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by Beth A. Grimm, Esq.

You may have read some of the recent articles, legal warnings and missives condemning the telecommunications industry for its efforts to push its way into common interest developments. There has been resistance on many fronts to unfettered access. The ECHO East Bay Resource Panel recently gave three telecommunications providers the opportunity to address the panel members and participate in a frank discussion of the pros and cons to the necessary relationship between the providers and the associations, and to propose solutions to some of problems of the past year with contract negotiations and service installations. Although representatives of three providers had been invited to come to the November meeting, only one actually came - Seren Innovations, providers of Astound-brand Cable TV, High-Speed Internet and Telephone. I believe this company has an unusual determination to confront and solve the problems of the day. Seren seized a great opportunity to promote the company offerings and strong points and defend its weaknesses. Our group had an extremely helpful and meaningful exchange with representative Carter Sing, and we were able to identify many of the causes of the heartburn of the last year and discuss various cures.

Many homeowners associations and managers have had some kind of exposure in the past year or two to the good news and bad news involving telecommunications services, contracts, installations, and battlegrounds. Many boards of directors recognize a fiduciary duty to bring access to modern, competitive telecommunications services into the private homeowner associations. Just as many have (perhaps prematurely) "drawn the line," absolutely not wanting to deal with the types of issues that they have heard about from their peers. The boards that recognize the intrinsic value of bringing high-speed cable and Internet access into the communities have taken a more positive approach. Savvy boards have sent proposed contracts to their attorneys to review. Boards that aren't interested have simply shut out the providers or delayed decisions on contracts for months.

In the course of our refreshingly frank discussion on this subject at the Nov. 3 Echo East Bay Resource Panel Meeting, here's what we learned: Seren, while it has made some mistakes, is a company that is forthright in admitting to them and taking action to correct them.

The telecommunications industry has, in the past two years, stepped up its efforts, and in many cases become quite pushy and anxious to install fiber optic cable and facilities in towns, cities, and homeowner associations. Federal laws have eliminated exclusivity and given the companies within this industry the incentive to be fiercely competitive for service contracts. Very generally speaking, the common interest development industry got somewhat defensive and responded, sometimes in kind, to the offensive tactics. Perhaps it will help our industry to have a better understanding of the source of frustration and the events that triggered much of the frenzy.

When the gates of exclusivity opened up, the providers poured through - and (rightly and realistically) recognized a profit opportunity. Seren, being one of them, began applying for franchises within Bay Area cities. AT&T;, on the other hand, had some infrastructure already in place and also bought some existing companies that already held franchises, like TCI in Concord. For that company, some of the fiber optic cable was already laid. For Seren, the company had to start from scratch and build its own network. Different cities negotiate different terms with companies that want a franchise. The franchise agreements are comprehensive, lengthy, filled with legalese, and available to the public for review. They are contracts generally geared to protect the community, but they really only give rights to the City to take action if something goes wrong. Thus, they do not completely protect the private communities like homeowner associations.

For those companies not so lucky to have easements or systems already in place, there were tough parameters. Once a franchise is granted, there is a limited "build out" time frame. This means that the provider has to move very quickly to build out the entire city. Many steps are involved in this process, including sales, contract negotiation for access rights with private parties, system design planning, systems installation, and problem resolution. None of these chores even reaches the end user who would then be offered access to the services. So, profits are a long time off for these companies that are in the "buildout" stages like Seren.

This may seem simple to the casual observer, but let's take a closer look at the honest issues as described by Carter Sing of Seren Innovations.

In the context of the CID industry, the first step for the provider is to locate the person "in charge," which is one of the most difficult challenges for the provider. They want to move through neighborhoods in a methodical manner, build out an area, and move on, rather than jumping around the city.

But who really is "in charge?"

There is no "home base," no "definitive list," "no comprehensive list" of homeowner association contacts. The lists that are available are often outdated, and most self-managed associations usually have no centralized office. For professionally managed communities, the task to find a contact person may be easier, but still, finding the manager is not the end of the trail. Managers are not generally authorized to sign contracts. The providers must wait for board meetings that occur with various frequencies, meet with the boards, present contracts and wait for feedback. There are probably at least 1,000 CIDs in the Concord area alone, for which contacts must be found.

For the association, the next step is negotiation of a proper contract.

What is a proper contract?

Seren, like AT&T; and other providers, first came out with a boiler-plate contract not geared to CIDs. The original multi-year contract offered to homeowner associations was something called an "MDSU Services Agreement," which provides, generally, for a property owner (which would usually be a landlord) to contract with the provider for services. It does not provide the right kind of right of access to the property to construct facilities on common area. Most of the agreements we saw early on as attorneys were made for apartment buildings. The first point we had to get across to the telecommunications providers is that the associations could not make any guarantees of access, service, return of boxes, etc., on behalf of the individual owners. Carter Sing admitted to being handed a boilerplate service contract by his parent company that was commonly used in the East and Midwest for multi-dwelling units. He agreed that that was the beginning of the hornet's nest over contract issues. These types of contracts, although executed by many boards that probably assumed any contract handed over by a big company must be the only option, are not made for homeowner associations. They are not acceptable to the association attorneys.

The legal end of things was a painful process for providers like Seren, a real hindrance to moving forward quickly. Seren had to survive feedback from different attorneys with every attorney proposing at least 20 to 30 changes to the contract. In some cases, attorneys within the same firms did not request or accept the same changes as proposed by their colleagues and offered a different set of 20 or 30 changes. What proved very difficult and frustrating to the provider was finding contract terms upon which attorneys can agree, and trying to find a form of contract that would be widely accepted. Seren has made great strides to work with attorneys, accepting changes and working on a contract that is less likely to conflict with governing documents for associations. Carter Sing admitted that he never expected to have to learn so much about the law to supervise the overall coordination between Seren and the communities.

Some providers have not seemed as willing to work with the associations and the legal community to establish acceptable contracts. Those of you still receiving the MDSU form of contracts are hearing from providers that have not listened to the experts who recognize the an easement or access agreement is what the provider needs with the association, not a services contract. The association is not the end user of the services, it is the entity that controls the common area property over (or through) which the provider must go to get to the end user.

Carter Sing openly admitted that for Seren: "We did everything wrong in the beginning. We have taken a step back and slowed operations down. We have learned a lot over the past year, and are looking for ways to improve communications with the homeowner associations." When asked the question: "What have you done to prevent further occurrences of problems such as damage to property, irrigation systems, tree roots, etc.?," this discussion took place:

Seren's position, according to Carter Sing, has been to promptly arrange for repairs of problems and/or promptly pay invoices submitted by the association for repair work that was needed due to damage caused by subcontractors or Seren contractors on the job. Mr. Sing said that one of the resolutions implemented to facilitate communications about problems was to put in place a construction hotline so that association representatives or owners could report problems directly to the company, rather than bothering the management personnel who had to then contact the company anyway. Mr. Sing said that over the course of the last year, he had become acutely aware of the fact that managers and attorneys for homeowner associations are very, very busy people. He, himself, is a very busy person and acknowledged that he and others may have overstepped boundaries in the beginning by "pestering" managers to try and keep things moving along. Astound/Seren has also improved its program to assist in giving notice to homeowners when construction will be taking place.

It is encouraging to know that one of the telecommunications providers has learned some important lessons, and is striving very hard to meet the needs of homeowner associations.

From the attorneys' perspectives, what other kinds of problems have been encountered in negotiating contracts with telecommunications companies?

Boards are often hesitant to spend any money on the review. Sometimes a board member has heard a horror story of some kind, or even a rumor, and does not want to talk to the telecommunications provider. Sometimes boards sign the contracts blind, without regard to what their governing documents allow, and without regard to attorney review.

This can create a mess because governing documents may provide limitations to what the telecommunications providers are asking in their contracts. Providers are often asking for easements. Many Bylaws and/or CC&Rs; prohibit a board of directors from granting easements or transferring common area property without a vote of the membership. Some attorneys have opined that the type of easements being sought by the telecommunications providers do not qualify as the type of easement or transfer of common area property prohibited in the documents. Some attorneys are advocating "license" agreements (which would provide a right of use, but not a right of ownership rising to the property of transfer rights). Some attorneys are advising associations to grant a "right of access" rather than an "easement right". At any rate, there are ways to give the telecommunications providers what they want, without violating the easement clauses of the governing documents.

Additionally, many Bylaws provide limitations on the board's ability to contract for the long term. These Bylaws limit contracts to one year, except for certain types of contracts like insurance contracts, utilities contracts, and laundry contracts (all of which are the type that tend to be offered for longer than one year, with a greater savings based on the length of the contract). Some Bylaws provide an exception for telecommunication services and/or utilities (that are sometimes interpreted to include cable services) to the one-year limitation. If there is no exception to a one year time limit, the telecommunications contracts can sometimes be negotiated to provide for a term the length of the board's limitation, with automatic rollover terms of the same amount of time, with reasonable termination provisions. This, some attorneys claim, will overcome the limitation on longer length contract.

What gripes do managers have?

The managers on the panel expressed some dismay in the past handling of contacts and issues. In one case, one manager reported that one provider had demanded an association client list with contact telephone numbers stating that under Federal Law the telecommunications provider had a right to the list and the contact persons for each of the associations. And many mentioned that finding time for the telecommunication providers to present to the board was difficult. Once an association took a contract for review, it was the manager who usually had to handle the back and forth with the attorney and the provider. It was the manager who had to deal with the calls from the homeowners or representatives when there was a problem in installation. It was the managers who had to deal with the contractors to arrange for repairs when damages were caused by subcontractors. It was the managers who had to transmit the complaints to the providers, and to coordinate the remedy. Managers lamented that they don't get paid enough for all of they put into the execution of the contracts.

As stated above, Carter Sing had suggested to his company that a construction hotline be set up to deal with the repair issues, to take the managers out of the loop, and that was accomplished. A suggestion was made from one of the attorneys in the group that the management personnel and Boards of associations they manage needed to come to some terms about compensation for the time involved in administration of the telecommunications provider contacts, contract negotiation, and construction. Many management companies have already carved out certain exceptions to "blanket" services offered each month for a fee, including litigation and other type of construction contract administration. Many managers charge extra time to go to small claims court for the association, either as the plaintiff or defendant. Many have limited the amount of time at meetings, with extra charges for extra meetings. To recoup the costs of the manager's time to deal with these contracts, management companies could take the bull by the horns and resolve these issues so that the friction does not evolve between the management company and the homeowners association. If a homeowners association does not want to pay for the manager's time, the board could appoint someone to administer the negotiations and work with the telecommunications company.

One could ask the telecommunications providers to reimburse all costs. However, keep in mind that the telecommunication providers, especially those having to trench and lay a substantial amount of cable, are investing a considerable amount of money in building the infrastructure for their systems that will ultimately benefit the association members. They are not bottomless pits of money.

Carter Sing estimated the amount of time to recoup the investment on buildout of infrastructure in a homeowners association to be 7 years. Thus, you will probably see that most of the contracts that are provided to the associations ask for some guarantee of the ability to provide service for at least 10 to 15 years.

What happens to a community or an association that doesn't get "wired"?

Boards that don't take advantage of the current opportunity to negotiate and sign contracts giving entry for the most part may soon find their communities outdated in what is available to their members (except maybe those in which fiber optic cable already has been installed).

Eventually the members will begin to clamor about lack of choices. How many readers have at one time or another cursed a provider and wished for a choice in the past, when there simply was none? I know I have. The more choices there are, the more competitive the companies will be, and the better the offerings will be.

Any Board that ignores the benefits of underground fiber optic cable over a roof-line dotted with satellite dishes is asleep at the wheel. Satellite dishes have caused all sorts of problems for associations. How many of you have had demands from one owner for more than one satellite dish? Carter Sing describes the benefits of installation of fiber optic cable as endless for sending information over the internet, for accessing limitless cable stations and even in the future for accessing "blockbuster-type" movies on demand.

Savvy Attorneys that follow the legislative processes have warned that if providers cannot get ready access to bring their infrastructure through cities, they will continue to push legislation like AB 651 of 1998-99 that would allow unfettered access to private property by every provider. This means no ability to negotiate favorable contracts! AB 651 died - but it may rise again. Wouldn't we rather have the providers spending money on building infrastructure and solving problems than on legislators that would support such bills?

And speaking of money - for the past two years Seren and others have been willing to build the infrastructure free of charge! If an association lets this opportunity pass it by, there is no telling what it might cost to bring the company back to build out one small area when the owners start clamoring for modern technology.

Some attorneys feel that any board that refuses to allow the development to be wired for high speed cable and internet access is doing a disservice to the community, perhaps rising to the possibility of a failure in its fiduciary duty.

Taking the ostrich approach by burying heads in the sand and hoping the providers will leave them alone is not the right answer. The answer is to continue to negotiate favorable contracts, to continue to work with the providers (especially those that are willing to listen and engage in problem solving postures), to continue to dialog about how to improve the "system", and to continue to keep an open mind as to the possibilities.

All-in-all, our Panel meeting on November 3rd was extremely informative, and I believe that the people present were most appreciative of the fact that they bore witness to the honest admission by one of the biggest players in the game that mistakes had been made, that there were regrets about that, and that solutions were being sought. Our hats should be tipped to Seren, and any other telecommunications provider that is willing to come forward, admit mistakes, work with the managers, Boards and attorneys in a reasonable way, and look for improved ways to serve the CID community in installation of fiber optic cable and other facilities to promote enhanced access to information and telecommunications of the future.

by Beth A. Grimm, Bay Area Attorney, practicing exclusively in the area of homeowner association law, member of the ECHO Legal Panel and Chair of the East Bay Resource Panel, and author of two books and a newsletter addressing homeowner association issues.

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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.