SB 326 Signed! Balconies, Branches, and Builder Defect Actions

*New Legislation

Senate Bill 326 (“SB 326”) was recently enacted by the California Legislature and will take effect January 1, 2020. The bill accomplishes 3 main objectives: 1) it requires associations to conduct mandatory inspections for exterior elevated elements, such as decks, balconies, and walkways; 2) it invalidates and prohibits provisions in an association’s governing documents that restrict the board’s authority to initiate a legal proceeding against a developer for substandard construction; and 3) it requires an association to discuss with the membership the potential impacts of a construction defect action against the developer prior to the initiation of such an action.

Exterior Elevation Inspections

SB 326 introduces Civil Code Section 5551, which sets forth brand new requirements for associations with three or more multifamily dwelling units. For these associations, all exterior elevated elements that are supported in substantial part by wood or wood-based products, such as decks, balconies, stairways, and walkways, must be visually inspected every nine (9) years by a licensed structural engineer or architect (“Inspector”). The inspections are intended to determine whether the exterior elevated elements are in a generally safe condition and performing in accordance with applicable standards. These new requirements follow in the wake of a catastrophic balcony failure that resulted in a number of tragic deaths.

While the concept of visual inspections may sound fairly straightforward, the mechanics of the required inspections under Civil Code Section 5551 track unique and complex extrapolation protocols commonly employed in construction defect litigation. As a preliminary matter, not all elevated elements are required to be inspected. Rather, a statistician must be enlisted to prepare a randomized list of all the elevated elements qualifying for inspection (i.e. the total universe of those components that extend beyond the exterior walls of the building to deliver structural loads to the building from decks, balconies, stairways, walkways, and their railings, that have a walking surface elevated more than six feet above ground level, and that are supported in whole or in substantial part by wood or wood-based products). The randomized list must be prepared in such a way that the results of the inspections are representative of the project as a whole, within a margin of error of five (5) percent. This protocol allows for limited visual inspections (which will be a significant savings for the association), but provides confidence that those inspections are representative of the global onsite conditions.

Once the inspections are completed, the retained Inspector shall issue a report which contains the following information:

1. The identification of the building components comprising the load-bearing components and associated waterproofing system.
2. The current physical condition of the load-bearing components and associated waterproofing system, including whether the condition presents an immediate threat to the health and safety of the residents.
3. The expected future performance and remaining useful life of the load-bearing components and associated waterproofing system.
4. Recommendations for any necessary repair or replacement of the load-bearing components and associated waterproofing system.

If the Inspector advises that any of the exterior elevated elements pose an immediate threat to the safety of the occupants, the Inspector shall provide a copy of the inspection report to the association immediately upon completion of the report, and to the local code enforcement agency within 15 days. The association is required to take immediate preventative action including restricting access to the components until repairs have been completed.

The first inspections pursuant to Civil Code Section 5551 must be completed by January 1, 2025, and then every nine (9) years in conjunction with the onsite reserve study required by Civil Code Section 5550. All inspection reports must be incorporated into the reserve study and maintained by the association for two inspection cycles (i.e. 18 years) as records of the association.

The extrapolation methods provided for in Civil Code Section 5551 are fairly complex and will require expert statistical assistance. Additionally, not all exterior elevations can be grouped together; different components and assemblies with different waterproofing systems will likely need to be separated out and treated individually for extrapolation purposes. As such, it is important to retain a statistician well versed in construction defect statistical testing.

Membership Vote Requirements for Actions Against Developers

An association has legal authority to bring informal and formal legal proceedings against a declarant, developer, or building of the community (“Developer”). Developers may insert provisions in association governing documents that limit or restrict the association’s ability to bring such actions against a Developer without the consent of the membership. These provisions have been found by California courts to be enforceable, as in the Branches case.

However, Section 5986 of the Civil Code has been now added to invalidate the ruling in Branches and outright prohibit an association’s governing documents from limiting a board’s authority to initiate legal proceedings against a Developer. Section 5986 expressly states:

“Any limitation or precondition, including, but not limited to, requiring a membership vote as a prerequisite to […] the board’s commencement and pursuit of a claim, civil action, arbitration, prelitigation process, or legal proceeding against the declarant, developer, or builder […] is unenforceable, null, and void.”

Section 5986 specifically applies retroactively to any association with such limiting language in the governing documents. As such, associations are no longer required to comply with these restrictive provisions in the governing documents.

Additionally, associations contemplating bringing an action against a Developer for construction defects have been required by Civil Code Section 6150 to provide written notice to the membership of a meeting to discuss the problems that may lead to formal legal action, and the available options to address the problems, no less than thirty (30) days prior to commencing legal action. SB 326 amends Civil Code Section 6150 to also require associations to notify the membership and discuss the potential impacts of filing a civil action, including financial impacts.

-Blog post authored by TLG Attorney, Tim D. Klubnikin, Esq.