Ertech . . . . . . . . . . . . . . . . . . . . . . . .28 First Bank Association Bank Services . .32 Flores Painting . . . . . . . . . . . . . . . . . .29 Helsing Group . . . . . . . . . . . . . . . . . .16 Hill & Company. . . . . . . . . . . . . . . . . .21 Jeff Atkinson Construction . . . . . . . . .39 Louis & Riparetti . . . . . . . . . . . . . . . . .27 M&C Association Services . . . . . . . . .29 M. L. Nielsen Construction . . . . . . . . .41 Massingham and Associates . . . . . . .43 Neighborhood Association Mgmnt . .37 Pelican Management Group . . . . . . .20 PML Management Corp. . . . . . . . . . .11 Pollard Unlimited . . . . . . . . . . . . . . . .14 R. E. Broocker Co. . . . . . . . . . . . . . . .14 Rebello’s Towing Service . . . . . . . . . .15 REMI Company . . . . . . . . . . . . . . . . .39 Saarman Construction . . . . . . . . . . . . .9 Statcomm . . . . . . . . . . . . . . . . . . . . .14 Steve Tingley Painting . . . . . . . . . . . .43 Steve’s Painting Services . . . . . . . . . . .10 Union Bank . . . . . . . . . . . . . . . . . . . .40

ECHO Journal | November 2008

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January 31

Marin County Seminar Embassy Suites, San Rafael

February 21

Central Coast Winter Seminar Best Western Seacliff Inn, Aptos

March 21

North Counties Seminar Rohnert Park Community Center, Rohnert Park

April 4

San Francisco Spring Seminar The Firehouse, San Francisco

June 12&13

ECHO Annual Seminar Santa Clara Convention Center, Santa Clara

September 19 Central Coast Fall Seminar Best Western Seacliff Inn, Aptos

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Condominium Conversions Did You Get What You Paid For?

Condo conversions are not new condominiums. They are older rental apartments that were converted to condos.

So, what’s wrong with that?

Nothing, if the financial plan that came with your condo is up to the task of maintaining a building with 20-30 years of deferred maintenance.

How do you know? You probably don’t unless someone

has taken a close look at the homeowner association’s budget and compared it to the actual condition of the buildings. The fact is, very few condominium conversions were sold with repair budgets that are adequate to meet the needs of the project.

What does this mean to you?

If the budget is inadequate, it will mean either increased homeowner assessments or a gradually deterio-

rating condominium project. Or both. In either case, you didn’t get what you paid for.

If you’d like to know the truth now about what you bought, call us. If you want to wait and see what happens, ok, but either way, we’ll be here when you need us.

Berding | Weil, LLP 3240 Stone Valley Road West Alamo, California 94507 925-838-2090 www.berding-weil.com