DECEMBER 2001

NOTICE OF MEETINGS - IS EMAIL NOTICE ADEQUATE?

In a recent FYI I discussed the subject of meetings on the internet. I did not get to notice of the meetings so that will be covered here. First of all, realize that there is probably a distinction between notice for annual/membership meetings and Board meetings in your Bylaws, to the homeowner members and to the board members themselves. Thet is the first place to look for requirements of notice. If notice by email (or electronic mail) is not provided in the governing documents, it may not be a valid type of notice if given that way.

The statutes also provide some guidance as to notice of meetings. The Davis Stirling Act, Section 1363.05 says that unless notice of meetings is given in the bylaws, it must be given at least 4 days before the meeting to all owners, by means as stated. The date, place and time may be given by posting in a prominent place, by newsletter, or by ..."similar means of communication." Corporations Code Section 7211, which applies to incorporated associations, in its current form (operative until January 1, 2003), provides that board meetings may be held without notice if the time and place of the meetings is specified in the bylaws or by the Board. The section says that special board meetings may be noticed by first class mail (allowing 4 days), or by telephone voice message or other technological means including electronic mail (with 48 hours notice). Corporations Code Section 5015 allows distribution of notices to members or board members to be done by the means provided in the bylaws. That Section deals with the timing of the notice and specifies that notices to members may be accomplished by the means provided in the bylaws. That Section deals with the timing of the notice and specifies that notices by mail are deemed to be sent or given (unless otherwise expressly provided) at the time the written notice by mail is deposited in the mail, postage prepaid. Notices by facsimile, electronic mail message, or voice mail message, are deemed to be sent or given at the time the message is personally delivered the recipient or is delivered to a common carrier for transmission or is actually transmitted by the person giving the notice to the recipient. These code sections reconciled could be interpreted to suggest that the bylaws could provide for a notice by electronic means, if such a provision was voted or approved by the members or written in the original bylaws. In fact, they could also probably be interpreted to allow email notice of meetings to those members (board and owners alike) who had requested or agreed to it. Still, accommodation would have to be made for those who did not want to receive notice or could not get it via email or the internet. If an amendment was approved to the bylaws to allow for notice via email or the internet, the wording should include, to be safe, provision that the email or internet notice would be viable only for owners who requested it or agreed to it as an alternative to mailed notice. Otherwise, it might be taken as discriminatory to those without computers.

Most assuredly, use and communications of electronic means are the "wave of the future", and Associations may want to move in the direction of easier access for members to information. Associations whose directors live in faraway places may want to make meetings more viable through use of electronic communications. However, those "back home", must deal with the issue of how to assure that owners are able be involved to the extent the law allows them to be.

NOVEMBER, 2001

-- WHAT IF YOU DON'T CARRY WORKER'S COMPENSATION INSURANCE ... ... And you find out you should have! OUCH!!

Could this happen in your association? The board votes to pay a retired civil engineer homeowner $25.00 per month to change light bulbs; he (or she) stands on a ladder, tries to change a light bulb, receives a shock and falls off of the ladder breaking their back? Your board hires a maid to clean the clubhouse once a week, she trips over the vacuum cord and falls down a flight of stairs, and she (or he) breaks her (or his) vacuuming arm in several places, and is never able to vacuum again? A board member, receiving a dues waiver or partial dues waiver for serving on the board of directors, has a car accident on the way to pick up the bank signature card for the board members to sign and can never walk again?

Would your association likely be treating any of these folks as employees and deducting payroll taxes? Does your association carry workers compensation insurance coverage?

These questions are worth asking. These scenarios are based on an actual case, and there were serious consequences for the associations. If an association hires and treats a worker as an independent contractor who should be considered an employee, there are a number of potentially serious problems that can arise for the association. If the association should be withholding payroll taxes and is not, then there are potential costly ramifications in payment of back taxes and penalties from the governmental taxing agencies. If the association fails to carry worker's compensation insurance, and a worker is injured that was or should have been treated as an employee, the association could be held liable for:

- All benefits that would normally be available under worker's compensation coverage, AND damages in a civil suit, AND 10% extra above all those damages, AND Could also be found guilty of a misdemeanor and subject to severe punitive governmental penalties.

Perhaps knowing this may cause you to take a second look at the situation in your association.

Here are some other tidbits:

- Did you know that if you hire an "independent contractor" who does not carry their own workers compensation insurance, the association could end up being fully responsible for the contractor and/or any of his or her subcontractors or employees in the event of an injury on the job, because the State Workers Compensation Board will closely examine the working relationship and seek to find employee status? Did you know that if you hire an independent contractor who is unlicensed (and hired to do work that would otherwise qualify them for a license), your association could be responsible for his or her injuries if hurt on the job, because there is a presumption under California law that the unlicensed contractor is an employee of the association? Did you know that it the association allows the board of directors to enjoy "dues waivers" or receive any compensation, those directors could conceivably be considered employees, and entitled to workers compensation benefits? Did you know that you need to specifically ask to have coverage for board members on many workers compensation policies (in other words, board members are not automatically included in the coverage of all policies)?

If you are looking to save a buck in contractor or insurance costs, consider the fact that it may catch up with you 100 fold. All it takes is one little mishap. (For More Information, see www.californiacondoguru.com, Articles, Article on Worker's Compensation Insurance)

August, 2001

USE OF EMAIL - Watch Out For the Pitfalls

How many of you think about where your e-mail goes, where it is stored, and what kind of damage it might do,... before you press the "send" button?

Undesired Distribution of Messages NOT "Meant" to be shared or Use of Email To Controvert Regulations and Laws:

Believe it or not, there are some more or less unwritten "rules" relating to the use of the internet (email). It seems people forget the "rules" with the ease of the simple act of typing a message, and pushing "send". The hassle of the telephone and voicemail "tag" is gone. The accountability of face-to-face communication is out the window. Inhibitions that might otherwise exist seem to dissolve. People often act differently, more bold, and less "reasoned" when communicating by email. It is important to understand that use of email for association purposes can be easily abused, in light of existing laws regulating communications among board members and meetings requirements. Here are some of those: 1363.05 (b) requires open meetings except for specified issues entitled to executive consideration, 1363.05 (d) requires minutes of any meeting to be made available to the members, 1363.05 (f) considers 'meetings' to include any congregation of a majority of the members of the board at the same time and place to "hear, discuss, or deliberate upon any item of business scheduled to be heard by the board, except those matters that may be discussed in executive session." These rules do apply!

Possible Unlawful Meetings: If board members are discussing any business of the association via email, and especially if they end up together through instant messaging or otherwise, that could constitute a "meeting" under the statute. Legal meeting requirements would apply. If decisions are made outside meetings via email "polling" - that conflicts with legislation requiring access by members to meetings where open discussions should be held, and could be challenged. (Telephone "polling" was one concern by legislators who expressed a necessity for open meetings rules so that "behind the door" decision-making would be eliminated except as to specific subject matter).

Lack of Consideration: Using e-mail or sending a message on the Internet is not like using the telephone. On a telephone call, there is someone on the other end that has the ability to respond or to challenge what you say. When using e-mail, it's not like having a face-to-face dialogue. There is no one on the other end that can contradict you, challenge, or punch you in the nose. When using e-mail, it is not like pounding away on a "vent letter," sticking it in an envelope, and having a "cooling off period" between the time you seal the envelope and mail it. You can pull it back before you stick it in the mail. It is virtually unretrievable once sent. This can be a problem. It seems that some people find great satisfaction in "venting" via e-mail. Personalities often change. I find that people tend to be more aggressive, more careless, more pointed, more emotional, more condescending and less thoughtful, less careful, less amiable, and less aware of protocol. Given the "trail" of the message, this can lead to claims by owners of unfair treatment, lack of due process, and even discrimination if email is used to disparage people.

Lack of Security/Legal Protections: Other concerns involve security and "discovery" of messages sent by email. You may think you have "erased" damaging information from your computer but copies of e-mail messages may end up stored on mail servers that have general access to all material to check for unauthorized access and monitoring purposes. Because of this access and storage capability, discovery of the information for litigation purposes is considered by some to be guaranteed for all except encrypted messages. Client e-mail protection and security for homeowner associations communications (board and/or attorney) is as yet untested in the courts but it is possible that a fact finder could conclude that there is no reasonable expectation of confidentiality of unencrypted e-mail messages.

The "test" if an attorney-client privileged communication or confidential communication is sent over the Internet, if such communications are demanded in a discovery order, probably comes from a 1947 case where Judge Learned Hand was examining the question of whether failure to use available technology could subject a person or business to liability of that failure causes injury to others. The case was U.S. vs. Carroll Towing (1947) 159 F.2d 169. The facts in this case were that a barge broke away from its mooring and sank, causing losses. The court determined that because the barge company failed to use readily available protective resources (a bargee or attendant), the barge owner was liable for the losses. From this case came a "test" that certainly could be used to test failure to use available technology to protect confidentiality e-mail messages. That test of whether an owner/business' (or association board's or board members in this case) duties to protect against injuries involves three variables: 1) The probability of the event (barge breaking away in older case) 2) The gravity of resulting injuries (if the barge does break away in older case) and 3) The burden of adequate precautions (cost of adding available protections)

In our world of email use, there are protections available (encrypted email, confidential statements, etc.). This case suggests that in our scenario, there is risk in dealing with any sensitive information via email, without taking precautions to protect it.

Perhaps the most important message of this article is that Associations need to be aware of the pitfalls and implement "Use of Email" policies to assure adequate protections are in place.

Beware of the pitfalls you may suffer through the ease and seeming simplicity of email communications - they may be very large!

JULY , 2001

MEETINGS - DO YOU HAVE PROBLEMS WITH DISRUPTIONS?

I only hear about the problems.  I don't hear about the meetings that are going smoothly, without interruptions.  In order to assist those Boards that have experienced problems with the meetings, I am offering some information, some of which is gleaned from my own experiences, and some of which is a product of brainstorming with others and industry group presentations.  

In any situation where the Board might not know how to react, having a policy in place (like a road map) is important. I think many Boards need help at board meetings.  Board meetings are supposed to be a time when the board can conduct business.  Since January of 1999, a certain Legislator was successful in pushing through a measure that requires boards of directors to include a "homeowner forum" time at any meeting, to allow the homeowners to address the board.  

In theory, the idea was that the homeowners would have a chance to speak to the board directly about their concerns.  In practice, however, abusive tactics have been experienced by many boards.  The statute, Civil Code Section 1363.05(i), says that boards of directors must allow homeowners to speak at meetings, but are entitled to set reasonable limitations on time. This word "time" can mean at a particular time during the meeting (before, during, or at the end of), and/or can relate particularly to the amount of time a person is given to address the board.  The practice in many associations is to set aside 1/2-1 hour of time at the beginning or end of the meeting, and allow the homeowners who wish to address the board an opportunity, usually giving them somewhere around 5 minutes each (sometimes more).  The time given to homeowners to speak should be consistent, meaning that it would seem unfair to one homeowner if they were only allowed to speak 3 minutes and someone else is allowed to speak for 10 minutes. I have seen situations, especially at annual meetings, where homeowners sign up to speak and then want to "give their time" to another homeowner so that that person will have more time to speak. I am not in favor of that practice, but I would not criticize it either, if a board wants to allow it. These limitations are purely dependent on what the Board thinks is best for the community (and for it - to be able to get through the business before midnight!).  

In order to get any control over the situation, a board of directors would be in a better state to deal with disruptions that arise, if it has policy and follows it consistently. If this policy is made available at all association meetings, and handed out, it may assist greatly in being able to bring the meeting under control.  Before the policy is imposed on anyone, it needs to be circulated to all of the homeowners so that they will have this information when they come to meetings.  As for additional distribution at meetings, it may not be necessary at all. I don't recommend that the board take a heavy hand at the beginning of every meeting and announce this policy.  However, if it is available at the meetings, and there are disruptions, the board can remind the attendees of the policy and enforce it.  

In order to adopt this sort of policy, you will need authority in your governing documents to set rules and regulations, and policies relating to conduct of members in activities involving the association and the board.  General authority is usually present in the bylaws - to set rules and regulations.  In order to impose discipline including suspension of any of the membership rights mentioned, or impose fines, monetary penalties, or charge for attorney's fees if necessary, the association documents must grant such authority, either generally or specifically. You definitely need the advice of an attorney to see how far you can go into suspending membership rights.  Attendance of an association meeting is a membership right that may be subject to suspension (immediate or otherwise). If your attorney does not feel that your documents authorize your desired level of discipline, then an association might try amending their governing documents (bylaws and/or CC&Rs) to enable the board to set a realistic, enforceable, enforcement policy.  I do not suggest that any association implement this sort of policy without some legal review of their governing documents, looking for authority, and approval of the legal advisor of the actual policy you would like to implement.  

Some police departments have indicated that they will respond to calls to remove homeowners from meetings if they are disruptive.  In any event, if the disruptions are serious enough and the board creates the right kind of "paper trail" trying other means first, it may be possible to get a restraining order either controlling the activities of that problem owner at meetings, or banning them from the meetings.  Any police department has an obligation to intervene if a restraining order is violated (assuming that the party subject to an injunctive order and police department are both served with appropriate papers indicating that the restraining order is in effect).

JUNE, 2001

ENFORCEMENT PROCESS: Fining - Where To Begin

These are some simple steps to consider in enforcing the governing documents:

Step 1: Investigate Complaint: A visual inspection or a personal visit is the best form of investigation. Independent verification takes the heat off of the complaining party.

Step 2: Determine if problem constitutes a CC&R violation: Is the activity complained of actually a violation of the Covenants, Conditions and Restrictions or rules? If so, the Board should address it.

Step 3: Communicate with Owner and/or Tenant: If a problem is determined to be a CC&R or rule violation, then the Board needs to communicate with the Owner — even if a tenant is involved. In some instances, you may also wish to communicate with the Tenant, especially if the Tenant is committing the violation. The Owner should be notified of the problem by letter, so that you have written documentation in the file.

Step 4: Schedule a Hearing (if the problem persists): If the homeowner does not respond to the first letter, you may want to consider suggesting disciplinary action, such as a fine, or self help (described in step 6). If you have a scheduled Board meeting coming up that is more than 15 days from the date of the next letter, then you could identify that as the appointed date of the hearing for the member. You should give that much notice and identify the violation that you are addressing. (10 days is required by Civil Code Section 1363, but an additional 5 days is suggested for mailing time.) The Board of Directors cannot legally impose discipline without due process.

Step 5: Fining the Homeowner: Before the Association can fine any owner, you will need to adopt a schedule of fines per Civil Code Section 1363, and circulate the schedule to the owners. These fine schedules range from simple to complicated. You should have legal assistance in drafting a policy.

Step 6: Notice to Owner: If the Board decision reached at or after the hearing is to impose a fine or fines, written notice must be provided to the owner within 15 days (again, mandated by Civil Code Section 1363). If the fine is to address a continuing or re-occurring violation, then be sure to note that there will be a continuing or re-occurring fine, so that you do not have to hold multiple hearings. (Get attorney assistance on this - all attorneys do not agree on the hearing requirements for multiple fines.)

Step 7: Collecting Fines: Fines may not be collected via non-judicial foreclosure per Civil Code Section 1367. Associations can take the owners to small claims court and fines may also be included in escrow demands if the property of the owner fined is the subject of a sale.

APRIL, 2001

SOLAR-SOLAR-SOLAR ... HOA Review of Homeowner Requests

There is a statute in the Civil Code that does not seem to be discussed very often, but I expect it to be brought up more and more in the future, given the energy crisis. Please see Civil Codes Sections 714, and 714.1, relating to solar energy systems. 714 basically invalidates Covenants and Restrictions (including CC&Rs) which prohibit solar systems. However, that is not the end of inquiry. There is some wording that can be construed as exceptions and reasonable restrictions are allowed for CIDs by Civil Code Section 714.1.

Civil Code Section 714 says that "It is the policy of the state to promote and encourage the use of solar energy systems and to remove obstacles thereto. Accordingly, reasonable restrictions on a solar energy system are those restrictions that do not significantly increase the cost of the system or significantly decrease its efficiency or specified performance, or that allow for an alternative system of comparable costs, efficiency, and energy conservation benefits." The statute defines significantly to be "an amount exceeding 20% of the costs or decreasing the efficiency of the solar system by an amount exceeding 20%."

Section 714 also says that Solar energy systems must meet applicable standards for solar systems, as defined in the statute. It goes on to say that whenever approval is required for the installation or use of an energy solar system, "the application for approval shall be processed and approved by the appropriate approving entity in the same manner as an application for approval of an architectural modification to the property, and shall not be willfully avoided or delayed." It says that any entity, other than a public entity, that "willfully violates this section shall be liable to the applicant or other party for actual damages occasioned thereby, and shall pay a civil penalty to the applicant or other party in an amount not to exceed one-thousand dollars ($1,000)." The statute also allows recovery of attorney's fees to the prevailing party in an action related to solar restrictions.

Under Civil Code Section 714.1 the association may require the owner of a separate interest to obtain the approval of the association for the installation of a solar energy system in a separate interest owned by another. (This language may serve to avoid approving systems for condo roofs are owned by all owners of units, and no individual - but no guarantees - I don't know of any cases testing that.) The association may require the owner to provide for the maintenance, repair or replacement of roofs or other building components. The association may require installers of solar energy systems to indemnify or reimburse the association or its members for loss or damages caused by the installation, maintenance, or use of the solar energy system. Boards of Directors are going to have to come to terms with these statutes and adopt policies for the association. Without a policy, the Board will be lost as to what legal requirements must apply. The Board would do well to require a signed application for solar systems that requires the owner to agree to all of the terms that the statute allows the association to impose. Associations should research solar systems and find out what may be the least burdensome or offensive, and the most palatable in terms of aesthetics, etc. That way, the association will have in mind what systems might require the cost to be increased significantly or the efficiency to be decreased significantly.

FEBRUARY, 2001

"HOME SAFE" Program And Construction Defect Issues And Concerns

In the year 2000, the California Supreme Court rendered a decision that is completely detrimental to common interest developments in California. The gist of the decision is that associations may not pursue resolution or correction of defects unless there is some damage that has occurred because of the presence of the defects. It is of great concern to associations that builders cannot be held accountable for code violations and minimal construction that creates a safety hazard, or detrimentally affects property values. There exists not only to the issue of correcting a problem before an accident occurs, but also the problem of having to disclose an existing code violation and what effect that will have on property values. Probably the most graphic example of the adverse effect of the A as case decision is the fact that if a builder constructs a condominium or planned development complex without firewalls required by code, the association and homeowners are unable to effectively pursue that deficiency until there is damage to property or loss of life because of it. Some attorneys and the Bay Area CAI called a forum on this case.

The CAOC consumers group has set up a website (www.caoc.com/homesafe). This group is seeking participation by various industry groups in a resolution that resists allowing builders to get away with defective construction, and that would oppose any legislation restricting the rights of a common interest development in the homeowners in California from pursuing defects. The California Legislative Action Committee (CLAC), of which I am a delegate, will be conducting an extensive investigation into the "homesafe campaign," and the benefits, drawbacks, concerns, and effect of any legislation that may be proposed in this area. It is refreshing to see the possibility of such global organization of groups opposed to construction defects and severe limitations that have been imposed by the Supreme Court. CLAC is a good resource for information. Visit www.clac.org.

JANUARY, 2001

NEW LAWS ON REPORTING FOR INDEPENDENT CONTRACTORS

CHAPTER 478: Child Support Enforcement/Vendor Reporting (Otherwise Known As "Dead Beat Dad" Reporting) Requirements:

A legislative bill with perfectly good intentions creates a considerable burden for associations and management companies beginning this year. New child support enforcement reporting requirements effective January 1, 2001, will seriously and substantially touch and concern homeowner association industry businesses and homeowners associations. The law obligates any recipient of services, which basically means anyone or any business entity that derives trade or business income from sources within California, to a duty to make certain disclosures to the state agency in charge of child support enforcement services.

The "reporting" (disclosure) will have to be made with regard to any service provided by any individual ("service-provider") who is not an employee but who receives compensation or a contract for services performed within or without the state (who is paid more than $600 or with whom a contract is made for services that cost more than $600). The recipient of the services must report within 20 days after making payments totaling or exceeding $600, or in executing a contract which contemplates payment of more than $600, certain information about the service provider including their first, middle and last name; social security number or business name; address; telephone number; federal and state employer ID number (if a business); date of contract (start date and expiration date) or date of payments; the total dollar amounts, etc.

The Employment Development Department (EDD) may charge a penalty for late reporting of $24 for each failure to comply with required time frames. Willful failure to report may result in a penalty exceeding $400. EDD has made available information, a fact sheet, forms (DE 542 for reporting), and a question and answer sheet about the new law. Call 1-916-657-0529 or check out www.edd.ca.gov on the net. EDD says its red forms are required but some CPAs have stated otherwise, since forms apparently may be faxed.

copyright 2001, Beth A Grimm, all rights reserved... any attempt to improperly use or republish these materials and/or this article without the author's permission is subject to legal action. If you would like printed copies provided through the mail from Ms. Grimm, click on the order form attached. There is a charge of $20 for each article for this service.