Contracts & Easements

“Evergreen” Clauses – Avoiding Self-Renewing Contracts

Published on: July 13, 2022 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked – Our Board of Directors has been seeking to switch out a vendor for some time, but we have been waiting for the current contract to expire. It has become known that the current vendor contract automatically “renewed” for another 5-year period because we did not provide notice of our intent to terminate at least 90 days before the contract expired. This termination notice period was required under the terms of the agreement, but we were unaware of it until it was too late. Is there anything we can do to get out from under this contract?

Answered – Unfortunately, certain service agreements (such as waste disposal agreements, among others) may contain provisions whereby the contract continues in perpetuity, even after the expiration of the initial term, unless affirmative cancellation notice is provided to the vendor. These contracts are usually referred to as “evergreen” contracts because they automatically renew unless otherwise cancelled by the association within a specified period. Each situation is unique so counsel should be consulted to review the contract to determine if there is a legal basis for termination.

However, prevention is the best remedy so all significant vendor contracts should be reviewed by counsel, prior to execution, to remove or negotiate burdensome provisions such as “evergreen” clauses. This can save significant time and expense in the future. In addition, associations should calendar all termination requirements and notice periods contained in their agreements so that they do not lapse.

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

Non-Compete Clauses

Published on: June 22, 2022 | by Matthew Plaxton, Esq.

*Asked and Answered

Asked – An employee (“Employee”) of one of our vendor’s (“Vendor”) has left the company and is now employed by a competing firm (“Competitor”). We want to terminate our contract with Vendor and switch to Competitor so that we can continue to use Employee. Vendor’s contract has a non-compete clause stating that we cannot “directly or indirectly” hire any of Vendor’s employees for twelve (12) months after contract termination. Is such a provision enforceable?

Answered – Non-compete clauses are very common, especially in routine service vendor contracts (e.g., building maintenance, management companies, etc.). They are meant to prevent clients from leaving when the employee leaves; after all, the relationship is with the employee, not the employer. Fortunately, such non-compete clauses are generally unenforceable in California.

California law demonstrates a strong aversion to contract provisions that place a restraint on profession, trade, or business. Indeed, unless the covenant falls within one of the expressly defined exceptions, it is void and unenforceable. (See Cal. Bus. & Prof. Code § 16600 (“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”).) The type of provision referenced in the question does not fall into one of the exceptions identified in the California Business and Professions Code.

Moreover, such a provision has been rendered void as an impermissible restraint on trade under California case law. For example, in VL Systems, Inc. v. Unisen, Inc., the Court held that a very broad no-hire provision of a contract between consulting company and client, under which client could not hire any of consulting company’s employees for twelve (12) months after the contract terminated, was unenforceable, in violation of the statute prohibiting restraints on engaging in a lawful, profession, trade, or business of any kind. (2007) 152 Cal. App. 4th 708. Like in VL Systems, Inc., the no-hire provision in the Vendor’s contract prevents the association from hiring any of Vendor’s employees for twelve months after the contract terminated. Thus, although not a true “covenant not to compete,” the “effect of the no-hire provision is to restrict the employment of [Vendor’s] employees; it is inconsequential whether the restriction is termed a ‘no-hire’ provision between [Vendor] and [the association] or a ‘covenant not to compete’ between [Vendor] and its employees.” (Id. at pp. 716-17.)

Although the non-compete provision is invalid, it does not mean that Vendor will not bring a lawsuit against the association for breach of contract. Indeed, Vendor may very well bring a lawsuit against the association, which will necessarily result in the parties incurring legal expenses relative thereto. The association therefore must remain mindful of this fact and be prepared to defend itself should a lawsuit ensue.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

Asbestos Testing Prior to Demolition and Renovation – The Impact of Rule 1403

Published on: October 7, 2020 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked – Our HOA Board of Directors has recently decided to undertake some deferred maintenance projects which require wall renovations, such as re-piping the condominium buildings. Must the Association have an asbestos survey conducted prior to commencing the work?

Answered – Yes. The South Coast Air Quality Management District Rule 1403 (“Rule 1403”) requires a survey for the presence of Asbestos-Containing Materials (“ACM”) to be conducted and documented prior to the commencement of any renovation. (See SCAQMD Rule 1403(a).) Moreover, Rule 1403 makes it clear that a survey is required regardless of when the structure was built, the size of the renovations, and whether the owner of the structure is aware of the building materials. (See Rule 1403(d)(1)(A).)

Asbestos is a hazardous air pollutant under Section 112 of the federal Clean Air Act. (6 Environmental Law Practice Guide § 46.09 (2019).) Rule 1403 governs work practice requirements for asbestos in all renovation and demolition activities. The purpose of this rule is to protect the health and safety of the public by limiting dangerous emissions from the removal and association disturbance of Asbestos-Containing Materials (ACM). (See SCAQMD Advisory Notice). Due to the serious implications for exposing individuals to ACM, the survey requirement is mandatory with very limited exceptions.

Rule 1403 requires that the survey must be conducted by a Cal/OSHA-certified inspector or, as permitted by Cal/OSHA, an employee of the facility who possesses an unexpired AHERA Building Inspector certificate from a Cal/OSHA approved course. (See Rule 1403(d)(1)(iv).)

Given the serious health risks and liability associated with exposing HOA Members to ACM, HOA Boards should include asbestos surveys within the project budget and/or ensure that the surveys are included in any vendor contract.

Your city or county may require you to apply for a permit to conduct asbestos removal, renovation, or demolition. Contact your HOA attorney to conduct an in-depth analysis of your locality’s specific requirements.

-Blog post authored by TLG Attorney, Corey L. Todd, Esq.

Planning for the Unexpected: Force Majeure

Published on: August 26, 2020 | by Steven J. Tinnelly, Esq.

Expect-the-Unexpected If 2020 has taught us anything, it is to expect the unexpected. California community associations base their successful and continuing operations on careful planning and budgeting, but Associations must also plan for the unexpected. To that end, association vendor contracts should be drafted to ensure they afford adequate protections for when peril strikes.

Community associations regularly contract with vendors for a variety of services including landscaping and the maintenance and repair of common area components. Vendor contracts are often woefully sparse and fail to contain language to provide the parties with a mechanism to deal with unexpected disasters like war, fire, terrorist acts, or even pandemics like COVID-19.

Force majeure is a Latin phrase that means “superior force.” A force majeure contractual clause defines a set of events or circumstances beyond the contracting parties’ control that may excuse or delay parties’ contractual obligations for performance because performance would either be too difficult, impossible, or impracticable. Without it, the parties are bound to perform even in the face of a deadly viral pandemic which has resulted in shelter-in-place orders and business shutdowns across the state.

Citing Witkin Summary of Law, California courts have specifically held that “force majeure is the equivalent of the common law contract defense of impossibility and/or frustration of purpose: performance of a contract is excused when an (1) unforeseeable event, (2) outside of the parties’ control, (3) renders performance impossible or impractical.” Citizens of Humanity, LLC v. Caitac Int’l, Inc., No. B215233, 2010 WL 3007771 (Cal. Ct. App. Aug. 2, 2010). (emphasis added). In the realm of community association vendor contracts, COVID-19 has made the performance of certain contractual obligations impossible or impracticable. A large non-emergency construction project like a balcony repair which requires access by strangers to the inside of owners’ units comes to mind.

Very few vendor contracts which have not been prepared or negotiated by an attorney contain force majeure clauses. While it is always advisable for Associations to have vendor contracts reviewed by counsel, COVID-19 is an additional reason to seek the advice of counsel before signing a vendor contract. Given that a pandemic and shutdown of this magnitude is, forever more, a foreseeable event, its description should be included in all force majeure contractual provisions moving forward, so as to erase any doubt as to what events constitute the triggering of a force majeure event.

Not all force majeure clauses are created equal. Boilerplate language has been held insufficient in California and other states—a good example being Watson Labs, Inc. v. Rhone-Poulenc Rorer, Inc., 178 F.Supp.2d 1099, 1111 (C.D. Cal. 2001), where language referring to “regulatory, governmental … action” was found to be too vague and boilerplate to reflect that the parties considered that the shutdown of the Defendant’s plant would be encompassed.

Accordingly, an approach of over-inclusiveness should be adopted in drafting force majeure clauses. This ensures that not just a pandemic, but the effects of a pandemic, such as shelter-in-place orders, quarantines, government shutdowns, and other economic ripples caused by the response to an epidemic or pandemic be included in the definition of a force majeure event.

Associations should have all contracts reviewed by counsel and vendor contracts should contain a well-drafted force majeure clause to afford associations protection from liability in the event a pandemic or other force majeure event requires the delay or termination of a contract.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

Why Should My Attorney Review Contracts?

Published on: August 5, 2020 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked – Our HOA community manager always recommends that our vendor contracts be reviewed by our HOA attorneys before we sign them. Is this really necessary?

Answered – Yes! Contract review is an integral step to protect the HOA against future contract disputes. Oftentimes, HOA Boards of Directors don’t think twice about a contract until there is a dispute with the other party later on. By this point, it’s too late to negotiate contract terms, and the Board is often left to interpret and navigate poorly written and single-sided provisions that do not provide any support or protection to the HOA.

Contract disputes can be extremely costly and time-consuming. Since contract disputes and related expenses are unpredictable, they aren’t necessarily incorporated into the HOA’s annual budget; this can put a lot of financial strain on the HOA and could lead to special assessments on the membership to cover the costs. Furthermore, contract disputes can leave the HOA tied up with a vendor in which they’d rather part ways. This could leave the HOA without the ability to hire a new, better-qualified vendor to perform the job at hand.

Our HOA attorneys are skilled in the review, revision, and negotiation of contracts specific to HOA needs. Our attorneys can spot concerns that may not be obvious to a Board member, recommend alternative or additional language to provide HOA specific protections, and also communicate these concerns directly with the vendor. Additionally, our attorneys can identify whether the Board may be prohibited from entering the contract pursuant to the HOA’s governing documents. Combined, these efforts will result in a more comprehensive contract and more balanced protections for the HOA.

By taking the time up front to work with our expert attorneys, Board members can be assured that they are prudently adhering to their fiduciary duties and feel confident that they have taken appropriate measures to mitigate costly and time-consuming contract disputes in the future.

-Blog post authored by TLG Attorney, Joelle M. Bartkins, Esq.

HOA CC&Rs & Condo Plan Trump Conflicting Rights Conveyed in Deed

Published on: May 9, 2018 | by Steven J. Tinnelly, Esq.

hoa-parking-space *Unpublished Opinion

Homeowners Association (“HOA”) Boards of Directors and management professionals often encounter disputes with homeowners as to who has the right to use common areas parking spaces within a condominium development. Homeowners often believe that such spaces are part of their separately owned units (their separate property or “separate interest”); that the spaces were “deeded” to them and the HOA is therefore is limited in its ability to regulate, restrict, or reassign the use of those spaces. For most condominium projects, parking spaces are portions of common area which the HOA may—or in some instances must—reserve for a particular homeowner’s exclusive use, based upon the language of the HOA’s governing documents (i.e., the language of its CC&Rs and/or condominium plan).

We have seen instances where the deed to a unit that was conveyed to the homeowner by the initial developer of the HOA does include a reference to a particular common area parking space as assigned to the homeowner for her exclusive use. However, such deeds often parallel language in the HOA’s CC&Rs and/or condominium plan which support that exclusive use assignment. In other words, the language of the deed merely reiterates the applicable language of the CC&Rs and/or condominium plan establishing a particular parking space as a portion of common area for which the homeowner listed in the deed has exclusive use easement rights.

The situation becomes more complicated when the exclusive use language in the deed is ambiguous or is not supported by any provisions of the HOA’s governing documents. This was the central issue in Michaelson v. V.P. Condominium Corporation, No. D071215 (Cal. Ct. App. Feb. 21, 2018). The HOA in Michaelson consisted of an eleven (11) unit condominium development, in which each unit was granted an exclusive right to use an assigned garage parking space as defined in the HOA’s condominium plan. However, the condominium plan also denoted a 12^th unassigned garage parking space (“Unassigned Space”). For some reason, the right to use this Unassigned Space was actually listed in the deed (“Deed”) to a unit (“Unit”) that the HOA’s developer conveyed to the first homeowner of the Unit, which was later conveyed to the Plaintiff homeowner (“Homeowner”).

The HOA accused the Homeowner of fraudulently acquiring the Unassigned Space and demanded that he convey his interest in the Unassigned Space to the HOA. The Homeowner sued the HOA to quiet title on the Unassigned Space based on the following: (1) the Deed included the exclusive right to use the Unassigned Space; or in the alternative, (2) the Unassigned Space was acquired by adverse possession.

The Court quickly disposed of the Homeowner’s adverse possession claim because the tax for the Unassigned Space was paid for by all the HOA’s members and not by the Homeowner (one of the elements for an adverse possession claim in California requires claimant to have paid taxes on the property; See Code Civ. Pro § 325; See also Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal. App. 5^th 982).

With regard to the Deed, the Court found that it was ineffective as to the right of exclusive use of the Unassigned Space despite the fact that the HOA’s CC&Rs specified garage spaces as part of the “exclusive use common area.” This is because the CC&Rs tied the definition of exclusive use common area to the condominium plan, and the condominium plan did not define the Unassigned Space as exclusive use common area. The Court therefore held that the Unassigned Space belonged to the HOA as general common area, and as such the CC&Rs prohibit the transfer of the Unassigned Space without consent of 75% of the eligible mortgagees on the units.

The Court of Appeal affirmed the trial court’s order to grant the HOA’s motion for summary judgment plus attorney’s fees, holding that the Deed was a “wild deed” with ineffective conveyances that conflicted with the reservations contained in the CC&Rs and the condominium plan.

This case highlights the often forgotten importance of condominium plans. While CC&Rs will answer most questions regarding ownership and use rights, the CC&Rs for condominium projects will often relate to and reference the development’s condominium plan in significant ways.

-Blog post authored by TLG Attorney, Andrew M. Jun, Esq.

Solar Panels on Common Area Roofs; Have a Policy Yet?

Published on: March 27, 2018 | by Steven J. Tinnelly, Esq.

hoa-condo-solar

The California Solar Rights Act (“Act”), found at Civil Code §§ 714 and 714.1, provides certain protections for homeowners seeking to install Solar Energy Systems (i.e., solar panels) on their properties (“Systems”). The intent of the Act was to prevent associations from broadly banning Systems for aesthetic reasons—whether through an explicit ban, or through onerous architectural restrictions that greatly increase System costs or reduce performance. To that end, the Act rendered void and unenforceable any provision of an association’s governing documents that “effectively prohibits or restricts the installation or use of a solar energy system.” Civ. Code § 714(b). The Act does permit associations to place “reasonable restrictions” on the installation or use of Systems, as defined in Civil Code § 714(b). However, in reality, those “reasonable restrictions” are extremely limited in scope. To illustrate, any restriction which increases the cost of a System by more than $1,000, or which decreases its performance by more than ten percent (10%), from what was originally proposed by the homeowner is not a “reasonable” restriction and therefore unenforceable. Civ. Code § 714(d)(1)(B).

For planned developments with detached homes, the application of the Act is relatively straightforward because it applied to Systems that were installed on a homeowner’s “separate interest.” However, what was less clear was the extent to which the Act applied to homeowners within condominium developments. In a condominium development, a System would not be installed within or upon a homeowner’s separate interest. Rather, the System would be installed on common area components such as the roofs, garages or carports.

This issue was at the heart of AB 634 which was signed into law in 2017. AB 634 amends Civil Code § 714.1 and adds Civil Code § 4746. Under the new law, which became effective January 1, 2018, associations are prohibited from establishing policies prohibiting the installation or use of Systems installed on the roof of the building in which the owner resides, or a garage or carport adjacent to the building that has been assigned to the owner for exclusive use. It also adds an exemption to the membership approval requirements associated with granting exclusive use of common area to allow for such grants for System installations. Civ. Code § 714.1(b)(1)-(2). In simple terms, condominium associations are no longer able to broadly prohibit Systems from being installed on common area roofs, garages or carports.

The National Labor Relations Board Had a Change of Heart on Joint-Employer Liability

Published on: January 23, 2018 | by Steven J. Tinnelly, Esq.

notboss63 Previously, we wrote on a decision published by the National Labor Relations Board (“NLRB”) wherein the NLRB concluded that, where a contracting party has reserved the authority to exercise control over the employees of another, said contracting party will be found to be the “joint employer” of the other entity’s employees. In the case of Browning-Ferris Industries of California, Inc. (2015) NLRB No. 672 (“BFI”), BFI retained the services of Leadpoint Business Services (“LBS”) to provide staff to one of BFI’s recycling facilities. Although the contract between BFI and LBS recognized that the personnel staffed by LBS were the employees of LBS, BFI retained some control over the employees. As such, the NLRB concluded that as long as a company retains (e.g., through the execution of a contract) the authority to control the employees of another, said company will be given joint-employer status. (Id. at p. *2.)

The BFI decision caused quite a stir in the realm of common interest developments. As discussed in our prior post, many associations retain a community management firm to facilitate the duties of the association (e.g., solicit bids for common area maintenance and repair). And while the community managers were historically viewed as the employees of the management firm, the BFI case raised some questions with respect to the nature of the relationship between the employees of a management firm and the association.

Nevertheless, on December 14, 2017, the NLRB did an about-face reversing its decision in the BFI case. In Hy-Brand Industrial Contractors, Ltd. (“Hy-Brand”) the NLRB held that the BFI standard was “a distortion of common law as interpreted by the Board and the courts…[wa]s contrary to the [National Labor Relations] Act…is ill-advised as a matter of policy, and its application would prevent the [NLRB] from…foster[ing] stability in labor-management relations.” ((2017) 365 NLRB No. 156, *2.) Accordingly, the NLRB concluded that a joint-employment relationship will be found where there is evidence demonstrating that an entity has “exercised joint control over essential employment terms (rather than merely having “reserved” the right to exercise control).” (Id. at p. *5 (emphasis original).) Said control must be “direct and immediate,” as opposed to “indirect,” and must be more than control which is “limited and routine.” (Id.)

Although the BFI case has been abrogated restoring the prior position of the NLRB, associations and management companies must continue to exercise caution when hiring vendors to perform services for the association to prevent a finding of a joint-employment relationship. In Heiman v. Workers’ Compensation Appeals Board, the Court of Appeal concluded that the community manager (and by extension, the association) was the joint-employer of an employee of an unlicensed and uninsured contractor. ((2007) 149 Cal. App. 4th 724.) Under California law, one of the legal consequences for hiring an unlicensed contractor is that the person who hired the unlicensed contractor may be considered an “employer” for tort-liability purposes. (Id. at p. 735.) Since the community manager hired an unlicensed contractor, it was found to be the joint-employer of the injured worker. And, because of the agency relationship between the management company and the association, the association was found liable. (Id. at p. 744.)

In sum, despite the shift in position, associations must continue to insulate itself from a finding of joint-employer status by ensuring that it retains only licensed and insured vendors, and adequately sets forth the scope of work and the level of care and skill required to achieve the desired result within its contract with the vendor. Moreover, the contract must include a provision requiring the contractor to indemnify and hold the association harmless in the event a labor dispute arises between the contractor and its employees.

-Blog post authored by TLG Attorney, Matthew T, Plaxton, Esq.

AB 534 Signed: Associations to Provide Notice to Members of Lien Claims

Published on: July 10, 2017 | by Steven J. Tinnelly, Esq.

Vendor professionals frequently provide a variety of services on behalf of community associations and individual homeowners. Under California’s Constitution, unpaid vendors possess a legal right to lien the property upon which they work for the value of their rendered services or furnished material.

AB 534 (Gallagher), effective January 1, 2018, seeks to clarify how mechanic’s liens are to be used in common interest developments by amending Civil Code Section 4615 and by adding new Civil Code sections.

Under existing law, if a vendor intends to preserve the ability to impose a mechanic’s lien at a later time for work performed at a property, then such entity must first secure advance authorization from the property owner. Similarly, under existing law, a vendor seeking to enforce its claim to payment by way of a mechanic’s lien must notify the owner of the property which will be subject to a lien.

In the context of community associations, ownership of common area property can take a variety of forms: that property can be owned by the association, or it can be owned by all of the homeowners jointly, as tenants in common. As such, the vendor is often burdened by the obligation to identify the legal owner of the common area property when attempting to obtain that advance authorization and when seeking to provide legal notice of an impending lien.

AB 534 circumvents the challenges associated with identifying property ownership by imputing association authorization for a common area improvement to all members, and by making the association the agent for the members for purposes of receiving notices and claims during the lien enforcement process.

Encroaching on HOA Common Area Could Cost You

Published on: January 3, 2017 | by Steven J. Tinnelly, Esq.

*New Case Law

Rural, equestrian, and large-scale planned developments may include properties with spacious lot sizes bordered by common area lots and open spaces. When property lines are not clearly delineated or easily identified in these communities, there may be instances where a homeowner seeks to expand his property by constructing yard improvements that extend beyond his property line and encroach onto adjacent, HOA-owned common area. If this is not discovered and addressed by the HOA in a timely fashion, there are avenues under California law through which the homeowner may assert that he has obtained an easement over (and in extreme circumstances, actual ownership of) the encroached area. The thought of a homeowner annexing common area for his/her own use is a scary thought, as is the prospect of the HOA failing to prevail in costly litigation that may be needed to reclaim its common area.

Fortunately, the recent holding in Nellie Gail Ranch Owners Association v. McMullin (2016) 4 Cal.App.5th 982 (“McMullin”) helps strengthen a HOA’s ability to defeat a homeowner’s attempt to encroach onto common area and claim it as his own…
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