2011 Statute and Case Law Update - Jeffrey A Barnett, APC

Statutory and Case Law Update – 2011

By
Jeffrey A. Barnett

Introduction

The following is a summary of statutory and case law developments for the calendar year 2011. It is limited to bills that were enacted into law by the California Legislature and published decisions of the California Court of Appeal.

Legislative Developments

1. SB 150 – Rental Restrictions.

Effective January 1, 2012, new Civil Code Section 1360.2 prohibits the governing documents of an association from restricting rental or leasing of any of the homes in a common interest development unless the restriction was effective prior to the date that the owner acquired title to his or her home, unless that owner voluntarily consents to be subject to the rental restriction.

The owners who are grandfathered by this statute may pass their exemption from the rental restriction to successor owners in the cases where the transfer of ownership would be exempt from an increase in property taxes under the Revenue and Taxation Code and in the case of probate transfers.

Under Section 1360.2, if a rental restriction is in effect, an owner must provide the association verification of the date he acquired title to the residence and the name and contact information of the prospective tenant or tenants’ representative.

Finally, Civil Code Section 1368 concerning the disclosures of buyers to sellers now requires specification of whether there is a rental or leasing restriction in the governing documents and, if so, a description of it and its applicability. This is part of the information that the association must provide to the seller within ten (10) days of the mailing or delivery of a request.

Associations with rental restrictions should adopt implementing rules consistent with new Civil Code Section 1360.2, and must comply with the new rental restriction disclosure requirement in the 1368(b) packages distributed to sellers.

2. SB 209 – Electric Vehicle Charging Stations.

New Civil Code Section 1353.9 invalidates covenants, conditions and restrictions for common interest developments that effectively prohibit or restrict the installation of electric vehicle charging stations, subject to certain controls. Restrictions are permitted only if they do not significantly increase the cost or significantly decrease the efficiency of the station. Associations violating the new law are subject to a civil penalty of $1,000 and to the owner’s attorney’s fees.

Associations may condition the installation of a charging station on the following:

State and local government requirements must be met.
Architectural applications that do not unreasonably delay the project. If not approved or disapproved in 60 days, it is deemed approved.
Installations in the common area or exclusive use common area must be approved if:

Architectural standards are met.
A licensed contractor installs the station.
The owner names the association as an additional insured on the owner’s liability insurance policy with an umbrella policy of $1 million covering damage to the station or common area.
The owner is responsible for the cost of the electricity.
The owner and successors are responsible for maintenance, repair, replacement and removal of the station.

The Governor acknowledged that cleanup legislation was necessary due to property rights issues created by the statute. Further legislation is necessary to address defects in Civil Code 1353.9 including its conflict with Civil Code Section 1363.07 which generally requires that two thirds of the members to approve exclusive use grants of portions of the common area. Senate Bill 880 which is pending in the Legislature is intended to address this problem as well as other drafting problems with the new law.

SB 563 – Board Meetings.

This Bill fundamentally changes the way that association boards have historically conducted business. Most importantly, it amends Civil Code Section 1363.05 to prohibit the board of directors from conducting a meeting via a series of electronic transmissions, including, but not limited to, electronic mail. The only exception is that e-mail may be used to conduct an emergency meeting if all of the members of the board, individually or collectively, consent in writing to that action, and if the written consent or consents are filed with the minutes of the meeting of the board. The written consent may be sent electronically. If any member of the board refuses to make an emergency decision through e-mail, the board must meet in person to deliberate on the emergency issue.
The Bill requires that members receive at least two days notice of executive session meetings of the board, except for emergency meetings. The notice is required to contain the agenda for the meeting.

The Bill also amends Civil Code Section 1365.2 to require that agendas of meetings of the members, the board of directors and committees appointed by the board of directors, be included in the records that are subject to inspection by the members. However, minutes and other information from executive session meetings of the board of directors are excluded from disclosure.

To address the requirements of continued business between board meetings, it is advisable that associations adopt a resolution creating an executive committee with prescribed authority, consistent with the governing documents of the association, and also consider amendments to the management contract as well.

AB 771 – Document Requests.

This Bill amends Civil Code Section 1368 which relates to disclosures from sellers to buyers. It includes in the list of documents to be provided, the minutes of meetings of the board of directors, excluding executive session meetings, conducted over the previous twelve months, that have been approved by the board of directors, if these documents are requested by the purchaser.

As noted above, the association is obligated to furnish the documents within ten days of the request. The Bill includes a new Civil Code Section 1368.2 which is a form listing the changes for disclosures by the association. It includes a checklist of all of the documents required by the Davis-Stirling Act to be provided by the seller to the buyer, and in turn by the association to the seller, and a statement of the total fees for the documents.

Case Law Developments

Iverson vs. California Village Homeowners Association, 193 Cal.App. 4th 951 (2011).

The California Supreme Court is reviewing this case which concerns an independent contractor who fell from a ladder attached to a condominium building while in the process of servicing air conditioning units. The contractor contended that the metal ladder did not meet Cal-OSHA regulations, which require a cage or another safety device for fixed ladders in excess of twenty feet. The issue is whether those regulations, which relate to employers, set standards for property owners in relation to independent contractors.

Country Side Villas Homeowners Association vs. Ivie, 129 Cal.App. 4th 1110 (2011).

Ms. Ivie objected to the interpretation and proposed new maintenance standards of a homeowner’s association and also requested financial records of the association to assist in supporting her position. The association filed suit against Ms. Ivie, and other residents, for declaratory relief concerning the proper interpretation of the documents. Ms. Ivie filed a cross complaint against the association for damages and declaratory relief, and also filed an anti-SLAPP motion against the association to strike its four causes of action for declaratory relief. The trial court and appellate court held that Ms. Ivie’s SLAPP suit was filed in a timely manner and was justified on the merits because the association’s lawsuit against her arose out of conduct in exercise of her constitutional right of free speech. The court noted that the association threatened to sue Ms. Ivie if she refused to sign a confidentiality agreement demanded by the association in relation to the release of association financial records. The court found that the association’s lawsuit arose from Ms. Ivie’s exercise of her right of free speech in criticizing and speaking out against the board. The appellate court found that the declaratory relief action against Ms. Ivie was inappropriate because Ms. Ivie could not provide any relief as an individual member of the association.

Ferwerda vs. Bordon, 193 Cal.App. 4th 1178 (2011).

The plaintiff was trying to build a home on his vacant lot. He sued the Bear Creek Planning Committee, its members who he contended inappropriately blocked construction on his lot, and his next door neighbors. The plaintiff began building a home on his lot even though the Committee had rejected his plans. The trial court found that the architectural committee had acted reasonably in rejecting the construction proposal, and ordered the owners to pay over $194,000 in attorney’s fees to the architectural committee and over $219,000 to the neighbors.

On appeal it was held that:

The cc&rs authorized the architectural committee to adopt standards beyond those in the cc&rs.
The prevailing party is entitled to attorney’s fees when authorized by statute or a contract. The cc&rs contained no attorney’s fees provision. Instead, that clause was found in the architectural review manual.
The trial court properly determined that the architectural committee acted appropriately in denying the building application of the owner. Applicable law permits such decisions to be made both on objective and subjective criteria. The architectural styles and siting of the homes throughout the community was not so diverse that the committee’s decision was arbitrary and capricious.
The injunction against the owner from constructing, excavating or altering his property without committee approval, and to replant trees if he did not receive such approval, was supported by the Court of Appeal.

Diamond Heights Village Association, Inc. vs. Financial Freedom Senior Funding Corp., 196 Cal.App. 4th 290 (2011).

A homeowners association filed a judicial foreclosure action to enforce an assessment lien against an owner. Before the association recorded a judgment lien, the owner obtained a reverse mortgage. The association filed suit to determine that its judgment for assessments was prior to the deed of trust of the reverse mortgage lender.
The trial court and appellate court ruled in favor of the lender on grounds that the association’s assessment lien was merged into the judgment it obtained for judicial foreclosure and that no judgment lien had been recorded by the association against the title of the owners before the new lender recorded its deed of trust. However, it was held that the successful lender was not entitled to attorney’s fees against the association for litigation related to the respective rights of the parties.

Cabrera vs. Alam, 197 Cal.App. 4th 2077 (2011).

A prior president of the homeowners association campaigned against board candidate Alam and in favor of a competing slate of candidates. Alam accused the former president of stealing money from the association and defrauding it. She then sued Alam for defamation.

The trial court denied the defendant’s anti-SLAPP motion to strike on the basis that he failed to meet his burden to show that the conduct underlying the plaintiff’s defamation claim was protected activity. The appellate court reversed with instructions to grant the motion to strike, holding that the defendant’s statements were a protected activity because they were made in a public forum at a homeowners association’s annual meeting, and concerned an issue of public interest, namely, the qualifications of a candidate for office in the association. The plaintiff was found by the appellate court to have failed to carry her burden of showing a probability of prevailing on the merits of the defamation claim. The court noted that the plaintiff, having thrust herself into the controversy surrounding the election of the board of directors, became a “limited purpose public figure” who was required to show that the defendant made the allegedly defamatory statements with malice. This requires evidence that the statements were made knowing them to be false or in reckless disregard of their falsity.

Villas Los Alamos Homeowners Association vs. State Farm General Ins. Co., 198 Cal.App. 4th 522 (2011).

This is an insurance coverage case where an association endeavored to recover costs of asbestos remediation which was necessary because the association’s contractor improperly performed a job of removing acoustical ceilings and stairways. The cleanup expense amounted to $650,000. The trial court and appellate courts ruled that the association’s claim on its own carrier for casualty loss was unsupported by the policy language. More specifically, the appellate court found that the exclusionary language in the casualty insurance portion of the policy for environmental pollution was applicable. This was true even though the policy did not contain a specific exclusion for “asbestos” as such.

Cadam vs. Summerset Gardens Townhouse HOA, 200 Cal.App. 4th 383 (2011).

The tenant in a townhome sued the association for personal injury when she tripped and fell on a walkway. The trial court denied recovery. The Court of Appeal affirmed, finding that the defect in the walkway was trivial where the separation was three-fourths to seven-eighths inch in depth, was not jagged, shadowed, obscured, or slanted, there were no protrusions from the separation, no other persons had fallen there, the walkway was newly constructed and the view of the separation was not obstructed.

Promanade at Plia Vista Homeowners Association vs. Western Pacific Housing, Inc., 200 Cal.App. 4th 849 (2011).

When a homeowners association brought a construction defect case against a developer, the developer filed a motion to compel arbitration, relying on the arbitration provision in the cc&rs, and in the individual purchase agreements. The trial court and appellate courts denied the motion. The appellate court held that the provisions in the cc&rs are equitable servitudes and can be enforced only by the homeowners association, the owner of a condominium, or both. The developer is not among those permitted to enforce cc&rs. The appellate court noted that the developers did not own any property in the complex, and therefore had no standing to enforce the cc&rs, including the arbitration provision. The court further held that after the developer had parted with property which would derive a benefit from the restrictions, it could not enforce arbitration clauses in the grant deeds with the individual owners.