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DO MANAGERS NEED TO BE LICENSED TO OVERSEE HOA CONTRACTS?
ęBeth A. Grimm Publications
All Rights Reserved
B 2237 is the culprit, the basis for all the questions swimming around. This new law was debated rather vehemently at a recent East Bay Resource Panel Meeting.
Like any other legislation, one can locate, copy and follow legislation through the California State website. The ability to plug in the bill number and pull it up is here: http://www.leginfo.ca.gov/cgi-bin/postquery.
The bill did not receive a lot of hullabaloo last year in our industry because it did not affect the Davis Stirling Act, and it seems it did not come to light easily as it may relate to managers. I understand it was addressed at one manager's legal conference earlier this year, but may have received short shrift. There are many reasons why, the most obvious to me being that attorneys may disagree on the impact in our industry. Many managers perform administrative and some even management duties with regard to construction contracts. I believe there is cause for concern.
The impetus of the new law: CONSTRUCTION MANAGERS/CONSULTANTS-MUST BE LICENSED: Do managers or board members qualify? Business and Professions Code Section 7026.1: defines the term "consultant" for purposes a contractor to include " person who provides a bid, or who arranges for and sets up work schedules and maintains oversight of a construction project with respect to a home improvement contract. So what if managers collect bids and help boards choose contractors? Or approve progress payments based on work completed? Or schedule work? What if a director asks to do the work? What if there are charges to the HOA related to this work? Consultants who provide these services are required to pay license fees to the Contractors' License Board (and they want their money!). Ignoring the law can lead to criminal charges and hefty fines!
A consultant is defined as a person, "other than ... an owner of privately owned real property to be improved" who meets the legal criteria as it relates to a home improvement contract. It was enacted specifically to overturn a California case opinion that found construction managers did not need to be licensed.
There is some debate in the industry going on about this bill. Some don't think it applies to managers as agents of the board or board members. Consider the situation where compensation is charged for administration or oversight which is a fairly common occurrence among management companies. The language could be interpreted broadly or narrowly by a court. I believe managers qualify if they engage in the tasks outlined in the law (see below).
What seems clear to me at this point:
If the HOA owns the common area, then the board being the elected body to manage it is not subject to the licensing requirement, because owners are exempt. However, if a board member receives compensation for overseeing a project as a construction manager, then the question becomes - is that person an employee of Owner? Or an independent contractor subject to the law? Let the arguments begin, attorneys. And if the property is a condo where the owners own the common area as tenants in common, are the board actions equivalent of acting on behalf of the owners sufficient to exempt the board members? Seems likely to me one could prevail on the side of exemption. Only time will tell.
Size matters - if the project costs less than $500, the person doing it is not subject to the licensing requirement. So what about all other projects? A question came up at a seminar I did last Saturday - what about a board member volunteering to oversee the removal of 15 trees and the replanting? Landscaping projects are included in the definition of home improvement projects (see below), but what is the risk? The biggest risk is either in projects that "so south" or with regard to boards that decide they don't want to pay the person acting as consultant. As to the first, a volunteer board member who isn't getting paid to oversee a project like this seems to be low risk on the balance of things. But if receiving pay, the risk is higher of course. "Owners" do not have to pay unlicensed contractors whose works of construction require a license and there is even a case where a contractor had to disgorge payment when the "owner" found out the contractor was not licensed and the project "went south".
THE LEGALEASE - What the Law Says Exactly:
Home Improvement and Home Improvement Contracts are defined on the page at this url address: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&group=07001-08000&file=7150-7168>. It seems that HOA and Condo construction projects fit right into the wide net created in Business &Professions Code Section 7151 by this language: "Home improvement" means the repairing, remodeling, altering, converting, or modernizing of, or adding to, residential property and shall include, but not be limited to, the construction, erection, replacement, or improvement of driveways, swimming pools, including spas and hot tubs, terraces, patios, awnings, storm windows, landscaping, fences, porches, garages, fallout shelters, basements, and other improvements of the structures or land which is adjacent to a dwelling house. "Home improvement" shall also mean the installation of home improvement goods or the furnishing of home improvement services.
For purposes of this chapter, "home improvement goods or services" means goods and services, as defined in Section 1689.5 of the Civil Code, which are bought in connection with the improvement of real property. Such home improvement goods and services include, but are not limited to, carpeting, texture coating, fencing, air conditioning or heating equipment, and termite extermination. Home improvement goods include goods which are to be so affixed to real property as to become a part of real property whether or not severable therefrom."
And Home Improvement Contracts include contracts relating to all of the above (7151.2), regardless of the number of units in the building - meaning even if the work is performed in only one unit in the building, it counts. So overseeing repairs of units after a fire, flood or casualty loss seems to be included.
ADVICE/RECOMMENDATIONS FOR MANAGERS: A manager sent in this question to me via email: "Is there a way we can avoid being in violation and still get bids and give the board our opinion of the contractors based on our past experiences with them. We don't really supervise actual work. We can say it looks good or looks bad, esthetically, but that is the limit if our expertise."
Here is my off the top of my head general answer to this question: Without reviewing or providing advice with regard to any particular situation, I believe it is best to define the managing agent's participation as something along the lines of: "Agent's responsibilities with regard to the contract are limited to collecting bids on behalf of and as agent for the association and providing them to the board. To the extent requested by the board, Agent will provide information related to our experience in working with the contractors involved if any. Agent will receive and present invoices for payment to the board for approval."
And here is more: You could define what will not be done such as: "Agent is not responsible to advise the board with regard to the sufficiency of bids or as to construction plans or specifications provided by the vendor/contractor, nor to inspect any work performed by the vendor/contractor to determine compliance with the plans and specifications. It is understood that the Board will either hire outside contractors or appoint a director of committee of the board to review the plans and respond to questions about progress and any inspections desired and verify compliance."
There it is, in the vein of my continuing effort in this industry to help provide preventive measures, because they are a lot less expensive than putting out the fire. My other mantra is served as well - which is to reach the widest audience in the most effective way - so I don't have to spend every day explaining these complicated laws to individuals on the phone or in emails.
P.S. What do you think really triggered this law? Do you think the State will be aggressive in enforcement? Well, the response people have given to me that claimed to have contacted the CSLB say that it was triggered by poor construction management resulting in problems related to construction and specifically pool reconstruction contracts. I believe it. But hey y'all, there's also the idea that the State of California needs money ........ badly!
By Beth A. Grimm, Attorney. ECHO East Bay Resource Panel Chairperson, a 20+ year member of ECHO and CAI, past Public Relations Chair of the California Legislative Action Committee (CAI-CLAC), and author of FINDING THE KEY TO YOUR CASTLE, THE CONDO OWNERS HANDBOOK by Sourcebooks, THE DAVIS STIRLING ACT IN PLAIN ENGLISH, and other helpful community association publications.