MANAGER “CERTIFICATION” – WHAT DOES IT MEAN TO YOU?

By Beth A. Grimm, Attorney

B 555 and AB 1423 have changed the standards in California for management of Common Interest Developments (CID). People who want to compete in this world of CID management need special training and expertise, and the best place to get it is right here in California!

To explain all details of the new laws would take days (and many, many pages), and attorneys all over this State will be called upon to opine on the requirements. Attorney opinions may differ minimally, or drastically. So, I will stick to the basics. Just to know the new laws exist puts you on top of the game. To not know could be disastrous, for associations, boards, and for managers. Why?

A community association that operates on a self-managed basis and thinks it is doing OK without professional management has very difficult chance of succeeding in the long term without a giant special assessment or disastrous results. It is blind when it comes to heading off industry-wide problems, unless of course the Board members educate themselves as to the acceptable standards of management practices and administration, attend seminars regularly to keep up on the hottest issues, and obtain California legal education that is required by the governing statutes as minimum education for CID managers. Without this, the Association is at risk as a target for the lawsuit by any owner claiming damages for mismanagement.

A Board that ignores the value of trained, experienced and educated management is missing the boat too, as indicated above, and it jeopardizes the Association’s standing. In addition, a Board that ignores the fact that there are established minimum standards of education and training for CID managers may be headed for personal risks. In fact, the Corporations Code provides some protections for volunteer Board Members that act in good faith. Code Section 7231 and 7231.5 both refer to protections a board member receives when performing their role in “good faith” and “… with such care, including reasonable inquiry, as an ordinarily prudent person in like position would use under similar circumstances.” Without seeking the right kind of guidance, each Board Member is at risk as a target for the lawsuit by any owner claiming damages for mismanagement or breach of fiduciary duty.

A manager that ignores the new requirements for representing oneself as a “Certified CID Manager” is operating at a very big risk also. That is because the ultimate remedy for anyone or any association that feels it has been wronged by a manager who claimed to be “Certified” under the statute, and was not, is disgorgement of profits gained by acting as a manager. Managers are now often protected by contractual indemnification provisions that make the Association responsible for the actions of the manager (some contracts even when the manager is negligent or careless), but this statute provides a potential remedy to those who can prove that a manager misrepresented himself or herself.

Now, for the new law in a nutshell:

This new law calls for accountability of managers. There is no complaint and hearing procedure, or penalties for non-compliance that can be addressed through any governmental agency in California, but there are civil remedies as discussed above. And they are based on lack of training or expertise, and lack of proper disclosures that are made to Associations.

In a nutshell, any manager who is managing a common interest development who calls themselves a “Certified Common Interest Development Manager” (or any “term that implies or suggests that the person is certified as a common interest development manager without meeting the [educational or “grandfathering”] requirements of Section 11502″) is committing an unfair business practice (B&P; Code 11505) unless:

1. They have passed a certain examination or achieved certification or a designation from a professional association in California for common interest development managers prior to July 1, 2003, and [to the extent not yet achieved] they obtain the education related to the California legal training including the Davis Stirling Act, by July 1, 2004. [These two categories (test, certification/designation) are essentially “grandfathered” as of July 1, 2003]. AND/OR (if they have no designation or certification) 2. After July 1, 2003, achieve 30 hours of education in various categories is required (see below).

The new law is found in the Business and Professions Code (Sections 10153.2 and 10170.5 and 11500 and following), and the Davis-Stirling Common Interest Development Act (Civil Code Sections 1363.5 and 1365). You can find these texts (usually) at your local county library.

The certifications and designations already received from such organizations as CAI (Community Associations Institute) and CACM (California Association of Community Association Managers) may qualify for the “grandfathering”, but it is best if you consult each at their websites (caionline.org or cacm.org) as each has adopted its own interpretation of what qualifies their “educatees”.

For those who have not achieved any certifications or designations by July 1, 2003, the key is getting 30 hours of education and testing in common interest development management in the following areas:

a) an Instruction in California Law that is related to the management of common interest developments, including but not limited to topics covered by the Davis-Stirling Common Interest Development Act.

b) Personnel issues, including but not limited to general matters related to independent contractor or employee statutes, types of harassment, the Unruh Civil Rights Act, Fair Employment Laws, and the Americans With Disabilities Act.

c) Risk management as it pertains to common interest developments, including the insurance coverage and preventative maintenance programs.

d) Property protection, including but not limited to general matter relating to hazardous materials, the vehicle code, local and municipal regulations, family daycare homes, energy conservation, federal communications commission rules and regulations and solar energy systems.

e) The business affairs of community associations, including but limited to, necessary compliance will all local, state, and federal laws and treatises.

f) Basic understanding of governing documents, codes, and regulations relating to the activities and affairs of community associations and common interest developments g Instruction in general management that is related to the managerial and business skills needed for management of a common interest development including, but not limited to:* Finance issues, budget preparation, management, and administration of community association financial affairs, bankruptcy laws, and assessment collection, and other activities.

* Contract negotiation and administrations.

* Supervision of common interest development employee and staff.

* Management of common interest development maintenance programs.

* Management and administration of rules, regulations, parliamentary procedures, and architectural standards pertaining to CIDs

* Management and administration of CID recreational programs and facilities.

* Management and administration of owner and resident communications.

* Training and strategic planning for the community associations board of directors and committees, and other activities of residence.

* Risk management as it pertains to CID properties, activities and emergency preparedness.

* Implementation of community association policies and procedures.

* Ethics for CID managers. A Professional conduct and standards of practice for CID managers.

* Current issues relating to CIDs. There is no one comprehensive state exam.

The statute also covers fidelity insurance disclosures. Prior to this new law, homeowner associations were required to notify the owners, within the sixty day period before the beginning of each fiscal year, of the association’s property and general liability and directors and officers insurance coverage policies, as well as flood and earthquake insurance policies (if applicable) that cover the Association. The disclosure of fidelity insurance coverage was not required prior to this statute, but after passage of it, boards must include in this required annual insurance disclosure whether the associations funds are protected by a fidelity insurance policy. The particulars that must be given are the name of the insurer, the type of insurance, the policy limits on the insurance, and the amount of deductibles, if any. (This is the same for other required policies), and if the insurance has lapsed, canceled, or not to be immediately renewed, restored or replaced, or if there is a significant change, such as reduction in coverage or limits or an increase in the deductible, the owners have to be notified “immediately” by first-class mail.

After September 1, 2003, managers must disclose to associations they manage on an annual basis, and when proposing a contract for management services, whether they are a “Certified Common Interest Development Manager” under B&P; Code 11502.

Realtors who manage CIDs are in essence either “grandfathered” (not subject to the certification, designation or 30 hour educational requirements), or exempt (subject to their own statutes), depending on how you want to characterize it. For obtaining or renewal of a real estate license, a broker must have completed a certain number of clock hours or programs related to consumer protection, and designated by the Real Estate Commissioner as having satisfied the purpose in his or her approval of the offering of the coursed or programs, which include, among other things, common interest development practices relating to management, maintenance, and financial matters addressed in the Davis-Stirling Common Interest Development Act. In other words, these are still electives, not mandatory requirements, even if the real estate broker manages homeowner associations. Business and Professions Code Section 10153.2 relating to real estate brokers is the section that is amended. A real estate broker applying to take the examination for a real estate broker license must submit evidence satisfactory to the real estate commissioner of successful completion at an accredited institution of a number of courses including one or more of the electives (which electives include as one of the choices a course in common interest development management or law). It appears to me that the wording in the statute provides that a real estate applicant does not need to have training in common interest development administration or law to apply to take the real estate license – it is simply one of the electives. However, you need to check with the California Association of Realtors to verify their position on the new laws.

The educational and other requirements are waived for someone who is a member of the State Bar of California. There are a number of professions that are exempt from the requirements (such as CPAs and accountants who provide only bookkeeping, and others). Consult your own lawyer if you wonder if you qualify (or are bound by) the new statutes to get the education and training.

Classes are being offered all over the state by providers, including CAI (Community Association Institute, which has ten state chapters), and CACM (California Association of Community Managers). There are individual providers as well. In order to assure that the law classes (at least) are available in all corners of the state, Beth Grimm has pronounced that she will come anywhere in the state and teach the California legal component in her DRE-Certified class called “The Davis-Stirling Act in Plain English,” which qualifies under the statute for 8 hours of DRE credit (constitutes realtor credits also!), if anyone can get at least 10 people together and provide a room and a few refreshments.

There are good things about these new laws. The standards for CID management have been raised. There are bumps in the road: the new manager certification statute drew all kinds of questions from all over the state, from all kinds of people who did not understand it. The first bill was rough and created some potentially serious problems. However, the 2003 amendments, recently signed into law by the Governor, have made some of the answers much easier.

All in all, an association is doomed if it does not have the expertise of trained and educated management. Classes will be offered through CACM, CAI and others (like the author of this article) in the days, weeks, and months to come. Failure to take advantage of this training (whether you are a board member in a self-managed association, a manager or “wanna-be” manager, or an associate or company owner or shareholder) can lead to disaster.

[DISCLAIMER: DO NOT CONSIDER THIS ARTICLE LEGAL ADVICE IN ANY GIVEN SITUATION. IT IS MEANT TO PROVIDE GENERAL INFORMATION ABOUT THE NEW STATUTE. INTERESTED PERSONS NEED TO CONSULT LEGAL COUNSEL AND ADVICE IN SEEKING GUIDANCE ON PROPER ADHERENCE TO THE STATUTES.]

This article is written by Beth A. Grimm, Attorney, Mediator, Speaker, Author, Expert Witness, and Teacher in the Common Interest Development Industry. She is past Public Relations Chair of the CAI-CLAC (Community Associations Institute -California Legislative Action Committee), past Chair of the ECHO (Executive Council of Homeowners) East Bay Resource Panel, and author of “Finding the Key to Your Castle”, a primer on CID living and responsibilities. To find out more about her books and articles, and most importantly about her recent offering called “The Davis Stirling Act in Plain English” (a book and an 8 hour DRE-Credit course which qualifies as legal education under this statute), visit http://www.californiacondoguru.com.