April 2013
A Journal for California Community Association Leaders
echo-ca.org
It Takes a Village Owner and Association Mutual Maintenance Responsibility
Change Service Requested ECHO 1602 The Alameda STE 101 San Jose, CA 95126
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ECHO South Bay Educational Seminar
Note this event in your calendar
Saturday, May 4, 2013 8:30 a.m.–1:30 p.m. Price: $49 Members $59 Non-Members Register online at www.echo-ca.org or fill out the form below. Price increases $10 after April 20.
Campbell Community Center Orchard City Banquet Hall 1 West Campbell Ave Campbell, CA 95008
Yes, reserve _____ spaces for the ECHO South Bay Educational Seminar. Amount enclosed: $__________ (attach additional names) Name: Email Address: HOA or Firm: Address: City:
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Signature: Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517
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April 2013 | ECHO Journal
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 professional should be sought.
Contents 10
It Takes A Village It takes a village to manage and maintain the association’s property. Everyone—board members, residents and non-resident owners and service venders—must keep their eyes and ears open. The challenge for both association board members and property managers is educating owners and their tenants about what are their own responsibilities in maintaining and repairing their homes or units, which ultimately keeps the building in a safe condition.
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Water, Water Everywhere A burning question for associations and owners is who is responsible to make repairs and restore property when there is a water leak that causes damage to a unit or units. Water leaks require a full analysis of the facts and pertinent policies and documents to determine responsibility and insurance coverage, if any.
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Changing the Rules Can an Association legitimately transfer maintenance responsibility from the Association to the owners? Certain maintenance responsibilities can be successfully transferred from the Association to the individual owners, but Boards should be particularly careful in doing so.
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 2013 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.
ECHO 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
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Vice President Karl Lofthouse
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Monthly Irrigation Tips A handy guide to sustainable and conservation minded landscape watering.
Treasurer Diane Rossi Secretary Jennifer Allivato Directors Jerry L. Bowles Stephanie Hayes Robert Rosenberg Brian Seifert Steven Weil
38 John Garvic David Levy Kurtis Shenefiel Wanden Treanor
Executive Director Brian Kidney Director of Marketing & Membership Jennifer Allivato
Departments 6
Director of Communications Tyler Coffin
News From ECHO
32 Directory Updates 33 Calendar of Events
Legislative Consultant Government Strategies, Inc.
34 ECHO Bookstore 36 ECHO Volunteers
Design and Production George O’Hanlon ECHO Mission Statement Serving Community Associations ECHO Journal | April 2013
37 ECHO Marketplace 37 Advertiser Index It Takes a Village—page 10 5
News from ECHO April is an exciting month for us at ECHO. We are hosting our first ever tradeshow in Oakland, and are preparing to launch our new website in May. Have you signed up for access to our new website yet? If you haven’t now is your opportunity to do so. We want you to be ready to take advantage of all the new features. • The website will offer a variety of new tools: • Online access to the ECHO Journal • On-demand video education • Answers to hundreds of common HOA questions • Access to critical legislative and industry developments. • The ability to communicate with other ECHO members. I am excited about all of our new services, but particularly about the new online social tools that will allow you to communicate with other members: to share information, stories, and recommendations. We want to build a strong ECHO community that extends beyond our frequent seminars to all of our members. Our commitment to enhancing your ECHO membership experience begins with our website. Please take the first step in customizing your ECHO membership by helping us set up your new online account: provide your email address on the short form at www.echo-ca.org/email If you prefer in-person events to online training, I would like to highlight some of our upcoming Educational Seminars: • Join us on May 4th for our South Bay Educational Seminar held at Orchard City Banquet Hall in Campbell. • For the first time ECHO is bringing our Educational Seminars to Fresno! On May 18th join us at the Park Inn by Radisson. If you haven’t signed up for these exciting events yet, please fill out the registration forms in the ECHO Journal or visit us at www.echo-ca.org and look for the event links on our home page. As always, we encourage you to reach out to us and let us know how we can best serve you. Wishing all the best to you and yours,
Jennifer Allivato Director of Marketing & Membership
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April 2013 | ECHO Journal
2013 ECHO Educational Calendar Santa Rosa
Sacramento
San Rafael
ECHO Seminars Now there’s one near you.
Walnut Creek Oakland San Francisco
San Jose
Santa Cruz
If you’ve ever wished that ECHO would hold a seminar closer to your association, chances are that we’ll be nearby during 2013. We are adding more seminars during more times of the year than ever before. Take a look and mark your calendar. We can’t wait to see you there!
Fresno Monterey
Locations and Dates of New ECHO Events Apr 5–6
ECHO Oakland Seminar/Trade Show Oakland Marriott City Center, Oakland
May 4
South Bay Educational Seminar
Orchard City Banquet Hall, Campbell
May 18
Fresno Educational Seminar
Park Inn by Radisson, Fresno
Jun 15
Walnut Creek Educational Seminar
Embassy Suites, Walnut Creek
Aug 23–24 ECHO San Jose Seminar/Trade Show San Jose Convention Center, San Jose Sep 7
Sacramento Educational Seminar
Le Rivage, Sacramento
Sep 21
Monterey Educational Seminar
Hilton Garden Inn, Monterey
ECHO Journal | April 2013
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Our new website is here. Do you have access? Set up your account today. Sign up at http://www.echo-ca.org/email We are launching our new website in May. Are you ready? If you received this magazine, you are entitled to access to our new website: online articles, videos, new reference material, archived Journals, and a brand new online community.
But...
If you have not yet provided your email address through our web portal, please do so today: http://www.echo-ca.org/email You can also send an email to: newaccount@echo-ca.org. We can’t wait to show you what we have in store.
To get access, we MUST set up your account. To do that, we need your email address. Your email address will never be shared with any third party or professional member.
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April 2013 | ECHO Journal
Join us at the
New Location
ECHO Fresno Educational Seminar Saturday, May 18, 2013
Seminar Agenda
8:30 a.m.–1:30 p.m.
Board Behavior Ken Kosloff & Steve Weil, Esq.
Park Inn by Radisson 3737 N Blackstone Ave Fresno, CA 93726
Reserves: Responsible vs. Required David Hughes & Tom O’Neill
Price: $49 Members $59 Non-Members Register online at www.echo-ca.org or fill out the form below. Prices increases $10 after May 1.
Rules Adoption & Enforcement Bill Gillis, Esq. & Carra Clampitt
Yes, reserve _____ spaces for the ECHO Fresno Educational Seminar. Amount enclosed: $__________ (attach additional names) Name: Email Address: HOA or Firm: Address: City:
State:
Zip:
Phone: Visa/Mastercard No.
Exp. Date:
Signature: Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517
ECHO Journal | April 2013
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It Takes H
ave you, the board member, or your association manager experienced an incident similar to these? An owner calls at 11:00 p.m. to report, “There is water leaking into the carport.� Or, an owner calls on Saturday
morning to report that his or her unit is flooding with water from a washing machine. Chances are, if you are reading this Journal, you are a homeowner association board member, and residents in
your property expect you to solve problems which really, with some education, could have been prevented or handled by homeowners themselves. So, the challenge for both association board members and property
By Diane Kay, CCAM, and Stephany Charles, CCAM
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April 2013 | ECHO Journal
a Village managers is educating owners and their tenants about what are their own responsibilities in maintaining and repairing their homes or units, which ultimately keeps the building in a safe condition.
Association managers are constantly being educated through their business affiliations. Certified Property Managers must maintain their credentials by keeping up their education through business courses.
Association boards of directors are educated through their affiliation with ECHO and its seminars and monthly journal. These volunteers are taught that with frequent site inspections, routine maintenance and planning, peo-
Owner and the Association’s Mutual Maintenance Responsibility and How It Affects Building Longevity
ECHO Journal | April 2013
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ple can protect their building structure, thus protecting their asset. Who Are Your Homeowners? In the makeup of most associations, there is a small percentage of owners who attend the monthly or quarterly board of directors meetings. Most of these owners read the bulletins and notices and are informed about the association issues. In part, these are the same owners who join committees and are willing to volunteer their time to the community. There is also a percentage of nonresident owners who rent out their property. Although associations encourage these owners to visit their property regularly, many don’t. Historically, we find their tenants are afraid to report problems for fear that there will be a rent increase or the tenant will be financially responsible for the problem.
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Water intrusion is one of the most destructive elements to a building. This intrusion can come from the interior as well as the exterior.
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Management Service ˜ Financial Service ˜ Customer Service ACE Property Management, Inc. ‡ 1625 The Alameda, Suite 917, San Jose, CA 95126 Phone: 408-217-2882 ‡ Fax: 408-886-9474 ‡ Email: Info@acepm.net
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More often, boards of directors find that the largest percentage of owners pay no attention at all to the problems that surround their units or homes. Many of us are guilty of saying that owners think they live in an apartment building and that all they are responsible to do is lock the door before they leave. The rest of the responsibility belongs to the association. This mindset is often established when a unit is purchased because buyers are nearly always told that condominium living is carefree living. In a high-rise building in San Francisco, there was a major fiasco resulting from an owner’s broken washing machine hose. An owner on the fourth floor was out of the country. The housekeeper decided before leaving April 2013 | ECHO Journal
for the day to throw a load of dirty rags into the washer. The load was started and off she went. The owner beneath on the third floor was away on vacation also, and the resident on the second floor had just left for a planned weekend away. The doors were locked, their homes safe and away they went. Then disaster struck. No one was home to notice the water leaking from a broken washing machine hose until it reached the first floor lobby. In fact, a couple of these owners had never completed their emergency forms, and therefore, there was no way to enter their units. The fire department was called and a high-rise ladder used to remove the windows to gain access so the clean-up could begin. So, what was the financial loss from this water hose break? The water intrusion resulted in $12,000 in hardwood floor replacement and $1,100 for window repairs. And, this is just the beginning. The third floor owner had to replace appliances and expensive grass cloth wall covering that could not be matched. This owner also had an original artwork damaged. On the second floor the owner had several appliances and bamboo flooring replaced. The first floor homeowner suffered the most damage as it took several days for all the water to drip through before the drying and repairs could be started. The family on floor one lost flooring, appliances, art work and contents of their main clothes closet. How could this catastrophe have been avoided? First by inspecting appliances in our homes. This hose was a $15.00 part and, with a few hours and a preventive maintenance inspection plan, this disaster might have been avoided. More importantly, we should always think twice before leaving our home with an appliance running, especially a water appliance. Prevention, Prevention, Prevention! Educating homeowners about potential water related damage is one of the most difficult challenges that managers and board members face. ECHO Journal | April 2013
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Water intrusion is one of the most destructive elements to a building. This intrusion can come from the interior as well as the exterior. When dealing with water, time is of the essence. Water intrusion needs to be reported to the manager or the association’s emergency service and responded to immediately, because water contributes to dry rot, wet rot and mold. How Do We Educate Owners? How do we educate owners and tenants about their responsibilities? Knowing that we live in a world where we are bombarded with information, and most of us do not have the time to read everything that is sent to us, how do we go about educating people? The answer is to try everything and anything. Each of us processes information differently. You will reach homeowners with varying means of communication. For example: Annual Meetings In the announcement for the Annual Meeting let the homeowners 14
April 2013 | ECHO Journal
know that you will have in attendance a service vendor to make a presentation on a specific maintenance issue with the focus on prevention. Make sure the speaker provides visuals. Special Meetings Hold special onsite meetings with the fire department or a service vendor to review property components. Community Awareness Bulletins and Newsletters During the Spring and Fall or at quarterly intervals, provide reminders on seasonal maintenance and care for the interior and exterior of your units/homes. Exclusive Use Common Area Inspection or Review Visit decks, balconies and enclosed patios with a professional and have owners present to listen to what they could be doing to improve their property and to keep it safe. Use a check list (there is a sample attached). Websites Establish a website where information can be obtained by owners and tenants regarding property maintenance. Sources of High-Risk Components Our homes are filled with many sources of potential trouble from appliances to fire safety issues. How do we remember them all? We have provided below a list of high-risk areas to help you get started. This list is a work in progress, and we’re sure that you will be able to add more components when you create such a list for your own association. Kitchen, Bathrooms and Laundry Room Water Heaters—Lifespan 11–14 years. Must be maintained, anchored to the wall for safety. Keep the area around your water heater clear of debris. Don’t forget that water heaters require special earthquake strapping. Warning: If you see rust in the line, the failure is imminent. Routine maintenance includes flushing out sediment. Washing Machines—Feeder hoses should be made of flexible metal for more durability. Inside exit water ECHO Journal | April 2013
drains should be kept clear of debris to ensure proper drainage. Shut the hot/cold valves off when going on vacation. Dryer Vents—Clean the lint trap after each load. Clean ducts at least once per year. Follow instructions of the owner’s manual. Dishwashers—Feeder hoses should be made of flexible metal, and it is important that the hose is not bent. Make sure you keep the inside water exit drains clear of debris so water can exit. Refrigerators—Lifespan 15 years. Clean coils regularly. Check seals and water connections for an icemaker. Icemakers are the silent intruder because the problem usually manifests as a slow drip hidden between the walls, causing slow deterioration before it rears its ugly face. Disposal—Use as directed and check often for leaks. Kinks and tight bends can cause the hoses to fail. Recommend changing hoses every two years. Toilets and Sinks—Plumbing, Plumbing, Plumbing! Take note of leaks! Often a leak is caused by a break in the wax seal or small crack in the toilet. Replace faucet washers or o-rings as necessary and remove and clean the aerator. Use a screwdriver to see if the floorboards are spongy. If the floor is damp, you need to replace the gasket. You may want to consult a professional for this. Showers—If you do not keep your shower head clean, it can back up causing a leak down the plumbing line. Also, caulking tubs and showers should be an annual review. The smallest crack in the grout enables water to get behind the walls. The caulking around shower fixtures should also be examined. Always run exhaust fan or open a window while showering. Bedrooms and Living Rooms Windows—Check for tight seals and soft caulking and keep weep holes clean and do not seal these. Let your rooms breath! Open windows and airout the house when possible. 15
Furnace—Approximate Lifespan: 20+ years. Change your furnace filter yearly for safety, longer life and better performance. Keep combustible materials stored away from your furnace. Make sure that access doors and ducts fit tightly. Exclusive Use Exterior Areas Decks and Patios Weight—Consider the planter, soil, plant/tree over saturation. Plants/Vegetation—Keep vegetation away from structures. Use a trellis or lattice for your climbing vines. Standing Water—Remember that West Niles virus is here. Help discourage mosquito breeding grounds by removing water from plant saucers. Drains—Keep surface drains clear of debris such as leaves. Barbecues—Hot ashes from grills can compromise the weatherproof membrane. Furniture—Pad the feet! Bird Feeders/Pet Food—Food left out attracts rats, mice, skunks and moles. Keep food in sealed containers and do not leave pet food in dishes outside. Attachments to Exterior Surfaces— Avoid this practice whenever possible. There are correct ways to affix almost everything. Learn how or let an expert do it for you so that walls will not be damaged or invite moisture into the structure. Miscellaneous Issues Carports/Driveways—Cleanup vehicle fluids dripped onto asphalt/concrete as soon as possible. Be mindful when disposing of hazardous waste material. Report Lifting Concrete—A quarter inch lift is considered a trip hazard. Report Ponding on Asphalt—Water source can be from rain, irrigation or a broken pipe. Get the problem corrected. Report Vandalism—Vandalism is upsetting even when the motivation is not malicious. Timely action will minimize or can prevent lasting damage. 16
April 2013 | ECHO Journal
Fire Safety Issues Smoke and CO Alarms—Change the batteries. Consider daylight savings time change days as a reminder. Fire Extinguishers—Certify them once per year. Consider your birthday as a reminder.
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“
Educating homeowners about potential water related damage is one of the most difficult challenges that managers and board members face. It Takes a Village
”
Remember, it takes a village to manage and maintain the association’s property. The association manager is not the only one responsible for this task. Everyone—board members, residents and non-resident owners and service venders—must keep their eyes and ears open. Yes, your service vendors! Ask them to report to you anything unusual that they notice while working on your property. When something doesn’t look right, a phone call to the appropriate person should be made. The efforts of everyone working together as a team is what it takes to keep your investment sound.
Stephany Charles and Diane Kay are association managers in Marin County. Stephany is the owner at Charles Property Services in San Rafael, and Diane Kay is the owner of Kay Star Property Services in Novato. Both firms are members of ECHO and both authors are members of the North Bay Resource Panel. ECHO Journal | April 2013
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burning question for associations and owners is who is responsible to make repairs and restore property when there is a water leak that causes damage to a unit or units. It’s not an easy question to answer because there are so many factors to consider. 18
Where did the water come from? I’ve always advocated that it is critically important to properly identify the source of any reported leak, and document it, even if the association believes it is strictly the owner’s responsibility! Why? There are at least two reasons:
(1) you might be wrong and (2) even if you are right, the Board may have the responsibility to make sure the owner resolves the problem and negates any threat to the neighbor’s property or common area. Thus an association board in any attached multi-unit housApril 2013 | ECHO Journal
By Beth Grimm, Esq.
Water, Water Everywhere Who Is Responsible for the Damage? ing units should stick their noses in at the very least to investigate and document the situation, even if the board believes the leak is not the association responsibility. It is the responsibility of the board to act prudently and turning ECHO Journal | April 2013
a blind eye to water leaks and damage can backfire. What Role do the Governing Documents Play? Understanding what the governing documents say about responsibility is critical. Equally important is under-
standing that the language in the documents may not be the final determining factor in the question of exactly who holds responsibility to make the repairs or pay for losses. And any lack of language also provides direction – pointing to the next source of author19
ity, which is California law. But one has to start with the document review of all provisions related to ownership of the areas damaged, maintenance obligations, insurance, and damage and destruction provisions to see what they say. Ownership does not always determine the maintenance or insurance obligations but the more information a board has before it, the better able it is able to proceed rationally. For example, while the association’s insurance policy may cover repairs or reconstruction of units in a casualty loss (such as a burst pipe), which could include replacement of commodes, common fixtures, cupboards, etc., at the same time the governing documents may obligate owners to maintain and replace these items as needed from general wear and tear. In these cases, if there is master coverage, the association cannot deny the owner the right to a remedy equivalent to that the coverage, if not the proceeds of a claim. (Some boards do not want to make a claim—more on that below.)
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Again, it is possible that the owner would have the obligation to do the repairs if there was no master insurance coverage; but unless the actual policy aligns with that, there is a conflict, and the owner wins (because the insurance companies will not take the risk of being sued for wrongful denial of coverage). California Law on the Subject
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Civil Code Section 1364 says: unless the Declaration [which most commonly is the CC&Rs] provides otherwise (meaning they control if they provide a different scheme), the association is responsible for repairs, replacements and maintenance of the common areas in a CID, other than “exclusive use common areas,” and the owner is responsible for maintaining his or her separate interest and “exclusive use common area.” It is confusing to the extent of the “exclusive use common area” (see more below) but does set up a default scheme—i.e., if the April 2013 | ECHO Journal
Declaration defines responsibility, it controls, and if not, 1364 does. Past Practice. In a nutshell, past practice is important to the extent that if it is determined the board did not properly apply the documents and/or statute language to past similar situations, and a party paid that should not have, that can be a problem in enforcement of obligations in the current scenario, and legal counsel should be consulted as to what exactly “that� means. What Is Important to Know About “Master� and “Individual� Coverage? The CC&Rs or Bylaws probably require the association to purchase master coverage for repair or replacement of the common area and may require coverage for the buildings that house the owner’s units. Some require coverage only to original building construction; some require insuring for Code upgrades; and some require coverage for unit betterments and upgrades. Without the obligation to insure for upgrades, owners would be responsible. But if no one makes this clear for boards and/or owners, when the conflict arises, a lot of finger-pointing begins, and sometimes the delays while the battle rages on lead to bigger problems, like additional damage and/or mold! Pay close attention to the Declaration and policy language! While common area water and sewer pipes ultimately include a point of separate service to a unit; they often are still considered common area pipes. While some Boards would like to “designate� all pipes that serve a separate unit as “exclusive use� pipes and make them the owner’s obligation, there is case law that says you cannot do that if the Declaration (CC&Rs) defines the pipes as common area. Left open is the point that if the CC&Rs define owner responsibility to begin from the point of separate service designating those pipes as “exclusive use common area� pipes, the responsibility could be shifted to owner. At least that is the way I read the Dover Village vs. Jennison case. My ECHO Journal | April 2013
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full explanation can be found in the March 2011 E-newsletter that is available in the E-News archive at www.californiacondoguru.com. And, if the Board does not carefully review the insurance policy as well, it may miss language that abrogates the CC&Rs. Some policies contain language covering “exclusive use” common area pipes even with that designation, opting instead to avoid arguments by providing coverage simply because they are part of the common area property. There Are Two Policies (Hopefully) to Check There are two policies involved in condo and attached townhouse associations to be concerned with (although I’ve seen a few weird exceptions). The “master” coverage is what the association purchases to cover the real property it must insure and the owners’ individual coverage is com-
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monly known as an HO-6 policy. If an owner does not have an individual policy then he or she is likely to try and pressure the association to pay, justly or not. Thus, I believe it wise when updating governing documents to require owners to purchase individual HO-6 policies, but also to make it clear that associations are not responsible to police the purchase. A way to provide “incentive” without an enforcement “hammer” is to make it clear that no loss may be claimed against the association policy or the association itself that would have been covered by such a policy, had one been purchased. Homeowner association insurance is a complicated subject and carriers’ opinions about application do not always align with the Board’s opinion; that is why it is important to ask questions and seek clarification up front if there is any lack of understanding about what the policy covers, instead of waiting until
“the” big loss occurs. Inundating owners with information about how they can get coverage for things like deductibles charged to the owner and replacement of furniture, wall and floor covering and personal property is the best way to help them understand as a responsible owner, they can be part of the solution to help their association avoid high risk premiums or loss of the ability to get coverage. As to water damage, a “covered” event is generally associated with an immediate, direct, or sudden and accidental discharge of water. A leak occurring because of a lack of maintenance is usually not covered. Seepage from the outside of the building is usually excluded because it requires “flood” coverage. So, for example, if shin-
April 2013 | ECHO Journal
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gles and roof paper blew off the roof in a storm and there was water intrusion as a result, it would probably be covered. If the roof leaked because it was not maintained properly the property insurance company would likely deny coverage. One might make a breach of duty claim under the D&O policy for failure to maintain the roof, which lends itself better to the discussion of whether negligence was involved (see below). If someone overruns a tub it is negligence, and that might be covered under the association’s policy, but should logically be covered under a homeowner’s policy. This is an area where the owner’s carrier sometimes pushes back, claiming that the damage is something an owner would expect would be covered under the master policy, arguing that since the owner pays a portion of the cost of master coverage he or she should be able to rely on it to cover accidents. Don’t get me wrong. Sometimes it all works out as one would hope, but other times the parties have to “duke it out” and information is power: information gleaned from understanding the situation, the governing documents, AND the insurance policies involved. What About Negligence? Negligence can be a factor. Clearly, if there is no insurance coverage available, and the documents do not clarify responsibility, or even if they do set the threshold standard, negligence may be a determining factor that sets or shifts responsibility. I cannot cover all possible scenarios here, but simply raise some pertinent questions. We are getting into an area that is complicated enough that you probably need a lawyer’s help. Besides the fact that insurance coverage can override negligence as a factor, a layperson isn’t generally able to determine negligence unless it’s obvious. Heck, sometimes it’s hard for an attorney. Take for example a tub overflow due to leaving the room. That is clearly negligence. But what about the failure of the seal under a toilet? Negligence is a cause of April 2013 | ECHO Journal
action that stems from breach of a duty (usual standard is that of a prudent person), that causes the identified damage. So in this last example, would a prudent person normally perform regular inspections to check or replace the seals? Probably not. But once there is a problem, then everyone argues it is the other party’s responsibility. Is there a duty on anyone’s part to regularly remove a commode and look? Probably not. Can the average person tell if a seal is gone? I doubt I could. Are the seals part of the common area, or the Unit? Hard to tell. The brightest and best can argue about it. What if the board was privy to failure of seals being a common occurrence in units because of age or other factors? Would it have a responsibility to inspect or repair? To warn the owners? Probably would have a duty to do something with that knowledge. Would the association be responsible for the damages from a failed seal if it did? If it didn’t? And after all, what do we purchase insurance for? Accidents? Negligence? Basically, it’s for “calamities� that are synonyms for disasters, catastrophes, mishaps, tragedies and accidents, and sometimes simple carelessness, like ignoring a condition that could lead to disaster. The above questions can be better answered by a legal professional who can look at the facts and suggest actions, including pros and cons, costs, and risk considerations, than a board made up of lay volunteers, especially if those volunteers do not like or are suspicious of the owner(s) making the claim! Does a Board Have to Report Every Claim to It’s Carrier—Even Those That Do Not Exceed the Deductible of the Policy? I know that there are readers that want to hear, “not always,� “especially if there is a concern for a negative claims history.� But alas, the “prudent� answer is usually “yes,� absent a sustainable and prudent “self-insurance� plan and fund in place that would cover the loss. If a board fails to give the insurance company notice of a water damage loss ECHO Journal | April 2013
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that might actually be covered, within a specified number of days after the event is discovered (commonly within 30 or 60 days of discovery), it gives the company grounds to deny the claim if/when it is later discovered that the damage was worse than first reported. And that can be a BIG, BIG PROBLEM! Let’s say there is only a 1% chance of this “big” problem for an association. Do you as a board want to be that association? Denying owners access to coverage that is available or may be available is a breach of duty. If the association is self-insured and pays the loss out of pocket, that is maybe the one exception. But what if it “self-insures” for small claims and the matter moves from that category to a big claim or demand? Can you go back and then hit up the insurance company? Not likely. It is a risk-balance argument every time but boards tend to forget that they have to consider all owners collectively, as a whole, rather 26
than resting on what risks they would be willing to take as individuals. According to insurance company professionals who speak at the industry seminars I have attended, a notice of potential claim that is less than the deductible or involves a non-covered event does not get counted as a “negative” on the association’s claims history so there is no risk in giving notice. I believe the inclination of attorneys who practice HOA law and some Boards would argue with that general representation, and most would agree that it seems likely an underwriter would look at the whole picture, but a truth remains—there is considerable risk in withholding information about a potentially covered claim from the carrier. Boards can improve the association’s position by raising deductibles substantially, and by amending their documents to clarify or redefine responsibilities and accountability, but trying to improve the position by sit-
ting on or refusing to tender claims is pretty risky. A Few Parting Points There are agents or brokers well versed in HOA policies, but those that do not ask to see the CC&Rs and Bylaws to review when providing offers for coverage should be avoided. They need to know the insured’s obligations. But even so, most are not writing creative policies –they are choosing from the boilerplate options that most closely fit the documents—and for master coverage, that often means coverage to rebuild to original construction. Upgrade coverage (Code or betterment) is often an “add on.” This factor is important if an association wants or needs FHA approval for financing because there is a requirement for upgrade coverage. Some argue it has to be the association’s obligation but others read the regulations as accepting of coverage where the association covers the original code and code upgrade coverage but owners April 2013 | ECHO Journal
are required to insure their betterments and upgrades. Many associations have been bitten by the realization (after the fact) that modifications or exclusions in the policies exclude something the board thought was covered, or cover something they thought was not covered. Case in point: tub overflow, owner’s neglect, damage to unit, board position that owner was responsible and owner’s policy was primary. Declaration agreed. But the association policy contained a “modification” stating that the master policy “covers losses including unit fixtures, improvements, alterations and appliances in the unit regardless of ownership or whether the Condominium Association Agreement requires the association to cover it.” The association’s carrier paid to repair the damages—much to the chagrin of the association, whose documents clearly attributed responsibility for these things to the owners. And sometimes the association will direct the master carrier to try and subrogate against the owner’s carrier, but many HOA and Condo master policies state outright that the company waives its right to recover payment from a unit owner (which includes his or her HO-6 carrier). My Parting Words I hope if you get nothing else from this article, you get that water leaks require a full analysis of the facts and pertinent policies and documents to determine responsibility and insurance coverage, if any. If a board takes a position without the information gathering and analysis it might end up with a concussion of various proportions.
Beth Grimm is an HOA attorney in California. She is East Bay Resource Panel chairperson, author of various publications and books about condominium living and the law, a frequent contributor to the ECHO Journal, and a frequent speaker for various HOA industry groups. Visit her at www.californiacondoguru.com for the latest and hottest issues HOAs and homeowners face every day. ECHO Journal | April 2013
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April 2013 | ECHO Journal
By Robert Aune
Changing the Rules Can the Board of Directors Transfer Maintenance Responsibilities to Owners?
A
Board of Directors may at times wish to transfer a part of the Association’s maintenance responsibility to the individual owners. This can be for a variety of reasons, including a disagreement among owners as to whether and when to perform certain maintenance. Can an Association legitimately transfer maintenance responsibility from the Association to the owners? A case I recently handled, which was finally decided by the Court of Appeals in January, illustrates this situation and provides guidance as to what
ECHO Journal | April 2013
to do (and not to do), if a Board wishes to transfer some of the Association’s maintenance responsibility to the individual owners. The project is a planned development of about 50 lots constructed in the 1980s. The exteriors of the residences are wood-shingled, and initially the individual owners were responsible for the maintenance of the exteriors. However, in 1998 the owners voted to amend the CC&Rs, transferring responsibility for the exterior maintenance to the Association. In 2007, as 29
the project aged, the Board of Directors undertook what became known as the “shingle project,” investigating at substantial cost whether to replace all of the exterior wood shingles. The conclusion was that it would be an extremely expensive project, requiring a special assessment, which was opposed by many owners. Instead of going forward with replacement of all of the exterior shingles, the CC&Rs were amended to transfer maintenance responsibility for the exteriors of the residences back to the individual owners. The amendment was approved by a supermajority of approximately 80% of the owners who voted. Approximately one year after the 2008 amendment was approved, an owner, who is also an attorney, filed suit against the Association, claiming that the Association could not deprive him of his “vested right” to maintenance and repair of the exterior shingles without his individual approval (he did not vote on the proposed amendment). This owner also claimed that the Association was required to perform some unspecified “accrued maintenance” to the exterior shingles before it could transfer maintenance responsibility to owners such as himself. After taking the deposition of the plaintiff/owner, the Association filed a motion for summary judgment, requesting that the Superior Court dismiss the owner’s claim. The judge agreed and dismissed the case. The Superior Court also awarded the Association about $35,000 in attorneys fees and costs. The plaintiff/owner appealed the judgment to the Court of Appeals. He argued that he was entitled to a trial to show that there was “accrued or in-progress maintenance” at the time of the 2008 amendment to the CC&Rs, and that the Association could not change the rules regarding 30
maintenance without first performing this maintenance. The owner also argued to the Court of Appeals that the Association was not entitled to recover attorneys fees because the Association’s obligation to maintain the exteriors was a promise separate from the CC&Rs. The Court of Appeals affirmed the ruling of the Superior Court, and in its opinion concluded that: • The Owner failed to submit admissible evidence that the Association had failed to perform some specific exterior maintenance before the 2008 amendment to the CC&Rs; • The Owner admitted that the Association had performed at least some maintenance to the exteriors before 2008; • The Association was entitled to “judicial deference” regarding decisions by the Board of Directors as to what maintenance was performed before the 2008 amendment, relying on the Supreme Court case of Lamden v. La Jolla Shore Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249; and • The lawsuit was an action to enforce the governing documents because the maintenance obligations are contained in the CC&Rs, and that therefore the Association was entitled to an award of attorneys fees and costs under Civil Code section 1354. Lessons Learned from this Case The Association in this case was able to transfer maintenance responsibility to the owners, and the Court of Appeals approved this. However, in my opinion a Board of Directors that decides to transfer maintenance responsibility from the Association to the individual owners should do so with legal counsel from the outset, and carefully consider the following:
• Both the Superior Court and the Court of Appeals were particularly interested in whether there was any maintenance “in progress” at the time of the CC&R amendment. That is, if challenged, a court will look at whether a Board is trying to transfer a maintenance obligation to the owners that should rightfully be completed by the Association. In the case discussed above, the plaintiff/owner was not able to show either that there was maintenance being performed at the time of the amendment, or that there was specific work that should have been done; • The larger the majority of owners approving an amendment transferring maintenance responsibility to owners, the more likely it is that the amendment will be upheld if challenged. That is, if nearly all owners are in favor of the maintenance responsibility transfer, it appears that a court will be more inclined to find the amendment valid, as in the case described above. Here the Court of Appeals emphasized that the amendment had been approved by a supermajority of owners. • It is relatively clear that an Association may amend the governing documents to be effectively “retroactively,” binding the existing owners even though the obligations are different than when they initially purchased their units (See Posey v. Leavitt (1991) 229 Cal.App.4th 1236); • A Board of Directors will generally be entitled to decide what maintenance is to be performed by the Association, without second-guessing by the courts, so long as the Board acts in good faith. That is, the California Supreme Court in the Lamden case held that maintenance decisions by a Board of Directors, made in good faith, are entitled to April 2013 | ECHO Journal
“judicial deference,â€? and will not be second-guessed by the court. However, to minimize the chances of a successful challenge to a transfer of maintenance responsibility, it is suggested that a Board carefully document the maintenance that has been done, demonstrating that it has performed necessary maintenance before transferring responsibility to the individual owners; • If the transfer of maintenance responsibility is challenged by an owner, the prevailing party in the resulting litigation will very likely be entitled to an award of attorneys
ECHO Journal | April 2013
fees and costs under Civil Code section 1354. So long as a dispute is generally related to enforcement of the governing documents, usually the CC&Rs, in my experience courts are quite willing to award attorneys fees and costs to the prevailing party. Conclusion Although the case I just concluded illustrates how certain maintenance responsibility can be successfully transferred from the Association to the individual owners, Boards should be particularly careful in doing so. If it is decided to transfer maintenance responsibilities to owners it is important
that there be broad support among the owners. This is both to insure approval of the change, and to maximize the likelihood of prevailing if the amendment is challenged. Finally, the Board should carefully document the maintenance performed before the transfer, establishing that it is not transferring maintenance obligations that should have been performed by the Association.
Robert Aune is the founder of Aune & Associates in San Francisco. He represents numerous homeowner associations in the Bay Area, as well as mediating real estate matters of all kinds. 31
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ECHO Events Calendar
Important resource meetings... Wednesday, April 3 Maintenance Resource Panel 12:00 Noon ECHO Office, San Jose
Tuesday, May 14 Central Coast Resource Panel 12:00 Noon Michael’s on Main, Soquel
Wednesday, April 10 South Bay Resource Panel 12:00 Noon Buca Di Beppo, Campbell
Wednesday, May 15 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. Rohnert Park
Friday, April 12 East Bay Resource Panel 12:00 Noon Massimo Restaurant, Walnut Creek Wednesday, April 17 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co., Rohnert Park Wednesday, April 17 Legal Resource Panel 6:30 p.m. Porterhouse, San Mateo Thursday, May 2 North Bay Resource Panel 11:45 a.m. Contempo Marin Clubhouse, San Rafael Monday, May 13 Accountants Resource Panel 6:00 p.m. Scott’s Seafood, Oakland
Wednesday, June 19 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. Rohnert Park Monday, July 8 Accountants Resource Panel 6:00 p.m. Scott’s Seafood, Oakland
Wednesday, June 5 Maintenance Resource Panel 12:00 Noon ECHO Office, San Jose
Tuesday, July 9 Central Coast Resource Panel 12:00 Noon Michael’s on Main, Soquel
Tuesday, June 9 Central Coast Resource Panel 12:00 Noon Michael’s on Main, Soquel
Wednesday, July 17 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. Rohnert Park
Wednesday, June 12 South Bay Resource Panel 12:00 Noon Buca Di Beppo Campbell Friday, June 14 East Bay Resource Panel 12:00 Noon Massimo Restaurant, Walnut Creek
Wednesday, June 17 Legal Resource Panel Porterhouse, San Mateo Wednesday, July 7 Maintenance Resource Panel 12:00 Noon ECHO Office, San Jose Friday, August 9 East Bay Resource Panel 12:00 Noon Massimo Restaurant, Walnut Creek
Regularly Scheduled ECHO Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal
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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 Scott’s Seafood Restaurant, Oakland Michael’s on Main, Soquel Buca Di Beppo, Campbell Eugene Burger Management Co., Rohnert Park Varies
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This well-known compact guide for operation of common interest developments in California now includes a comprehensive index of the book and a chapter containing more than 200 frequently-asked questions about associations, along with succinct answers.
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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.
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April 2013 | ECHO Journal
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About
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ECHO What is ECHO? Serving Homeowners to Build Strong Community Associations
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Legislative Committee Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry Bowles Oliver Burford Joelyn Carr-Fingerle, CPA Chet Fitzell, CCAM John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.
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Sandra Bonato, Esq. Omar Hindiyeh Wanden P. Treanor, Esq. South Bay
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Annual Seminar Speakers June 23, 2012 ECHO Annual Seminar
Dawn Anderson, AIA Jeffrey Barnett, Esq. Brad Barroso Tyler Berding, Esq. Sandra Bonato, Esq. Wendy Buller Ian Brown Jeff Draeger Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Vic Giacalone Sandra Gottlieb, Esq.
Beth Grimm, Esq. Allan Henderson David Kuivanen David Levy, CPA Helen Loorya Richard Lowenthal Kerry Mazzoni Mike Muilenburg Andrea O’Toole, Esq. Ann Rankin, Esq. Larry Russell, Esq. John Schneider Brian Seifert Jim Shepherd Dean Shibler Richard Tippett Steven Weil, Esq.
The Executive Council of Homeowners (ECHO) is a nonprofit membership corporation dedicated to assisting California homeowner associations. ECHO provides help to homeowner associations on many fronts: finances, legal issues, insurance, maintenance and management. Members receive help through conferences, trade shows, seminars, a monthly full-color magazine and discounted publications.
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.
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December 2012
• Updates to the Association Statute Book
Tyler P. Berding, J.D., PhD. John Ceragioli, PRA Burt Dean Beth A. Grimm, Esq. Janis Lee, CCAM, CMCA Randolph M. Paul January 2013
James H. Ernst, CPA, MSTax, CCAM Dave Phelps, ASLA, ISA Sharon Glenn Pratt Robert Rosenberg Patricia A. Wendleton
• Subscription to monthly magazine
• Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento
ECHO Membership Dues HOA Size Rate 2 to 25 units
$120
26 to 50 units
$165
51 to 100 units
$240
101 to 150 units
$315
151 to 200 units
$390
201 or more units
$495
Business/Professional
$425
February 2013
Oliver Diaz Lisa Esposito, CCAM Betty Jones, Esq. Robert Rosenberg, CCAM Steven S. Weil, Esq. Glenn H. Younging, Esq. March 2013 Tom Fier, Esq. Paul Schultz, CIC, CLIA, CLT-E Deon R. Stein, Esq. Amy K. Tinetti, Esq.
ECHO Journal Subscription Rates Members
$50
Non-members/Homeowners
$75
Businesses & Professionals
$125
How Do You Join ECHO? Over 1,800 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for membership, call ECHO at 408-2973246 or visit the ECHO web site (www.echo-ca.org) to obtain an application form and for more information. April 2013 | ECHO Journal
A collection of “Condo Q&A” published in the Los Angeles Times
Advertiser Index Ace Property Management . . . . . . .12 American Management Services . . .15 Angius & Terry . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . .25 A.S.A.P. Collection Services . . . . . .13 Association Reserves . . . . . . . . . . .21 Benjamin Moore Paint Co. . . . . . . . .25 Berding | Weil . . . . . . . . . . . . . . . . .40 BTC Bob Tedrick Construction . . . . .20 Cityscape Property Management . . .12 Collins Management . . . . . . . . . . . .14 Community Association Financial . .21 Community Management Services . .32 Compass Management . . . . . . . . . .17 Cool Pool Service . . . . . . . . . . . . . .14 Cornerstone Community Mgmt. . . . .16 Ekim Painting . . . . . . . . . . . . . . . . .21 Eugene Burger Management Co. . . .14 First Bank Association Bank Srvcs . .17 Flores Painting . . . . . . . . . . . . . . . .16 Helsing Group, The . . . . . . . . . . . . .24 M&C Association Mgmt. Services . . .2 Massingham and Associates . . . . . .26 Max Ranjbar CPA . . . . . . . . . . . . . .25 Mutual of Omaha Bank . . . . . . . . . .12 Pollard Unlimited . . . . . . . . . . . . . .20 R. E. Broocker Co. . . . . . . . . . . . . .27 Rebello’s Towing Service . . . . . . . . .23 REMI Company . . . . . . . . . . . . . . . .20 Saarman Construction . . . . . . . . . .13 Silicon Valley Civil & Construction Engineers . . . . . . . . . . . . . . . .25 Steve Tingley Painting . . . . . . . . . . .39
Questions & Answers About Community Associations By Jan Hickenbottom 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. Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or order online at store.echo-ca.org
ECHO Journal | April 2013
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By Hannah Skiles
Monthly Irrigation Tips
January Monitor irrigation-related water meters in the “off season” for mainline leaks.
August Shorter days and cooler nights coming, start reducing irrigation schedules.
February Pre-season irrigation review. Repair, check, and fine tune nozzles—avoid overspray.
September Install a rain sensor—it helps reduce unnecessary watering.
March Start irrigation systems, based on soil moisture needs. Use soil samples and short cycles to avoid overwatering and run-off.
October Cover backflow devices to help reduce damage from freezing.
April Use slit seeding to overcome shallow rooted grassy weeds in turf to reduce hot spots in June and July. May Review irrigation system again. Think water saving opportunities—Mulch? June Record irrigation programming details—total minutes per week per station. July Use soil core samples to water only to root depth. Grow deeper roots. 38
November Water only as needed. Spot water annuals and plants in overhang areas. December Consider weekly short cycle for each irrigation station to exercise valves. Avoid applying water on walkways. Hannah Skiles is Customer Experience and Marketing Manager at Cagwin & Dorward. Cagwin & Dorward is a full service landscape provider specializing in landscape maintenance, landscape construction, water management, and tree care for commercial, municipal and residential customers.
April 2013 | ECHO Journal
ECHO Journal | April 2013
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