Journal_11_11

November 2011

A Journal for California Community Association Leaders

echo-ca.org

Killer Weed

ALSO INSIDE THIS ISSUE:

• From a President’s Perspective • Assigning Responsibility for Maintenance • Borrowing from Reserves

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

Save these dates for the 2012 ECHO Annual Seminar June 22, 23

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From a President’s Perspective—page 6

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From a President’s Perspective An association president often has a unique view of the many challenges facing associations and even the personalities of both directors and members.

The author draws upon his experience from three terms as president and many years as a director to discuss what makes a good board of directors.

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.

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Associations increasingly face issues with medical marijuana. It is a confusing area because federal and state laws conflict and social mores are in constant flux. This article addresses whether the use of marijuana, medical or otherwise, is a violation of most CC&Rs, and what can or should be done about it.

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Killer Weed in the Common Area?

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Board of Directors and Officers

One of the most confusing areas is where to draw the line between association and individual responsibility for maintenance and repair. This is especially true of exclusive use common areas and where buildings have aged significantly and need more than just paint and reroofing. Read attorney Glenn Youngling’s take on this subject.

President David Hughes

Treasurer Diane Rossi

Borrowing from Reserves

Secretary Dorothy Kopczynski

Finding the money to operate an association today is not easy. Boards are caught between keeping assessments low and having sufficient funds so that the board does not have to borrow and impose assessments. Attorney Beth Grimm discusses the pitfalls of borrowing from the reserve fund to accommodate shortfalls in the budget.

Directors Paul Atkins John Garvic Robert Rosenberg Brian Siefert Steven Weil

32 News from ECHO 33 Legislation at a Glimpse 34 Directory Updates 36 ECHO Bookstore 38 Events Calendar

Jerry L. Bowles David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Oliver Burford Communications Coordinator Tyler Coffin Legislative Consultant Government Strategies, Inc. 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.

Killer Weed—page 14 November 2011 | ECHO Journal

Vice President Karl Lofthouse

40 ECHO Volunteers

On the Cover 4

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

Assigning Responsibility for Maintenance

Departments

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1602 The Alameda, Suite 101 San Jose, CA 95126 408-297-3246 Fax: 408-297-3517 www.echo-ca.org info@echo-ca.org

PRESENTING 2011–2012 ECHO Events 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 21

June 22, 23

September 22

October 20

By Pete Pearson

From a President’s

Perspective A

N ASSOCIATION PRESIDENT OFTEN HAS A

unique view of the property he or she manages, the many challenges of finance and construction issues and even the personalities of both the board of directors and the membership. Three terms as president, and many more years as a director, gives me

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November 2011 | ECHO Journal

insight to comment on building your team and what makes a good board of directors.

Build Your Board First, let’s build your board. Homeowners may assume that anyone with a pen and pencil can be a board member. Sometimes,

ECHO Journal | November 2011

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your own board or management company will want to fill a vacancy with the first willing, warm body. This usually will be a fatal error.

Is the new candidate really willing? What are his or her interests? What is his work, travel and vacation schedule away from home? Will she be an absentee board member and what is your board ratio of live on the premises board members vs. absentee homeowners? It is generally much more difficult to work with an absentee member who is on the board for name only. The board will carry a greater workload and not have that person’s input or assistance. Sometimes, the absentee board member will sabotage the board by telling others that he or she did not agree with a controversial decision or that he or she was not involved.

I recall vividly one time when the vice president and I went to interview a prospective board member. We had zeroed in on a retired business manager. As we spoke with him, we realized he reacted slowly and really had no interest in being on the board. His interest was golf and it turned out his wife was really the better candidate. Don’t overlook mixing your board to get a combination of perspectives, both male and female.

I prefer to hand select prospective board members in advance of a vacancy. Have a few members in the wings as possible candidates and discuss their merits with board members.

Find out their interests and professional background. Balance your board and consider representation from the various size homes in your complex if that is an issue.

Condominiums in our development vary in size from 954 to 2,500 square feet. We have inclusionary units with no garages, no fireplaces and no decks and then some units with two car garages and space for two additional cars. This can cause friction between the little guys and those of perceived wealth, whether true or not. You need the perspective of everyone before you make a major decision. Would you clean fireplace flumes at HOA expense, or should that cost be borne by the homeowners that have fireplaces?

A board member with a maintenance or real estate background may be perfect to oversee repair and landscape projects in your development. A business major, CEO or CFO, may be just the person to lead assessment reviews and monthly financial discussions. And the social person may be the one to lead a committee or organize a yearly yard sale, pool party or other activity. The president mostly needs to be good at leading oth8

November 2011 | ECHO Journal

ers to work for him or her! It’s not his or her job to dominate the board.

Construction Projects Our board has found it advantageous to assign a director to oversee construction projects that do not need a hired construction consultant. This may be a minor road resurface to landscape and paint. Again, using an experienced board member, perhaps retired, who has the time to spot-check daily the work being done can nip errors or omissions in the bud and achieve the quality job your association paid for. Believe it or not, you do not always get what you pay for!

Balance your board and consider representation from the various size homes in your complex if that is an issue.

In some instances a contracted company may use a “B” or “C” team to do smaller projects. Day laborers may be used instead of skilled painters, in violation of the contract.

In our case that is just what happened.

Several directors noted numerous violations including laborers using small scraps of sandpaper and painting in the rain, a failure to remove nails as specified in the contract and poor preparation and caulking. After consulting with our attorney, we stopped the project and had several meetings with the paint manufacturer and the painting company. The errors were documented in photographs, and we settled successfully outside the courtroom. We were able to resolve the problem because we had a few dedicated directors recording the daily mishaps of the contractor.

But often, you have board members who are working full-time. They may not have the interest, expertise or time to be problem solving a contracted job for the association on a daily basis. That’s when you need to call in the big guns. Often for a reasonable price you can hire a construction expert to oversee your project. The advantages are many. The construction manager will have the right qualifications for the job assignment. He or she will then monitor the project daily and hold the contractor accountable for any violations of the written order. Contractors are

less likely to sway from the specs or argue with a known professional manager in the field. And your construction manager reports directly to the board.

Emails Emails are a modern day popular form of communication that can bite you in the rear.

I started out trying to be email friendly and responsive to our community. But soon I realized one popular member would use emails to build support for an architectural change outside of filing the proper forms.

Others would use any response from the president as carte blanche approval to do whatever they wanted and circumvent the system of checks and balances. Now, I’m more careful how I respond to a member and I always copy my response to the property manager. It’s also a good idea to keep your property manager in the loop when directors respond to discussions by email. Emails often are now subpoenaed in both criminal and civil court cases.

Rotation of Officers The president is the most visible member of the board and often the first asked for comment on a proposal by a homeowner.

Rotating officers every two to four years is probably good overall for the organization. I firmly believe that we all have a “shelf life” with the membership. A grace period exists for the president, but after so many years you are bound to have made some decisions that have rubbed a few people the wrong way. In our association these areas tend to be architectural changes, fines, parking issues and pool closures.

A Man’s Home is His Castle One time I jumped the architectural process by stepping into a homeowner’s home to make suggestions for getting wood floors approved through committee. I thought I was being helpful and instructed the homeowner on how to separate the areas of the home for consideration. Well, it backfired. The committee denied the wood floors and the owner has not talked to me since.

Sometimes what we see as helping is seen as meddling.

CC&R Enforcement Encourage your board to be understanding of homeowner decorations of their personal spaces. Almost everyone wants to personalize his or her space, whether it is with flowerpots, temperature gauges or other decoration. The CC&Rs should be adhered to for their intended purpose. We enforce the ECHO Journal | November 2011

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white window dressing requirement but relax on outdoor barbecues for those units that do not have a garage or deck. In other words, pick your battles and tread lightly!

Our board decided to allow parking in driveways as long as the vehicle did not protrude into the fire lane. But we drew the line for multiple vehicles even if you could crowd three or four onto a driveway intended for two.

Problem Homeowners and Robert’s Rules of Order I would like to say that I’m up to date on Roberts Rules, but that is not always the case.

A good knowledge of the above can help you effectively control problem people that appear before the board.

We have a homeowner who is frequently out of compliance with the CC&Rs, off his medications and who has threatened board members from time to time. After a number of encounters on the property and in the board room I realized that whenever we called him on a CC&R violation he would turn the tables by attacking one or more board members verbally with construction violations of their own. These meetings would quickly escalate to a yelling match between the eccentric homeowner and the board member verbally assaulted.

At our next meeting I pointed out his antics in advance to board members and suggested that we each keep calm and deflect his attack in a form of verbal judo. As anticipated, he deflected our efforts to discuss the violations at hand and immediately launched into a tirade against one director. I calmly advised him that we were here to discuss his violations and that we would table his accusations for another meeting date in accordance Continued on page 12

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November 2011 | ECHO Journal

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.

President’s Perspective Continued from page 10

with Robert’s Rules. When his friend spoke up I advised her she was not a home owner and not part of the discussion. Although the issue was not resolved, our homeowner stormed out screaming and we all regained our composure. Robert’s Rules had saved the day!

And for Directors I try to start every meeting on time and sometimes this means interrupting a social conversation to get things rolling. On other occasions a board member may be questioning the association manager on an individual personal expense that would be best taken up in private outside the meeting. Starting a meeting promptly is a courtesy to the board members present. After an introduction of guests I then remind the board that we have a lot on the agenda with a quick citing of the major topics. This alerts the board that I will keep the meeting moving and not allow rambling conversation. I do make sure that all board members have their say on any given topic. I feel you can usually tell if there are lingering questions, and I will call on that board member if he or she has not spoken up.

A good president should have a good idea in advance how each of the board members is likely to vote on any given issue.

Pay particular attention to senior members of the board that speak softly but carry a big stick. They may have historical data recollection about the association that your more junior members do not have. You can also call on the senior member for a viewpoint to help balance off-the-wall suggestions that can be costly. A good president should have a good idea in advance how each of the board members is likely to vote on any given issue.

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November 2011 | ECHO Journal

Special guests, such as contractors, construction managers, insurance rep and security manager, should be taken out of order as quickly as possible. I may dispense with a few brief items to get the agenda rolling and then take the “working person” as soon as possible. This person is on the clock, so to speak, and is offering us an inside view that we may not see on the written reports.

Don’t Blind-Side the President Don’t blind-side the president or other directors at a meeting. Bring up ideas, suggestions, etc., before the meeting for thought. This can easily be done by email by sending your comment to the association manager for distribution. Keep everyone in the loop and you will avoid claims of favoritism, even if you disagree with the suggestion or comment. Once the decision is made at a board meeting, it is final. All directors should support 100 percent the policy set—even if the decision was made by a split vote. What is said in the boardroom stays in the boardroom. Homeowners have a unique ability to recognize dissention in a board and to manipulate individual board members that they may see as sensitive to their viewpoint. Don’t let it happen.

I encourage all board members to read and study financial reports in advance. I often send an email reminder ahead of meeting. First, this alerts the board to the upcoming meeting they may have forgot and secondly, it shortens long periods of silence as members review the financial and management reports. I prefer to jump right into questions and answers.

Conclusion The task of the president for an association is to keep the board members involved.

It’s building a team that will anticipate and be sensitive to homeowner demands and interests. Keep board members involved by recognizing the expertise that each may bring to the table and by frequently asking for their input. Rotate officers for cross training and never play favorites. Work out in advance an approach to problem people appearing before the board. Robert’s Rules of Order may help in controlling difficult persons.

Pete Pearson is a three-term board president and prior multi-term association director. He also served as a director in a large law enforcement fraternal association for fifteen years. He holds a bachelors degree in management.

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November 2011 | ECHO Journal

By Paul Windust, Esq.

Killer Weed in the Common Area?

How Boards Can Deal with the Use of Medical Marijuana

C

OMMUNITY ASSOCIATIONS INCREASINGLY FACE

issues with medical marijuana. It is a confusing area because federal and state laws conflict and social mores are in constant flux—especially when it comes to marijuana. Long gone are the days when the high school health teacher could show “Reefer Madness” and his students would accept that marijuana use leads straight to jail, depravity, or worse! Today, attitudes toward many substances, including marijuana, are more relaxed—at least at the state level. But regardless of current social opinions on the use of marijuana, the question that board members and managers ask us is whether the use of marijuana, medical or otherwise, is a violation of their CC&Rs, and if so what can or should be done about it?

Current Law The Controlled Substances Act makes it unlawful to manufacture, distribute, dispense, or possess any controlled substance. The federal government does not recognize any acceptable medical use for marijuana. [21 U.S.C. 812(b)(1)] Therefore, under any version of Federal Law, marijuana use for any purpose is illegal.

California, on the other hand, legalized marijuana for medical purposes. Medical marijuana is authorized by Health & Safety Code 11362.5 et. seq. for the treatment of serious medical conditions and is administered by California’s Department of Public Health. Upon obtaining a recommendation from a physician for use of medicinal marijuana, patients may apply for and

ECHO Journal | November 2011

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be issued a medical marijuana identification card. With one exception, qualified patients may possess no more than eight ounces of dried marijuana. [H&S Code 11362.77(a).]

Therefore, provisions in CC&Rs that make any violation of law a violation of the CC&Rs do not work when trying to prevent medical marijuana use in a community association.

But the problem is more complicated than just that. Marijuana, the controlled substance, also produces smoke when burned and, just like with tobacco, secondhand smoke can be a nuisance to neighbors.

Controlling secondhand smoke in the common area is supported by the typical nuisance provisions found in most CC&Rs. Secondhand smoke, whether cigarette, cigar, marijuana or otherwise, that drifts into other units, balconies, or common areas can be restricted by the association. Members have a right to the quiet enjoyment of their own units and don’t have to endure secondhand smoke of any kind wafting into their units; and few people would question the validity of CC&R provisions that prohibit secondhand smoke.

Provisions in CC&Rs that make any violation of law a violation of the CC&Rs do not work when trying to prevent medical marijuana.

An association’s authority to regulate the use of medical marijuana inside units is less clear. Health & Safety Code 11362.79 implies that smoking medical marijuana in one’s residence is allowed. As long as the smoke does not create a nuisance and provided the person has been authorized to use medical marijuana, smoking it in a unit is probably allowed under California law. As a result, a board might have better success regulating marijuana use by focusing on the secondhand smoke or nuisance aspects.

Qualified persons are allowed to cultivate (grow) marijuana (H&S 11362.775) but may not keep more than six mature or 12 immature plants [H&S 11362.77(a)]. Just as smok16

November 2011 | ECHO Journal

ing marijuana has limitations in a community association, growing it can also be regulated.

For example, boards could require that plants be grown in the person’s unit and not on balconies or in open view. What follows are some guidelines on how a community association can legally regulate certain uses of medical marijuana.

Enforcement Under the Nuisance Provision of the CC&Rs A typical nuisance provision in the CC&Rs of a homeowners association might provide as follows: “No noisy, hazardous, noxious, illegal, or offensive activity shall be allowed on or emanating from any Lot or portion of the properties, nor shall anything be done or kept on Lots or Common Area which may be or become an annoyance, a disturbance, a nuisance, or safety hazard to the neighborhood, or which shall unreasonably interfere with the quiet enjoyment of the other residents...”

The law recognizes two types of nuisances: (1) a private nuisance, and (2) a public nuisance. A private nuisance affects one or a few property owners. A public nuisance affects an entire community or neighborhood. A nuisance is “anything that is injurious to health... or is indecent or offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property.” [California Civil Code § 3479.] To constitute a nuisance, the invasion of the owner’s interest in the use and enjoyment of his or her property must be substantial, based on proof of significant harm judged by an objective standard. [San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893.] The legal test for determining whether an owner has suffered an unreasonable interference with the use and enjoyment of his or her property is whether the gravity of the harm outweighs the social utility of the offending conduct.

In the usual CID context, the conduct complained of would likely be a private nuisance. If only a few owners complain about marijuana plants or marijuana smoke, it really is not a community-wide issue or one that a municipality would enforce. The affected owner and the association have standing to enforce the nuisance provision. If the association determines that this is an issue that it should enforce, the association will need to determine whether the claimed invasion of the complaining owner’s property right is substantial. That means it is determined by what a “reasonable person” should have to

endure living in close proximity to others. It is not judged by what only the complaining owners consider substantial. Cases dealing with this issue have held that a nuisance can exist where fumes, odors or smoke are unreasonably offensive to persons of ordinary sensibilities, even though they do not cause material injury to property or endanger health and safety. So, while an owner does not have to be hyper-sensitive or allergic to claim a private nuisance, their opinion alone is not enough.

A nuisance can exist where fumes, odors or smoke are offensive to persons of ordinary sensibilities, even though they do not cause material injury.

When an issue arises, the association should investigate the claimed smoke or odors and determine if there is secondhand smoke escaping from the unit or if any smell connected with the marijuana use is unreasonably offensive to persons of ordinary sensibilities. If it so concludes, the association may take action to abate the nuisance by banning smoking indoors and/or by requiring the removal of the plants from the lot or restricting them to indoor cultivation. This assumes that the offensive smell from the plants, when grown indoors, does not proceed outdoors. If this cannot be accomplished, or in the case of secondhand smoke, the association may require the owners to install negative air or HEPA filters to ensure that smoke odors do not proceed outdoors or into adjacent units.

The procedure in enforcing the nuisance provision can be taken administratively or judicially. The administrative procedure involves noticing a hearing with the offending owner per the rules set forth in the bylaws and having the board make a determination that a nuisance exists. The board would order the owner to remove the plants and perhaps refrain from smoking outdoors.

The owner’s failure to abide by this decision

would result in the board’s issuing a fine to the offending owner.

Judicial enforcement involves a two-step process. First, the association would serve a Request for Resolution on the owner demanding that the owner attend mediation of the dispute. If mediation does not result in the desired removal of the plants, then the association could initiate a lawsuit seeking a court order that the plants be removed from the outdoors and an order that the owner refrain from smoking outdoors. If the association prevails in this action, the offending owner would be required to pay the association’s legal expenses.

Enforcement By Amending the CC&Rs Another enforcement tool is an amendment to the CC&Rs. Many cities and counties currently have in place provisions prohibiting smoking in public places such as restaurants, public meeting places, and office buildings.

Many associations have amended their governing documents to include anti-smoking provisions prohibiting smoking in common areas. The enforceability of these private antismoking provisions has not yet been tested in the courts. However, given the health and safety issues implied, and the success of municipal ordinances covering the same issues, it is our opinion that association’s antismoking provisions would be enforceable.

The issue for an association is whether to enact an anti-smoking provision as an association rule or to amend the CC&Rs. Further, the association must decide whether to target marijuana smoking or smoking in general.

Generally speaking, an amendment to the CC&Rs prohibiting smoking in the common area and outdoors would be more enforceable than adopting an operational rule.

Restrictions in a recorded declaration are presumed reasonable and can only be overcome when it is shown that the restriction violates some public policy or infringes on an important property right. The California Supreme Court has held as follows: “Under the holding we adopt today, the reasonableness or unreasonableness of a condominium use restriction that the Legislature has made subject to section 1354 is to be determined not by reference to facts that are specific to the objecting homeowner, but by reference to the common interest development as a whole. As we have explained, when, as here, a restriction is contained in the declaration of the common interest development and is recorded with the county recorder, the restriction is presumed to be

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reasonable and will be enforced uniformly against all residents of the common interest development unless the restriction is arbitrary, imposes burdens on the use of lands it affects that substantially outweigh the restriction’s benefits to the development’s residents, or violates a fundamental public policy.”

This standard presents a formidable hurdle for anyone challenging a provision in an association’s CC&Rs. CC&R amendments and their presumed reasonableness should be contrasted with a “rule,” which is not entitled to a presumption of reasonableness. To enforce an operational rule, the burden is on the association to show that the rule is reasonable and should be enforced. The association would have to provide evidence that the anti-smoking rule is reasonable and show this with evidence, testimony, and likely expert testimony, if the rule is ever challenged in court.

A second issue is whether to target marijuana smoking only or smoking in general.

The problem with targeting only marijuana smoking is that, at least under California state law, there are statutes that support marijuana smoking. If the rule or CC&R amendment focuses only on marijuana smoking, a person with a valid medical marijuana smoking card could claim prejudice or bias based on his or her health issue or disability.

Therefore, we consider an anti-smoking provision restricting smoking of any kind to be more likely to withstand scrutiny, and we consider a CC&R amendment preferable to an operational rule. In either case, the association would not be able to restrict smoking inside the residential structure, although it could require an owner to use negative air or HEPA filters to ensure that smoke does not proceed outdoors or into adjacent units.

Frequently Asked Questions 1. Should the board of directors consider adopting a no smoking rule? If the board determines that the community would not pass a CC&R amendment, then that’s the best bet. As discussed above, an amendment to the CC&Rs would more easily withstand a challenge because it would be presumed reasonable. However, voter apathy or disapproval may prevent passage of an amendment. Targeting only marijuana plants and marijuana smoking could pose a problem for the reasons discussed above and why we favor a general smoking restriction. However, the issues raised by a complaining owner could

18

November 2011 | ECHO Journal

also be addressed under an existing nuisance provision of the CC&Rs. 2. Should the board amend the CC&Rs with an anti-smoking provision? As discussed above, a CC&R amendment would be presumed reasonable and would be a better option. The issue is whether the association could obtain the requisite approval of the owners. A related issue is whether the amendment would prohibit only marijuana smoking or all smoking. Targeting only marijuana smoke opens the association up to claims of bias and prejudice.

3. Should the board adopt an anti-smoking rule now, pending a CC&R amendment? Yes, if the board determines that immediate action is required short of enforcing the nuisance provision. The board must follow the procedures set forth at Civil Code §1357.130 which requires a 30-day comment period and a 15-day notice period following adoption by the board.

4. What about outreach—should the board meet with the offending owners? Yes. The board should verify the existence of the plants and interview the owner to determine when, why, and where the smoking of marijuana occurs. It should also collect information concerning the alleged medical marijuana license and determine why the owner must grow the plants in the community rather than purchase medical marijuana from licensed dispensaries.

5. Should the board meet with the complaining owner? Yes. The board should determine if the marijuana plants emit an odor that is unreasonably offensive to persons of ordinary sensibilities. If the board does not feel qualified to make this determination, then it should consider hiring an expert or consultant to advise the board on what level of odor is considered unreasonably offensive.

Marijuana use poses unique problems for boards of directors, especially given California law. Boards of directors of community associations should view marijuana like tobacco or any other nuisance when considering anti-smoking amendments or enforcement actions that involve unit interiors or exclusive use common area—control the smoke or the odor, not the substance.

Paul Windust is a partner at the Alamo Office of Berding|Weil. He participates regularly in the activities of the ECHO Legal Resource Panel, speaks frequently at ECHO seminars and is a regular contributor of articles for the ECHO Journal.

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ECHO Journal | November 2011

19

By Timothy Cline, CIRMS

Construction Costs versus Market Value Reconstruction Costs for Condominiums Edge Higher But Our Homes are Worth Less N THE PRESENT ECONOMY, associations’ boards of directors are faced with some real financial challenges.

Having a multi-year struggle with rising delinquencies and foreclosures, how does the board maintain the common area in the best condition

I

20

November 2011 | ECHO Journal

possible and still manage costs?

Some boards, wanting to eliminate unnecessary expenses, are putting pressure on service providers to simply provide the same service or materials for less money. Whether it’s landscaping, pest control, elevator

ECHO Journal | November 2011

21

How to Determine the Correct Insurable Value of Your Property There are at least three ways a board of directors could obtain advice determining the correct insurable value for their property:

GOOD

Seek the advice of a general contractor in your area who specializes in multi-family housing construction to provide you with an estimate of the replacement cost of your project.

BETTER

Consult with your insurance agent/broker or insurance carrier to determine how he/she arrived at the replacement costs for your development. Most competent insurance professionals will rely on a third-party replacement cost analysis program such as Marshall & Swift Valuation (MSB). MSB relies on actual construction costs in your community and the square footage of your development to determine the “insurable value” for a project of “like kind and quality.”

BEST

22

Hire an independent real estate appraiser to prepare a “replacement cost estimate” (land excluded) of the subject property. Be sure to provide the real estate appraiser with a copy of the CC&Rs, the Condominium Plan and a copy of the Component List from the Reserve Study—to make certain the appraiser’s estimate includes all the Common Area elements (including appurtenant structures). Don’t forget to ask your appraiser to provide evidence of “errors and omissions” coverage so you’ll know he/she has insurance to back up their professional recommendations.

November 2011 | ECHO Journal

services, janitorial or pool services—many service providers are small business owners who are, like the board, feeling the pinch in this slowly recovering, post-recession economy. Not wanting to lose the business, they are reluctantly yielding to the board’s demands.

Understandably, the placement of insurance coverage is another area where boards would like to find “maximum value” in spending their budgeted funds. Traditionally, higher deductibles have consistently been a way to provide a savings to a board.

Frankly, some boards want more. They ask, “If our condominium units are selling for less than they were in 2004, surely we could reduce our building limits, insure our condominium association for less and save premium that way?”

Not necessarily.

The market value or “sales value” of a condominium unit may have absolutely no correlation to the actual replacement cost of a project. Even though the sales price of homes in some areas of California may have decreased by as much as 30%, the construction prices (thanks in part to petroleum costs) continue to escalate. In fact, according to McGraw Hill Construction Data, the material and labor costs in San Francisco County have increased by 30.1% since December 2004.

These construction and labor costs indexes don’t rely on arbitrary values, but on comparative costs. The building materials component of this index reflect local prices on such things as Portland cement and 2 x 4 lumber coupled with the national average price for structural steel. Labor is also an important cost consideration. The labor costs in this study reflect the escalating prices of local union wages (plus benefits) for carpenters, bricklayers and iron workers.

Consider Purchasing Some Extra Protection (When Available). Special endorsements (“Extra Replacement Cost” or “Extended Replacement Cost”), when added to your policy, can typically provide an additional 20% to 25% margin in excess of the stated policy limits. This is an excellent way to provide a board of directors with an additional margin of protection. If there is a large fire or other catastrophe there may be a phenomenon called “demand surge,” which is the term used to describe the artificially higher replacement costs that occurred after the Oakland Firestorm and Hurricane Katrina because of a shortage of construction materials and labor costs. An Extra or Extended Replacement endorsement will provide the

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board with a little more protection to address the reconstruction costs.

The Bottom Line. Insuring the property on behalf of all the owners is part of the board’s fiduciary duty. Nearly all CC&Rs require the board of directors to obtain and maintain an insurance policy equal to “100% of the full insurable value” of the improvements, and yet most Directors & Officers Liability policies exclude coverage for lawsuits against a board in the aftermath of a property loss for failing to purchase the right forms, kinds and amounts of insurance coverage. Now is the time, prior to the loss, to work with your insurance agent or broker to make certain you have sufficient protection to assure you have the financial resources ready to rebuild.

Tim Cline, CIRMS, is President of Timothy Cline Insurance Agency, Inc. in Santa Monica. Tim is a former Chair of the CAI National Insurance and Risk Manager Professionals Networking Committee and former President of the Los Angeles Chapter of the Insurance Brokers and Agents Association of the West. His company is a member of ECHO. 24

November 2011 | ECHO Journal

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By Glenn H. Youngling, Esq.

Assigning Responsibility for Maintenance and Repair: The Association or the Owner? ne of the most confusing areas a homeowner association must deal with is where the lines should be drawn allocating association and individual responsibility for the maintenance and repair of certain aspects of their buildings. This is especially true of condominium exclusive use common areas and in planned developments (PD) where buildings have aged significantly and need more than just exterior paint and reroofing.

O

26

November 2011 | ECHO Journal

At the outset, it is important to understand that where the lines are drawn depends a lot on whether the development is a condominium or a planned development (which may broadly include townhouses, cluster homes and even single family detached homes). Although it may be an over-generalization, with a condominium, the association is responsible for all that is not specifically assigned to the individual owner. With a PD, the opposite is generally true; i.e., the owner is

responsible for all that is not specifically assigned to the association.

The first part of this article will address condominiums and draws on precedent set in the DavisStirling Act. The second part of the article will address PDs and offer suggestions as to how the DavisStirling Act might be applied by extrapolation to this second type of home. The Davis-Stirling Act is a set of statutes located in the California Civil Code commencing with Section 1350.

ECHO Journal | November 2011

27

Condominiums In the simplest sense, the condominium association is responsible for all common areas, individual owners are responsible for all unit areas, and there is an overlap in responsibility for exclusive use common area.

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

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

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

(Emphasis added) 28

November 2011 | ECHO Journal

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

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

Even the Davis-Stirling Act does not address all of the facets of construction your association may want to address. If your governing documents are ambiguous, unclear or fail to address other “borderline” areas, you should consider making your own policy.

Consider such areas as: • Elastomeric coatings, planks and other deck surfaces and components • Chimney flues (where creosote builds up) • Sprayed-on acoustical ceilings (that may contain asbestos in buildings constructed up to the mid-1970s) • Skylights • Fences and balcony railings.

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

• Is access by association representatives or contractors a problem?

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

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

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

• Is the component readily visible from public areas?

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

Planned Developments In most PDs, the individual homeowner owns the ground under his or her home and owns the building itself. The association traditionally is responsible to paint the exterior walls, maintain and replace the roof and perhaps maintain some areas of the landscaping adjacent to the home. Few governing documents go beyond reference to painting or reroofing. This opens many questions for the older association. Does painting include caulking? Does it include preparation of the surface for painting? Does it include patching or replacing any part of the surface that receives the paint? Does it include waterproofing windows, doors and other openings? What if the governing documents provide that the association shall maintain all of the “exterior”? Does this apply to components such as those included in the condo-

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

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

Some PD associations assume responsibility for maintaining, repairing and replacing the construction components necessary to the weatherproof “envelope” of the building.

If this is the case, it logically includes paint, flashing, trim, caulking, stucco, rain gutters and downspouts, substrate such as plywood or shingles, and any other facet necessary to keeping the structure protected from water.

Other associations will assume as little responsibility as possible and this may be limited to painting and roof work. There, individual owners must play a greater role in preserving their homes. Assuring that these owners live up to their responsibilities is a task that requires foresight, education and policing by the association.

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

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

As with the condominium association, ambiguities or lack of specificity in governing

documents are good reasons to amend the governing documents. Common sense, foresight, the quality of construction and the personality of your membership are important factors in drawing lines and defining responsibility.

In Summary If you find areas of your governing documents are less than models of clarity in assigning responsibility for certain building components, you are not alone. The key to good association management is not as dependent on where you draw the lines or assign responsibilities as it is in anticipating how best to assure that your buildings are preserved for the long run. This always involves anticipating gray areas, making clear by amendment or policy what responsibility is assigned to whom and following up to be sure that owners and the association are working together to preserve the quality of life and value of your property.

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

ECHO Journal | November 2011

29

By Beth A. Grimm, Esq.

Borrowing from Reserves How Healthy Is It? C

OMPLAINTS ARE ALL TOO

common in California about boards that borrow from or use reserve funds for expenditures other than repair or maintenance of components for which the funds are collected. There is no doubt that it is difficult making ends meet for most community associations. The expenses are rising, the members expect the dollars to stretch into appreciable services, and boards are, in many cases, facing a double-edged sword. They want to keep the assessments down if they can, but they are confronted with rising costs in many areas. Among those rising costs are insurance, utilities, administration and services. Compliance with ever increasing legislative requirements is also an ongoing concern.

At the same time, the laws are toughening up on reserve planning, borrowing and spending.

Borrowing from homeowner association reserve accounts is comparable in seriousness to borrowing from your children’s educa-

30

November 2011 | ECHO Journal

tion investment accounts or from your own retirement investment accounts. If you have specific monies set aside for these things in IRAs or other investment accounts, you know there are very stringent controls against taking money out— more stringent controls than on an association’s reserve accounts. On the bottom line, you just should not withdraw from these types of accounts unless: 1. it’s absolutely necessary; 2. you follow the legal requirements; and 3. you have a plan to repay borrowed funds.

If you continue to borrow without regard to these factors, it will likely catch up with you and your family. If a board of directors continually relies on the reserves as a backup bank, it will likely catch up with the members.

If a board is facing doubled or tripled insurance premiums, which has all too commonly occurred in recent years without sufficient warning to allow for prudent budgeting, the money has to come from

somewhere. Some boards deal with this by utilizing a remedy involving an emergency assessment. Others look to the reserves. Others still respond by offering a vote to the owners asking for approval of an assessment for the cost. Because of delays and special voting requirements that went into effect several years ago, balloting owners for approval of assessments has become quite a bit more difficult, time consuming and costly; boards may try to avoid this remedy for those matters they think they can define as an emergency.

The budget is a flexible tool, the board’s best “guesstimate” of what expenses will be for the coming year. It is based on past experience and estimates of future expenses.

Contingency accounts are common. Sometimes there is enough flex in this “guesstimate” to allow for unexpected increases.

However, “robbing-Peter-topay-Paul” is a syndrome that cannot continue from year to year. If a board exercises this practice, the board

members can get into trouble both as owners (who have to pick up the monetary slack along with all the other owners) and as board members (who could have personal liability as fiduciaries). Intentional raiding of reserves could expose board members to serious losses.

Negligence is accidental and carelessness may be forgivable, but continuing these practices after noting the resulting problems can cause a board member to cross over into the realm of punitive remedies (meaning a judgment against you that punishes that conduct, and rewards a victim beyond actual losses), or to be without a paid defense, if intentional conduct like ignoring laws and prudent choices is proved.

The issue of reserve spending is a hot topic and it’s time to focus on that.

For starters, it is important to know that there are legal restrictions in California on borrowing. Civil Code Section 1365.5(c)(1) says Continued on page 35

ECHO Journal | November 2011

31

News from ECHO ECHO Annual Meeting Oct 14 The 2011 Annual Meeting of Members was held Friday, October 14, 2011, beginning at 10:00 a.m., at the ECHO Office, Suite 101, 1602 The Alameda, San Jose. The only business on the agenda was the election of four persons to serve three-year terms on the Board of Directors.

The four candidates nominated by the Nominating Committee, who were endorsed by the ECHO Board of Directors, were elected to 3-year terms: Rob Rosenberg, incumbent Diane Rossi, incumbent Kurtis Shenefiel, incumbent Brian Siefert These directors will serve 3year terms that end in 2014.

More than 200 signed proxies were returned for the election, with 147 required for a quorum.

Dealing with Use of Medical Marijuana in HOAs Community associations increasingly face issues with medical marijuana. It is a confusing area because federal and state laws conflict and social mores are in constant flux—especially when it comes to marijuana. Long gone are the days when the high school health teacher could show “Reefer Madness” and his stu32

November 2011 | ECHO Journal

dents would accept that marijuana use leads straight to jail, depravity, or worse! Today, attitudes toward many substances, including marijuana, are more relaxed—at least at the state level. But regardless of current social opinions on the use of marijuana, the question that board members and managers ask is whether the use of marijuana, medical or otherwise, is a violation of their CC&Rs, and if so what can or should be done about it?

The Controlled Substances Act makes it unlawful to manufacture, distribute, dispense, or possess any controlled substance.

The federal government does not recognize any acceptable medical use for marijuana. 21 U.S.C. 812(b)(1). Therefore, under any version of Federal Law, marijuana use for any purpose is illegal.

California, on the other hand, legalized marijuana for medical purposes. Medical marijuana is authorized by Health & Safety Code 11362.5 et. seq. for the treatment of serious medical conditions and is administered by California’s Department of Public Health. Upon obtaining a recommendation from a physician for use of medicinal marijuana, patients may apply for and be issued a medical marijuana identification card.

Marijuana use poses unique problems for boards of directors, especially given California law.

Boards of directors of community associations should view marijuana like tobacco or any other nuisance when considering antismoking amendments or enforcement actions that involve

unit interiors or exclusive use common area—control the smoke or the odor, not the substance.

specific monies set aside for these things in IRAs or other investment accounts, you know there are very stringent controls about taking money out—more stringent controls than on an association’s reserve accounts.

On the bottom line, you just should not withdraw from these types of accounts unless: 1. it’s absolutely necessary; 2. you follow the legal requirements; and 3. you have a plan to repay borrowed funds.

Borrowing From Reserves Complaints are all too common in California about boards that borrow from or use reserve funds for expenditures other than repair or maintenance of components for which the funds are collected. There is no doubt that it is difficult to make ends meet for most community associations. Expenses are rising, members expect the dollars to stretch into appreciable services, and boards are, in many cases, facing a double-edged sword. They want to keep assessments down if they can, but they are confronted with rising costs in many areas.

Among those rising costs are insurance, utilities, administration and services. Compliance with ever increasing legislative requirements is also an ongoing concern.

At the same time, the laws are toughening up on reserve planning, borrowing and spending.

Borrowing from homeowner association reserve accounts is comparable in seriousness to borrowing from your children’s education investment accounts or from your own retirement investment accounts. If you have

Assigning Responsibility For Maintenance And Repair One of the most confusing areas a homeowner association must deal with is where the lines should be drawn allocating association and individual responsibility for the maintenance and repair of certain aspects of their buildings. This is especially true of condominium exclusive use common areas and in planned unit developments where buildings have aged significantly and need more than just exterior paint and reroofing.

At the outset, it is important to understand that where the lines are drawn depends a lot on whether the development is a condominium or a planned development (which may broadly include townhouses, cluster homes and even single family detached homes): Although it may be an over-generalization, with a condominium, the association is responsible for all that is not specifically assigned to the individual owner. With a PD, the opposite is generally true; i.e., the owner is responsible for all that is not specifically assigned to the association.

Legislation at a Glimpse As of October 31, 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 | November 2011

33

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Borrowing from Reserves Continued from page 30

that the board of directors shall not expend reserve funds for any other purpose than the repair, restoration, replacement and maintenance of major components that are the obligation of the association, or related litigation.

Member Changes Clark Pest Control 555 North Guild Avenue Lodi, CA 95240 Contact: Mark Myers Tel: 877-213-9903 Fax: 209-371-0370 www.clarkcommercialservices.com Email: mmyers@clarkpest.com Complete bed bug and pest services.

Customized reporting. Insect and rodent control. Bird abatement solutions. Weed control and lawn fertilization. Full termite services.

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To learn more, visit our membership page at: www.echo-ca.org/member/

Section 1365.5(d)(2) goes on to state that the board may authorize the temporary transfer of moneys from a reserve fund to the association’s general operating fund to meet short-term cash-flow requirements or other expenses, if the board has provided notice of the intent to consider the transfer in a notice of meeting, which is specified in California Civil Code Section 1363.05. The notice shall include the reasons the transfer is needed, some of the options for repayment, and whether a special assessment may be considered. If the board authorizes the transfer, the board shall issue a written finding, recorded in the board’s minutes, explaining the reasons that the transfer is needed, and describing when and how the moneys will be repaid to the reserve fund. The transferred funds shall be restored to the reserve fund within one year of the date of the initial transfer, except that the board may, after giving the same notice required for considering a transfer, and, upon making a finding supported by documentation that a temporary delay would be in the best interests of the common interest development, temporarily delay the restoration. The board shall exercise prudent fiscal management in maintaining the integrity of the reserve account, and shall, if necessary, levy a special assessment to recover the full amount of the expended funds within the time limits required by this section.

This special assessment is subject to the limitation imposed by Section 1366. The board may, at its discretion, extend the date the payment on the special assessment is due.

Any extension shall not prevent the board from pursuing any legal remedy to enforce the collection of an unpaid special assessment.

The intent of these sections of the Civil Code is to establish legal limits on use of reserve monies and prevent borrowing unless the board provides notice to the owners of the intent to borrow and discusses and takes action at an open meeting. Associations may borrow from the reserves to meet unanticipated operating shortfalls. (If the shortfall was anticipated, it should have been resolved

in the budget process.) If reserve monies are used other than for the express statutory purposes (repair, restoration, etc., of major components that are the responsibility of the association to maintain), then these sections require accountability by the stated notices, discussion of the matter an open board meeting, the requirement of written findings to be reflected in the minutes and “documentation.” The statute does not define “documentation” needed to delay restoration of funds beyond the one-year period. However, I can say that a court will want to see documentation if there is a challenge; and it better be there and better explain in understandable terms what happened.

Questions about this statute arise as to what constitutes a legitimate borrowing, including disagreements over the words “short-term cash-flow requirement,” and to what extent funds may be used for additional, new, or added capital improvements (necessary or unnecessary) that are not in the reserve study.

Professionals sometimes disagree on the exact intent embodied in the “one-year” payback time, which changed in 1995 from a previous “three-year” payback deadline.

Questions arise as to the effect of borrowing from reserves on the “disclosures” required

by Sections 1365 and 1365.2.5. Associations contemplating borrowing from reserves should consult knowledgeable professionals.

This is an area where legal claims may arise.

Board members have a higher duty than the average member who bugs the board with questions or serves on a finance committee.

A fiduciary is a person that is in a position of trust with regard to responsibility for the assets of others. This person is subject to liability if that trust is breached or the person lets the assets diminish under his or her control.

Civil Code Section 1365.5(d) goes on to add that when the decision is made to use reserve funds or to temporarily transfer moneys from the reserve fund to pay for litigation, the association shall notify the members in the next available mailing to all members (pursuant to Corporations Code Section 5016 which includes newsletters, etc.) of the transfer of funds and of the availability of an accounting, which must also be prepared.

This accounting must be done on at least a quarterly basis (unless the governing documents required a more stringent standard) Continued on page 41 ECHO Journal | November 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.

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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

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Not for the accounting novice, this is a tool for the treasurer or professional looking for specific information about association finances.

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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 8.25%) 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

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ECHO Events Calendar

Save these dates Thursday, November 3 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael Tuesday, November 8 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz 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 Il Fornaio 302 S. Market St., San Jose Friday, December 9 East Bay Resource Panel 12:00 Noon Massimo Restaurant 1604 Locust St., Walnut Creek

Wednesday, December 14 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell Wednesday, December 14 Wine Country Resource Panel 11:30 a.m.

Annual Christmas Luncheon Double Tree Hotel 1 Doubletree Dr., Rohnert Park Thursday, January 5, 2012 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael 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

Save these dates for the 2012 ECHO Annual Seminar June 22, 23

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

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

Wednesday, February 15 Wine Country Resource Panel 11:45 a.m.

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

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

Saturday, February 25 Central Coast Winter Seminar 8:00 a.m. to 1:00 p.m.

Hilton Santa Cruz/Scotts Valley 6001 La Madrona Dr., Santa Cruz

February 4 Marin Seminar 8:00 a.m. to 1:00 p.m.

Embassy Suites 101 McInnis Parkway, San Rafael

Friday and Saturday June 22, 23 ECHO Annual Seminar Santa Clara Convention Center Santa Clara

Wednesday, February 8 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell Friday, February 10 East Bay Resource Panel 12:00 Noon Massimo Restaurant 1604 Locust St., Walnut Creek

Regularly Scheduled ECHO Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 38

November 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 Buca Di Beppo, Campbell Eugene Burger Management Co., Rohnert Park Varies

Face

Learn to

CID Challenges

at the ECHO

Marin Seminar

Saturday, February 4, 2012 Embassy Suites, 101 McInnis Parkway, San Rafael Reserve this date on your calendar.

The complete seminar agenda will be announced in a future issue.

Yes, reserve _____ spaces for the ECHO Marin Seminar.

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

State:

Zip:

Phone: Visa/Mastercard No.

Ticket Price: $49 Non-Members: $59

Exp. Date:

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

ECHO 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

November 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 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 October 2011 Tyler P. Berding, Esq. Steven Weil, Esq.

ECHO What is ECHO? ECHO (Executive Council of Homeowners) is a California non-profit corporation dedicated to assisting community associations. ECHO is an owners’ organization. Founded in San Jose in 1972 with a nucleus of five owner associations, ECHO membership is now 1,525 association members representing over 150,000 homes and 325 business and professional members.

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

If your company wants to reach decision makers at over 1,450 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

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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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Borrowing from Reserves Continued from page 35

and it must be made available for inspection by the members at the association office.

Many boards fall short on the “pre-borrowing” requirement of notice to owners and in the preparation of an accounting. This may be because they are unaware of the law. If boards knew of the requirement, they would probably follow it. Most boards do not try to break the law; they are simply ignorant of it.

Often they find out after the fact that they have missed a step, and then the owner who pointed out the error sometimes wants the borrowing rolled back. Fixing such a situation is not the easiest thing in the world. If an expenditure was legitimate, and the board borrowed from the reserves to pay a necessary expense, and an owner points out an error, one alternate option is to seek a special assessment due and payable immediately from all owners. However that is not a very desirable alternative and the owners may prefer that the board just move on with the business at hand.

Finding the money to operate an association in today’s world is not easy. Boards are caught between owners who want to keep

assessments low and owners who want sufficient money in the association accounts when it comes time for big expenses that the board does not have to borrow and impose assessments. Costs are ever rising for associations, just as they are for everyone else. In many cases, association owners still enjoy amenities they could not enjoy if they had to pay for them as individuals in a single family home.

But a dollar isn’t stretching like it used to.

And of course, there are those cases where boards use money in the bank to fund a project that was not approved by owners, that was not in the budget, and that was not even discussed in open meetings before it was paid for or contracted out, precluding owners from having any knowledge or opportunity to object.

Ace Property Management . . . . . . . .17 Affirmative Management . . . . . . . . .13 American Management Services . . . .9 Angius & Terry . . . . . . . . . . . . . . . . .3 A.S.A.P. Collection Services . . . . . . .18 Association Reserves . . . . . . . . . . .23 Berding | Weil . . . . . . . . . . . . . . . . .44 Collins Management . . . . . . . . . . . .17 Community Management Services . .12 Compass Management . . . . . . . . . .13 Cool Pool Service . . . . . . . . . . . . . .19 Cornerstone Community Mgmnt . . . .12 Ekim Painting . . . . . . . . . . . . . . . . . .8 First Bank Association Bank Srvcs . . .8 First Bank Association Bank Srvcs . .19 Flores Painting . . . . . . . . . . . . . . . .34 Helsing Group, The . . . . . . . . . . . . .23 M & C Association Services . . . . . . .34 M. L. Nielsen Construction . . . . . . .24 Massingham and Associates . . . . . .25 Master Plumbing & Sewer . . . . . . . .43 Mutual of Omaha Bank . . . . . . . . . .10 Oliver Management Network . . . . . .23 PML Management Corp. . . . . . . . . .10 Pollard Unlimited . . . . . . . . . . . . . .24 R. E. Broocker Co. . . . . . . . . . . . . .17 Rebello’s Towing Service . . . . . . . . .22 REMI Company . . . . . . . . . . . . . . . .19 Saarman Construction . . . . . . . . . .18 Statcomm . . . . . . . . . . . . . . . . . . .25 Steve Tingley Painting . . . . . . . . . . . .2 Varsity Painting . . . . . . . . . . . . . . . .29

Good planning is of the utmost importance.

Beth A. Grimm is a Pleasant Hill-based attorney representing HOAs and homeowners in common interest developments. She is the current co-chair of the ECHO East Bay Resource Panel. Visit www.californiacondoguru.com for more information on reserves and other common issues facing HOAs and for articles, classes, publications and other available resources.

ECHO Journal | November 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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