HOA Lawyer Blog

Branches Decision Overturned as it Violates Public Policy

Published on: June 9, 2020 | by Steven J. Tinnelly, Esq.

*New Case Law

In the case of Aldea Dos Vientos v. CalAtlantic Group, Inc., the Second District Court of Appeals overruled the Fourth District’s previous holding in Branches Neighborhood Corp. v. CalAtlantic Group, Inc. The Branches case found that homeowners associations forfeit their rights to pursue construction defect claims unless their members first vote to approve such legal action in accordance with their CC&Rs. The Branches decision was overturned upon the finding that developers cannot use the CC&Rs to veto claims made against them. The Court of Appeals held that such use of the CC&Rs not only violated public policy, but also Senate Bill No. 326, as codified by California Civil Code, section 5986(b).

Factual Summary

A condominium project in Thousand Oaks, Aldea Dos Vientos (“Association”), brought suit against CalAtlantic Group, Inc., the successor to the developer of the Project (“Developer”). The trial court stayed the lawsuit on the parties’ agreement to participate in mediation and then arbitration. When mediation was unsuccessful, the Association subsequently filed a demand for arbitration. After the demand was filed, the Developer cited to the Association’s CC&Rs at Section 7.01B to raise a defense. Section 7.01B required the Association to first obtain a membership vote in excess of fifty-one percent (51%) prior to commencing arbitration. The Association admitted it had not obtained the required vote.

In response, the arbitrator stayed the arbitration to allow the Association to petition the trial court to review this issue of arbitrability. In the meantime, the Association obtained membership approval to continue with arbitration from over ninety-nine percent (99%) of its members. The trial court denied the Association’s motion on the grounds that arbitrability was a matter for the arbitrator to decide. The Developer then filed a motion to dismiss with the arbitrator for the Association’s failure to comply with the CC&Rs at Section 7.01B. The arbitrator summarily dismissed the original demand for arbitration, and the trial court concluded that the arbitration constituted a final determination of the rights of the parties, so judgment was entered in favor of the Developer and against the Association.

Public Policy

In the Aldea Dos Vientos case, the Second District Court of Appeals vacated the lower court’s decision on the basis that the arbitrators exceeded their powers by issuing an award that contravenes an explicit legislative expression of public policy. More specifically, the Court of Appeals found that Section 7.01B of the CC&Rs violates public policy because it gives the Developer the unilateral power to bar an action against itself even though the Legislature clearly intended for housing to be free of substantial construction defects.

Furthermore, the Court of Appeals held that Section 7.01B of the CC&Rs, and any similar provision, is not just unreasonable but unconscionable. The Court stated, “[i]t gives the Developer veto power over the Association’s claims in spite of the members’ vote to proceed with the arbitration.” In sum, such a provision amounts to a trap for the unwary set by the Developer to bar claims against it. For these very reasons, the Second District Court of Appeals declined to follow its sister court’s ruling in Branches.

Senate Bill 326

The Court of Appeals also acknowledged that the Legislature has already found provisions, like Section 7.01B, to be unconscionable. Senate Bill 326 was enacted on August 30, 2019 and took effect on January 1, 2020. The bill added Civil Code, section 5986, subdivision (b) to the Davis-Stirling Act, which prohibits an association’s CC&Rs from limiting a Board’s authority to initiate legal proceedings against its Developer. The Civil Code applies retroactively to any CC&Rs with such limiting language.

The Second District Court of Appeals reversed the judgment in Aldea Dos Vientos on the additional grounds that the arbitrator’s decision to dismiss the original demand for arbitration was not on the merits, nor was the trial court’s judgment final. Furthermore, the arbitrator’s decision expressly stated that it did not directly impact the Association’s second demand for arbitration. Therefore, the Court of Appeals held that the arbitrator’s decision could not have resulted in a final judgment against the Association in the Aldea Dos Vientos case.

The Aldea Dos Vientos ruling is beneficial for homeowners associations across the state because it preserves their rights to bring construction defect lawsuits against developers regardless of language in the CC&Rs requiring prior membership approval. In any event, homeowners associations should always seek legal advice from attorneys that specialize in HOA law before commencing construction defect lawsuits to ensure their compliance with both state law and their governing documents.

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

New Client: Mission Lane Owners Association

Published on: June 2, 2020 | by Steven J. Tinnelly, Esq.

Mission-Lane-1-300x169 It’s our privilege to welcome Mission Lane Owners Association to Tinnelly Law Group’s growing family of HOA clients.

Mission Lane is a master-planned community located in the beach community of Oceanside and features new detached single-family, villas and townhomes by Beazer Homes. Residents enjoy the recreation area with a pool, tot lot, and bocce court, and close proximity to the Oceanside beach and pier.

Our HOA lawyers and staff look forward to working with Mission Lane’s Board and management.

New Client: The Masters Collection at Eastlake Greens Homeowners Association

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

Masters-Collection-300x169 It’s our privilege to welcome The Masters Collection at Eastlake Greens Homeowners Association to Tinnelly Law Group’s growing family of HOA clients.

The Masters Collection is a condominium community located in Chula Vista. Residents enjoy the community pool and close proximity to the lake, park, Otay Ranch Town Center shopping, theaters, restaurants, and schools.

Our HOA lawyers and staff look forward to working with The Master Collection’s Board and management.

The Rule of Judicial Deference: Protecting HOA Decisions Based on Reasonable Investigation and Made in Good Faith.

Published on: May 19, 2020 | by Steven J. Tinnelly, Esq.

*Unpublished Opinion

Volunteer officers and directors of a common interest development (“HOA”) are required to make decisions which often have significant legal and financial implications for the HOA and its membership. Because they are unpaid volunteers, officers and directors are afforded certain protections against personal liability similar to those afforded to directors and officers of other types of nonprofit corporations. Those protections are necessary in order to secure members willing to serve a HOA’s board:

The Legislature finds and declares that the services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California. The willingness of volunteers to offer their services has been deterred by the perception that their personal assets are at risk for these activities…It is the public policy of this state to provide incentive and protection to the individuals who perform these important functions.

(Corp. Code § 5047.5(a).)

One of the liability protections afforded to a corporation’s directors include a legal doctrine known as the “Business Judgment Rule,” or, in the context of HOAs, the “Rule of Judicial Deference.” (See Lamden v. La Jolla Shores Clubdominium HOA (1999) 21 Cal.4th 249.) The Rule of Judicial Deference generally requires courts to defer to maintenance decisions made by HOA boards even if a reasonable person would have acted differently in the same situation:

Where a…board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority…to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.

(Id. at p. 253.) Such deference is premised upon “the relative competence, over that of courts, possessed by owners and directors of [HOAs] to make the detailed and peculiar economic decisions necessary in the maintenance of those developments.” (Id. at pp. 270-71.)

Accordingly, so long as the board acts in accordance with its duties, in good faith, and in a manner it believes to be in the best interests of the HOA and its members, its decision will generally be upheld. (Id., at p. 265; Dolan-King v. Rancho Santa Fe Assn. (2000) 81 Cal. App. 4th 965, 979.) Courts commonly afford boards with the presumption in favor of their actions being taken in good faith. (Beehan v. Lido Isle Community Assn. (1977) 70 Cal. App. 3d 858, 865 (“Every presumption is in favor of the good faith of the directors. Interference with such discretion is not warranted in doubtful cases.”).)

Nevertheless, the Rule of Judicial Deference does not necessarily extend to every action (or decision not to act) that the board may take. Notably, the rule set forth in Lamden was tied solely to board decisions concerning “ordinary maintenance.” (See Lamden, 21 Cal.4th at p. 260 (“The precise question presented…is whether we should…adopt for California courts a…rule-of judicial deference…that would apply…to…ordinary maintenance decisions entrusted to the discretion of their [HOAs’] boards of directors.”).) It does not create comprehensive protection for every decision and action of a HOA; rather, such “deference applies only when a homeowner sues a [HOA] over a maintenance decision that meets the enumerated criteria.” (Affan v. Portofino Cove HOA (2010) 189 Cal.App.4th 930, 940.)

Despite the Court’s reference to the “narrow scope of the Lamden rule,” the Rule of Judicial Deference is still being expanded despite the Affan holding. For example, in the recent unpublished case of Jongerius v. Sun Lakes Country Club Homeowners Ass’n (2019) Cal. App. Unpub. LEXIS 7316 (“Jongerius”), the California Court of Appeal touched on the Affan holding, as well as other holdings applying the Lamden rule, when rejecting the homeowners’ argument that the scope of the Lamden rule is limited to decisions that relate to damaged common area and not to private property.

In Jongerius, the HOA became aware of a soil subsidence issue impacting several lots abutting a common area slope and damaging the common area wall separating the two. In response, the HOA retained a civil engineer (“First Expert”) “‘to investigate and provide independent expert analysis regarding the nature, extent, and cause of the slope subsidence occurring adjacent to the lots’ owned by plaintiffs.” (Id. at p. *4.) Between 2006 and 2010, the First Expert found no evidence of slope instability but noted “very small” movement as a result of soil settling. The Expert indicated that “[a] perfect repair procedure would be to install a caisson-supported wall and grade beam system at the top of slope,” but that such a repair would not be reasonable under the circumstances given the costly and disruptive nature of the repair. (Id. at p. *5 (internal quotations omitted).)

In 2011, and after settling with the developer on the soil subsidence issue, the HOA hired a second engineer (“Second Expert”) “to conduct another site inspection and to prepare repair recommendations that would alleviate the damage the slope creep was causing to the rear common wall running along the subject slope.” The Second Expert disagreed with the First Expert in terms of repairs, opining “that the most appropriate means of repair for the walls is to fill the separations with non-shrinking grout, cosmetically patch, texture coat, and paint the walls every few years.” (Id. at p. *6 (internal quotations omitted).) In light of the $4 million cost of installing a caisson-supported wall, the Board unanimously approved the Second Expert’s recommendation of frequent cosmetic repairs.

Sometime thereafter, certain homeowners abutting the common area slope brought a lawsuit against the HOA claiming that the HOA had negligently maintained the common area slope pursuant to the HOA’s CC&Rs which had resulted in damage to the homeowners’ property. (Id. at p. *9.) The trial court granted the HOA’s motion for summary judgment, finding that the Rule of Judicial Deference barred the homeowners’ claims. (Id.) The Court of Appeal affirmed.

Homeowners’ contended that the Lamden case limited the extent to which the Rule of Judicial Deference applied in maintenance-decision cases. In particular, the homeowners argued that the Lamden rule “only applies in narrow circumstances involving damage to common areas, not to private properties” owned by other parties. (Id. at p. 15) In other words, “judicial deference is only given to HOA decisions that affect common areas, not private properties owned by third parties.” (Id.) The Court rejected this argument, concluding that “the Lamden court never distinguished personal or separate property from common area property.” (Id.) Indeed, in Lamden itself, the court applied the Rule of Judicial Deference notwithstanding the plaintiff’s alleged diminution in property values as a result of the HOA’s maintenance decision. (Id. at p. 16.) Moreover, in Affan, the court refused to apply the Rule of Judicial Deference not because of the distinction between common area and private property, but rather because of the HOA’s complete and utter failure to remedy a known common area maintenance issue. (Id.)

Accordingly, the Jongerius court concluded that the Rule of Judicial Deference applies to common area maintenance decisions notwithstanding the fact that those decisions may negatively impact the private property of others. Nevertheless, in order for the Lamden rule to apply the HOA must demonstrate that its decision was made upon reasonable investigation, in good faith and in the best interest of the HOA and its members. In Jongerius, the HOA met that burden.

This case is important because it highlights the fact that the Rule of Judicial Deference may apply in situations where common area maintenance decisions cause damage to property owned by third parties. However, the HOA must still demonstrate that the decision was made upon reasonable investigation, and in good faith and in the best interest of the HOA. Therefore, it is important for HOAs to get experts involved when considering issues impacting common area maintenance.

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

Thinking about when to open Common Area Amenities? A Blue-Print to a Successful Re-opening

Published on: May 12, 2020 | by Steven J. Tinnelly, Esq.

CondoAmenities Community associations across the state are wrestling with the idea of opening common area facilities after closure due to COVID-19. Residents are becoming increasingly restless under the state’s stay-at-home order; naturally, they desire to use their community association’s recreational amenities (“Amenities”).

“When can we use the pool? When will the gym be opened?” Boards must balance resident pressures with their fiduciary obligation to do what’s best for their communities.

The purpose of this blog post is to identify a two-part test that can help boards and community managers evaluate when to re-open the Amenities and, if so, under what circumstances: (1) Can the Amenities be opened? (2) Should the Amenities be opened? The information provided herein is current as of Tuesday, May 12, 2020.

Can the Amenities be opened?

Community Associations Institute (CAI), a worldwide industry trade group for community associations, recommends that community associations comply with governmental regulations regarding COVID-19. Therefore, the first question to be asked is whether it is legally permissible to re-open Amenities in view of the government’s current stay-at-home orders. The answer to that question depends upon state and local declarations regarding recreational use.

Federal and state authorities do not appear to have provided guidance with respect to the closure and re-opening of HOA facilities in view of COVID-19. Understanding how the government is managing similar recreational facilities in the public arena (e.g. pools; parks; gyms; and community centers, etc.) can offer a blueprint for California HOAs.

California Governor Newsom (“Newsom”) is opening California through a four (4) stage Resilience Roadmap. As of the date of this correspondence (May 12, 2020), it appears that the state is slowly moving into Stage 2 of that Roadmap (Lower-risk workplaces). According to the state’s web site (covid19.ca.gov/roadmap/), gyms and fitness studios, community centers, public pools, playgrounds and picnic areas are categorized as “Higher-risk workplaces” which are NOT in Stage 1 or 2. It seems that the state has not yet adopted guidelines with respect to the safe operation of those areas.

Newsom states that county officials and localities can decide to move more quickly (or slowly) into Stage 2 of reopening than the statewide baseline. It is possible that county and local governments could potentially open gyms, pools and community facilities after adopting their own safety guidelines. Under that circumstance, it would be safer for community associations to open their similar private facilities because operating procedures can mirror available public health standards. If government orders are not clear or are silent with respect to the extent of lock down orders in your region, then Amenity opening could be premature – and to some degree risky. You can imagine the first question at a deposition in a personal injury lawsuit against the association: “Why did the association open the pool when your county was still under lockdown?”

Should the Amenities be opened?

Presuming Amenities can be opened because of the absence of applicable stay-at-home orders, the next question becomes: Is opening the Amenities the right decision for your community at this time? Are we able to comply with governmental regulations? If so, how can we keep our facilities safe? Those questions should be asked before Amenities are opened.

A primary consideration should be whether the association’s liability policies cover COVID-19 liability claims (i.e. a resident alleges that he or she became infected because of the Association’s improper disinfection efforts). Industry insurance professionals have noted that association liability insurance policies may include a coverage exclusion for bacteria and viruses, such as COVID-19. Under that circumstance, the association could be directly liable for personal injuries because the risk of such damage has not shifted to the insurance carrier. It is recommended that boards discuss application of that policy exclusion with the association’s insurance professional.

Before re-opening the Amenities, boards should develop a risk mitigation safety plan (“Safety Plan”), in accordance with CDC guidance and state/local regulations. That plan can be previewed with the association’s legal counsel (for purposes of legal compliance) and management (for purposes of managing logistics and enforcement). Industry experts believe that additional cleaning and enforcement efforts could create unforeseen expenses – up to as much as 25% of an existing Association budget. Management can be an excellent source to identify cost-savings measures, such as limiting resident use of Amenities and their hours of operation.

Discussing how to manage resident communication is critical as boards decide whether to re-open Amenities. Regular updates in some form are desirable for purposes of education and transparency. Use of a waiver agreement should be considered for purposes of acquiring their appreciation of the risk associated with Amenity use. It is important for residents to know that the association cannot guarantee that no one will get sick or that the premises are COVID-19 free. In that regard, disclaimer signs should be posted throughout the Amenities which state something like, “The Association is not ensuring that the [insert name of Amenity] is free of COVID 19 contaminants.”

Is Amenity re-opening the right decision for your community at this time? Factors which may be relevant for a neighboring community may not be relevant to your association, even though both developments exist within the same city. Compared to your neighbor, your community may have more or less Amenities, may or may not have the same capacity to comply with governmental safety mandates, and will likely have a different budget for purposes of maintaining a safe environment and enforcing the Safety Plan.

The understandable desire to re-open common area facilities should be balanced by prudent business practices. Understanding risk and the government’s safety guidelines are essential for purposes of making informed decisions. Fortunately, there are many sources of information in that regard. Boards of Directors and management professionals are strongly encouraged to consult with the association’s vendors and consultants during the decision-making process.

-Blog post authored by TLG Attorney, Kumar S. Raja, Esq.

New Client: Lakeshore Community Association

Published on: May 12, 2020 | by Steven J. Tinnelly, Esq.

Lakeshore-300x169 It’s our privilege to welcome Lakeshore Community Association to Tinnelly Law Group’s growing family of HOA clients.

Lakeshore is a brand new development of single family homes by KB Home in the San Carlos area of San Diego. Residents enjoy the community’s proximity to several local points of interest in and around San Carlos. La Mesita Park, with its play equipment, grassy areas, tennis courts, and skate park, is within walking distance, and Harry Griffen Park features a dog run and free summer concerts. Mission Trails Regional Park and Lake Murray are excellent locales in which to spend a day boating, fishing, and exploring the large network of walking and biking trails, and Mission Trails Golf Course features 18 scenic holes at the foot of Cowles Mountain.

Our HOA lawyers and staff look forward to working with Lakeshore’s Board and management.

New Client: Cypress Villas Chino Community Association

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

Cypress-Villas-300x169 It’s our privilege to welcome Cypress Villas Chino Community Association to Tinnelly Law Group’s growing family of HOA clients.

Cypress Villas Chino is a brand new development of single family homes by Frontier Communities. Residents enjoy close proximity to Chino Town Square, Chino Promenade and Chino Valley Medical Center, with a short drive to shopping havens at The Shoppes at Chino, Victoria Gardens and Ontario Mills.

Our HOA lawyers and staff look forward to working with Cypress Villas Chino’s Board and management.

How Quickly Must HOAs Bring Suit Against Homeowners for Violations of the Governing Documents?

Published on: April 28, 2020 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked– Is the Board of Directors required to bring legal action, within a certain timeframe, against a homeowner, who is violating the association’s governing documents?

Answered – In most circumstances, the association has five (5) years to bring legal action against violating homeowners pursuant to the Statute of Limitations. (See Code Civ. Proc., § 336(b).) The Statute of Limitations begins to run from the time the board discovers the violations or, through exercise of reasonable diligence, should have discovered the violations. Determining when the Statute of Limitations begins to run is a fact intensive inquiry, which must be evaluated on a case-by-case basis.

The five-year Statute of Limitations tolls (or is extended) in two limited circumstances. The Statute of Limitations will toll for a period of thirty (30) days after a party (either the HOA or a homeowner) offers Alternative Dispute Resolution (“ADR”). (Civ. Code, § 5945(a).) The Statute of Limitations will later toll for a period of ninety (90) days after one party accepts ADR, so that mediation can take place. (Civ. Code, § 5945(b).) This tolling period will also include any extensions agreed to, in writing, by the parties. (Civ. Code, § 5945(b).)

HOAs should keep in mind that even if the Statute of Limitations has not yet expired, the Court has the authority to prohibit an HOA from initiating legal action if it believes that the HOA failed to promptly enforce the governing documents. These legal defenses are known as the defense of “laches” and “waiver.” The defense of laches requires a homeowner to prove that he was prejudiced by the HOA’s unreasonable delay in enforcing the governing documents. Whereas, the defense of waiver requires a homeowner to prove that the HOA failed to promptly remedy a sufficient number of similar violations throughout the community, so that the HOA’s related rules and regulations generally appeared to be waived. The theory is that by failing to enforce some violations, the HOA induced other similarly situated homeowners to believe the association’s governing documents were no longer subject to enforcement.

To avoid these potential defenses, HOAs should act promptly to enforce the governing documents upon learning of a violation. Although, it is important to note, that HOAs are not required to initiate litigation for every potential violation. HOAs can, alternatively, enforce their governing documents without legal action via monetary penalties and/or the suspension of privileges.

When the board of directors discovers a violation, or is notified of the same, it should promptly investigate the matter to determine the best course of action to compel the homeowner’s compliance. Before resorting to litigation, HOAs should always weigh the costs of litigation, the seriousness of the violation, and the likelihood of success at trial. The board of directors possesses wide discretion to determine whether or not to move forward with litigation, so long as the board is acting in good faith and in the best interests of the association. In the case of Beehan v. Lido Isle Community Association, the Court of Appeal held:

“The power to manage the affairs of a corporation is vested in the board of directors. Where a board of directors, in refusing to commence an action to redress an alleged wrong against a corporation, acts in good faith within the scope of its discretionary power and reasonably believes its refusal to commence the action is good business judgment in the best interest of the corporation, a [Member] is not authorized to interfere with such discretion by commencing the action…. ‘Every presumption is in favor of the good faith of the directors. Interference with such discretion is not warranted in doubtful cases.” (Beehan v. Lido Isle Community Association (1977) 70 Cal.App.3d 858, 865.)

If an HOA is uncertain as to whether the Statute of Limitations has expired for an outstanding homeowner violation, the board of directors should consult with its legal counsel to determine whether the HOA has the ability to remedy the outstanding violation through legal action, or to address such violation through alternative means.

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

New Client: The Boulevard Collection Community Corporation

Published on: April 21, 2020 | by Steven J. Tinnelly, Esq.

Boulevard-Collection-300x169 It’s our privilege to welcome The Boulevard Collection Community Corporation to Tinnelly Law Group’s growing family of HOA clients.

Located in Bellflower’s energetic downtown area, The Boulevard is a new community of solar-powered townhomes that perfectly combines the urban sophistication of Bellflower and a hometown comfort that makes you excited to come home. Residents enjoy close proximity to the Bellflower Bike Trail, parks, a dog park, and Downtown Bellflower.

Our HOA lawyers and staff look forward to working with The Boulevard’s Board and management.

New Client: Alta Del Mar Mesa Homeowners Association

Published on: April 14, 2020 | by Steven J. Tinnelly, Esq.

Alta-Del-Mar-Mesa-300x169 It’s our privilege to welcome Alta Del Mar Mesa Homeowners Association to Tinnelly Law Group’s growing family of HOA clients.

Alta Del Mar Mesa is a newly constructed neighborhood in the Del Mar Mesa area of San Diego, CA. This affluent and semi-rural residential community consists of 136 single family homes, and is nearby preserved outdoor space, perfect for hiking, cycling, horseback riding, and viewing natural habitat.

Our HOA lawyers and staff look forward to working with Alta Del Mar Mesa’s Board and management.

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