October 2011
A Journal for California Community Association Leaders
echo-ca.org
What’s left after a natural disaster destroys a community association?
2012 ECHO Annual Seminar June 22, 23
Change Service Requested ECHO 1602 The Alameda STE 101 San Jose, CA 95126
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Disasters! What’s left after a natural disaster destroys a community association? This article is a review of some of the types of disasters that can cause serious damage to a common interest development; how boards of directors should prepare their projects for the possibility of a disaster; and what can be done if a disaster destroys or does serious damage to a community association.
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The Big Surprise Every association faces major reconstruction several times in the life of the development. The DavisStirling Act requires only that a reserve study include those worn out components that visual inspections reveal but makes no allowance for reconstruction after major natural disasters. This article discusses how many associations may be in for a big surprise.
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. 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 2011 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 Diane Rossi Secretary Dorothy Kopczynski Directors Paul Atkins John Garvic Robert Rosenberg Richard Tippett Steven Weil
Jerry L. Bowles David Levy Kurtis Shenefiel Wanden Treanor
Executive Director Oliver Burford
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Communications Coordinator Tyler Coffin
Departments 33 Legislation at a Glimpse 36 ECHO Bookstore 38 Events Calendar 40 ECHO Volunteers
Design and Production George O’Hanlon
41 ECHO Marketplace
ECHO Mission Statement
41 Advertiser Index
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.
On the Cover Disaster!—page 6 4
October 2011 | ECHO Journal
Legislative Consultant Government Strategies, Inc.
PRESENTING 2011–2012 ECHO Events October 14
ECHO Annual Meeting
Member Meeting
ECHO Office 1602 The Alameda, San Jose
October 22
Peninsula Fall Seminar
Half-Day Seminar
Crowne Plaza Hotel, Foster City
8:00 a.m. to 1:00 p.m.
February 4, 2012
Marin Seminar
Half-Day Seminar
Embassy Suites, San Rafael
8:00 a.m. to 1:00 p.m.
February 25
Central Coast Winter Seminar
Half-Day Seminar
Hilton Santa Cruz/Scotts Valley
8:00 a.m. to 1:00 p.m.
Wine Country Seminar
Half-Day Seminar
Sally Tomatoes, Rohnert Park
8:00 a.m. to 1:00 p.m.
South Bay Seminar
Half-Day Seminar
Campbell Community Center, Campbell
8:00 a.m. to 1:00 p.m.
ECHO Annual Seminar
Full-Day Seminar
Santa Clara Convention Center, Santa Clara
8:00 a.m. to 4:30 p.m.
Central Coast Fall Seminar
Half-Day Seminar
Hilton Santa Cruz/Scotts Valley
8:00 a.m. to 1:00 p.m.
Peninsula Fall Seminar
Half-Day Seminar
Crowne Plaza Hotel, Foster City
8:00 a.m. to 1:00 p.m.
March 24
April 14
June 22, 23
September 22
October 20
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October 2011 | ECHO Journal
By Tyler P. Berding, Esq. and Steven S. Weil, Esq.
Disaster! No Reserves. No Insurance. What’s Left if a Natural Disaster Destroys a Community Association?
W
E HAVE SEEN HORRIFIC EARTHQUAKE
disasters in New Zealand and Japan. There have been devastating floods along the Mississippi River and unprecedented tornado damage in the Midwest. These disasters have wiped out large portions of entire towns, flattened numerous buildings and resulted in widespread loss of life.
California has a history of devastating earthquakes—the San Francisco, San Fernando, Northridge, and Loma Prieta earthquakes, among others. Heavy rains have created landslides, mudslides and shoreline erosion all over California, damaging homes and property, some of it in community associations. Wildfires in the past decade have
ECHO Journal | October 2011
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destroyed hundreds of homes. Rising sea levels are threatening to flood low-lying developments, including common interest developments. What does a community association board of directors do if a natural disaster wipes out all or a portion of its association? When and where is it likely to happen? Is there a plan for dealing with it? Is this a problem to worry about? Yes, worry about it. A natural disaster can strike a development at any time. It can occur in a moment, or gradually over time. In either case, most community associations and special districts1 are ill prepared for the consequences. Disaster insurance is usually inadequate or non-existent, and there is often little reserve funding that can be tapped to rebuild. What follows is a review of some of the types of disasters that can cause serious damage to a common interest development; how boards of directors should prepare their projects for the possibility of a disaster; and what can be done if a disaster destroys or does serious damage to a community association.
Part I The Threats We’ve written about various threats posed by landslides to community associations;2 the earthquake danger to certain types of multifamily construction;3 and the potential impact on homeowners from rising sea levels.4 In most cases, community associations do not have the resources to address damages caused by natural disasters. They do not have reserves for unexpected repairs and usually do not carry insurance for earthquakes, flooding due to levee breaks, beach erosion, or landslides. We look closer at the natural disasters prevalent in California—and the issues, financial, legal and otherwise, that follow them. Chapter 1 discusses the threat from rising sea levels and failing levees. Chapter 2 reviews the threats posed by landslides and some of the legal issues that arise. Chapter 3 looks at the serious threat of earthquakes, especially in California, and the special susceptibility of older community associations. 8
October 2011 | ECHO Journal
Bethel Island lies in the Sacramento Delta between Sacramento and Stockton, California. It is home to about 2500 residents. The interior is 7–15 feet below sea level. There are 11.5 miles of levees that serve as a dam to keep the waters of the surrounding sloughs from inundating the island. Property taxes collected from the residents of the island fund a special district, the Bethel Island Municipal Improvement District (BIMID), which is responsible for the maintenance and repair of the levees and functions like a municipality or a large community association.5 Bethel Island is 12 miles from the Greenville earthquake fault and is considered to have strong shaking potential should an earthquake occur. Shaking can create landslides in the levee, which could breach anywhere around the island. The levee also has a high probability of liquefaction in a quake.6 A study by BIMID on the potential for loss or damage states: “The conclusion is that flooding (levee failure and drainage disruption) and wildfire (an underground peat fire) pose a significant risk for potential loss.”7 But the district is broke. The BIMID board of directors asked the residents of the island to approve a parcel tax in November of 2010 to fund badly needed improvements to the levee—it was soundly defeated. Lacking adequate funds, the district board then had to fire their General Manager and another 1. “Special Districts” are government subdivisions created for the purpose of governing or funding a specific property or properties. They include levee improvement districts, municipal water districts, reclamation districts, and similar entities. Only landowners within the special district fund them, and in that way they are similar to large community associations. 2. Berding, Tyler, “Landslides: Nuisance or Construction Defect?” Berding|Weil Library (2011). 3. Berding, Tyler, “The Soft Story Problem and Earthquake Safety,” Berding|Weil Library (2010). 4. Berding, Tyler, “Left Holding the (Sand) Bag,” www.CondoIssues.com (2010). 5. BIMID was chartered in 1963 by an act of the California Legislature. 6. Bethel Island Municipal Improvement District, Local Hazard Mitigation Plan ANNEX, March 8, 2007. 7. Ibid, page 4.
employee. The district hopes to propose the parcel tax again—but without it, the levees will continue to deteriorate. The levees don’t comply with federal standards. “Additionally, the levees are eroding and suffering damage by beavers and rodents.”8 More Bethel Islands? The Cargill Corporation is proposing to build 12,000 homes on reclaimed salt ponds in Redwood City. The homes will be surrounded by a levee. The new homes will be below sea level with only the levee keeping out San Francisco Bay. The source of funding for maintenance of the levee hasn’t been fully disclosed, but Cargill has already said it would not be Redwood City taxpayers, and it’s a sure bet that it won’t be the State of California. It’s very likely therefore that the proposed levee will be maintained by a special district like the one on Bethel Island or a homeowners association, either of which, in turn, will be reliant on assessments or taxes from the homeowners within the development for its long-term funding.9 Treasure Island, the former naval base in San Francisco Bay, is the site for hundreds of new homes and other development. The project will rely on additional fill and a levee surrounding the island to protect nearly 19,000 new residents from rising sea levels. A recent article about the project states: “Now, a plan to turn Treasure Island into an ecometropolis for 19,000 residents with slender high-rises, sprawling parks, a 20-acre organic farm and a wind farm is inching toward approval… But questions that poked holes in previous plans persist… there is the issue of paying for the infrastructure needed to stabilize the island, which was made with fill dredged from the bay for the 1939 Golden Gate International Exposition. The development team…has proposed geotechnical fixes to firm up the island. More than a million cubic yards of fill would be crushed into the ground. The height of the island and a berm ringing the outer edge would be raised to guard against a rise in sea level. The infrastructure improvements would cost $1.5 billion, two-thirds of which would be paid for by the developers and by taxing the future residents. The final third was to be paid for with redevelopment money, but Gov. Jerry Brown intends to cut that. Now, that part would be paid for through infrastructure financing districts, a less powerful financing mechanism used to capture property taxes for street improvement and other projects.”10
The San Jose Mercury News reported on the concern as well: “From Antioch to North Richmond to Redwood City, a slowly rising Bay could endanger the properties of as many as 270,000 Bay Area residents and cause some $56.5 billion in damage by the end of the century unless measures are taken to protect them, scientists warn. But surprisingly, few cities are taking action.”11 November 5, 2008—“In the event of projected flooding, sandbags are available at the Benicia Corporation Yard. Some assistance may be available, but residents should bring shovels and plan to fill and load the bags themselves.”12 May 3, 2011—“The ice of Greenland and the rest of the Arctic is melting faster than expected and could help raise global sea levels by as much as 5 feet this century, dramatically higher than earlier projections, an authoritative international assessment says.”13 The chance of flooding in cities in and around San Francisco Bay is not just speculation. It has happened many times in the past and it will happen again and again if sea levels continue to rise or a “perfect” storm joins with normal high tides. It’s easy to see why. Consider one of the several online interactive devices14 used to illustrate the first areas around the bay that will flood when the sea rises. It should come as no surprise that they are the same locations where the bay was originally filled to create housing and commercial developments. These low-lying areas—Foster City, Redwood Shores, Alameda, Vallejo, Alviso and many others— were bay bottom and tidelands just a few decades ago. Now there are thousands of homes. The flood danger is obvious.
8. Gokhman, Roman, “Bethel Island leaders worry about condition of levee as money runs dry,” Contra Costa Times, April 2, 2011. 9. Berding, Tyler “City in a Salt Pond,” www.CondoIssues.com (2011). 10. Elinson, Z., “San Francisco Re-Imagines Treasure Island,” Bay Guardian, April 24, 2011. Editor’s note: An “infrastructure taxing district” is a special district that relies on taxes paid only by the residents within that district—there would be no help from the City of San Francisco or the State of California. 11. San Jose Mercury News, June 13, 2010, page 1. 12. Website for the City of Benicia, California. 13. Ritter and Handley, “Report sees sharper sea rise from Arctic melt” Contra Costa Times, May 3, 2011. 14. Geology.com, “Sea Level Rise Map” http://geology.com/sea-level-rise/san-francisco.shtml ECHO Journal | October 2011
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And, thousands of new homes are projected for a dozen or more major developments being proposed for additional tidelands and other low-lying locations around the bay: “At least 12 major developments with as many as 56,000 new homes are planned at the edge of the Bay over the next 5 to 20 years… many are in low-lying areas experts say are potentially vulnerable to flooding associated with long-term sea level rise. Some cities and counties have strategies to deal with that problem, others do not.”15 But what is different today from developments built, say, three or more decades ago is that most of these new developments will be built and incorporated as community associations or special districts; and the expensive engineered facilities necessary to protect these developments from storms, rising tides and sea levels will not be maintained by cities or the state, but instead will be the responsibility of the homeowners. Streets, storm sewers, parks, parking lots and sidewalks in old developments are owned and maintained by cities and counties using tax dollars raised from a much broader tax base. In newer projects these “public” works are instead made the responsibility of private owner’s associations. The advent of the community association was a boon to taxstarved local governments16 who saw them as a way to promote development and raise new tax dollars while avoiding liability for these new facilities. The proposed new developments around San Francisco Bay will tempt local cities and counties to vest the responsibility for necessary flood control improvements to local community associations or small, special districts. Responsibility for levees, berms, pumps, riprap and retaining walls built by the developers of these large projects could eventually find themselves maintained and repaired by homeowner associations. The beginning step of this massive shift of responsibility away from governments and onto landowners, one that has been widely
15. San Jose Mercury News, op. cit. 16. California voters passed Proposition 13 in 1978. This measure, among other things, capped property tax increases at 1% per annum. This “cap” remains in place until the property is sold. This limitation has become more critical as the years have passed and has deprived the state’s cities and counties of a large percentage of their income.
Continued on page 12 10
October 2011 | ECHO Journal
Disaster! Continued from page 10
used for many years, is the use of local improvement, levee or the newer infrastructure financing districts.17 Much of the Sacramento delta, a system of sloughs and islands on which more and more housing is being proposed and built, is maintained by such “special” assessment districts, not the state or local cities or counties. The property owners within those districts pay for all levee maintenance and repair work. Originally these districts were formed to give farmers quasi-governmental authority over the properties in a particular area. It also shifted fiscal responsibility away from larger jurisdictions and the broader base of taxpayers. But a flood disaster in an agricultural area will only inundate crops. The same disaster in a residential community will be much worse. It matters who is in charge and who is responsible for maintenance of such critical facilities. A large community association functions in a manner similar to a special district—the developer hands off ownership of public works to the association when development is complete, and the owners, through assessments, pay for the ongoing maintenance and repair. Cities and counties, which gain considerable tax benefits from new development, are able to shift the long-term responsibility for the cost of maintaining improvements associated with that development to property owners. This can be done with either a community association or a special district.18 By this mechanism, developers and municipalities avoid long-term responsibility for such projects. The homes and buildings within the development are sold off in the near term. The developer takes the profits and is protected from long-term liability not only by the assessment or taxing arrangement that shifts the cost of future repairs to owners, but also by various statutes of limitation that cut off legal liability in just a few years after the project is complete. After that, the property owners within the association, or within the special district, are on their own. So just as the liability for landscaping, streets, parks, even schools and unstable hillsides19 has been shifted to local homeowners in recent years, there is no reason why the flood control improvements necessary to build housing on former tidelands won’t be similarly vested in the buyers of all 12
October 2011 | ECHO Journal
of this new housing. Their maintenance and repair obligations start immediately, and over time, the facilities may prove inadequate to forestall the inevitable rise in sea level, leaving homeowners on the hook for a lot more. There is another problem. We have written many times about the looming failure of community associations to keep pace with the growing cost of maintaining even simple common area components—but can you imagine what will happen if much more sophisticated, not to mention critical, improvements are maintained solely with owner assessments? Levees and seawalls, essential to keeping the waters of San Francisco Bay from flooding hundreds or perhaps thousands of homes, will be dependent upon the willingness of individual homeowners and their associations or districts to assess themselves to provide adequate funding? It’s one thing to let the landscaping go to seed or to allow chuckholes to exist in the parking lot, but a crumbling bay levee is at another threat level altogether. The proponents of new bayshore development contend that it will be good for the economy, for the tax base, and, ironically, for the environment, since it will shorten commute times for many bay area workers. But these benefits are all short term—if they exist at all. In fact the “benefits” are more likely to be realized only by the developers and the local taxing authority. There is lots of land available for necessary higher-density infill away from the shoreline on higher ground that would not be threatened by tides and sea level. It perhaps costs more to develop and may not provide the economies of scale offered by salt ponds and tidelands, but its eventual owners would not inherit the potential for both fiscal and physical disaster. Anyone concerned with these bay shore development proposals should ask the city and other approving government agencies one simple question: “Who will be responsible for keeping these flood control improvements working in the years to come?” Don’t be surprised by the answer.
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17. See California Government Code Section 53395, et seq. 18. A special district would usually be the choice if the facilities to be maintained include multiple new developments or community associations. 19. In this case the district is called a “GHAD” or Geologic Hazard Abatement District and provides a vehicle for developers and cities to dispose of responsibility for unstable, and thus unusable, pieces of land left over from larger developments. ECHO Journal | October 2011
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A bayside community association in Benicia recently settled a lawsuit against the developer of the project, recovering nearly fifteen million dollars so it could re-level buildings that were sinking into the bay mud as well as to install common area drainage to protect it against rising sea levels and the flooding that occurs during major storms. One of the attorneys instrumental in bringing about the recovery states: “No one—not the City of Benicia, the state of California, nor the federal government—would assist the owners of these homes. It was just lucky that the damage began to happen soon enough after construction to permit a claim to be submitted to the developer, before the statute of limitations ran out.” 14
October 2011 | ECHO Journal
Ocean Harbor House is a condominium project in Monterey, California, one of very few properties in the area with Pacific Ocean frontage. Erosion of its beachfront threatened the stability of the buildings at the time it was converted from apartments to condominiums. The developer had failed to address these foundation stability issues adequately. It took a lawsuit and over ten million dollars to build an adequate seawall and pay the shockingly high permit fees to various government agencies. The association attorney who handled this case states: “The residents of Ocean Harbor House faced the prospect of ocean waves wiping out the stability of the seaward buildings. Only a proper seawall would provide the protection they
needed; not only was it costly, but they had to deal with the California Coastal Commission approval process, which is daunting under the best of circumstances. Only a lawsuit and the prospect of a trial enabled the association to recover funds to assist in funding the seawall to provide the essential fifty year protection.” The litigation was hotly contested and the case settled only after a jury was empanelled to decide the case. A team of consultants and experts shepherded the association through the Coastal Commission and construction process, allowing the seawall to be completed on time. The community was fortunate: it Continued on page 16
How to make your investment safer Condos, townhomes, homeowner associations and other “shared expenses” housing is the wave of the future in the United States and around the world. But to make it a sustainable investment, new buyers, owners and volunteer board members need to understand “best practices basics” of how this form of housing works and have more realistic expectations of this form of “carefree, maintenance free” living. The new book, Condos, Townhomes, Home Owner Associations—How to Make Your Investment Safer, provides essential training and checklists for • Association Board Members • Owners in Associations • Prospective Buyers of Association Property The book answers vital questions that can help to keep your association from financial ruin: • What overview training should board members have before beginning their service? • What critical financial and mechanical information should
board members track each month? • What information should a buyer look for before buying in an association? The author provides lessons that help you to: • Protect property values • Gain peace of mind • Lessen the need for large, unexpected special assessments Patrick Hohman, author of the book and a 22-year association president, compiled these userfriendly, colorful lessons with the help of industry experts throughout the United States. The paperback, Condos, Townhomes, Home Owner Associations—How to Make Your Investment Safer, is now available from ECHO for only $29 for members and $45 for nonmembers. Order today by calling (408) 297-3246 or order online at www.echo-ca.org.
Disaster!
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October 2011 | ECHO Journal
A few years ago we tried a case in Solano County for a community association client that had to sue its developer to obtain the nearly six million dollars necessary to repair eleven separate landslides. These slides threatened homes adjacent to common area hillsides as a result of heavy winter storms. They were lucky; the jury found in favor of the association even though some of the slides were dormant and had not yet caused damage. A round of new landslides in northern California has followed recent heavy rains and has damaged homes and infrastructure in numerous locations. As I write this article (spring 2011), northern California is experiencing the second straight week of rain in an otherwise very wet year. Continuous rain soaks the ground and loosens unstable hillsides. Landslides can stay hidden for years until very wet weather suddenly breaks them loose. Also, slides can move very slowly, over long periods of time, gradually damaging the properties around them. In either case, earth movement can cause serious damage to buildings and other improvements on or adjacent to the unstable land. Mudslides, rockslides and landslides are all versions of the same hillside phenomenon—water plus gravity equals damage. We’ve seen slides gradually pull down the surrounding properties so slowly that trees growing on the hill have curved trunks. This is called soil creep and can last for years or decades. We’ve also represented clients whose homes were damaged in just a moment as a large landslide, hidden beneath the surface of the earth for centuries, comes down, bringing a large portion of the hillside with it. Property developers are required to obtain the advice of soil engineers when grading is done in a landslide-prone area, and most engineers are very good at detecting the presence of hidden slides. Aerial photo mapping, boring, or just reviewing the history of the
area under development can do this. But regardless of the engineer or developer’s efforts, slides can still occur. Very few property damage insurance policies cover damage due to earth movement and owners of buildings damaged by landslides are often on their own for the cost of repair. A major failure, such as we have seen on the California coast, could easily overwhelm any community association. With landslides, unlike floods or earthquakes, the source of the problem may be the responsibility of others. Here are some examples. Construction Defect. If a slide occurs in a development after construction is complete and the homes are sold, the developer is potentially liable for any damage caused for at least ten years from the completion of the project. This depends, of course, on a claim being timely filed and pursued. “Liability� is not automatic. Slides, subsidence, settlement, and improper drainage are all considered construction defects. Arguments in those cases usually do not arise over who is liable— the developer and its contractors are usually “strictly� liable or negligent if a slide occurs on newly developed land. What the attorneys for each side usually debate is what is necessary to repair the damages and how much that will cost. Unless something suspends, or “tolls,� the statute of limitations, ten years is the usual outside limit for a claim against the builder of the homes and the subcontractors involved in the grading of the project. There are also shorter limitations on such claims, dating from when the event occurs that also come into play, so it is important to seek the advice of an attorney experienced in earth movement claims if a landslide damages your property. Nuisance. But there are other instances of damage caused by earth movement that are unaffected by the ten year statute of limitations. If a slide damages a neighbor’s property, the owner of the land where the slide originates can be liable to his neighbor for the damage, regardless of when the damaged property was built or sold, and regardless of whether any “negligence� is involved. The only limitation on claims of that sort date from the occurrence of the event. Unlike claims against a developer for new construction, there are no outside limits, but there are shorter periods dating from when the damage occurred that must be observed. Again, the advice of an attorney should be obtained to be sure that you don’t lose your
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right to make a claim against those responsible. A claim against the owner of property where a landslide originates can be sued for money damages, and also for injunctive relief—an order of the court requiring the neighbor to stop, or abate, the continuing damage being caused by the slide. These are usually claims for what lawyers call “nuisance”—the invasion of your property by something that started on the land of another. Land, mud and rockslides are events that don’t occur regularly, but when long periods of drenching rain soak hillsides that are unstable—either naturally, or because they have not been graded properly—slides can cause tremendous damage. When community associations own large expanses of hillside common area adjacent to buildings or homes, they are prone to liability if the hillside fails. Without insurance, and lacking reserves for unforeseen events, they are especially vulnerable if they have failed to investigate and prepare.
The 1971 San Fernando, the 1989 Loma Prieta, and the 1994 Northridge earthquakes extensively damaged many condominiums. Much of the damage from these earthquakes was due to garages constructed on the ground floor with the condos above creating large unsupported openings that collapsed in the quake.20 A recent report created for the California Earthquake Authority predicts that the chances of another earthquake similar in size as Northridge, over the next 30 years, are 97% for Southern California and 93% for Northern California.21
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October 2011 | ECHO Journal
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The Association of Bay Area Governments (ABAG) states: “The headline after the next major Bay Area earthquake may be: ‘Housing Losses Staggering Due to Failure to Retrofit Apartments and Condos with Known Earthquake Risk.’ Of the 160,000 housing units ABAG forecasts will be uninhabitable in a major earthquake, most will be the result of the collapse of apartment buildings with parking or commercial space on all or part of the first floor. The collapse of the parking areas in all types of apartments and condos occurred in the 1971 San Fernando earth-
quake, the 1989 Loma Prieta earthquake, and the 1994 Northridge earthquake.”22 Another recent article23 in the Los Angeles Times24 highlights an old problem that may have new consequences. The Northridge earthquake occurred 15 years ago and many southern California apartments suffered extensive damage as a result. One complex in particular however, was deadly. The Northridge Meadows apartment complex collapsed on January 17, 1994, and killed 16 residents. The collapse was due to a weak first story. Since the Sylmar earthquake in 1971, experts have known about the problem where parking or big windows exist under the upper floors of a building, and there were efforts in many cities to beef up building codes to prevent building collapse in a seismic event. The article points out that many landlords took steps to perform interim structural repairs, but that in many cases those repairs were not permanent or were not done at all. The small posts, for example that support upper floors over carports cannot withstand the movement that occurs in an earthquake. “In the case of Northridge Meadows, the magnitude 6.7 temblor caused the second and third floors to crumple right down onto the lower floors, leaving some cars poking out of the sides of the buildings. Its collapse caused the largest number of deaths in a softstory building. The 16 people who died were on the first floor.”25 Government agencies have not exactly been on a fast track to force repairs. Fremont is reported to have sent out notices to the owners of 28 apartment buildings in 2007, the year its enhanced codes went into effect, but only two have completed the necessary retrofit. In Berkeley where 320 buildings have been identified with soft first stories, only half have applied for correction permits. We have a special concern for the numerous condominium complexes that have been 20. Berding, Tyler “The Soft Story Problem and Earthquake Safety,” op. cit. 21. “Likelier Here: the Next Big One,” Los Angeles Times, April 15, 2008. 22. Association of Bay Area Governments (ABAG,) “Expected Housing Losses in a Major Earthquake” 2002. 23. My thanks to Fred Pilot and Evan McKenzie for providing us with this article. 24. Chong, “Quake vulnerability of ‘soft-story’ apartments in state still widespread,” Los Angeles Times, January 17, 2009. 25. Ibid. ECHO Journal | October 2011
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converted from older apartment buildings. We have seen many that were built before 1994 and some which appear to have soft first stories—mainly where parking exists under the second or more stories of the building. Our experience is that boards of directors of community associations responsible for these buildings barely have sufficient funding to do routine painting and roof repairs. The cost of a seismic retrofit is not only unbudgeted but probably could not be funded short of a large special assessment, which would have to be approved by the owners. An expense of that magnitude could be the difference between economic survival and obsolescence. We recommend that any suspected “softstory” building be inspected by a structural engineer. If the conversion has been recently done, the seller may be responsible for the costs of a retrofit if one is necessary. But in any case, the board and the owners will need assurance that, if the “big one” hits the Hayward or the San Andreas Fault, Bay Area communities will not suffer the same fate as those in Northridge.
Part II How to Prepare for a Natural Disaster What’s common to all of the foregoing examples? They all involve special districts or community associations that had to deal with the effects of natural disasters. They were and are completely reliant upon the individual homeowners for the necessary funding. Public agency funding was and is not available. They also involved disasters in which, in most cases, insurance is either excluded (flood and landslide insurance) or extremely costly and with large deductibles that make its purchase a questionable investment (earthquake insurance.) They also involve communities for which reserve funding for natural disasters is non-existent. The lucky ones, those that discovered landslide, structural, flood, or erosion threats while there was still time left on the statute of limitations, were able to bring claims that produced enough cash to retrofit the buildings or fix the damage. Others like Bethel Island, or any development more than ten years old, have no such recourse. In every case, however, proper preparation can reduce the consequences of a disas20
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ter. Here are four things boards of directors should do to prepare for a disaster: • Investigate your exposure (Chapter 4) • Review your insurance (Chapter 5) • Retrofit your buildings (Chapter 6), and • Advise your members (Chapter 7.)
The board can retain experts to investigate the vulnerability of the project to potential natural disasters. Older buildings, hillside common areas, proximity to the bay or ocean, construction on engineered fill or bay mud can expose an association to serious damage from storms, rising sea levels, or earthquakes. For example, older construction should be analyzed for issues such as the soft story problem and similar constructionrelated failures. Appropriate experts, structural and civil engineers, contractors and architects can conduct the necessary inspections and provide the board of directors with reports outlining any concerns and proposals for repair. Because buildings are not single products but rather an assembly of individual parts and components designed and put together by different individuals and companies, when acts of nature intervene to test the resistance of buildings and their components to storms, floods and earthquakes it is never exactly clear how a particular building will perform. For these reasons, qualified experts are a necessary and valued part of the determination of a project’s vulnerability to natural disasters. Experts are professionals whose credentials qualify them to analyze the ability of a building or other infrastructure to perform under stress. The qualifications needed are determined by the nature of the threat and the component, but with community associations experts are predominantly architects and engineers. Architects are generalists, who by education and professional preparation are capable of designing almost any component of a building as well as the entire assembly of components. Civil engineers, on the other hand, can be generalists also and/or specialists in certain discrete parts of the project. Geotechnical engineers study soils and the cause and cure of landslides and foundation design. Structural engineers investigate the ability of the building framework to resist earthquakes,
evaluate damage and distress in buildings, and assist in foundation design and repair. Civil engineers also can investigate earthworks, like levees, and drainage improvements to determine their ability to withstand rising sea levels or floods. There can be overlap among these disciplines and between architects and engineers; the board should discuss their exposure concerns with any proposed experts to be sure they have assembled the right team. Once employed, experts can begin an investigation aimed at three things: (1) does the project have a particular vulnerability to natural disasters; (2) if so, how do we fix it; and (3) how much will it cost to retrofit? These are important issues that, once determined, can provide a board of directors with a road map to improving the chances of the community surviving a natural disaster.
Boards should review their existing insurance program and any additional available insurance coverage to be sure that they are as insured as currently available policies and their budget allow. Most property policies insure an association against losses by fire, but few include earthquake or landslide protection and may expressly exclude such perils. Earthquake insurance is offered, but it is very expensive and high deductibles would require a cash reserve beyond the capability of most community associations. An insurance broker who specializes in insurance for community associations has published a comprehensive outline of earthquake insurance questions and answers on its website.26 But should a board invest in earthquake insurance notwithstanding the cost? Attorney Steven Weil has explored the dilemma a board faces when the pressure mounts, usually after another earthquake disaster, to buy earthquake insurance for the association: “If the governing documents require a board to obtain earthquake coverage but none can be obtained, a record of that fact should be maintained and communicated to the membership. The board should then seek an amendment to the governing documents to eliminate the provision requiring the board to obtain the coverage. California law permits the board to petition the Superior Court to clarify the association’s 26. www.timothycline.com/hoa/earthquakes.php ECHO Journal | October 2011
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responsibilities relative to coverage where the members refuse to approve or finance its cost. If the governing documents allow the board to obtain earthquake insurance ‘as deemed prudent,’ the board should determine whether it is, in fact, reasonable to obtain and pay for the coverage. If the premium can be paid without an increase in assessments (or without an increase beyond 20 percent of the existing budget), no membership vote is required. The board should, however, advise the membership of its decision and the reasons therefore.”27 The Federal Emergency Management Act (FEMA) offers flood insurance for community associations in certain qualified areas. Their booklet states: “Condominium associations may purchase insurance coverage on a residential building, including all units, and its commonly owned contents under the Residential Condominium Building Association Policy (RCBAP). The unit owner may separately insure personal contents as well as obtain additional building coverage under the Dwelling Form as long as the unit owner’s share of the RCBAP and his/her added coverage do not exceed the statutory limits for a single-family dwelling.”28
Multi-family buildings with “soft stories” should be considered for retrofit before another earthquake. There are several ways of retrofitting a building with weak support for the upper floors. Buildings with large openings at the ground floor should be closed or framed to prevent failure in an earthquake. A noted structural engineer, Thor Matteson, has written: “The floor layouts that make many condominiums and townhouses economical to build and maintain also make them vulnerable to earthquake damage. A typical condominium unit has many openings in the front and rear walls: either garage
doors, entries, windows, or sliding patio doors. Since there is typically another unit next door, the side walls cannot have any openings. Large openings (or several smaller openings) in walls reduce the ability of the wall to resist earthquake forces. Retrofitting an individual unit with extensive openings in the front and rear walls can be accomplished by installing a steel ‘momentframe’ in each of those walls. However, such moment-frames are costly to fabricate and install. Fortunately, the same traits that make condos economical to build in the first place could (with some creative legal and engineering solutions) also make them more economical to retrofit. The above solution would work easily for an apartment building, where the manager could simply say, ‘Your unit is the one with slightly less storage because of the seismic retrofit frame.’ With condos, all sorts of issues could arise—for instance, is an easement required for structural elements that clearly cross property lines? If the moment-frame that strengthens an entire building is within an individual unit, would the association have right-of-entry to perform inspections? Do the owners of the unit with the frame pay less in assessments because they are giving up space? Are they compensated because there will be more disturbance to their unit during construction? For many condo associations, addressing these issues could allow a much more economical retrofit of a building as a whole versus retrofitting individual units as completely separate entities. Community associations exist to achieve solutions to common problems, so a cooperative solution should be within reach.”29
27. Weil, Steven, “Community Association Decision-making: Who Decides?” Berding|Weil Library (2010). 28. FEMA, “Answers to Questions about the National Flood Insurance Program.” 29. Matteson, Thor, “Earthquake Retrofits: Solutions for Low-Rise, Wood-Framed Condominiums” www.shearwalls.com. ECHO Journal | October 2011
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Implementing the best possible retrofit will be expensive in most cases, but probably less expensive than repairing post-earthquake damage or even obtaining insurance according to at least one source.30 Nevertheless, if an expert investigation identifies a serious vulnerability in the project, the board should consider the possibility of a special assessment or bank loan to address it. If the project is not yet ten years old or is a conversion, a claim against the developer or converter may still be available. The association’s legal counsel can explore that possibility on behalf of the association.
The board should notify the members of the association’s disaster preparedness and post-disaster plans. Once the board has investigated the vulnerability of the project, reviewed and chosen appropriate insurance, and determined whether a repair or retrofit to vulnerable building components is in order, it should advise the members so that they understand the decisions that have been made, and, where possible, include them in the planning process. A board of directors has extraordinary powers, including—in emergencies affecting safety or involving unforeseen expenses—to levy special assessments without membership approval. In reality though, without the support and confidence of the membership, no plan can “save” the community from a disaster (at least, not without judicial or governmental intervention). The board can earn membership support and confidence by being candid with the community about the challenges being faced and showing leadership in developing solutions. As discussed throughout this article, the board should engage qualified consultants to provide an analysis of the risk of personal injury and property damage from an event (flood, earthquake, landslide, etc.). The directors should meet with these experts in person after receiving written reports addressing the issues. Follow up may be required—perhaps with other experts, contractors or a construction manager—to assess the experts’ input and to price further testing or recommended repairs. Reliable information should be obtained with reasonable speed and when building conditions and the beginnings of a plan become known, the information should be shared with the members. The board should be prepared to address objections based on uncertainty, doubt and fear about both the risks faced and the cost of a repair. It is wise to consider options proposed by members and to engage in an open dialogue about how the community as a whole will respond. The board should not assume its tentative plan is the only one that can work and some modifications might be needed based on cost or other considera-
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30. Matteson, Thor, “Earthquake Insurance and Retrofit Choices for Condominiums,” www.shearwalls.com. ECHO Journal | October 2011
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tions. Identifying the right approach for each community does not happen in one meeting or letter, especially when the repairs are expensive or the members are dubious about the need for upgrades. Creation and adoption of a successful plan should be seen as a process requiring many months and hard work. One way of engaging the membership is by creating a disaster preparedness committee. It could be charged with assisting in the development of a repair plan or gathering information for publication on the website concerning, for example, contact information for local hospitals, best methods of exiting buildings, locations of fire-extinguishers, ladders and shut-off valves, a “neighborhood watch” type system to assist those in need after an event, the storage of medical equipment, flashlights, extra cell phones and radios. The regular publication of committee activities coupled and the board’s ongoing efforts are ways of keeping the membership engaged in the larger debate of whether and to what extent repairs or upgrades to respond to catastrophic events should be pursued and financed. No specific California law requires disclosure of common area conditions that might be vulnerable in the event of a disaster but some laws come close. A reserve study must be obtained every three years that is intended to identify the remaining life and cost to replace physical components with a defined useful life. The association must also disclose anticipated special assessments based on the reserve study or those that have been approved even if not yet imposed. The exact nature of the disclosure obligation in a situation involving conditions that only become significant if a disaster occurs— for example, the lack of adequate drainage on a hillside that, with excessive rain, could cause it to slide into homes; or the lack of properly rated fire walls—requires careful consideration and advice from qualified legal counsel. But, regardless of whether the law requires disclosure, the best way to help a community face future challenges is by timely communicating building or other common area conditions causing concern, and developing emergency preparedness plans together, with the board and members participating. The Internet can help. For starters, we’re at the point where almost all associations should consider having their own website. Typically, it will include copies of important
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records—the governing documents, board policies, the budget and reserve study, architectural application forms and meeting minutes are common. But the site can also be an effective source of information both before and after a catastrophic event, especially if buildings become uninhabitable forcing residents to live elsewhere. The site could be used to schedule meetings; keep members abreast of demolition and access to obtain personal property; actions being taken by government officials; and important updates relating to votes, special assessments and financing. For the site to be really effective however, it must be created before the event occurs and regularly publicized as “the” place to go to obtain information about the association if a disaster does occur.
Part III What’s Left after Disaster Strikes? So what happens if a community association’s property or buildings are destroyed in an earthquake, a landslide, or flooding for which there is little or no insurance and no legal recourse to the developer? Here are a few options and the chance of success of each: 1. Assess the members? Fine for minor damage, but the cost of repairs for major destruction damages is often beyond the statutory authority of the board to assess. The California Civil Code limits boards to special assessments up to five percent of the prior year’s budget without a vote of the members. And will members likely approve an assessment sufficient to rebuild substantial portions of the project? That depends upon the value of the potentially rebuilt project compared to the cost of reconstruction. It also depends upon the political will of the members since most community associations must seek member approval for any substantial assessment. As the case of Bethel Island illustrates, even where a real threat to survival exists, the members—perhaps having lost faith in the board or simply because new taxes are unpopular—voted “no,” refusing to fund critical repairs to the levee system. Also, in bad economic times like we are presently experiencing, the value of homes may be less than the mortgage, giving owners little incentive to pay additional assessments and collect28
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ing from owners who are “underwater” can be a dead end. 2. Obtain a bank loan? Many banks are generally willing to lend associations the funds to perform their repair obligations. These loans are secured by the association’s reserves, income stream, and its authority to collect assessments. As a practical matter, any loan will require membership approval, at least for the special assessment to repay the loan and, in some cases, for the specific loan itself depending on the bank or the association’s governing documents. But, if equity is low or repair costs high, the bank may require that the members pay a certain portion of the repair cost “from their own pockets” before the loan will be funded. All this is problematic if owners are considering walking away from the development based on the repair costs or the magnitude of the damage. Bank loans, while possibly forming an important resource for financing post-disaster repairs, may not be adequate to raise needed cash and won’t be easy to get. Also, since an association has only the right to collect assessments and has no real estate of value that could secure a loan, the bank may want to look to the members individually as the only real security—facts that may make member approval of a loan no slam-dunk. 3. Declare bankruptcy? Why not just allow the association to declare bankruptcy and walk away from any obligation to repair or rebuild? Bankruptcies don’t typically occur with community associations for these two basic reasons: the association cannot avoid its ongoing responsibility to levy assessments to make repairs and any repair expense that is sought to be discharged in bankruptcy would be passed through to each individual owner. The association’s obligation to fund its maintenance and repair obligation is mandated by California’s Davis-Stirling Common Interest Development Act. The California Civil Code contains the following language: “Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title.”31 In a recent court case32 the judge used the authority given to boards to levy emergency assessments and the owners’ obligation to pay assessments as grounds to charge individual owners for a debt of the corporation. The import of that case is that individual lot and unit owners are not insulated from the debts of the corporation.33
For these reasons, a bankruptcy filing will not normally be considered a remedy available to a community association in financial distress. So the association is probably its own largest creditor given its legal obligation to maintain and repair the property. A project devastated by a natural disaster has little left to offer other creditors except, perhaps the value of the land. A trustee in bankruptcy would succeed to the rights of the association and would have the authority to assess the individual owners which, in turn would likely hit the same wall discussed above—owners may just abandon their property rather than pay the cost of a major reconstruction. 4. Condemnation? If all else fails, and there is no available funding, and the buildings cannot be repaired so that they are once again suitable to live it, the city or county will declare them uninhabitable—“red tagged” if you wish—and condemn them. Condemnation does not mean that the city will buy them—that’s inverse condemnation and only works when the city does something that incidentally deprives the owner of the use of the property. Direct condemnation results when a building is not fit for human habitation and residents are prohibited from occupying it. Fire, earthquake, floods, and landslides have all resulted in buildings being condemned. Condemned property can be sold; it just can’t be occupied by the residents until it is made habitable. A buyer could rebuild the project or demolish what’s left and build something new—which brings us to the next option. 5. Sell the project? Yes, it is possible and in the end, that may be the only viable option. Community associations are not single parcels of land. They are comprised of multiple parcels with separate owners. In a condominium, the association owns nothing. In a planned development, the most the association owns is the common area, which generally has no inherent value without the lots. As owners walk away from property and mortgage holders start to take back whatever is left, the banks, and not the defaulting owners, could potentially become responsible for the next round of assessments to pay the cost of reconstruction—which in turn may discourage lenders from foreclosing. This could 31. See California Civil Code Section 1366(a). 32. Berding, Tyler, “No Right to Refuse Payment,” Berding|Weil Library (2008). 33. Berding, Tyler and Bonato, Sandra, “Bankruptcy Won’t Work,” Berding|Weil Library (2010).
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create a “whirlpool� effect that prompts owners and lenders to abandon ship so as not to be the last responsible party standing. If this happens, the property may just sit until some30
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one with enough capital can martial the remaining assets, and aggregate the disparate ownership interests by whatever means are available. A developer or investor could theo-
retically acquire all of the separate titles directly from the individual owners and rebuild the project—a difficult task however,
especially if some of the owners decided not to sell or could not be located. Creation of a single, salable parcel from those multiple separate interests is also possible with a member vote. If authorized by the members, the board of directors or a trustee could sell the project as a single parcel with the assistance of a court.34 When damage is severe and if the members vote not to rebuild, the California Civil Code allows the entire project to be “partitioned,” which means aggregating all of the individual titles and selling the entire project. However, it is also not hard to imagine a disaster scenario where the buildings are so badly damaged that the owners have moved away and cannot be found. There is no statutory provision that governs those cases when a member vote is impossible to arrange.35
Conclusion The End of the Road? There are tools available to address a major catastrophe. These include pursuing timely claims against responsible parties like a developer or a converter; making insurance claims; obtaining bank loans; the imposition of special assessments; or selling the entire project. In theory, one of these tools might save a project, but actually implementing any of these can be a daunting task, especially for owners with limited personal interests or assets. Depending upon how records are kept; the nature of the catastrophe; how many units, owners or buildings are affected; and other factors, including communicating with fellow members—let alone being able to schedule post-disaster meetings or votes— employing these tools may prove to be a difficult challenge. And on a personal level, even if a vote could be taken and the necessary quorum achieved, the inherent “glue” that keeps members together may be lost in the disaster—some won’t want to pay to rebuild and those who do won’t be able to do so alone. The exceptions to this scenario include those developments that were built within the applicable statute of limitations—assuming the damage was the result of a failure by the developer to adequately anticipate the disaster in the design and execution of the development. The other exceptions are pro-
jects where the damage is not serious, there is adequate insurance, or the property itself is so inherently valuable that a sale would produce proceeds well in excess of the amount of the total indebtedness against the property. The massive loss of equity that owners in common interest developments have suffered in the recent recession coupled with the likelihood that most projects are underinsured and have no reserves to address serious disasters, leaves open the very real possibility that most boards would likely throw in the towel and let the lenders take over rather than try to rebuild. Just untangling the financial interests of the owners, the association, the lenders and the insurance carriers almost guarantees that a heavily damaged project will not leave much owner equity behind. So except in those cases where the land has great inherent value, more than likely the lenders, and not the homeowners, would end up with whatever cash is derived from a sale of the project and any insurance proceeds. If that were the case, the owners would have little incentive to do anything but walk away. Witnessing the Japanese and New Zealand earthquakes and the resulting tsunami; the floods and tornadoes in the Midwest; the recent spate of damaging landslides in California; western wildfires over the past decade; and the threats posed by rising sea levels raises serious concerns about how a community association in the path of any of those threats would survive. We have warned before that community associations have a finite service life.36 Given what we know, a natural disaster could advance that inevitable deadline substantially.
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34. Berding, Tyler, “Is Your Condo Development a Candidate for Sale as a Single Parcel?” Berding|Weil Library (2010).
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35. The standard clause included by Berding|Weil in the CC&Rs that its attorneys prepare provides for alternate repair strategies to be presented to the members. But if none of the alternatives is accepted, the board of directors is given the authority to sell the property without a further vote.
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36. Berding, Tyler, “The Uncertain Future of Community Associations,” Berding|Weil Library (2005). ECHO Journal | October 2011
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VERY COMMUNITY ASSOCIATION WILL FACE
a major reconstruction project several times in the life of the development. This may occur because of clearly anticipated problems, such as re-roofing or re-painting, but it also will occur because of completely unanticipated (and unreserved-for) problems such as dry rot repair, soil subsidence, and leaks in windows, siding, and foundations. Or it can occur because of a natural disaster as discussed elsewhere in this edition. The Davis-Stirling Act requires only that a community association reserve study include those components that visual inspections into accessible areas reveal have a useful life of 30 years or less and makes no allowance whatsoever for reconstruction after major natural disasters. 32
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Even with normal deterioration, what about components in areas that are not visible or accessible? What about areas under staircases that sponsor dry rot due to longterm intrusion of water? Framing components under siding that has allowed water to enter slowly for years without any way to get it out except evaporation? Deteriorating concrete walkways or driveways due to the invasion of roots or soil subsidence due to unconsolidated fill? Or, balcony railings rotting off at their interior supports? Three people in Antioch, California were severely injured recently when such a railing collapsed. None of these building components would be included in the usual reserve study and, unless detected by some other means, would not appear in the maintenance
budget. Yet the association in a typical condominium and in many planned developments is nevertheless responsible for necessary repairs. This scenario has played out in many associations—unexpected repairs for which there was no reserve funding. So now you have a collapsed balcony or maybe a lot of rotted siding—what do you do? Finding the Right Expert The first thing to do is to retain the services of someone who can advise the association on the proper means of repair. General contractor, architect, engineer, or construction manager? Which expert will you need? A lot depends on the complexity and extent of the problem. If, for example, you have a
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failed balcony support beam—something that has rotted due to years of water intrusion—just replacing the failed beam may not be enough. You don’t want it to happen again. The first thing would be to retain someone who is a pro with waterproofing. Would you choose a building consultant or an architect? Architects are more expensive, but for a very complex waterproofing issue you want someone who has enough skill and understanding to re-design the system to make it watertight. On the other hand, if the basic design is sound, but the materials have failed to do their job, a materials consultant who specializes in waterproof membranes may be the right choice. In our practice, we would start
with the architect or an engineer because this particular balcony railing example involves a life-safety issue and because a redesign and/or strength calculations may be necessary. If their opinion is that the problem is relatively simple to solve such that a re-design of the waterproofing system or a re-calculation of the strength of the system isn’t required, and the project simply requires a re-build of the original design, then a building consultant or a general contractor might provide the specifications. But if the basic structure has proven inadequate for other reasons, such as deflection over time or failed joists or columns, a structural engineer might be necessary to do the proper calculations and provide a re-design
of the structural components. A few hours of an architect’s time will usually be enough to determine the level of expertise required for the project; so if in doubt, hire an architect first. In any case, if the job is big enough, it may also be wise to consider retaining a construction manager to represent the board throughout the process. Bidding the Job Once the problem has been analyzed and the plans and specifications for repair have been drawn, the bidding process can start. Normally a list of preferred bidders is prepared. This preference usually comes from past experience or specialty. For political, as well as economic, reasons several bids should be obtained. Even if the board or manageECHO Journal | October 2011
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ment favors a particular contractor—perhaps because of a successful project performed earlier—it is advisable to obtain at least three bids to demonstrate due diligence in the bidding process. When the bids are opened it is up to the board, with management’s recommendations, to choose the right contractor. Price may not be everything. Past performance, specialty, and availability may have important roles to play. All of those factors should be considered before the final choice is made.
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M & C Association Management Services provides community association management and developer services to Fremont, Pleasanton, Santa Clara, Stockton, Modesto, Copperopolis and the surrounding foothills. Since 1990, our sole focus has been to deliver performance that enriches communities and enhances the lives of the people we serve. M & C is proud to be an Accredited Association Management CompanyŽ (AAMCŽ), which is the Community Associations Institute’s highest GHVLJQDWLRQ DZDUGHG WR PDQDJHPHQW ÀUPV
3 3OHDVDQWRQ ‡ )UHPRQW ‡ 6DQWD &ODUD OHDVDQWRQ ‡ )UHPRQW ‡ 6DQWD &ODUD S Stockton tockton 209.644.4900 209.644.4900 ‡ ‡ 0RGHVWR ‡ &RSSHURSROLV 0RGHVWR ‡ &RSSHURSROLV
Drafting the Contract Your attorney can assist in reviewing and negotiating the contract. There are a lot of considerations, and good contract drafting is a topic all of its own. But some of the considerations are: 1. Is this a cost-plus or a lump-sum contract? 2. Does the owner furnish all plans and specifications (and accept responsibility for them) or is there an element of “designbuild� in the contract? (3) Are there unconscionable provisions—a provision buried in fine print, or a disclaimer of all express or implied warranties? Courts will often not enforce such provisions. (4) What are the payment provisions? Will there be progress payments or a lump sum at the end of the job? Will the owner hold back (retain) a portion of the payment to be sure that all mechanics liens are cleared? (5) What if the project is delayed? Should there be penalties for that? What about incentives for bringing in the job sooner? (6) How are we to deal with changes? (7) Who bears the responsibility for misleading drawings or specifications (see 2 above)? (8) What insurance will the contractor be required to carry? (8) What warranties or indemnity will the contractor be required to provide? (9) What licenses must the contractor have? (10) Will the owner have the right to stop work and under what circumstances? We could go on, but you get the idea. There are many questions that must be asked and which can only be answered in the context of the particular job. Your attorney working with your architect or engineer can fashion a contract that is appropriate for the job. Funding the Project How will the association pay for all of this, especially if it is a job that no one expected to have to do? Generally speaking there are
For management proposal information, please visit www w.mccommunities.com or email inffo@mccommunities.com Continued on page 41 34
October 2011 | ECHO Journal
Legislation at a Glimpse As of September 23, 2011 Bill No.
Author
Subject
Status
Position
Summary
AB 19
Fong
Submetering
Failed passage in Assembly Housing.
Support if Amended
For new construction of multi-unit structures, requires the installation of water sub-meters.
AB 20
Halderman
Construction Defect Disclosure
Failed passage in Assembly Judiciary.
Oppose
Requires that an attorney make certain written disclosures to a client in a potential construction defects action. Failure to disclose would constitute cause for professional discipline.
AB 579
Monning
Mobilehome Attorneys Fees
Hearing 5/10 canceled at author’s request.
Support
Would permit the award of attorney's fees to local governments in an action brought by the owner of a mobilehome park to challenge the validity of a local ordinance.
AB 771
Butler
Sale Disclosure Signed by Documents Governor.
Neutral
Provides that the time frame and fee limitation for providing specified documents to an owner of a separate interest apply to an agent of the association.
AB 805
Torres
Davis-Stirling Revision Part 1
Passed Assembly 5/2. Two-year Bill.
Support
This is the first of two bills from the California Law Revision Commission that restate and clarify the Davis-Stirling Act.
AB 806
Torres
Davis-Stirling Revision Part 2
Passed Assembly 5/2. Two-year Bill.
Support
This is the second of two bills from the California Law Revision Commission that restate and clarify the Davis-Stirling Act.
AB 818
Blumenfield
Right To Recycle
Signed by Governor.
Watch
Would establish “Renter’s Right To Recycle Act.”
SB 150
Correa
Rental and Lease Rights
Signed by Governor.
Support if amended
Would require associations to permit rentals by unit owners.
SB 209
Corbett
Electric Vehicle Charging Stations
Signed by Governor.
Oppose
Makes void and unenforceable any prohibition by an association that restricts the installation or use of an electric vehicle charging station. Requires homeowner to pay for all charges and damages associated with installation and maintenance.
SB 561
Corbett
Third Party Collections
In Assembly Judiciary. Two-year Bill.
Oppose
Would require any 3rd party acting to collect payments or assessments on behalf of an association to comply with the same requirements imposed on the association. Makes statement of legislative intent.
SB 563
Transportation & Housing Committee
Electronic Meetings
Signed by Governor.
Support
Prohibits electronic meetings except for emergencies. Prohibits boards from taking action outside of a meeting. Requires boards to provide agendas of executive sessions. Requires boards to give notice two days before an executive session.
SB 759
Lieu
Artificial Turf
Vetoed.
Oppose
Voids provisions in governing documents that prohibit artificial turf. Allows associations to establish design and quality standards.
ECHO Journal | October 2011
35
Beyond Privatopia $20.00 Non-Member Price: $25.00 The rise of residential private governance may be the most extensive and dramatic privatization of public life in U.S. history. In Beyond Privatopia, attorney and political science scholar Evan McKenzie explores emerging trends in private governments and competing schools of thought on how to operate them, from state oversight to laissez-faire libertarianism.
Condominium Bluebook 2011 Edition $18.00 Non-Member Price: $25.00
Condos, Townhomes and Homeowner Associations Member Price: $29.00 Non-Member Price: $45.00
This well-known compact guide for operation of common interest develop ments 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.
To make it these a sustainable investment, new buyers, owners and board members need to understand “best practices basics” of how this form of housing works and have more realistic expectations of this form of “carefree, maintenance free” living.
Robert’s Rules of Order $7.50 Non-Member Price: $12.50
The Board’s Dilemma $10.00 Non-Member Price: $15.00
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.
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.
Community Association Statute Book—2011 Edition $15.00 Non-Member Price: $25.00 Contains the 2010 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, Govern ment and Vehicle Codes important to associations.
cial e p S rice P
Homeowners Associations— How-to Guide for Leadership Member Price: $15.00 Non-Member Price: $25.00 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.
FOR Board Members Reserve Fund Specialists Property Managers Unit-Owners, Accountants Lawyers, Builders
NEW
2 CHAP TERS ON OP ERATI BUDGETS NG
2011 Community Association Treasurer’s Handbook Member Price: $29.00 Non-Member Price: $35.00 The Handbook is an in-depth guide to all aspects of association finances, including accounting methods, financial statements, reserves, audits, taxes, investments and much more. Not for the accounting novice, this is a tool for the treasurer or professional looking for specific information about association finances.
RESERVE FUND
ESSENTIALS THIRD EDITION FIFTH PRINTING JONATHAN H.
JUFFS Reserve Fund Specialist
Two experts discuss reserve fund planning and control in a refreshingly readable and exceptionally levelheaded style.
GRAHAM D.
OLIVER Board President (ret.), Reserve Fund Aficionado
INCLUDES RESERVE FUNDS FOR CONDOMINIUMS COMMUNITY ASSOCIATIONS HOAs CO-OPS MEMBER-OWNED PROPERTIES MUNICIPAL FACILITIES
Reserve Fund Essentials Member Price: $18.00 Non-Member Price: $25.00 Questions & Answers About Community Associations Member Price: $18.00 Non-Member Price: $25.00 For 12 years, Jan Hickenbottom answered homeowners’ questions in her Los Angeles Times column on community associations. Now collected in one volume, readers can find answers to almost any question about CIDs.
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.
The Condo Owner’s Answer Book $15.00 Non-Member Price: $20.00 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.
2011 ECHO Annual Seminar Program Book $25.00 Non-Member Price: $35.00 This 300+ page reference book contains the presentation outlines, text and handouts from the sessions at the 2011 ECHO Annual Seminar held on June 18, 2011. It also contains vital information for association directors, such as assessment collection policies, internal dispute policies, and much more.
Dispute Resolution in Homeowner Associations Member Price: $20.00 Non-Member Price: $25.00 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 www.echo-ca.org
Bookstore Order Form Board Member’s Guide for Contractor Interviews $20.00 Non-Member Price: $25.00
Executive Council of Homeowners 1602 The Alameda, Suite 101, San Jose, CA 95126 Phone: 408-297-3246 Fax: 408-297-3517 TITLE
QUANTITY
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.
SUBTOTAL CALIFORNIA SALES TAX (Add 9.25%) TOTAL AMOUNT
Yes! Place my order for the items above. Board Member’s Guide for Management Interviews Member Price: $20.00 Non-Member Price: $25.00 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.
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
ECHO Events Calendar
Save these dates
Save these dates for the 2012 ECHO Annual Seminar June 22, 23
Wednesday, October 5 Maintenance Resource Panel 12:00 Noon 1602 The Alameda, Suite 101 San Jose
Saturday, October 22 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m. Crowne Plaza Foster City 1221 Chess Dr., Foster City
Friday, December 9 East Bay Resource Panel 12:00 Noon Massimo Restaurant 1604 Locust St., Walnut Creek
Wednesday, January 18 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park
Wednesday, October 12 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell
Thursday, November 3 North Bay Resource Panel 11:45 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael
Wednesday, December 14 South Bay Resource Panel 12:00 Noon Il Fornaio 302 S. Market St., San Jose
Tuesday, November 8 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz
Wednesday, December 21 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park
February 4 Marin Seminar 8:00 a.m. to 1:00 p.m. Embassy Suites 101 McInnis Parkway, San Rafael
Friday, October 14 East Bay Resource Panel 12:00 Noon Massimo Restaurant 1604 Locust St., Walnut Creek Friday, October 14 ECHO Annual Membership Meeting 10:00 a.m. ECHO Office 1602 The Alameda, Suite 101 San Jose Wednesday, October 19 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park
Monday, November 14 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant Oakland Wednesday, November 16 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park Wednesday, December 7 Maintenance Resource Panel 12:00 Noon Location TBD
Thursday, January 5, 2012 North Bay Resource Panel 11:45 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael
Friday and Saturday June 22, 23 ECHO Annual Seminar Santa Clara Convention Center Santa Clara
Monday, January 9 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant Oakland Tuesday, January 10 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz
Regularly Scheduled ECHO Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 38
October 2011 | ECHO Journal
Meeting First Wednesday, Even Months First Thursday, Odd Months Second Friday, Even Months Second Monday, Odd Months Second Tuesday, Odd Months Second Wednesday, Even Months Third Wednesday, Monthly Quarterly
Location ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Massimo Restaurant, Walnut Creek Francesco’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Il Fornaio, San Jose Eugene Burger Management Co., Rohnert Park Varies
ECHO 2011 Peninsula Fall Seminar Year-End Hot Topics Seminar Agenda
Peninsula Seminar Saturday, October 22, 2011
8:00
Registration and Sponsor Tables
8:45
Welcome and Introductions
9:00
Reserves—Planning the Money —Tom O’Neill, Reserve Analysis Consulting
Crowne Plaza Hotel
9:50
Fresh From The Capitol —2011 HOA Legislation —Sandra Bonato, Esq., Berding|Weil
Registration Fee: $49 Non-Members: $59
10:40
Break
11:00
Ten Common Security Mistakes —Kenneth Carlisle, CPP, The Carlisle Group
Yes, reserve ___ spaces for the Peninsula Seminar. Amount enclosed: $__________ (attach additional names)
11:50
Anatomy of a Disputed HOA Election —John Gill, Esq., Hughes Gill Cochrane
12:40
Questions and Answers —All Speakers
1:00 p.m. Drawings for Sponsor Prizes 1:05
Adjourn
8:00 a.m. to 1:05 p.m. 1221 Chess Drive, Foster City
Name: _______________________________________________________ HOA or Firm: _________________________________________________ Address:_____________________________________________________ City: __________________________ State: _____ Zip: ____________ Phone: ______________________________________________________ Visa/Mastercard No._______________________ Exp. Date: ________ Signature: ___________________________________________________ Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Return with payment to: ECHO, 1602 The Alameda, STE 101, San Jose, CA 95126 Telephone: 408-297-3246; Fax: 408-297-3517
ECHO Honor Roll
About
ECHO Honors Volunteers Beth Grimm 2011 Volunteer of the Year ECHO Resource Panels Accountant Panel Richard Schneider, CPA 707-576-7070 Central Coast Panel John Allanson 831-685-0101 East Bay Panel Beth Grimm, Esq., 925-746-7177 Mandi Newton, 415-225-9898 Legal Panel Mark Wleklinski, Esq. 925-280-1191 Maintenance Panel Brian Seifert, 831-708-2916 North Bay Panel Diane Kay, CCAM, 415-846-7579 Stephany Charles, CCAM 415-458-3537 San Francisco Panel Jeff Saarman, 415-749-2700 South Bay Panel Toni Rodriguez, 408-848-8118 George Engurasoff, 408-295-7767 Wine Country Panel Maria Birch, CCAM, 707-584-5123
Legislative Committee Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry Bowles Joelyn Carr-Fingerle, CPA John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.
40
October 2011 | ECHO Journal
SF Luncheon Speakers John Allanson Jeffrey Barnett, Esq. Tyler Berding, Esq. Ronald Block, PhD. Sandra Bonato, Esq. Wendy Buller 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. Beverly Gordon, CCAM Sandra Gottlieb, Esq. Beth Grimm, Esq. Brian Hebert, Esq. Roy Helsing Stephen Johnson, CFP Garth Leone Nico March Kerry Mazzoni Thomas Miller, Esq. Larry Pothast Larry Russell, Esq. Steve Saarman Jim Shepherd Nathaniel Sterling, Esq. Debra Warren, PCAM, CCAM Steven Weil, Esq. Mark Wleklinski, Esq. Glenn Youngling, Esq.
Seminar Speakers June 18, 2011 ECHO Annual Seminar Julie Adamen John Allanson Jeffrey Barnett, Esq. Tyler Berding, Esq. Jacquie Berry Sandra Bonato, Esq.
Jeffrey Cereghino, Esq. Timothy Cline Paul P. Cordova, PE Alan Crandall Bradley Epstein, Esq. Lisa Esposito, CCAM John Garvic, Esq. Beverlee Gordon Sandra Gottlieb, Esq. Patrick Holman Linnea Juarez, PCAM, CCAM David Kuivanen, AIA Kerry Mazzoni Evan McKenzie, Esq. Steven Saarman Brian Smith Deon Stein, Esq. Wanden Treanor, Esq. Steven Weil, Esq.
Recent ECHO Journal Contributing Authors July 2011 Charlotte Allen Beth A. Grimm, Esq. Larry Mesplé Lise K. Ström, Esq. August 2011 Regan Brown Walter Campbell, CMCA, PCAM Mark Greening Robert M. Nordlund, P.E., R.S. Joseph Stein Richard Tippett Paul W. Windust, Esq. September 2011 Julie Adamen Tyler P. Berding, Esq. Timothy Cline Beth A. Grimm, Esq. Judy O’Shaughnessy
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 1,450 homeowner associations, you can become an associate member and join 350 other firms serving this important membership.
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 Non-members/Homeowners Businesses & Professionals
$50 $75 $125
How Do You Join ECHO? Over 1,800 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for membership, call ECHO at 408-2973246 or visit the ECHO web site (www.echo-ca.org) to obtain an application form and for more information.
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The Big Surprise Continued from page 34
only a few options. If the job is contemplated and funded in the reserve fund, no problem. But what about those surprise projects? We discuss natural disaster repair funding elsewhere, but for surprise repairs due to typical deterioration the association can borrow the money—either from a bank or from itself. It can go to its reserves, but generally funds borrowed from reserves must be repaid within a year. Or it can go to the members for a special, or increased monthly, assessment to pay for it. If the proposed special assessment is no more than 5 percent of the existing budgeted expenses, or the job requires no more than a 20 percent increase in the regular monthly assessment, the board can simply impose it; otherwise it will have to go to a vote of the members, not usually an easy thing to win. But a big job can quickly outdistance those statutory maximums and if the member vote does not approve the new assessment, recourse to a bank may be the only option. If all goes well and the job is completed on time and on budget, terrific! But if the con-
tractor defaults, either because he does not complete the job or is proceeding so slowly that it will not be completed on time, or because the inspectors have rejected work, it may be time to consider termination of the contract. But before that happens, consult with the association’s attorney to be sure that the contract provisions are followed so that the association will not itself be in breach. Next to a natural disaster, a big, unexpected construction job is probably one of the most disruptive events in an association’s life. Some associations never recover. This can be avoided with early inspections of all building components, whether visible and accessible or not, so that failure can be anticipated in enough time to adequately reserve for the costs. Like cancer, early detection offers the best chance for a cure.
Ace Property Management . . . . . . . .17 American Asphalt . . . . . . . . . . . . . .10 American Management Services . . . .8 Angius & Terry . . . . . . . . . . . . . . . . .3 A.S.A.P. Collection Services . . . . . . .20 Association Reserves . . . . . . . . . . .24 Berding | Weil . . . . . . . . . . . . . .11, 44 Collins Management . . . . . . . . . . . .17 Common Interest Management . . . .21 Community Management Services . .12 Compass Management . . . . . . . . . .13 Cool Pool Service . . . . . . . . . . . . . .18 Cornerstone Community Mgmnt . . . .18 Ekim Painting . . . . . . . . . . . . . . . . .12 First Bank Association Bank . . .10, 18 Flores Painting . . . . . . . . . . . . . . . .34 Focus Business Bank . . . . . . . . . . .13 Gachina Landscaping . . . . . . . . . . . .9 Helsing Group, The . . . . . . . . . . . . .25 M & C Association Services . . . . . . .34 M. L. Nielsen Construction . . . . . . .26 Massingham and Associates . . . . . .24 Master Plumbing & Sewer . . . . . . . .43 Mutual of Omaha Bank . . . . . . . . . .16 Oliver Management Network . . . . . .25 PML Management Corp. . . . . . . . . .16 Pollard Unlimited . . . . . . . . . . . . . .26 R. E. Broocker Co. . . . . . . . . . . . . .17 Rebello’s Towing Service . . . . . . . . .27 REMI Company . . . . . . . . . . . . . . . .25 Saarman Construction . . . . . . . . . .20 Statcomm . . . . . . . . . . . . . . . . . . .26 Steve Tingley Painting . . . . . . . . . . . .2 Valley Landscape Management . . . .31 Varsity Painting . . . . . . . . . . . . . . . .27
Tyler Berding is a founding partners of Berding|Weil, LLP, a real estate law firm located in Alamo, California. For more information, please see the firm website at www.berding-weil.com. ECHO Journal | October 2011
41
New election rules: $500 In today’s economic crisis, there may be some items that associations can cut to reduce costs. ECHO membership is not one. Let’s face it, educated board members are better fiduciaries, which helps them to avoid costly law suits and possibly personal liability. ECHO is the premier resource in California for board member education. ECHO offers new articles each month with practical and easy to understand advice about current California requirements, and what may be on the horizon. ECHO staff is available by phone or E-mail to answer members’ questions about association problems or to recommend competent professional services when necessary. And with discounted member rates at more than a dozen educational events throughout the year, ECHO is simply the best educational resource for California homeowners.
Avoid Litigation Each year, as a member benefit, ECHO sends every board member a copy of the updated Community Association Statute book. Every issue of the ECHO Journal and every seminar examine one or more aspects of compliance with association law, because one of the major causes of expensive litigation is ignorance of the law.
Mailing ballots: $200 Make Better Financial Choices Many associations struggle to understand reserve funding requirements and strategies, the benefits and disadvantages of using special assessments, proper collections practices, and even how to determine what components the association is required to maintain. At a time when wise financial planning is essential, ECHO members have access to a wealth of articles about reserve funding, budgeting, insurance, collections, and much more. Fight Costly Regulation Every year, Sacramento legislators introduce more legislation that confuses the job of California board members and increases the costs of compliance. ECHO is committed to fighting unnecessary regulation in California and promoting the interests and welfare of common interest developments. Hire Competent Professionals ECHO offers a variety of articles and publications to help members evaluate their service providers, including questions to ask prospective management firms and contractors. All ECHO Journal articles are available to members at no cost, and publications are sold to members at a discount.
Avoiding a lawsuit: Priceless. Spend a Little, Get a Lot The cost of ECHO membership is minimal. In a worsening economy, associations are looking to cut big expenses from their budgets. Yet, ECHO membership is as little as 25¢ per unit each month. For that small cost, here’s what every board member receives as part of being a member of ECHO: • A subscription to the ECHO Journal • An annual copy of the current Community Association Statute book • Unlimited access to ECHO’s library of past articles • Telephone consultations with ECHO staff about their problems • Reduced fees for ECHO events • Discounted prices on publications • And much more… In These Tough Economic Times, ECHO Membership is a Necessity As the only California organization devoted exclusively to board member and homeowner education, ECHO is a one-of-a-kind resource that your association can’t afford to lose.
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