HOA Transfer Fees, What Charges Are Legal, Proper and Acceptable?

Did you know that managers (as well as HOAs) could be forced to pay workers' compensation benefits to an HOA Contractor's Employee?

In the last E-News I promised this time to discuss a 2007 case where an employee of an uninsured vendor/contractor that was hired by manager to do work for an HOA was injured, and the manager was found to be considered an employer having shared responsibility with the HOA and contractor/employer to pay workers' compensation benefits. That's a mouthful ... and a lot to digest. The name of the case is Heiman v. Workers Compensation Appeals Board (2007- 149 Cal.App.4th 724).

To break it down, the managing agent for the Montana Villas Homeowners Association [Pegasus Properties­Principal-Heiman], hired Mark Hruby, dba Rube's Rain Gutter Service Company, on behalf of the association, to provide gutter services to the Association.  The management contract clearly indicated that employees hired by the manager would be employees of the association, and that the manager was acting as agent for the Association.

Time for logical thinking: Does this reflect your manager arrangement? How many times (for the managers reading this) have you as manager signed on a proposal or contract, or letter outlining the terms for services to be provided to the association? If you think using the designation "agent" as a shield will save you, think again. It did not save Pegasus.

An employee of Rube's Rain Gutter was seriously injured when a gutter piece came into contact with a high voltage electric wire. The contract was for a mere $1050 job. The employee was fully disabled. When the employee was injured he filed a workers' comp claim against his employer. However, the employer was an unlicensed and uninsured contractor. The managing agent company was identified by the hearing officer as a "professional property management business" and "agent" for the HOA and was found to be an employer under the definition in Labor Code Section 2750.5. Although the managing agent was not 100% liable, it was held jointly and severally liable with the contractor and the Association (who were also found liable as employers) for full workers' comp benefits. The case contains a full and detailed discussion on pertinent Labor Codes and Davis Stirling Act laws that define agency, employers and employees' rights, a managing agent's rights and responsibilities toward the Association, and cases on the same subjects. That is not something I want to go into for purposes of this newsletter. This E-News is not for lawyers. The point of it is to continue the discussion that managers are not necessarily a "pass-through" for all potential liability incurred in acting on behalf of homeowner associations.

Additionally, recognizing this principle, this E-Newsletter is to discuss risk management. Recent case decisions including the workers' compensation case discussed here have serious implications for managers as well as for HOAs. So, Managers as well as HOAs need to be even more careful to assure certain things are done to minimize their own liability. Among those things, Managers or Board Members that provide services and find contractors and do the hiring should:

  • Verify proper licensing and appropriate insurance from contractors.
  • In addition to your own company policies, convince the Associations you serve to carry worker's compensation insurance (you could even require it in your management contract).
  • Carry fidelity bond policies even if the HOA also carries the coverage.
  • Carry E and O liability insurance (for managers) even if named on the HOA liability policy, and D&O liability policy (for Boards).
  • Make sure you do not breach the contract with the association.

If an HOA balances the "cost-risk" factor of a worker's comp policy, it seems likely that the $600 or so annual cost, even when there are no employees, is a small price to pay for considerable protection. And managers, if you like the protection, and the HOA is hesitant, perhaps offering to deduct all or a portion of the cost from the annual contract fee is a small price to pay. I am not trying to promote insurance sales here, but do believe the parties should be aware of risks and available "antidotes" to risk factors. As for more information on this subject, Garth Leone, an insurance specialist and principal of CAIS has recently sent out a newsletter describing various aspects of protections for managers and HOAs, including workers' comp coverage for volunteers, managers getting named as an additional insured on association policies, HOA "if any" exposure workers' compensation policies, and other risk management considerations. He covers other aspects involving a discussion of the benefits of having a "Compliance Officer", a "Compliance Plan", and understanding new "Coverage Availability". For more information you can visit the pertinent website at www.MGALive.com or contact Garth via e-mail at garth@caislive.com.

I know that some recipients may bristle at any message coming from a commercial messenger. But again, it is important to let the HOA general population and those serving HOAs know of the risks and resources. If any of you out there want to send other information that could be incorporated into a future newsletter about important protections (be brief and to the point please), send it to me via email to: califcondoguru@aol.com.

My next newsletter will cover the topic of leasing limitation provisions and what is going on in California in the legislature and cases with regard to this subject. If you know of others that can benefit from this information, please forward this E-Newsletter on to them. Thanks! And thanks for your feedback, comments, and appreciation. I always like to know that this information is useful or helpful. If you want to suggest a subject for a future E-Newsletter and my ongoing blog, you can contact me through the website at www.californiacondoguru.com. My best.

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Copyright © 2008 Beth A. Grimm, All Rights Reserved.

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.