Bad Boards

L ast month I covered "HOA Boards, The Good, The Bad, and The Ugly - Part II." In that newsletter, which is posted here in the archives I covered board members engaging in conflicts of interest and refusing to sign or adhere to codes of ethics, etc. And promised a followup of the topics of recall, sanctions, public flogging, censure, and court-appointed directors, provisional directors, and receivers. That will have to wait one more month. For now, I am focusing on good policy making practices in the area of maintenance, both to avoid deferred maintenance issues AND do head of fights over who fixes what in an HOA. Brace yourselves. This is a big E-Newsletter. I could have broken it down into two segments but why ... you need the information now!


Why Is It So Critical To Have Good Structure To Your Maintenance Program In Your HOA? Because screwups are the stuff litigation is made of.

When disputes and differences arise in HOAs in California, or anywhere else for that matter, it's often because of problems related to deferred maintenance, whether on the part of the HOA or the homeowner, or about a dispute over who fixes what. And the bigger the cost involved to cure the problem, the more likely it is to lead to litigation. If someone has a $1000 stake at issue is not likely they are going to pay a lawyer $20,000 or more to take the matter to court. However, an individual can bring a lawsuit in Small Claims Court in California for up to $10,000, and that's nothing to sneeze at.


What is a way to minimize the chance of fights over problems relating to deferred maintenance (which usually = a rather large special assessment) or a big fight over who is responsible for repair or damage involving one unit?

The answer to this question is to formulate realistic policies on who fixes what. In a very important case in California, LAMDEN v LA JOLLA SHORES CLUBDOMINIUM HOMEOWNERS ASSOCIATION, 21 Cal.4th 249, 980 P.2d 940, 87 Cal.Rptr.2d 237, the standard was set relating to court review of maintenance disputes. In that case, the owner was pushing hard, right to the Supreme Court of California, for tenting of the condominiums to eradicate the termite problems. The board had a plan to repair damages and implement preventive measures as it was doing reconstruction on unit by unit basis. Both parties had obtained opinions from pest prevention providers that supported their positions.

The HOA ultimately prevailed although it was touch and go during all the appeals. Here is the Supreme court summary of the litigation: "Condominium unit owner brought action for declaratory and injunctive relief regarding condominium association's failure to fumigate entire building for termites. The Superior Court, ... rendered judgment for association, and unit owner appealed. The Court of Appeal reversed. ... superseding the opinion of the Court of Appeal, the Supreme Court, ... held that board's decision to use secondary, rather than primary, treatment in addressing the development's termite problem was subject to deferential review."

What all this legal mumbo jumbo means in plain English is that the owner asked the Superior court to interpret the CC&Rs and issue a court order for the board to accept her proposed termite eradication and prevention plan instead of its own and the HOA won. Then the appeals court overturned that decision and ruled for the homeowner. Then the Supreme Court overturned the Appeal Court's decision and ruled in favor of the HOA. "Deferential review" in essence means that courts will be required because of this case to defer to a board's plan of action, assuming the Board has a plan and policies in place that it is following.

We can glean from this and previous case (Ironwood is the HOA) that if a board has no plan or is not following its own policies, the court could rule in favor of the owners. Ironwood involved the planting of palm trees by an owner and the owner prevailed in that case because the board failed to follow its own policies with regard to architectural control. Essentially, the board sued the owner to remove trees and lost because it was sloppy about its processes.

So the moral of the story is, Boards, don't be lackadaisical and don't be sloppy about your policies and procedures related either to architectural control or to maintenance. If you are pragmatic, practical, realistic, and attentive to establishing good written policies and procedures and you follow them; and an owner thinks there is a better way, you will have the edge in court, if it comes to that.


Formulating Good HOA Policies To Avoid Deferred Maintenance Problems.

Many HOA boards would like to pinch pennies. They sometimes do so by putting off maintenance another year and another year. One example is painting. While a reserve study preparer might say that painting needs to be done every five, seven, or ten years (depending on conditions), some boards push it out to 12 years or sometimes even 15, believing that the buildings look okay, so the job can wait. In many cases, that leads to loss of the moisture barrier for the exterior of the buildings and results in dry rot of the siding or stucco under the paint. Then the issue becomes who is responsible for the siding or stucco repair - the more on this below. The same idea applies to roofs. Some boards decide to put off roofing past the estimated life of the roof and then the leaks begin, and the disputes over who repairs the damage from the leaking roofs ensues. And the costs rise, and it leads to a special assessment in the end to fix the roofs.

California law requires a physical inspection of components that the Association is required to maintain at least once every three years and a review of the reserve study annually. The associations that conduct more frequent periodic investigation, and I mean something beyond just "looking", and take action accordingly to prevent damages by instituting good maintenance and repair policies are more likely to avoid a big special assessment to pay for much bigger repairs. Here's the law:

"Civil Code Section 5550. RESERVE STUDY AND VISUAL INSPECTION OF MAJOR COMPONENTS requires: (a) At least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development, if the current replacement value of the major components is equal to or greater than one-half of the gross budget of the association, excluding the association's reserve account for that period. The board shall review this study, or cause it to be reviewed, annually and shall consider and implement necessary adjustments to the board's analysis of the reserve account requirements as a result of that review."

There are two very good resources here on the website that will help you figure out what you need to do to satisfy the legal requirements for reserves. One such resource is the book called the Davis Stirling Act in Plain English (PDF $95, SNAIL MAIL $125). The other is the primer publication is Reserves - 1, the Basics ($25). In the matter of HOA maintenance, repair and replacement policies, the required reserve study will serve as a basis for need and the board can implement policies for periodic practices. All policies should be in writing so they can be passed from board to board so consistency will be maintained and no one board will "drop the ball". And see below for another Primer related to maintenance obligations and who fixes what.

Formulating Good HOA Policies Regarding Who Maintains What - And the Maintenance Matrix.

Who does not think it is easier to travel and leads to less chance of getting lost by having a roadmap? A good policy to address who fixes what provides just such a roadmap. In the form of a Maintenance Matrix, a policy can be simplified, and easy for everyone to understand, including the owners, and board members, now and into the future. But even better, it establishes a basis for defense or for offense for that matter if the board is called into court to make a case for its decisions about who fixes what. Such a matrix should address not only the maintenance with regard to the individual condo units and attached homes, but also utilities connections and landscaping with regard to individual lots.

Areas that commonly cause disagreements between the board and an individual owner are water leaks, plumbing repairs, siding and replacement, roof leaks, and landscaping (especially with the drought in California). Areas that commonly cause disagreements between neighboring owners are related to noise (such as outdated appliances and hard surface flooring installations), and responsibility for damage caused by water intrusion resulting from leaky appliance hoses or tubing or tub or sink overflows.

When amending and updating governing documents for an HOA, I have always included a Maintenance Matrix with extra detail of responsibility for who fixes what is needed. Such a matrix can always serve as the basis for adoption as a policy. We all know that owners are less likely to read a 35 or 95 page set of CC&Rs than a one or two page policy (Rules or a Matrix) on who is responsible to do what. The glory of having a policy which is consistently enforced, whether any owner ever reads it or not, is that it serves as support in court if the owner complains about something the Association is or is not doing with regard to maintenance or repairs. That is what the Lamden decision established.


What If Your HOA Doesn't Have The Resources, Time, Or Desire (Which Could Result In Serious Legal Disputes For Lack Of Clarity And Consistency) Undergo A Complete Amendment And Restatement Of The HOA Documents To Get Clarity?

Not all HOAs are in a position to take on a complete amendment and restatement of the governing documents as a project, to fix inadequacies in the current documents. It is expensive, to be sure, generally ranging in cost from six to $7000 to over $10,000, if you want a good set of replacement documents. If you want a boilerplate set which is not likely to provide the kind of unique treatment an HOA needs in the area of use of the properties and maintenance, repair and replacement, you might be able to get one for $2500-$5000. But, keep in mind, that developer documents are boilerplate and they don't tend to serve a "mature" HOA very well in the long term. Likewise a simplified boilerplate set of documents that doesn't address the uniqueness of the HOA won't, in my opinion, serve an HOA very well. In amending and restating your governing documents, you need the assistance of someone who really cares about making things much more clear to the ongoing boards and the owners in the project, something that is written in plain English rather than legalese, and something that takes into account whatever kinds of disputes might have already been brought to light or can be imagined in providing the responsibilities and the clearest language possible you won't get it's from a law textbook, and associate in a law firm that is still green, or a layperson or lawyer who is not intimately familiar with HOA law and who does not have years of experience in working with the various and sometimes challenging dynamic of Association directors and owners within the Association.


So, If You're Not Ready To Take On A Rather Large And Daunting Amendment And Restatement Project, What Can You Do In The Interim?

You can start with establishment of policies, procedures, and rules that will be memorialized in writing, distributed to the owners for a comment period of at least 30 days, as required by California law, approved, and followed consistently. And clarity is part of that solution.

Why is consistency important? If the boards as the years go on treat maintenance, or any other responsibilities for that matter, inconsistently, then at some point someone is going to say they did not get the consideration they deserved because of differential treatment. Inconsistent treatment of owners is the number one cause of litigation between the HOA and owners, according to the directors and officers (often called D&O) liability insurance coverage providers. So, it is important to avoid it. The only way to establish consistency is to have written policies, practices and procedures to serve as the aforesaid roadmap for directors and for individual owners.

Why is clarity important? This is pretty much a no-brainer. Without clarity, interpretation is difficult. Many older documents or documents replete with legalese, lack of organization, developer benefits, and confusing or inadequate specificity, boards and owners flounder over what the actual responsibilities are with regard to use of the properties, architectural control, and/or, maintenance, repair and replacement of components and improvements.

I will say it again, many people including directors and owners avoid trying to read the governing documents, especially the recorded CC&Rs because, in and of itself, is a daunting undertaking. Some documents that find their way to me are so old and difficult to read I get a headache. I can only imagine what kind of reaction a layperson has to struggling through problematic documents.


What Would I Need To Prepare A Maintenance Matrix Without Going Through The Entire Amendment And Restatement Process? And What Is The Cost?

A good amendment/restatement project cost in the neighborhood of $7000 in my world. Putting together a maintenance matrix could cost more like $600-$1200 assuming I can get the information I need in one pass without a lot of back-and-forth dialogue with the board. What information do I ask for?

(1) I ask for a copy of the reserve study so I can see what components the HOA believes it should be maintaining, repairing and replacing. I don't want to prepare a matrix that conflicts with the reserve study, and also need to see if reserve study agrees with the governing documents requirements.

(2) I ask for information on past practice with regard to any maintenance, repair, or replacement item. If there is some kind of history involving choices on who maintains what, I want to know it. It may have been consistent; it may have been proper or improper handling of the decision, and it may provide support for any interpretation of the governing documents going forward. '

(3) Naturally, I ask for a copy of all the governing documents which includes the articles of incorporation, the bylaws, and the declaration of covenants, conditions and restrictions, more commonly referred to as CC&Rs. The governing documents also include any existing rules, regulations and policies of the HOA and it is important for me to have these as well, to see if anything needs to be utilized, modified, or corrected.

If I can get this information in one pass, I can generally put together a maintenance matrix and a letter explaining it to a board in a couple of hours. Sometimes, when I get these items, I need to ask for further information or clarification and this leads to additional time. I am happy to provide an estimate that is more realistic and in more detail if a board in seeking one provides me with additional information about any facts or circumstances that might be out of the ordinary such as inconsistent past practice, any lawsuits are small claims court suits, any sub - master Association situations, etc.

If you get nothing more from this e-newsletter then it is time to take a good realistic look for maintenance, repair, replacement, and damage policies, and see if you need help in these areas to avoid inconsistent practices, lawsuits, and to present a good roadmap going forward, then that is good. Please contact me through my website at www.californiacondoguru.com, or simply email me directly to califcondoguru@aol.com for a quote.

And there is another affordable resource on my website. You might also wish to purchase the Primer called "Maintenance, Who Fixes What", at acost of $25. Believe me, it will educate you and help you make better decisions in all regards when it comes to deciding who is responsible, the board or the homeowner, when maintenance, repair, or replacement of any improvement or component is needed.

Can you believe I passed to 100 mark on E-newsletters last fall when I was laid up with foot surgery? That's a lot of information, all of which is available to you at the archives section on this site"

And at the same time I finished the Guide called:

THE SMALL HOA SURVIVAL GUIDE which is now available in the webstore under BOOKS and GUIDES at http://store.californiacondoguru.com/index.php/guide-booklets.html

It is a new publication geared specifically to help small HOA boards but is filled with basic information on running an HOA and what is important. Many publications as well as the 2016 Davis-Stirling Act in Plain English which explains all of the laws discussed above are available in the Guru Webstore.

Just go to the front page and navigate to the store directly, or check out the articles, E-news archives and blogs first to see if you can find what you need. When ready, go to the webstore and see that there are tabs for the Books, Primers, Forms and Guides.

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WEBINAR SCHEDULE: I had planned to begin WEBINARS this year but frankly, there just is not time for all things. So ... we will see what the future brings, but for now, I will just keep writing. Be sure and visit the blogs, and also send me short questions through the website so I have something to answer for you!!

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I have a private law practice in Pleasant Hill, but serve homeowners association and homeowners throughout the State of California. My practice is in large part now web based and telephone consultations are available. I have clients all over the state and am a real "road warrior".

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The information provided here is for advertising and informational use only and does not constitute legal advice or create an attorney-client relationship. Everyone should consult with legal counsel in all cases where legal representation or advice is desired.

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