By
Lise K. Ström and Jeffrey A. Barnett
Introduction
The courts were busy with cases involving, or affecting, common interest developments this year. What follows is a brief synopsis of select published decisions from 2009.
Cases
Ashcraft v. Villas West II of Willowridge Homeowners Association, Inc.
129 S.Ct. 1527 (2009)
Prohibition on Leases. The United States Supreme Court upheld an Indiana state court ruling that an association’s “no-lease” covenant did not violate the Federal Fair Housing Act (“FHA”) because the provision was not arbitrary, was based on legitimate economic concerns, and did not have an actual, significant adverse impact on a protected class, such as race, gender, age, or disability.
Birke v. Oakwood Worldwide
169 Cal.App.4th 1540 (2009)
Secondhand Smoke in Common Area. Oakwood Worldwide is an apartment community. While all indoor smoking was banned, smoking was permitted in all outdoor common areas, such as the barbeque areas, pool area, and playground. The young daughter of Birke, a tenant at Oakwood, suffered from asthma and her parents repeatedly asked the apartment owner to limit smoking in the outdoor common area. Ultimately, Birke sued the apartment owner for nuisance. The trial court dismissed Birke’s complaint, stating that Birke had failed to plead the necessary facts to support a claim of public nuisance. The appellate court, however, reversed the trial court’s decision and remanded the matter back to the trial court for further proceedings. Notably, the appellate court indicated that the apartment owner owed a duty to the resident to keep the premises “reasonably safe” and that the owner’s failure to adopt a no-smoking policy for outdoor common area could constitute a breach of that duty.
Calemine v. Samuelson
171 Cal.App.4th 153 (2009)
Seller Disclosures. Samuelson, the owner of a condominium at Jared Court, sold his unit to the Calemines in 2002. Shortly after the Calemines moved in, the condominium garage flooded. While Samuelson disclosed to the Calemines that the unit had previously experienced water intrusion, Samuelson indicated that the association had made the necessary repairs and that the problem was solved. Further, Samuelson failed to disclose two lawsuits related to the water intrusion problem. In the first lawsuit, Samuelson, other owners, and the association, sued the developer alleging construction defects which caused the water intrusion. In the second lawsuit, while Samuelson served on the board of directors, the association sued a flooring company for failing to properly waterproof affected areas. The Calemines sued Samuelson for failing to disclose these lawsuits. The trial court ruled that Samuelson had met his disclosure obligation regarding the water intrusion despite his failure to mention the lawsuits. However, on appeal, the court reversed, stating that there was a triable issue of fact as to whether Samuelson’s disclosures were adequate.
Carolyn v. Orange Park Community Association
177 Cal.App.4th 1090 (2009)
Disabled Access to Common Area. Orange Park had a recreational trail system located within its common area which was connected to a larger system of trails maintained by other associations and/or government entities. For numerous years, the trail system had been open for use by anyone, including the general public. However, in 2007, citing safety reasons as well as maintenance costs, Orange Park installed barriers at its trail entry points to prevent vehicular access. Carolyn, a disabled non-resident, who sought to use the trail system by horse-drawn carriage, sued Orange Park, claiming the association was in violation of the Americans with Disabilities Act (“ADA”) and the California Disabled Persons Act (“CDPA”). The appellate court ruled that the association’s trails were not considered “public accommodations” and were therefore not subject to the ADA or CDPA. The court reasoned that, while the public had an incidental right of access to the trails, there was no evidence indicating that the Orange Park trails were intended to be used by anyone other than the association members, nor did the association encourage public use of its trails. However, the court indicated that there are circumstances where recreational common areas within an association could be classified as a public accommodation, including a pool, park, clubhouse, or trail open to the public for a fee. Lastly, the court stated that it might have reached a different decision if the association had blocked access altogether to its trails.
Coronado v. Cobblestone Village Community Rentals
163 Cal.App.4th 831 (2009)
Disabled Access to Common Area. Cobblestone Village is an apartment community. A disabled tenant who required wheelchair access filed a lawsuit against the owner of the complex and the management company for violation of the Unruh Civil Rights Act (“UCRA”) and the California Disabled Persons Act (“CDPA”) because the owner had failed to install a permanent concrete ramp to provide access between his car and apartment building. The only ramp in the apartment community led to the manager’s office. The appellate court held that the residential portions of the complex were not a public accommodation under the UCRA or CDPA and therefore, there was no legal obligation for the owner (or manager) to install a wheelchair accessible ramp.
Costa Serena Owners Association v. Costa Serena Architectural Committee
175 Cal.App.4th 1175 (2009)
CC&R Amendments. Costa Serena, a planned development consisting of seven phases, had a “master” set of CC&Rs plus seven “sub” sets of CC&Rs (one for each phase), all of which were set to expire in 2006. The members of the Architectural Committee (“ARC”) favored extending the CC&Rs; however, a coalition of homeowners (“Coalition”) opposed their extension. The Coalition sought to defeat the ARC’s attempt to extend the life of the CC&Rs by challenging the validity of various CC&R amendments, most significantly an amendment which consolidated all seven phases and made them subject to the single set of “master” unified CC&Rs and eliminated the CC&Rs for each phase. The Coalition argued that the amendments were adopted in a manner inconsistent with the amendment procedure outlined in the CC&Rs. The ARC sought to hold an election of the members, consistent with the unified CC&Rs, to determine whether or not to extend the CC&Rs; however, the Coalition obtained a court injunction to prevent the voting process. In response, the ARC recorded a document purporting to extend the life of the CC&Rs, along with exhibits showing each acquiescing member’s written consent. Ultimately, the appellate court held that (1) the CC&R amendments were voidable (not void ab initio), but that the Coalition’s challenge to the CC&R amendments was barred by the statute of limitations – thus, the amendments were valid; and (2) the ARC obtained the necessary membership approval to effect an extension of the unified CC&Rs and that the document, with exhibits, recorded by the ARC met the CC&R amendment requirements.
Creekridge Townhome Owners Association v. Whitten
177 Cal.App.4th 251 (2009)
Construction Defect / Statute of Limitations.
A re-roofing project was completed in 1997 at Creekridge Townhomes. A few months after completion, one owner complained about water seepage around her bedroom window caused by the new roof. Other than this complaint, however, there were no problems until 2003, when numerous roof leaks appeared. A subsequent expert examination of the roof indicated that there were many roof defects causing the leaks. The association sued the original roofer in 2004 and the trial court found that the association’s complaint was barred by the statute of limitations. The appellate court, however, reversed the trial court’s decision, finding that the defect was latent, i.e., not apparent by reasonable inspection, and therefore, the applicable Statute of limitations did not start running until the association discovered the defect. The court found that evidence of one owner’s complaint about water leakage in a complex of 61 units in 11 buildings did not give the association reasonable notice that a remedy had to be pursued.
Dey v. Continental Central Credit
170 Cal.App.4th 721 (2009)
Delinquent Assessments. Dey, an owner of a timeshare condominium, unsuccessfully sought to bring a class action lawsuit against Vacation Resorts (the property manager) and Continental Credit (the collections agency). Dey argued that the agreement between Vacation Resorts and Continental impermissively rewrote the Association’s rules on delinquent assessment collection by charging delinquent owners a “collection fee” – in addition to interest and late charges – in violation of the State’s Unfair Competition Law. Dey argued that the Association, not the collections agency or property manager, should be entitled to recover costs incurred by the collection of delinquent assessments. Citing Brown v. Professional Community Management [127 Cal.App.4th 532 (2005)] and Berryman v. Merit Property Management [152 Cal.App.4th 1544 (2007)], the appellate court found that Dey failed to show how, and why, the “collection fee” was not permitted by law, or was prohibited pursuant to a contract.
Gorman v. Tassajara Development Corp.
178 Cal.App.4th 44 (2009)
Attorneys’ Fees. Gorman, a lawyer, and his wife sued the Tassajara Development Company alleging defective construction of their custom-built home. Gorman also sued on behalf of other plaintiffs for similar construction defects. The lawsuit was ultimately settled and, as part of the settlement agreement, Gorman and the other plaintiffs were deemed the “prevailing parties” entitled to recover attorneys’ fees and court costs pursuant to the construction contract between Tassajara and each of the plaintiffs. The trial court issued a 27-word order awarding substantially less in attorneys’ fees and court costs than requested by the plaintiffs. The plaintiffs demanded a statement of the court’s decision or a new trial, and both motions were denied; as a result, the plaintiffs appealed. The appellate court ultimately held that the trial court’s award could not be rationally explained and was therefore arbitrary. The matter was remanded to the trial court for further proceedings.
Martin v. Bridgeport Community Association, Inc.
173 Cal.App.4th 1024 (2009)
Non-Owner Resident Status to Sue. The Petersons purchased a home in the Bridgeport development and then agreed that the Martins (the Petersons’ daughter and son-in-law) would live in the home, pay the mortgage, and maintain the property. The Petersons executed a power-of-attorney which authorized the Martins to deal directly with the association on issues regarding the property, which the association accepted. The Martins then discovered that the lot where the home was located was smaller than what was represented to the Petersons. The developer, Richmond Homes, agreed to transfer the additional area by two lot-line adjustments. However, before the second lot-line adjustment was completed, Richmond Homes transferred the land to the association by deed. Subsequently, the association refused to cooperate regarding the second lot-line adjustment. The court determined that the Martins, as non-owners, lacked standing to sue the association and seek enforcement of the CC&Rs. Absent an actual transfer of rights, no agreement, assignment, or power-of-attorney can operate to transfer said rights (e.g. the right to enforce governing documents, right to enforce the Davis-Stirling Act, etc.) that are inextricably tied to actual ownership of real property.
Nelson v. Avondale Homeowners Association
172 Cal.App.4th 857 (2009)
Home Businesses. Nelson, an owner within Avondale HOA, operated a homeopathic and religious counseling practice from his home. He asserted that he could not work outside his home due to health issues, including Epstein-Barr syndrome and hypothyroidism, which prevented him from driving. He typically saw eight patients per day, five days a week. The CC&Rs prohibited the operation of a home-based business which would increase pedestrian and/or vehicular traffic beyond what was common in residential areas. Moreover, the CC&Rs required approval by both the city and the board of directors before a home business could be operated, which Nelson did not obtain. The association tried enforcement measures, such as restricting Nelson’s guest access privileges and imposing fines. Nelson sued the association, claiming discrimination based on his disability (his health issues) and his religion. The appellate court held that the association’s covenant against operating a home business was enforceable and that the association’s manner of enforcing the covenant did not discriminate against Nelson.
Palacio Del Mar Homeowners Association v. McMahon
174 Cal.App.4th 1386 (2009)
Collections. Palacio Del Mar Homeowners Association obtained a $40,000 judgment against McMahon for his frivolous anti-SLAPP lawsuit. In trying to satisfy the judgment, the association demanded that an Internet domain name (American Homeowners Resource Center website), which the owner’s wife had an interest in, be turned over to the association and subsequently sold at auction by the association to satisfy the debt. The appellate court held that judgment creditors are not entitled to possession and control of property. Rather, they are only entitled to money and/or proceeds from the sale of property. In addition, the court held that the property was not properly available to satisfy the judgment because the domain name was owned by the owner’s wife, who was not a party to the action.
Standard Pacific Corp. v. Superior Court of San Bernardino County (Garlow)
176 Cal.App.4th 828 (2009)
Construction Defects. Various homeowners had filed a lawsuit against Standard Pacific, the developer, for construction defects. The developer sought to stay the legal proceedings until the statutory pre-litigation procedures outlined in Civil Code §910 et seq. (sometimes also called the “Fix It” law, SB 800, or Title 7) were completed. These pre-litigation procedures provide an opportunity for the builder and homeowner (or association) to try and resolve the defect issues without resorting to the courts. The homeowners claimed that the Standard Pacific was in violation of the “Fix It” law because the developer had failed to “opt in” and affirmatively choose to be covered by the statutory pre-litigation procedures, and the trial court sided with the homeowners’ interpretation of the statute. The appellate court disagreed, stating that the builder is required to comply with pre-litigation procedures and does not need to “opt in.” Moreover, the appellate ruled that the homeowners had the burden of showing that the developer failed to comply with the procedures before initiating a lawsuit.
Starlight Ridge South Homeowners Association v. Hunter-Bloor
177 Cal.App.4th 440 (2009)
Maintenance. In this case, Ms. Hunter-Bloor, the owner of a residential lot in Starlight Ridge, unsuccessfully argued that she was not responsible for the maintenance of a drainage “V” ditch which crossed her lot. Hunter-Bloor contended that the drainage ditch on her lot was completely contained with a landscape maintenance area, which was the sole responsibility of the association. The association argued that, while landscape maintenance areas were indeed its responsibility, a more specific provision of the CC&Rs directing individual owners to maintain “drainage systems and devices” made Hunter-Bloor responsible. The appellate court agreed with the association. In addition to examining the language of the CC&Rs, the court looked at (i) the association’s historical practices related to the drainage ditches (for nearly 20 years the association had enforced the CC&Rs to require individual homeowners to repair and maintain drainage ditches located on their property) and (ii) the overall purpose of the landscape maintenance areas (in the court’s view, landscape maintenance areas were aesthetic in nature, making the association’s maintenance of drainage facilities incompatible). The volume of legislation affecting homeowners associations was relatively light in 2009. The following is a summary of four significant Assembly bills which became law on January 1, 2010 and which do impact the operations of California homeowners associations.
Statutes
AB 313-Civil Code Section 1366.4
Assessment Formulas. This new statute generally prohibits associations from levying assessments on residences within the common interest development based on the taxable value of the homes, unless the association, in accordance with its governing documents, levied assessments against homes based on their taxable value on or before December 31, 2009. Associations that pay property taxes for the homes in the subdivision may levy that portion of the assessments that is related to the payment of taxes based on the taxable value of the homes, as determined by the tax assessor.
Most associations did not and will not levy assessments based on the appraised value of the homes and do not pay property taxes related to the residences. Accordingly, this Bill will have the narrow effect of protecting the right of the few associations to levy assessments based on property tax valuation where that was done before the end of the year.
AB 712 – Code of Civil Procedure Section 116.220
Small Claims Court. This statute authorizes the small claims court to award injunctive or other relief when another statute expressly authorizes a small claims court to award that relief. Presently, the Davis-Stirling Act does not expressly authorize the small claims court to issue injunctive or other equitable relief, although it does permit certain monetary claims to be filed in small claims court.
AB 899-Civil Code Section 1350.7 and 1365.2.5
Disclosure. This legislation, sponsored by ECHO, addresses disclosure issues. There are three distinct facets to the legislation. First, the Bill adds a new Section 1363.005 to the Civil Code which consists of a Disclosure Documents Index. This index correlates all of the Davis-Stirling disclosure requirements of homeowners associations to their members.
Secondly, the statute permits the association to deliver any document scheduled in the Disclosure Document Index to a member by alternative means, including personal delivery, first class mail, the association’s newsletter, a method provided in a recorded provision of the governing documents, or by another means to which the recipient has agreed. Importantly, the methods of distribution of the documents scheduled in the Disclosure Documents Index now includes e-mail, facsimile or other electronic means, provided that the recipient has agreed to that method of delivery.
The agreement for receipt of the documents by electronic means must be consistent with the manner of obtaining consumer consent described in Corporations Code Section 20. That Section, in turn, requires that, as a condition of electronic service of communications, the recipient provides to the corporation an unrevoked consent to the use of those means of transmission for communications and the communication must create a record that is capable of retention, retrieval and review that may thereafter be rendered into clearly legible tangible form.
The Corporations Code further requires, as a condition of electronic service of documents, that the consent for service be obtained after delivery to the istribute of a clear written statement as to (1) the right of the recipient to have the record provided or made available on paper or non-electronic form; (2) clarification concerning whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation; and (3) the procedures the recipient must use to withdraw consent. It is apparent that while this new law facilitates distribution of disclosures by the association through electronic means, and presumably largely through e-mail, valid distribution requires the recipient to execute a knowledgeable consent form. It is recommended that this document be prepared by legal counsel.
This Bill also modifies the annual assessment disclosure form which is embedded in Civil Code Section 1365.2.5. Specifically, the note following sub-paragraph (a)(7) in the form is revised to require disclosure of the assumed long-term before-tax interest rate earned on reserve funds and the assumed long-term inflation rate to be applied to major component repair and replacement costs per year. The disclosure of these key elements of the reserve study will assist the board and members in practical financial planning for the future financial needs of the association.
AB 1020-Health & Safety Code Section 18942, 116064.1, 116064.2
Pool Safety. This law requires that existing public swimming pools, which includes swimming pools for multi-family residential areas, be equipped with anti-entrapment devices or systems that meet ASME\ANSI or ASTM performance standards. It further requires that existing public swimming pools with a single main drain, that is not an unblockable drain, to meet at least one of the specified standards. It further requires the Department of Public Health to develop, and public swimming pool owners to file, a form to indicate compliance with the requirements of the Bill which includes certification by a qualified individual, that prescribed factual information provided on the form is true to the best of his or her knowledge. A fee is authorized to defray the expenses of the State Department of Public Health in connection with the law. It is a misdemeanor to violate the requirements.
The retrofit requirements must be completed no later than July 1, 2010, unless the pool completed a retrofit between December 19, 2007 and January 1, 2010 in compliance with the federal Virginia Graeme Baker Pool and Spa Safety Act in effect on the date of issuance of the construction permit. However, in this case, the public swimming pool owner must file a form with the Department of Health confirming that such retrofit work was completed.
Homeowners association must complete retrofits as required by this law or certify completion of the retrofits under the Virginia Graeme Baker Act during the allowable period. The forms to be filed with the State Department of Health must be completed carefully by a knowledgeable individual to avoid liability
AB 1061-Civil Code Section 1353.8
Architectural Guidelines. This new law expands on the existing prohibition against architectural guidelines that condition or effectively prohibit the use of low water using plants as a group. The new law now further prohibits architectural guidelines from prohibiting or restricting water-efficient landscape ordinances adopted in accordance with Government Code Section 6559(c) or regulations or restrictions on the use of water adopted to Water Code Sections 353 or 375. However, the statute allows associations to apply landscaping rules and regulations in the governing documents to the extent the rules and regulations fully conform with the requirements of the new law.
AB 1233-Nonprofit Corporation Law
Corporations Code. This Bill makes changes to several provisions of the Corporations Code pertaining to the governance of nonprofit mutual benefit corporations. Among the clarifications in the Bill are that: (1) directors may not vote by proxy in director meetings; (2) committees of the board may not include non-directors, but in other committees non-director members may serve as long as such committees do not exercise authority of the board; (3) the corporation must have a chairman of the board or a president or both, and a treasurer or a chief financial officer or both. The Bill further clarifies that if a director is relying upon a report of a committee of the board, the committee must be composed exclusively of any combination of (a) directors; (b) directors or employees of the corporation whom the director believes to be reliable and competent in the matters presented; or (c) counsel, independent accountants, or other persons as to matters which the director believes to be within the person’s professional or expert competence. The director must also believe that the committee merits the director’s confidence.
SB 407 – Civil Code Sections 1101.1 – 1101.9
Water Use Efficiency Improvements. This law requires that multi-family residential real property, including mixed residential-commercial buildings, that were constructed on or before January 1, 1994 replace noncompliant plumbing fixtures with water-conserving plumbing fixtures no later than January 1, 2019. The statute defines noncompliant plumbing fixtures as toilets manufactured to use more than 1.6 gallons of water per flush, and showerheads manufactured to have a flow capacity of more than 2.5 gallons of water per minute. The implication of this statute for common area improvements, such as clubhouses and pool buildings is minimal. Certain limitations and exceptions apply. Seemingly the conversion requirement applies to associations only with respect to plumbing fixtures which are under their control in the common area, and not to those within the separate interest units or lots.