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Community Association Update: Issue # 38
- Annual Legislative & Case Law Update (2019) |
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Happy New Year!
Below you will find an overview of the 2018 legislation and case law impacting California HOAs as we head into 2019.
The material below is not meant to be an exhaustive list of all new legislation and case law; we have summarized what we believe is the most important to the majority of our HOA clients and the industry professionals who service them.
If you have any questions regarding the items below, please feel free to contact our offices anytime!
Sincerely,
Steven Tinnelly, Esq.
Tinnelly Law Group
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AB 2912: NEW PROTECTIONS AGAINST THE MISUSE OF HOA FUNDS
(Effective January 1, 2019)
AB 2912 is the most significant piece of legislation taking effect this year. It was enacted to "protect owners in a [HOA] from fraudulent activity by those entrusted with the management of the [HOA's] finances." To that end, AB 2912 (a) significantly increases the financial review requirements of HOA boards of directors, (b) limits the ability for automatic transfer of HOA funds without board approval, and (c) imposes a requirement for the HOA to purchase and maintain a fidelity bond.
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SB 261: CHANGES TO INDIVIDUAL AND GENERAL NOTICE
(Effective January 1, 2019)
Under existing law, there are two methods of disclosure an HOA is required to utilize depending on the document, record or notice to be disclosed or delivered to the member. One of those methods is individual delivery or individual notice.
Individual delivery/notice may be sent by the HOA via email, facsimile or other electronic means ("electronic delivery") only if the member receiving the item has consented in writing to electronic delivery. The member may also revoke that consent in writing.
SB 261 was enacted to simply allow for the member to consent to electronic delivery, and to revoke that consent, via email. In other words, a member may now email the HOA his/her consent to receive certain HOA items via email.
SB 261 also makes a minor modification to the procedure utilized by HOAs when adopting or amending operating rules (to perform a "rule change"). Previously, the law required 30 days notice of the Board's intent to perform a rule change. This period has been shortened to 28 days.
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SB 1016: NEW LAW EXPANDS RIGHTS TO USE EV CHARGING STATIONS IN HOAS
(Effective January 1, 2019)
The Legislature has again expanded upon the rights of members to install and use electric vehicle (EV) charging stations. SB 1016 makes a number of modifications to existing law, including, among others: (1) rights to install EV charging stations now extend to units, not just exclusive use common area; (2) member insurance requirements have been relaxed; (3) removal of the ability for the HOA to recover its attorney's fees in an action to enforce the EV charging station restrictions; (4) new Civil Code added to allow for the installation of EV-dedicated "TOU" (time of use) meters.
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ARBITRATOR NOT FOUND TO EXCEED ITS POWERS
Branches Neighborhood Corporation v. CalAtlantic Group, Inc. (2018)
Takeaway: CC&R provisions requiring a membership vote to initiate a construction defect claim against the HOA's developer are enforceable.
An HOA filed an arbitration claim for construction defect against its developer. As is often the case, the HOA's CC&Rs provided that prior to filing such a claim, the HOA had to obtain the vote or written consent of a majority of the HOA's members. After the arbitration had been initiated, the majority of the members then voted to "approve and ratify the prosecution of the construction defect claim" against the developer. The developer filed a motion for summary judgment on the grounds the HOA failed to obtain the consent of its members prior to initiating arbitration.
The arbitrator granted the motion, the trial court confirmed the ruling, and the court of appeal affirmed. The court of appeal reasoned that the language of the CC&Rs was clear in requiring the affirmative consent of a quorum of the members prior to instituting an action. The HOA was on notice of the contents of the CC&Rs and thus it could not ignore this requirement because it may have been inconvenient for the HOA.
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INDEPENDENT CONTRACTORS VS. EMPLOYEES
Dynamex Operations West, Inc. v. Superior Court (2018)
Takeaway: New test for determining whether an HOA may be deemed an employer of someone believed to be operating as an independent contractor.
The California Supreme Court has simplified the test that was previously utilized to classify workers as "employees" rather than "independent contractors." The new test articulated in Dynamex (the "ABC Test") presumes that all workers are employees. To then classify that worker as an independent contractor, the employer (e.g., the HOA) must prove all three of the following: (A) that the worker is free from the employer's control and direction, both in actuality and in contract; (B) the worker must perform work for the employer that is outside the scope of the employer's usual course of business; and (C) the worker must be customarily engaged in an independently established trade, occupation, or business of the same nature of the work performed for the employer.
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ATTORNEY'S FEES NOT AVAILABLE FOR INTERIM INJUNCTIVE RELIEF
Artus v. Gramercy Towers Condominium Association (2018)
Takeaways: (1) A homeowner is not entitled to declaratory relief based on a challenge to a single HOA election that had since been redone (there was no "continuing violation"). (2) Attorney's fees are not available to a party who secures interim injunctive relief.
After members of an HOA voted by a substantial majority to eliminate the practice of cumulative voting, a homeowner filed suit for declaratory relief. The homeowner alleged that the HOA violated the Davis-Stirling Act by failing to provide equal access to communication for those with opposing views, and using association funds for campaign purposes. The homeowner then filed a motion for preliminary injunction seeking an order preventing the implementation of the new direct voting rule. The trial court granted the preliminary injunction, and the HOA held a second election in which the members again voted by a substantial majority to eliminate the practice of cumulative voting.
After a bench trial, the trial court denied the cause of action for declaratory relief on the grounds that there was no present controversy. The court of appeal affirmed on the grounds Plaintiff failed to allege "continuous violations" of the Davis-Stirling Act, and instead relied on a single election to support her claim that declaratory relief was warranted.
This case highlights how, in instances involving alleged violations of election procedures, it is often prudent to simply "re-do" the challenged election. It also touches on an important issue involving when attorney's fees are recoverable. In this case, because the Plaintiff only secured interim relief and did not ultimately secure declaratory relief, she was not entitled to an award of her attorney's fees and costs.
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HOA SHORT-TERM RENTAL RULE VIOLATED CALIFORNIA COASTAL ACT
Greenfield v. Mandalay Shores Community Association (2018)
Takeaway: HOAs within coastal zones may not have the authority to regulate short-term rentals without approval of the California Coastal Commission.
The HOA of a coastal community adopted a resolution barring the rental of units for less than 30 days. Homeowners filed suit against the HOA for declaratory relief and sought a preliminary injunction to stay enforcement of the short-term rental restriction on the grounds that the ban violated the California Coastal Act. The trial court denied the homeowners' motion for preliminary injunction on the grounds that the proper venue for such dispute was the Coastal Commission. The Court of Appeal reversed and held that a short-term rental restriction constitutes a "development" under the Coastal Act because it affects the intensity of use or access to single family residences in a coastal zone. Thus, the decision to ban or regulate short-term rentals in coastal communities must be made by the city and the Coastal Commission, not an HOA.
The holding in Greenfield is important for HOAs that are located within 1,000 yards from the ocean ("coastal communities"). Such HOAs may not have the authority to adopt short-term rental restrictions unless it parallels an existing City ordinance.
*NOTE - Johnston v. City of Hermosa Beach (2018 - unpublished)
The
Johnston case (unpublished) dealt with a fact pattern similar to Greenfield. In Johnston, homeowners filed suit against the City of Hermosa Beach challenging an ordinance it adopted barring short-term rentals. The homeowners alleged that the ordinance violated the Coastal Act (which was at issue in the Greenfield case). The court disagreed, stating that the Coastal Act does not preempt a City's authority to utilize its police powers in regulating short-term rentals.
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HOA'S WRITTEN RESPONSE TO CRITICAL, ANONYMOUS NEWSLETTERS HELD TO BE PROTECTED SPEECH
Kulick v. Leisure Village Association (2018)
*Unpublished
Takeaway: HOA actions in responding to critical newsletters by a member may be protected speech and not expose the HOA to liability for defamation.
The Plaintiff homeowner circulated a number of anonymous publications within the community that were critical of the Board and accused them of "hate mongering." The HOA's rules prohibited anonymous publications. The HOA ultimately filed suit against the homeowner and, while the case was pending, the homeowner sent out another newsletter decrying the lawsuit against him and further alleging criminal conduct on the part of the Board.
The HOA's attorney then distributed a letter to the entire membership stating that the homeowner's newsletter was reckless, and that it contained unfounded, inaccurate and spiteful allegations. It also contained details regarding the pending lawsuit and the HOA's preliminary success. After the letter was circulated, the homeowner filed a lawsuit against the HOA for defamation.
The trial court dismissed the homeowner's defamation case. On appeal, the court affirmed the trial court's ruling, finding that the letter by the HOA's attorney constituted protected speech.
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HOA CC&RS & CONDO PLAN TRUMP CONFLICTING RIGHTS CONVEYED IN DEED
Michaelson v. V.P. Condominium Corporation (2018)
*Unpublished
Takeaway: The CC&Rs/condominium plan may control conflicting language conveyed in the deeds to individual units.
Each owner within the 11 unit HOA was granted an exclusive use parking space as defined in the condominium plan. The condominium plan also denoted a 12th unassigned parking space. For some reason, the right to use this unassigned space was listed in the deed to a unit which was later conveyed to the Plaintiff homeowner. When the HOA demanded that the homeowner surrender his use of the space and convey it to the HOA, the Plaintiff sued to quiet title on the unassigned space arguing that his deed conveyed him the right to use the space.
The Court ruled in favor of the HOA, holding that the CC&Rs and condominium plan which required the unassigned space to be common area superseded the language contained in the Plaintiff's deed.
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FIRM NEWS
2018 - A Year of Growth!
New TLG Attorney! Reuben D. Kim, Esq.
We are excited to welcome Attorney
Reuben Kim to TLG's growing team of skilled attorneys! Prior to joining the firm, Reuben worked for a civil litigation firm focused on representing major financial institutions in the servicing of both commercial and residential property portfolios. He brings a wealth of experience in a wide range of legal topics including contract disputes, creditor's rights, mortgage lending regulations, fraud, title and property disputes, landlord-tenant disputes, and other complex real-estate related matters.
Reuben is the fourth new attorney we welcomed to the firm in 2018. He, along with new TLG attorneys Sarah Kyriakedes, Andrew Jun, and Tim Klubnikin, demonstrate our firm's commitment to providing our growing portfolio of clients with exceptional service by a team of highly-talented, responsive, and energetic professionals.
Welcome New TLG Clients!
We were privileged in 2018 to welcome
over 90 new communities to TLG's client family! Some of the more recent clients to sign on board include:
Alterra Surpasses $6 Million in Debt Recovery!
TLG is proud to provide HOAs throughout the state with access to highly-advanced, comprehensive collection services through our affiliate company,
Alterra Assessment Recovery.
Alterra was founded with the goal of providing efficient and effective collection services, utilizing the best technology available and a skilled team of professionals.
In just its first 5 years of operation, Alterra has already recovered
over $6 million
in assessment debt for its clients, with approximately $2.1 million in debt recovered just in 2018.
Alterra welcomed several new team members in 2018. Included among them are individuals who bring a wealth of experience working in the foreclosure divisions of major mortgage lenders.
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