FYI - DECEMBER 2004- HOMEOWNER ASSOCIATION REGISTRATION Assembly Bill 643 - Torlaksen - Registration of Homeowner Associations

This is a resubmittal of an FYI sent in 2002. Why? Because timing is important and this requirement cannot be ignored. This law (Civil Code Section 1363.6) requires registration of common interest developments through the Secretary of State on a specific form which is provided by the Secretary of State (navigate the website for SS through "www.ca.gov"), and payment of a fee of $30. Unincorporated homeowner associations must also file this form. You may have already received a registration form, but if not, I suggest that you followup this year and make sure one gets filed. If you time it with your regular corporate statement that must be sent each year, you should receive the two forms together for filing in the future.

This form provides the following information:

• A statement that the association has formed to manage a common interest development under the Davis-Stirling Common Interest Development Act.
• The name of the association, the street address of the association's on-site office, or if none, the responsible officer or managing agent of the association and their address will do.
• The address and either the daytime telephone number or e-mail address of the president of the association, other than the address, telephone number, or e-mail address of the association's on-site office or managing agent of the association.
• The name, street address, and daytime telephone number of the association's managing agent, if any, and whether the manager is a certified CID manager (those who qualify will be identified in next FYI.
• The county and city in which development is physically held. If physically located in more than one county, each of the counties must be named.
• If the development is in an unincorporated area, the city and closet proximity to the development.
• The 9-digit zip code, front street, and nearest cross street of the physical location of the development.
• The type of common interest development, as defined in Civil Code Section 1351(c), managed by the association.
• The number of separate interests (units or lots).

The association has to submit this information within these timelines:

• By incorporated associations, within ninety (90) days after filing of its original Articles of Incorporation, and thereafter at the time the association files it biennial statement of principal business activity with the Secretary State.
• By unincorporated associations, in July of 2003, and in that same month biennially thereafter. Upon changing a status to a corporation, the association must comply with the deadlines for incorporated associations.

The association must notify the Secretary of State of any change in street address of the association's on-site office or of the responsible officer or managing agent of the association in the form and for the fee prescribed by the Secretary of State, within sixty (60) days of the change. On and after January 1, 2006, the penalty for an incorporated association's non-compliance with the initial or biennial filing requirements of the section shall be suspension of the association's rights, privileges and powers of the corporation and monetary penalties, "to the same extent and in the same manner as suspension and monetary penalties imposed pursuant to Section 8810 of the Corporations Code." (In other words, the same as existed previously for filing of the "Statement By Nonprofit Domestic Stock Corporation).

The Secretary of State shall protect the information relating to the President's name and address, and telephone number and e-mail address, but the other information is not protected. In other words, Secretary of State may not make that information available to anyone other than "Members of the Legislature and the Business, Transportation and Housing Agency, upon written request." All other information submitted pursuant to this section shall be subject to public inspection.

FYI - NOVEMBER 2004 THE LEGISLATURE ADDS ANOTHER LAYER TO ADR PROCESSES FOR HOMEOWNER ASSOCIATIONS AB 1836, CHAPTER 754, Assembly Member Harman was signed by the Governor on September 24, 2004.

The new law requires an association to provide a fair, reasonable, and expeditious procedure for resolving disputes, which is basically an "internal" process to be conducted at the expense of the Association. The new statutes create a minimum set of standards for this internal process. They contain a basic procedure for associations that do not already have a procedure of their own that meets the minimum standards stated. Under the statutes, the association must provide notice of the internal ADR process to the members. The new law provides for the tolling of a statute of limitations in some circumstances, expands the permissible methods of service of a request to submit a dispute to the resolution process, and changes the confidentiality protections applied to these procedures. The new law requires that the association treat the ADR policy like a rule - meaning it must be circulated to the members for the requisite "comment period" before adoption by the Board.

FIRST LAYER: Article 5, (the new dispute resolution procedures, aka IDR), relates to any dispute between an association and a member involving their rights, duties, or liabilities under the Davis Stirling Act, the Nonprofit Mutual Benefit Corporation Law, or the governing documents. It requires an association to provide a fair, reasonable, and expeditious procedure for resolving a dispute. In developing its own procedure, an association must make maximum, reasonable use of available local dispute resolution programs involving a neutral third party, including low-cost mediation programs such as those listed on the Internet Web sites of the Dept. of Consumer Affairs and HUD. If an association does not have a procedure for resolving disputes that meets the minimum standards set forth in the new law, then the procedure provided in Section 1363.840 serves as a default procedure. It satisfies the reasonableness requirement so it may be easier to simply use it. Under 1363.840, either party to a dispute may invoke the following procedure: (1) The party may request the other party to meet and confer in an effort to resolve the dispute. The request shall be in writing. (2) A member of an association may refuse a request to meet and confer. The association may not refuse a request to meet and confer. (3) The association's board of directors shall designate a member of the board to meet and confer. (4) The parties shall meet promptly at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute. (5) A resolution of the dispute agreed to by the parties shall be memorialized in writing and signed by the parties, including the board designee on behalf of the association. An agreement reached under this section binds the parties and is judicially enforceable if both of the following conditions are satisfied: (1) The agreement is not in conflict with law or the governing documents of the common interest development or association. (2) The agreement is either consistent with the authority granted by the board of directors to its designee or the agreement is ratified by the board of directors.

SECOND LAYER:The ADR portions of Civil Code Section 1354 are now embodied in Section 1369.510 et seq. Civil Code Section 1354 now deals specifically with enforcement and brings all "governing documents" into the process of enforcement. Section 369.510 et. seq. generally requires parties to endeavor to engage the other side in ADR (alternative dispute resolution) using an outside facilitator or decision-maker. Previously, only disputes over the CC&Rs; required the ADR processes prior to filing litigation. But the addition of the wording "governing documents" brings in Bylaws and Rules, and all reegulatory documents pertaining to the Association.

The new statute is much more comprehensive and contains provisions that you can compare to a process you may already have put in place.

FYI - JUNE 2004 - Associations - Be Aware - Contracts with Contractors for
Labor or Services Need to Provide Protective Language

As of January 1, 2004, any person or homeowners association (statute refers to "person" which includes HOAs) who hires a contractor to perform labor or services for any construction, farm labor, garment, janitorial, or security guard industries could be held liable for damages to the employees of the contractor if the PERSON/HOA knows or should know that the contract does not provide sufficient funds for the contractor to comply with all applicable federal, state and local laws governing the contract work. The provisions are found in Labor Code 2810. This includes the question of whether the owner of the contracting company carries sufficient insurance to protect its employees. How many contractors do you check out? There is a way to get protection without trying to figure out exactly how to assess the financial stability of a contractor.) And believe me, past experience and a good reputation does not always add up to financial stability. The new workers comp rates alone have disrupted many a contractor’s financial stability.

An injured contractor's employee can sue an HOA/PERSON for actual damages (with a minimum of $250 for the first violation and $1,000 for each violation thereafter) and can request recovery of attorney's fees for the litigation.

However, there is hope: An HOA/PERSON can avail itself of a "statutory presumption". To get it, you need to add terms to the contract before signing at the bottom line. These terms would require the contractor to provide the HOA with information relating to their financial stability, insurance that is carried, and costs of workers. Do you realize that many HOAs and Managers do not even pay specific attention to whether the requirements for insurance are written into the contract? Too many people assume that if the Contractor says he or she is licensed and/or carries adequate insurance (or if he or she provides insurance declarations at the beginning of the job), that the contractor is then required to keep up the insurance per the contract. Not necessarily so. Get it in writing! The contract should also include a statement that if there are any amendments to the initial agreement which materially affect the items added to get this protection, that the changes to those items must be shown in an amendment to the contract (you want to know if they drop their insurance, right??) In other words, the contract should provide that if contractors insurance is dropped, or something changes in any of the answers, the contractor must notify the HOA and the HOA has the option in that event to terminate the contract immediately and consider that a breach of the agreement. Also, to the extent any of the information requested is not fixed or known at the time the contract is signed, then the HOA and contractor have to make estimates as to the answers, and include the final numbers when they can be ascertained. It’s best always to have an attorney review contracts - you may think that it saves money not to - but one contract gone south will convince you otherwise.

Associations would be required to keep a copy of the agreement for four years, suggesting that there is a four year statute of limitations on this situation.

If you are contemplating a contract with any contractor or vendor as mentioned, and want to known what should be included, and how to go about getting the information from the contractor, please feel free to contact me. Your contracts should be reviewed!

FYI - MAY 2004 - PRIMER ON AREAS OF IMPORTANCE

AND UTILIZING COST-EFFECTIVE PREVENTIVE LAW PRACTICES

This FYI is a primer on some of the things that Board Members must know. And the purpose of it is to assist you in developing plans of action to deal with these kinds of issues and others that often arise. These areas of law may present conflicts with your governing documents, and for the most part, the statutes have controlling provisions. The Legislature is prolific, and penalties for failure to follow the statutes are getting stiffer. I would like to make your lives easier.

WHAT YOU NEED TO KNOW:

If the Board does not follow the proper procedures for written notice of hearing for fining and other disciplinary action, including a pre-hearing notice, post-hearing notice, within the timelines specified, the disciplinary action will be considered invalid. You cannot fine people or take away rights without offering them a hearing and following these procedures. If the Board of Directors denies an owner the statutory rights to review records under the new records inspection laws, the Association can be hit with a large attorney's fees award and a civil fine. These new rules prevent the Board from requiring that the owner to come to the management company to review records, and include a short timeline for providing copies of accounting books and records that are requested.

If the Board of Directors prohibits an owner from flying the U.S. flag, it will be in violation of the law. There are specific things relating to flag flying that the Association can regulate.

Associations may no longer prohibit an owner from having one pet. However, the Association can set and impose reasonable rules and regulations.

Anytime a Board of Directors wants to impose new rules or policies that affect the homeowners, the Board of Directors must follow the new laws in circulating the rules to the membership before the Board can approve them. The timeline and process is important. It is also important to know how owners can take action that will force the Board to take a vote on a new rule. The Board must understand the limitations on passing emergency rules. If the Board does not know of these new “rules on passing rules”, any rules adopted may be invalid.

Associations may no longer prohibit owners from flying flags, banners or signs that are of the noncommercial nature. The law allows the Association to impose size limitations and placement limitations, and regulate materials to a degree.

Associations may not prohibit owners from having satellite dishes in a planned development community. There are also limitations on the Board’s powers in condominiums, with regard to exclusive use area. Failure to understand the new law can lead to an FCC complaint or court action.

Associations may not prohibit owners from having solar installations on their separate interest properties (including roofs in planned developments but not in condo developments). The Association can require certain systems, within certain guidelines under the statute. Associations may not prohibit owners or residents from having a daycare facility in a common interest development, within limits, although boards may impose reasonable restrictions on use of the common area and address issues like noise, etc.

This list is not exhaustive, but it does cover some of the changes that appear in the laws of California that can trip up a board or manager. Obviously, it is best if the Association has a policy to deal with these areas affected and controlled by the law. If the Board of Directors does not have a specific policy, the next best thing is an email request for information or a telephone call. Associations can prevent disasters by asking the right professional what the right thing to do is in any given scenario. And these days, email is even easier than the telephone, because people are busy, and “telephone tag” takes extra time and energy.

I encourage all clients to seek preventative legal advice when you are facing a difficult situation that might have legal ramifications. This could relate to any of the above laws, difficult meetings, recall and other petitions presented by owners, and other situations that "feel" like they might lead to a challenge to the Board of Directors. Boards of Directors are under more scrutiny than ever, and it is better to do things right the first time, then to try and put out the fire that starts to burn if things are done improperly.

And I want to help; for your additional benefit, I note these possibilities for you:

Answering a question via email, or providing a legal opinion via email is less expensive than a telephone call and a formal letter. For me to work via email, I need only to establish an attorney-client relationship with a written email confirmation of the terms of agreement ($200 per hour rate) and a required retainer (in some instances for newer clients), and the Association governing documents on file.

I also am putting together some generic legal guides to provide on a fax-back basis for payment by credit card - look for these on my website soon (within 30 days). The guides will be affordable, and will be geared to provide important information about subjects like those mentioned herein, and other problems that commonly arise in HOAs.

I offer classes on the Davis Stirling Act for credit (DRE Consumer - 8 credit hours) and will bring the class anywhere in the state of California if 10 people are brought together who want to attend - the cost for a whole day of attorney insight is a mere $200.

I offer a special option for Boards that cannot for some real reason get to the document update project for outdated documents within the coming year. It consists of an interim “attachment” for governing documents that sets forth the legal changes that override your documents. This Attachment can be circulated and kept with the documents as a guide to controlling statutes. I offer publications for sale including a bimonthly legal digest that provides a legal update every year and outlines the practical application of the new laws, and a book entitled “The Davis Stirling Act in Plain English” (78 pages of legal insight on the Davis Stirling Act for a mere $60).

It is critical that we all work together to keep you out of the courts. The legislators in Sacramento are continually generating new laws, many of which override current documents. If you want to remain at the head of the curve, you will practice “preventive law” and pursue updating any governing documents that were drafted before 1995.

MATERIALS BEING MADE AVAILABLE HAVE BEEN WRITTEN OVER THE YEARS AND DO NOT COVER STATUTES OR CASE LAW OR PRACTICAL ISSUES THAT AROSE AFTER THEY WERE WRITTEN.

By Beth A. Grimm, Attorney. A "service oriented" attorney and member of ECHO and CAI and various other industry organizations in California and nationally, host of the website www.californiacondoguru.com; two Blogs: California Condominium & HOA Law Blog, and Condolawguru.com Blog, and author of many helpful community association publications which can be found in the webstore on her site.

copyright 2004, Beth Grimm, all rights reserved