2018 Legal Update

Summary of New Legislation and Cases – 2017

By: Daniel C. Shapiro, Esq. & Michael W. Rabkin, Esq.

We are pleased to provide you with a summary of important legislation which goes into effect on January 1, 2018, as well as recent case law which affects all homeowner associations.

  1. NEW LAW:

Solar Energy Systems (AB 634 – Eggman)

This bill imposes significant new burdens on associations where multiple residences or multiple garages/carports share the same common area roof. Under existing law, an association has the discretion as to whether or not to allow an owner to install solar energy systems in the common area. Also, under current law, under most circumstances, granting an owner the exclusive right to use a portion of the common area for a solar energy system would require the prior approval of 67% of the owners.

As of January 1, 2018, an association can no longer have a general policy which prohibits an owner from installing a solar energy system on the roof of the building in which the owner’s unit is located (even if the roof covers multiple units) or on a garage or carport adjacent to the building that has been assigned to the owner for exclusive use. At most, an association can impose reasonable restrictions on such roof-top installations1. Furthermore, the grant of exclusive use of a portion of the roof for a solar energy system will no longer require the prior approval of the other owners.

The new law sets forth a procedure to be followed when an owner applies to install a solar energy system on the roof over an owner’s unit if such roof covers multiple units. When reviewing a request to install a solar energy system on a multifamily common area roof, an association shall require both of the following:

(1) The applicant shall notify each owner of a unit in the building on which the installation will be located of the application to install a solar energy system; and,

1 Presumably, an association still has the discretion to deny an owner’s request to install a solar energy system on other portions of the common area (i.e., other than the roof covering the owner’s separate interest or vehicle).

 

(2) The owner and each successive owner shall maintain a homeowner liability insurance policy at all times and provide the association with the corresponding certificate of insurance within 14 days of approval of the application, as well as annually thereafter.

Additionally, an association may impose additional reasonable provisions that:

  • Require the applicant to submit a “solar site survey,” showing the placement of the solar energy system, prepared by a licensed contractor or the contractor’s registered salesperson knowledgeable in the installation of solar energy systems to determine usable solar roof area. The solar site survey must include a determination of an equitable allocation of the usable solar roof area among all owners sharing the same roof, garage, or carport.
  • Require the owner and each successive owner of the solar energy system to be responsible for all of the following: (a) costs for damage to the common area, exclusive use common area, or separate interests resulting from the installation, maintenance, repair, removal, or replacement of the solar energy system; (b) costs for the maintenance, repair, and replacement of the solar energy system until it has been removed and for the restoration of the common area, exclusive use common area, or separate interests after removal; and (c) disclosing to prospective buyers the existence of any solar energy system of the owner and the related responsibilities of the owner under this new law.

Practically, we believe that associations must impose the additional provisions above. A solar site survey must be done so that a board knows what the usable square footage of the roof is, and how to divide it up among the residences under the same roof. In many instances, it may not be economically feasible for an owner to install a roof-top solar energy system given the number of units sharing the roof (e.g. 1/35th of a high-rise building roof probably does not have enough space). Also, in our view, there must be a written agreement between an association and an applicant to cover all of the issues raised by such installation including, but not limited to, the topics discussed above and the removal of the solar energy system to accommodate common area roof repairs.

Noncommercial Solicitation (SB 407 – Wieckowski)

SB 407 is another bill that imposes significant new burdens on the ability of associations to regulate the use of their common areas. The stated intent of the law is to enable members and residents of a common interest development (“CITY”) to have the ability to exercise their rights to peacefully assemble and freely communicate with others with respect to CID living, for social, political or educational purposes. Under this new law, an association’s governing documents may not prohibit a member or resident from:

  • Peacefully assembling or meeting with members, residents, and their invitees or guests (collectively “Interested Parties”) during reasonable hours and in a reasonable manner for purposes relating to CID living, association elections, legislation, election to public office, or the initiative, referendum, or recall processes (collectively, the “CID/Public Interest Issues”).
  • Inviting public officials, candidates for public office, or representatives of homeowner organizations to meet with Interested Parties and speak on matters of public interest.

 

  • Using the common area, including the community or recreation hall or clubhouse, or, with the consent of the member, the area of a separate interest, for an assembly or meeting related to CID/Public Interest Issues when that facility or separate interest is not otherwise in use.
  • Canvassing and petitioning the members, the association board, and residents for the CID/Public Interest Issues at reasonable hours and in a reasonable manner.
  • Distributing or circulating, without prior permission, information about the CID/Public Interest Issues or other issues of concern to members and residents at reasonable hours and in a reasonable manner.

In addition to requiring that the common area be made available for assemblies related to CID/Public Interest Issues, the new law prohibits an association from requiring a member or resident to pay a fee, make a deposit, obtain liability insurance, or pay the premium or deductible on the association’s insurance policy, in order to use a common area for these activities.

Associations will need to review their rules and regulations for conformity with this new law. Many rules and regulations require deposits, charges, and proof of liability insurance in connection with the use of a recreational facility, and prohibit door-to-door solicitation of any kind, and/or distribution of flyers. We believe that the Association can still hold a member liable for damage caused by the member’s event or circulation of information; however, the method of collecting the costs of repair and/or clean-up will be dependent upon the methods provided in each association’s governing documents and California law. Additionally, associations can still prohibit commercial solicitation. Associations may want to set forth “reasonable hours” (akin to “quiet hours”) for allowed solicitations and distributions so that residents are not disturbed late at night or early in the morning.

Managers Conflicts of Interest Additional Annual Disclosures (AB 690 – Quirk-Silva)

This bill changes several areas of the law relating to common interest developments including, notably, the annual budget report which associations must deliver to owners each year prior to the start of their fiscal years.

Manager Disclosures. As of January 1, 2018, property managers shall be required to provide

the following additional disclosures to homeowner associations prior to entering into a management agreement with them:

(1) The information required in Civil Code Section 5375 which has been revised to now include the following:

(a) A disclosure of any business or company in which the manager has any ownership interests, profit-sharing arrangements, or other monetary incentives

provided to the management firm or managing agent; and,

 

(b) A disclosure of whether or not the management firm receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to Civil Code Sections 4528 and 4530.

  • Whether or not the manager receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to Civil Code Section 5300 (the annual budget report disclosures); and,
  • An affirmative written acknowledgment that the disclosure provided to a member or potential member pursuant to Civil Code Sections 4528 and 5300, and all documents provided thereunder, are the property of the association and not its managing agent or the agent’s managing firm.

Conflicts of Interest. In addition to disclosing potential conflicts of interest prior to entering into a management agreement, this new law would appear to impose an ongoing duty by managers to disclose, in writing, any potential conflict of interest when presenting a bid for service to an association’s board of directors. “Conflict of interest” in this context means: (a) any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the association; and (b) any ownership interests or profit-sharing arrangements with service providers recommended to, or used by, the association.

Charges for Documents Provided By Civil Code 4528. Civil Code Section 4528 contains a form which identifies various association documents which a seller may want to provide to a prospective purchaser and the costs charged to a seller to obtain hard copies. This bill revises the form to clarify that a seller is not required to purchase all of the documents listed on the form and may purchase some or all of the documents as desired.

Annual Budget Report New Disclosures. The annual budget report prepared and delivered by associations to their members at least 30 to 90 days before the end of their fiscal years must now include a “copy of the completed ‘Charges For Documents Provided’ disclosure identified in Civil Code Section 4528.” A “completed” form means that the form individually identifies the costs associated with providing each document listed on the form.

Notices Volunteer Officers Liability (AB 1412 – Choi)

This is another bill which addresses multiple areas of homeowner association law.

Annual Notice In 2017, a law went into effect which required an association annually to send to owners a written notice requesting that the owners provide the association with certain information including, but not limited to, an address for the purpose of receiving notices from the association. If the owner failed to provide such information to the association, the association was authorized to use the owner’s property address in the association as the default address for providing notice. This new law changes the default address to “the last address provided in writing by the owner, or, if none, the property address.”

 

Volunteer Officer Liability/Immunity: Existing law contains certain protections from personal liability for volunteer officers and directors of an exclusively residential homeowners association. This new law clarifies that the same protections shall be afforded to volunteer officers and directors of a mixed use development (containing both residential and commercial separate interests) for those persons who are “tenants” of the residential portion of the development or those persons who own no more than two residential units (and no commercial separate interests).

Mechanics Liens (AB 534 – Gallagher)

Under California law, if a contractor, material supplier, or laborer is not paid for the services rendered at a property, such vendor may record in the County Recorder’s Office a “mechanics lien” against the property where the work was performed for the value of the labor done and/or materials furnished, and, if the monies secured by the lien are not paid in a timely manner, to foreclose against the property subject to the lien. Existing law affords owners of condominiums certain protections against the recordation of mechanics liens, and, with regard to mechanics liens recorded against two or more units, allows an owner to remove his or her unit from the lien by the payment of the owner’s proportionate share of any sum secured by the lien. This bill extends such protections against mechanics liens to all types of common interest developments, not just condominium projects. Furthermore, the bill expands the manner in which owners may remove their separate interests from a mechanics lien recorded against two or more separate interests. As of January 1st, owners have a choice to pay their proportionate share of the lien (as mentioned above) or record a release bond. In addition, this bill requires an association to provide individual notice to its members within 60 days of being served with a claim of lien for a work of improvement in the common area.

  1. PUBLISHED CASES:

Mashiri v. Epsten Grinnell & Howell (2017) 845 F.3d 984

This case involves the collection of delinquent assessments, which is governed by an association’s governing documents, California law, and, as this case confirms, federal law – the Fair Debt Collection Practices Act (“FDCPA”). Under the FDCPA, delinquent assessments owed to a homeowners association are considered a “debt,” and a person or entity attempting to collect the debt (a “debt collector”), which includes an association’s law firm, must adhere to certain regulations in attempting to collect such debt. Among other things, the FDCPA requires a debt collector to send the debtor a written notice that informs the debtor of the amount of the debt, to whom the debt is owed, the debtor’s right to dispute the debt within 30 days of receipt of the letter, and the debtor’s right to obtain verification of the debt. This information must be conveyed effectively in the initial communication to the debtor in a manner that would not “confuse a least sophisticated debtor” as to his or rights to validate the debt owed. In this case, the law firm’s initial collection letter to the delinquent owner stated that the owner had 35 days from the date of the letter which is inconsistent with a debtor’s right under the FDCPA to dispute a debt within 30 days of receipt of the letter. This inconsistency caused the Court to reverse the dismissal of the debtor’s claim against the association and the law firm, which would permit the debtor to pursue civil damages against the association and the law firm for abusive collection practices. This case illustrates the importance of satisfying the technical details relating to the collection of delinquent assessments. If there are any ambiguities as to whether the proper

 

procedures were followed, it is better to start the process over (and be delayed by a couple of months) than to still be litigating the procedural defect 4 years later, as happened in this case.

Tract No. 7260 Association, Inc. v. Parker (2017) 10 Cal.App.5th 24

Pursuant to the California Corporations Code, a member of a nonprofit corporation has the right to inspect the membership list and corporate financial records for purposes reasonably related to the member’s interests as a member of the corporation. In this case, a member sought to inspect the membership list and other books and records of his homeowners association. The association allowed the member to review certain records, but not all of them, and specifically excluded from inspection the association’s membership list. The association was concerned that the member, a former treasurer of the association, would use the membership list for improper purposes because the member was aligned with the defendant in a lawsuit brought by the association (the association was seeking to recover funds paid to the defendant based on the misrepresentations of the member/treasurer).

The member sued the association to compel it to turn over a copy of the membership list. The association had the burden to show that the member would use the membership list for purposes unrelated to the person’s interest as a member, which it was able to do. The Court noted that mere speculation that the member would use the membership information for an improper purpose is not sufficient to nullify a member’s inspection request; there must be adequate facts to justify the denial of inspection. In this case, the association was able to provide substantial evidence of an improper purpose. The Court also concluded that the member’s assertion of a proper purpose for inspection was insufficient to defeat a finding of an improper purpose, meaning the member could not somehow “save” his request for inspection from a finding of an improper purpose by also asserting a legitimate purpose for inspection.

Probably the most dreaded request for inspection which associations receive is a request to inspect the membership list. Providing a member with a list of his or her fellow members’ names and physical and electronic mail addresses makes associations understandably suspicious of the requesting member’s motives, especially if the requesting member has a contentious relationship with the board of directors. However, as this case makes clear, mere suspicion that the member will misuse the membership list is not a sufficient basis for denying the member’s request. The association should have substantial evidence that the membership list will be used for an improper purpose before it denies a member’s request. Also, it is important to note that owners have the ability to “opt-out” of sharing their contact information pursuant to Civil Code Section 5220 if they are concerned about their privacy.

Retzloff v. Moulton Parkway Residents’ Association, No. One (2017) 14 Cal.App.5th 742

This case also involves the inspection of association records but the matter was brought under the Davis-Stirling Common Interest Development Act (“Act”) (Civil Code Section 4000 et seq.), rather than the Corporations Code. According to Civil Code Section 5235(a), a member may bring an action to enforce that member’s right to inspect and copy association records. If a court finds that the association unreasonably withheld access to the association’s records, the court shall award the member “reasonable costs and expenses, including reasonable attorney’s fees,” and may assess a civil penalty of $500 against the association for the denial of each separate request. If the association

 

prevails in such a lawsuit, the association may recover its “costs” if the court finds the action to be frivolous, unreasonable or without foundation.

This case confirms that there is a different standard for what a member may recover and what an association may recover in an action to enforce a member’s inspection rights. The association prevailed against the member in this case and argued that “costs” includes attorneys’ fees. The Trial Court agreed with the association; however, the Appellate Court concluded that the plain reading of Civil Code Section 5235 does not support this interpretation – “costs” do not include attorneys’ fees.

This case, when read in conjunction with the holding in Tract 7260 Association, Inc., discussed above, makes clear that associations should act cautiously when responding to a member’s request for inspection, because, among other things, if the member sues the association over its denial of access to association records, the association will not be entitled to recover its attorneys’ fees.

Domenica Lewis et al. vs. Silvertree Mohave Homeowners’ Association et al. (2017) WL 5495816

Beginning in 2000, and continuing in substantially the same form until 2015, this association had a rule in place which prohibited children under the age of 14 from being in the association’s common areas without adult supervision and from engaging in any sports activities in the common areas. The association’s board of directors enforced this rule by, among other things, fining parents of children in breach of the rule. A class action lawsuit was filed against the association by all persons with children who lived at the association while this rule was in effect as well as their children. A settlement was reached between the parties, however, a dispute arose as to the award of attorneys’ fees. The settlement reached between the parties is noteworthy. Among other things, the association agreed to: (1) an injunctive order which required the association permanently to rescind all no sports-play rules and permanently to agree not to enact any rules in the future that would prohibit children from playing in the common area; (2) post signs in the common area making the new child-friendly rules known to residents; (3) have certain board members resign; (4) consent to fair housing training for the remaining board members; (5) undertake a plan to evaluate the need for and provide play areas for children in the common area; and (6) pay over $850,000 to be divided among the plaintiffs. The Court ordered that the association also pay $296,020 in attorneys’ fees to the plaintiffs’ attorneys.

This case is a reminder that rules and regulations must focus on the undesirable activity, not the age of the person committing such activity. With very few life/safety exceptions, rules which distinguish by age are considered discriminatory against families with children and may subject an association to substantial liability which may not be covered by insurance. Associations should consult with their attorneys with regard to any rule singling out “children” or which sets a minimum age limit other than a rule requiring children under 14 to use the pool with adult supervision.

Espinoza v. Gentry Courts Home Owners Association et al. (2017) WL 2311310

This case provides another example of the pitfalls associated with improper and/or delayed communication in response to a resident’s request for a reasonable accommodation in its policies and practices. This association had a one-pet policy. The disabled owner already had a pet living in her unit. She made a request to the association for a reasonable accommodation in the one-pet policy so

 

that her mother (also residing in the unit and also disabled) could keep her emotional support animal. The mother died in December, 2015, and the association denied the request in January, 2016. In February, 2016, and again in July, 2016, the disabled owner sought a reasonable accommodation from the association to allow her to keep her mother’s dog as an emotional support animal for herself, along with a note from her “medical treater” indicating the owner’s need for an emotional support animal. The association ceased issuing fines against the disabled owner related to having two pets in September, 2016, and withdrew the claim that the disabled owner was in violation of the one-pet policy.

The disabled owner then sued the Association based on alleged violations of the Federal Fair Housing Act (“FHA”), the California Fair Employment and Housing Act and other state anti­discrimination statutes. The association moved to dismiss the lawsuit on the basis that, among other things, the owner did not have standing to bring her mother’s claims and because there was no longer an active dispute insofar as the association had dropped the fines and its enforcement action. The Court found that under the broad definition of an “aggrieved person” under the FHA, the owner may have standing under the FHA to bring a lawsuit related to the association’s failure to grant her mother’s request for a reasonable accommodation. The Court also held that, while the association may have viewed this dispute as moot because it discontinued its enforcement action against the owner with regard to this matter, the association never notified the owner that the association was withdrawing its claim or granting her a reasonable accommodation. The Court noted that while there is federal case law which suggests that the mere lack of an official notice from the association does not automatically give rise to a claim of discrimination under the FHA, this case was distinguishable from the earlier case because in this case the association had fined the owner and withheld the use of the pool from the owner whereas the association in the earlier case had taken no enforcement action against the owner.

This case highlights once again the importance of responding to requests for reasonable accommodations in a timely and appropriate manner. Boards of directors should contact their association’s attorney early on in the process to help ensure that the proper protocols are followed including, but not limited to, responding in a timely manner to requests, accepting (not challenging) determinations of disabilities submitted by the requesting resident, etc. Most importantly, boards of directors must also be prepared to accept that in most cases they will probably have to make the accommodation, even if the board feels like it is being “played” by the resident making the request. In most cases, boards will simply be documenting the resident’s verification of disability paperwork and the nexus between the disability and the requested accommodation (in case another owner challenges the decision), granting the request (in writing) and moving on.