Litigation

Arbitration Provisions Rise Again in Construction Defect Disputes

Published on: August 17, 2012 | by Steven J. Tinnelly, Esq.

*New Case Law hoa law firm

On August 16, 2012 the California Supreme Court announced its decision in a case that will undoubtedly impact homeowners associations (“HOAs”), developers, owners and insurers in disputes arising from construction defects. The ruling in Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC sets the stage for construction defect disputes to be resolved via binding arbitration as opposed to jury trials.

The Court’s ruling in Pinnacle reverses the lower courts’ decisions which previously hampered the enforceability of arbitration provisions contained in recorded Declarations of Covenants, Conditions and Restrictions (“CC&Rs”). Central to the Court’s ruling was its recognition that CC&Rs constitute a contract and that there is strong public policy favoring arbitration/alternative dispute resolution over litigation–a public policy which is embodied in various Civil Code provisions pertaining to HOAs.

In reaching its conclusion, the Court reasoned that “the Davis-Stirling Act ensures that [CC&Rs]–which manifest the intent and expectations of the developer and those who take title to property in a [HOA]–will be honored and enforced unless proven unreasonable. Here, the expectation of all concerned is that construction disputes involving the developer must be resolved by the expeditious and judicially favored method of binding arbitration.” Accordingly, unless an arbitration provision contained in the CC&Rs is deemed “unreasonable,” a developer is entitled to rely on the terms of the contract and the enforcement of the arbitration provision.

The ruling in Pinnacle will create far-reaching and immediate impacts in the HOA industry. Depending on the terms of the CCRs, HOAs and owners seeking to pursue claims against the original developer may now be contractually obligated to forego litigation for binding arbitration. However, Developers wishing to compel binding arbitration may be precluded from doing so to the extent that the binding arbitration provision at issue fails to meet the “reasonableness” test implied by the Court.

Protecting HOA Members’ Easement Rights in Disputes with Developers

Published on: June 4, 2012 | by Steven J. Tinnelly, Esq.

*New Case Law

Homeowners Association (HOA) developers often reserve certain easement rights for the benefit of the HOA’s members. Such easement rights typically extend over common areas but may also extend to adjoining properties which are not included within the actual HOA development. When those easement rights are threatened or infringed, the recent case of Sumner Hill Homeowners’ Association v. Rio Mesa Holdings, LLC., (2012) (Sumner Hill) illustrates (1) how the HOA can bring an action to protect its members’ interests and (2) what substantial role the development’s tract map can play in adjudicating the members’ easement rights.

In Sumner Hill, residents in a gated community enjoyed access to a private road (Road) that lead to the nearby San Joaquin River. That access was jeopardized when an outside developer (Defendant) built one of its development’s public access paths through the Road and installed a fence which restricted access to the Road by the Sumner Hill residents. The Sumner Hill members believed that the Road was part of the association’s common area and that their easement rights had therefore been violated.

Homeowners Association Risk in Hiring Unlicensed Contractors

Published on: May 18, 2012 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked – What effects does hiring an unlicensed contractor bear on a HOA?

Answered – In accordance with the Contractors State License Board, it is illegal for an unlicensed contractor to perform work on any project that exceeds $500 or more in labor and materials. A Homeowners Association (HOA) that hires an unlicensed or uninsured contractor subjects itself to liability for unpaid wage or worker’s compensation claims the contractor’s employees may have. For example, a HOA that hired an unlicensed contractor was held to be a “general contractor” and thus required to pay the unpaid wages of the unlicensed contractor’s employees. Sanders Construction v. Cerda (2009) 175 Cal.App.4th 430. Additionally, a HOA and a management company that hired an uninsured contractor were held to be the “employers” of the uninsured contractor’s employee so as to make the HOA and the management company liable to the pay the employee’s workers compensation benefits. Heiman v. Workers’ Compensation Appeals Board (2007) 149 Cal.App.4th 724.

HOAs and management companies should always do their due diligence when hiring a contractor to ensure that the contractors are properly licensed. A HOA can verify the license of their proposed contractor by going to the Contractors State License Board verification page. Additionally, in case of any unforeseen scenarios, the HOA should protect itself by having provisions in its contracts indemnifying any wage or hourly claims by its employees.

To submit questions to the HOA attorneys at Tinnelly Law Group, click here.

HOA Obligation to Combat Nuisances?

Published on: April 18, 2012 | by Steven J. Tinnelly, Esq.

*Asked & Answered hoa attorney

Asked – In response to a complaint by a homeowner that her noisy neighbor is causing a nuisance, is her homeowners association obligated to take legal action to remedy the problem?

Answered – Maybe. A homeowners association’s (HOA’s) governing documents often contain use restrictions which prohibit homeowners from conducting activities that unreasonably interfere with other homeowners’ use and enjoyment of their units. However, HOA Boards are granted discretion in determining whether they should take legal action in enforcing such use restrictions. A nuisance which is minor (e.g., only impacts one homeowner) may not ultimately justify the expense the HOA will incur in taking action to remedy the problem. However, a more significant nuisance which impacts multiple homeowners (e.g., constantly throwing loud parties) is likely a situation where the HOA should step in.

That is not to say that an individual homeowner suffering from a minor nuisance is without recourse. HOA governing documents typically contain provisions which permit homeowners to take action themselves to enforce the governing documents. Additionally, unless the governing documents state otherwise, that right is also codified at Civil Code § 1354(a).

Homeowners suffering from nuisances should attend Board meetings to present their case to the Board. While the Board has discretion in determining the propriety of legal action, the homeowner can suggest that the Board employ less serious enforcement measures such as violation notices, imposing fines or suspension of privileges.

To submit HOA law questions to Tinnelly Law Group, click here.

HOA Liability for Third Party Criminal Acts

Published on: March 2, 2012 | by Steven J. Tinnelly, Esq.

One of the primary purposes of a Homeowners Association (HOA) is to manage and maintain the common areas within a development. Although the specific responsibilities assigned to a HOA may vary greatly depending on the terms of their governing documents, the HOA generally has a duty to act diligently and in good faith. Often times, these responsibilities include the repair and maintenance of security and safety equipment, including street lights, surveillance cameras and entry gates.

In the recent unpublished case of Girardi v. San Rafael Homeowners Association, (2012), the question arose of whether the Association may be liable for a failure to adequately maintain common area security equipment when a homeowner suffers damages from being burglarized.

Fighting Battles on Behalf of their Members: HOA Standing in Lawsuits with Third Parties

Published on: February 23, 2012 | by Steven J. Tinnelly, Esq.

*New Case Law

It is easy to understand how Homeowners Associations (HOAs) have standing to initiate legal action for enforcement of their governing documents or for damage to the HOA’s common areas. However, under what circumstances may a HOA bring a lawsuit on behalf of its members for claims that the individual members may have against third parties? That question was addressed in the recent case of Glen Oaks Estates Homeowners Association v. Re/Max Premier Properties, Inc., (2012) (Glen Oaks).

In Glen Oaks, the Plaintiff/Appellant HOA sued several realtors (Realtors) who had assisted the developers of Glen Oaks Estates (Project) in marketing and selling its parcels. A significant slope failure occurred along parts of the Project’s common area slopes and driveway in 2005. The HOA’s members (Members) then discovered that the soil reports which analyzed the Project’s common areas were substantially defective and unreliable. Though the Realtors were aware of the defects in these reports, they had either failed to provide these reports to the Members or had provided them without any warning as to their defects. The Members also discovered that the Realtors had violated various statutory disclosure requirements and had either intentionally concealed or misrepresented material information, including providing a false budget with a deceptively low monthly dues statement to the Members during the sales process.