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Neighbor-Disputes-8-Smart-Tips-to-Legally-Deal-with-Nuisance-Caused-by-Nasty-Neighbors*Unpublished Opinion

The Court of Appeals recently rendered an unpublished opinion in  Harbour Island Condominium Owners Association, Inc. v. Alexander (2019), which provides some clarity regarding a tenant’s right to attend board meetings and the ban on noxious activities within the community.

The Harbour Island Condominium Owners Association (“HOA”) sought a restraining order (known as a preliminary injunction) against two tenants and their landlord to abate the tenants’ noxious behavior.  The HOA relied on the provision in the CC&R’s, which stated that residents cannot disturb the neighborhood or occupants of a neighboring property or create a nuisance.

Neighboring residents made several complaints to the HOA about the tenants’ excessive and purposeful noise: the tenants consistently stomped on their floors and slammed their doors.  In addition to the noise complaints, tenants permitted their dog to urinate in the Common Area, despite the posted “No Dogs” signs.  Lastly, the tenants engaged in aggressive behavior against the Board of Directors in an apparent attempt to intimidate Board Members.  For example, the tenants secretly photographed a Board Member at the pool on different occasions.

The trial court granted the preliminary injunction, ordering the tenants and their landlord to install throw rugs throughout the unit and a sound-muffling device on the doors; to cease photographing Board Members; and to prevent their dog from urinating on the Common Area.  The trial court ruled in favor of the HOA because the tenants’ noxious behavior unfairly oppressed the rest of the community, while the ordered corrective measures were minimally oppressive to the tenants.

The Court of Appeals upheld the trial court’s decision.  Despite the fact that the HOA’s nuisance provision did not mention dogs, the Court broadly interpreted the existing provision to encompass the exclusion of dogs from the Common Area for health and safety reasons.

Furthermore, the Court held that the nuisance provision bans acoustic nuisances that interfere with a neighbor’s right to quiet enjoyment.  In this case, the nuisance claims were supported by credible witness testimony that the tenants’ noise was excessive.

Lastly, the Court of Appeals disagreed with the tenants that their due process rights had been violated since the tenants were not permitted to challenge the violation notices at hearings.  The Court held that only Owners with vested property rights are Members of the HOA.  As such, only Members may participate in HOA meetings.

California HOA lawyers The Harbour Island case highlights the broad reach of nuisance provisions in CC&Rs and serves as a reminder that Owners, not tenants, have the right to attend and participate in HOA meetings. 

-Blog post authored by TLG Attorney, Sarah A. Kyriakedes, Esq.

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agriculture-berries-bunch-760281-e1551829548999In Eith v. Ketelhut, No. B272028 (Cal. Ct. App. Dec. 17, 2018), a homeowners association featuring estate properties where members maintain fruit orchards and vineyards yielding fruit that can be made into wine and offered to the public for sale required the Board of Directors (“Board”) to determine if sale of products made from fruit produced on the property is a prohibited business or commercial activity under the CC&Rs. Looking to the purpose of the prohibition – to protect the residential character of the community – the Board examined whether the activity negatively impacted the residential character of the community.

In 2003 the Ketelhuts received approval from the Los Robles Hills Estates Homeowners Association’s (“HOA”) Architectural Committee (“Committee”) to plant landscaping on their property which included a vineyard of 600 plants. The Committee approved the Ketelhuts’ vineyard as it had approved other members’ avocado and fruit trees. The Ketelhuts did not mention using the grapes to make wine for sale. Five years later in 2008 the fruit was harvested and removed to an off-site winery to be made into wine. The Ketelhuts commenced a wine business in 2009, obtaining the necessary licenses, and began selling wine in 2010 over the Internet to the public and local restaurants and hotels. The Ketelhuts characterized the vineyard as a hobby, but they filed forms with the IRS claiming the vineyard as a “business.”

Eith and other neighbors demanded the Ketelhuts cease operating a commercial vineyard, so the Board investigated the Ketelhuts’ vineyard operation. The Board determined that the vineyard did not constitute business or commercial activity prohibited by the CC&Rs, because there was no negative impact on the community. No wine was produced or stored on the property, there was no tasting room drawing retail traffic to the community, and the wine was sold over the Internet to the public and local restaurants and hotels and shipped from an off-site warehouse.

Eith and other neighbors sued the Ketelhuts for operation of the vineyard as a prohibited business or commercial activity in violation of the HOA’s CC&Rs. The trial court elected not to decide whether the operation of the vineyard was a prohibited business or commercial activity, but to find in favor of the Ketelhuts by applying the rule of judicial deference adopted by the California Supreme Court in Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249 (“Lamden”) to the Board’s decision that the vineyard was not a prohibited use based “upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members.”

The neighbors appealed the decision in favor of the Ketelhuts to the California Court of Appeal, which confirmed the trial court’s application of the judicial deference rule in the Lamden case stating, “Common interest developments are best operated by the board of directors, not the courts.” The Court of Appeal further concluded that the Board correctly interpreted the CC&R prohibition of business and commercial activity. The purpose of the prohibition was to protect the community’s residential character; therefore, the prohibition does not encompass activity that has no effect on the community’s residential character.

California HOA lawyers The Board was in a much better position than the courts to evaluate the vineyard’s effect on the community and found that the residential character of the community was not impacted as a result of the growing and picking of the grapes on the property. No business or commercial activity of making and selling wine occurred on the property and offering the wine for sale over the Internet did not transform use of the property into a prohibited business or commercial activity. At all times the operation of the vineyard was fully consistent with residential use.

-Blog post authored by TLG Attorney, Terri A. Morris, Esq.

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housing-crisisCalifornia is currently facing a serious shortage of affordable housing.  The housing crunch is impacting individuals and businesses in all parts of the state.  Businesses are having trouble attracting and retaining employees and individuals face longer commute times and overcrowding, among a host of other issues.

To combat the affordable housing crisis, the California Legislature recently passed the Building Homes and Jobs Act (“Act”).  Effective immediately, the Act adds a new section to the Government Code (Section 27388.1) and a new chapter to the Health and Safety Code (Division 31, Part 2, Chapter 2.5).

Effective January 1, 2018, the Act imposes a $75.00 fee for the recording of certain real estate documents like HOA governing documents and collection documents (i.e. CC&Rs, liens, notices of default, etc.) and cannot exceed $225.00 per transaction.  The fees generated from the Act will be made available to local governments and the Governor’s Office of Planning and Research through the creation of the Building Homes and Jobs Trust Fund (“Fund”).  The Fund will be managed by the California State Treasury.

How the Building Homes and Jobs Act Will Adversely Impact HOAs in California

Central to all HOAs is the collection of assessments on a monthly, quarterly, or annual basis.  When a homeowner is delinquent in the payment of assessments, an HOA typically records various lien documents to secure its interest thereby ensuring that it is paid what is owed.

Imposing a $75.00 fee each time these documents are recorded will increase the cost to a delinquent homeowner to resolve an assessment debt with his or her HOA.  For homeowners who are already in financial straits and having difficulty making their assessment payments, the added fees to be imposed when lien documents are recorded will make it increasingly difficult for these individuals to bring their assessment accounts current and ultimately remain in their homes.

How the Recording Fees are Distributed through the Building Homes and Jobs Trust Fund

County Recorder Offices will be responsible for remitting the fees they collect on a quarterly basis directly to the Fund.  To gain access to the fees collected, local governments must submit proposals to the Governor’s Office of Planning and Research detailing how they plan to use the fees to update planning and zoning ordinances that will streamline housing production.

In addition, the Governor’s Office of Planning and Research will be permitted to use a portion of the fees collected in the Fund to combat homelessness and to create, rehabilitate, and preserve transitional rental housing.

California HOA lawyers Despite the adverse impact the Act will likely have on HOAs across the state of California, its ultimate goal is to leverage billions of dollars in private investment, lessen the demands on law enforcement and dwindling health resources as fewer people are forced to live on the streets or in substandard housing, and increase businesses’ ability to attract and retain skilled workers.

-Blog post authored by TLG Attorney, Kyle B. Roybal, Esq.

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disclosureOn July 31, 2017, Governor Brown signed Assembly Bill 1139 (“AB 1139”) into law.  AB 1139 amends California Civil Code Section 1098.5 with regard to deed-based transfer fees (“Private Transfer Fees” or “Fees”).  Prior to AB 1139 becoming law, any individual or entity who imposed a Fee on real property on or after January 1, 2008, had to record a document that provided limited notice of the Fee on or before January 1, 2009.

AB 1139 now requires any individual or entity who imposes a Fee on real property on or after February 8, 2011, to record a document that contains very specific language with regard to notice.  The notice must now state that federal housing agencies are prohibited from dealing in mortgages on properties encumbered by private transfer fee covenants that do not provide a “direct benefit” to real property encumbered, and that if a person purchases such a property, that person may have difficulty obtaining financing.

 Brief Background

Private Transfer Fees are fees paid by a purchaser when real property is resold.  The Fees are typically one percent (1%) of the sale price of the real property and specified in the original purchase documents.  The Fees are typically paid from the purchaser to one of four groups: 1. the HOA, 2. tax-exempt groups that provide a direct benefit to the HOA, 3. tax-exempt groups that don’t provide a direct benefit to the HOA, and 4. third-party developers or investors.

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short-term-rental*Unpublished Case

Recently, many residential common interest developments have experienced an influx in the number of short-term rentals within their community. This problem is exacerbated by the increased popularity of websites such as Airbnb and HomeAway. Although profitable, short-term rentals have a significant negative impact on community associations, such as increased damage to common area and violations of the Association’s governing documents. To address these concerns, many associations are amending their CC&Rs to include restrictions imposing a minimum lease period (e.g., thirty days). In a recent unpublished opinion, the California Court of Appeal upheld such a restriction as reasonable.

In Ocean Windows Owners Association v. Spataro, the Court affirmed the decision of the trial court granting the Association’s petition to reduce the requisite approval necessary to amend their CC&Rs pursuant to Civil Code section 4275.  The proposed amended CC&Rs included, among other things, a provision imposing a minimum lease term of “thirty (30) consecutive days in any one (1) calendar year….” A homeowner filed an objection to the petition stating that the record was void of any facts sufficient to support a conclusion that the amendments “were necessary for the good of the community.” The Court of Appeal rejected this argument for two reasons.

At the outset, the Court noted that the homeowner had misstated the standard under Civil Code section 4275. Specifically, Civil Code section 4275(c)(5) requires that the “amendment is reasonable.” Reasonableness has been defined as:

Not arbitrary or capricious, rationally related to the protection, preservation and proper operation of the property and the purposes of the Association as set forth in its governing instruments, and is fair and non-discriminatory.

(Fourth La Costa Condominium Owners Assn. v. Seith (2008) 159 Cal. App. 4th 563, 577; see Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 382 (citations omitted).)

Using the appropriate standard, the Court concluded that the rental restriction was reasonable. The Court’s decision was predicated, in large part, on the declarations of the Association’s community manager and its general counsel. Both averred that short-term rentals had resulted in damage to the common area, increased costs and violations of the governing documents, and the inability or difficulty with obtaining financing due to the association’s appearance as a “condotel.” As such, the Court concluded that there was substantial evidence to support the conclusion that the rental restriction contained in the amended CC&Rs was reasonable (i.e., rationally related to the protection, preservation and operation of the community as a whole).

California HOA lawyers Although unpublished, this case underscores the courts’ awareness of problems affecting communities with short-term rentals, and their willingness to assist associations in addressing the issue.  HOA Boards that are dealing with these types of issues should consult with their HOA’s legal counsel for guidance and recommendations.

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

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first-time-homebuyerWe previously blogged about H.R. 3700, the “Housing Opportunity Through Modernization Act of 2016”, which was signed by the President on July 29, 2016.  H.R. 3700 required the Department of Housing and Urban Development (“HUD”) to streamline the Federal Housing Administration (“FHA”) recertification process, provide regulations for commercial space exemptions, allow for deed-based transfer fees, and lower the owner-occupancy requirement within ninety (90) days of the bill’s approval.  In response to these provisions and changes in the condominium market, HUD proposed a new rule governing the certification requirements for condominium associations.  The proposed rule includes the following reforms:

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familyThe U.S. Department of Housing and Urban Development (“HUD”) recently adopted regulations for evaluating claims of harassment in housing and housing related transactions because of race, color, religion, sex, national origin, disability, or familial status under Title VIII of the Civil Rights Act of 1968 (“Fair Housing Act”).  The new regulations, which will directly impact Homeowners Associations (“HOAs”), are set to take effect October 14, 2016.

Brief Background

Both Courts and HUD have long recognized that the Fair Housing Act prohibits harassment in housing and housing related transactions on account of race, color, religion, sex, national origin, disability, or familial status in the same way that Title VII of the Civil Rights Act of 1964 (“Title VII”) prohibits harassment on these same basis in an employment setting.  Prior to HUD’s adoption of these new regulations, Courts often applied Title VII standards when evaluating claims of harassment in the housing setting.  However, because employment and home settings are different environments, the application of one to another is not always appropriate.  To address these deficiencies, HUD recently adopted formal standards for evaluating claims of harassment under the Fair Housing Act.

The new regulations directly impact HOAs because their directors and officers are the ones who are responsible for investigating an owner’s or tenant’s claim of housing related harassment.  Furthermore, liability for harassment under the Fair Housing Act can be imposed not just on the HOA but on its officers and directors for their own actions as well as the actions of third-party agents like a management company.

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Taxes-PictureA bi-partisan group of the House of Representatives would like to think so.  According to the Community Associations Institute (CAI), more than 66 million Americans live in homeowners associations across the country, with an estimated 13 million of them living in California.  These homeowners pay assessments to cover the costs of road maintenance, street lighting, street cleaning, snow removal and other municipal services.  However, they also pay for these services through their local, county, or state property taxes.  U.S. Representatives Anna G. Eschoo (D-CA) and Mike Thompson (D-CA) have introduced H. R. 4696, the “Helping Our Middle-Income Earners (HOME) Act” to correct this double-taxation.  The bill is co-sponsored by US Representative Barbara Comstock (R-VA).

Under the Home Act, association members with annual incomes of $115,000 or less (or $150,000 in the case of joint returns) would be eligible for a tax deduction of up to $5,000 for qualifying assessments.  To qualify, assessments must be mandatory and regularly occurring, apply to the taxpayer’s principle residence, and benefit the taxpayer’s principle residence.  The obligation to pay assessments must also arise out of the taxpayer’s automatic membership in the association.  Under these provisions, special assessments and rental properties would not qualify for the deduction.

Homeowners associations would be required to provide a statement to each member showing the name, address, and tax ID number of the homeowner, the amount of qualified assessments received from the homeowner during the calendar year, and the name, address, and phone number of the contact person for the association.  The statement must be provided annually by January 31st.

“The Home Act recognizes that millions of middle class homeowners are struggling to keep up with rising household expenses like child care, college tuition, health care, mortgage and community assessments,” says Rep. Eschoo.  “The Home Act can go along way by providing relief from this tax burden on millions of middle class families.”

“Congress needs to do all that it can to reduce barriers to homeownership for hard-working middle class families,” said Thompson.  “By helping to alleviate the cost of community association fees this legislation is an important step.”

hoa laws The Home Act has been referred to the House Committee on Ways and Means, but may have trouble moving forward during an election year.  CAI has taken a “support” position on the bill, and has issued a Call to Action to seek additional sponsors.  Even if the bill does not pass in 2016, it sends a message to the legislative committees working on tax code changes, that it’s an initiative whose time has come.

Blog post authored by Tinnelly Law Group’s Director of Business Development, Ramona Acosta.

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fhaWe have previously blogged about the Federal Housing Administration’s (FHA) revisions to its condominium approval guidelines.  Recently, the Community Associations Institute (CAI) announced that progress was made towards reasonable reforms to the FHA approval process.  On February 2, 2016, the US House of Representatives passed H.R. 3700 the “Housing Opportunity through Modernization Act of 2015” (Act).

The bill is now referred to the Senate for review and approval.  If passed, the Act would:

  • streamline the recertification process,
  • allow the Department of Housing and Urban Development (HUD) to grant commercial or nonresidential space requirement exemptions, and
  • reduce the minimum owner occupancy requirement from 50% to 35%.

If this bill becomes law, the recertification process for condominium projects would become substantially less burdensome, allowing associations to maintain their FHA approval status, thereby making homeownership more affordable.

For further analysis of the bill, click here to read CAI’s blog post and letter to US Representative Leuketmeyer, Chairman of the Housing and Insurance Subcommittee.

hoa laws Association boards and managers can verify the status of a condominium project’s FHA approval at the Official HUD Directory.

Blog post authored by Tinnelly Law Group’s Director of Business Development, Ramona Acosta.

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hoa-fha-loansNew Legislation*

Civil Code Section 5300 requires a HOA to prepare and distribute to its members an annual budget report. The annual budget report serves as a consolidated disclosure statement which must include numerous items of information, such as information pertaining to the HOA’s reserve funds, operating budget, and insurance policies.

In June of this year, we blogged about AB 596 (Daly), a bill proposed by the California Legislature that would require additional statements of information to be distributed with the annual budget report for condominium HOAs. Those statements would disclose the status of the condominium development as being a Federal Housing Administration (FHA) approved condominium project or a Department of Veterans Affairs (VA) approved condominium project.

AB 596 was signed by Governor Brown on August 12, 2015. As a result, beginning July 1, 2016, Civil Code Section 5300 will additionally require condominium HOAs to provide the following statements in at least 10-point font on separate pieces of paper that accompany the annual budget report:

“Certification by the Federal Housing Administration may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest. This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the Federal Housing Administration.”

“Certification by the federal Department of Veterans Affairs may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest. This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the federal Department of Veterans Affairs.”

The intent behind AB 596 is to ensure that condominium owners and prospective condominium owners understand the benefits of a condominium development being FHA or VA approved and how the availability of FHA or VA financing benefits the marketability of the condominium units within the development.

Industry experts have expressed concern that a HOA which was certified at the time of the disclosure may not retain that certification throughout the course of the fiscal year. However, AB 596 does not add a requirement for the disclosure statements to be revised mid-year should the HOA’s FHA or VA certification status change. FHA approval expires every two years and requires a recertification process. If a community no longer meets the FHA approval guidelines, recertification may be rejected. If approval is granted, but the FHA learns of additional factors, approval may be withdrawn. HUD does not currently have a notification system in place to inform the association that FHA approval has expired or been withdrawn.

hoa laws Condominium HOA boards and managers are encouraged to regularly check for FHA Approval at the Official HUD Directory and VA Approval at the Official VA Directory to verify the current status of their communities.