February 2021 Update
NOTE: This update includes all of the extensive revisions that were included in the July 2020 special interim supplement, which covered the sweeping statutory changes resulting from SB 323 (Stats 2019, ch 848) and SB 754 (Stats 2019, ch 858), effective January 1, 2020. See chapter 2, which was thoroughly updated. Further and subsequent updates reflecting statutory and case law developments that came down in the first 10 months of 2020 are also included in this update.
REMINDER: Effective July 1, 2018, the California Bureau of Real Estate (BRE or CalBRE) was eliminated and reinstated as the Department of Real Estate (DRE). See Bus & P C §10004, as added by Stats 2017, ch 828, §6. All references to CalBRE in this book have been updated accordingly.
REMINDER: On May 10, 2018, the California State Supreme Court approved new and amended Rules of Professional Conduct that became effective on November 1, 2018. The contents of this book have been updated to incorporate the new rules. Visit the State Bar website (http:www.calbar.ca.gov/) to see the previous and current rules.
In Coley v Eskaton (2020) 51 CA5th 943, the court held that developer-affiliated majority directors could be individually liable for decisions allocating costs of operation, which benefited the developer to the detriment of the other owners, in contravention of the governing documents. See §§2.9, 12.58.
In chapter 2, §2.9 has been expanded to address common scenarios in which developer involvement, if not control of the association, can continue for extended periods of time.
Effective January 1, 2020, CC §5100 was amended to provide that persons cannot be nominated for election to the board of directors if they are not members of the association at the time of their nomination. See §§2.17, 9.3.
Effective January 1, 2020, CC §6150 was amended to revise the disclosure requirements regarding potential constructive defect litigation. See §2.143.
In case you missed the last few years’ updates, note that new sections have been added to chapter 3 on important tax matters that associations commonly encounter other than direct income tax, including other potential taxes (e.g., transient occupancy tax and sales and use taxes), administrative tax issues, handling rental income, and tax credits. See §§3.36–3.39.
Under Treas Reg §301.7701–3(c)(1), as amended in 2020, a domestic eligible entity that elects to be classified as an association (1) consents to be treated as a dual resident corporation for purposes of Treas Reg §1503(d) for any taxable year for which it is classified as an association, and (2) the condition set forth in Treas Reg §1.1503(d)–1(c)(1) is satisfied. For details, see §3.20.
A new section has been added to chapter 3 on the taxation of mutual water companies. See §3.26A.
In Sands v Walnut Gardens Condominium Ass’n (2019) 35 CA5th 174, plaintiff homeowners sued their association for its complete failure to maintain common area pipes that leaked into their unit. The trial court granted nonsuit on the basis of judicial deference under Lamden, but the appellate court reversed, holding that a jury could find that complete failure to maintain, as evidenced by trial testimony, constituted a breach of the association’s duty under the CC&Rs to maintain common areas. See §§4.25, 12.54.
In Obduskey v McCarthy & Holthus, LLP (2019) 586 US ___, 139 S Ct 1029, the United States Supreme Court ruled that a law firm that is merely engaged in representing a homeowner association in nonjudicial foreclosure proceedings to collect delinquent assessments is not a “debt collector” under the Fair Debt Collection Practices Act, except for the limited purpose of enforcing security interests under 15 USC §1692f(6). See §5.20.
In Eisen v Tavangarian (2019) 36 CA5th 626, the court reviewed CC&R provisions prohibiting erection of a “structure” that impaired view, and allowed an addition to a residence that impaired the plaintiff homeowner’s view, reasoning that the CC&R provision in question was intended to regulate only nonresidential structures. For detailed discussion of this decision, contrasting it with the contrary holding in Zabrucky v McAdams (2005) 129 CA4th 618, see §6.11.
Effective January 1, 2021, CC §§4740 and 4741 substantially limit the validity and enforceability of rental restrictions in common interest developments. See §§6.49–6.53, 6.58, 6.64.
Also effective January 1, 2021, under new CC §4751, a covenant that either “effectively prohibits” or “unreasonably restricts” the construction or use of an accessory dwelling unit (ADU) or junior accessory dwelling unit (JADU) is void and unenforceable. Reasonable restrictions on ADUs and JADUs are excepted from this ban. See §6.41 for details.
In California Union Square L.P. v Saks & Co. LLC (2020) 50 CA5th 340, an arbitrator was held to have exceeded his statutory power by inspecting a property mentioned only briefly in a party’s closing brief, and thereafter relying on that inspection in reaching a rent determination. See §7.36.
In AIDS Healthcare Found. v City of Los Angeles (2020) 50 CA5th 672, the court held that the city’s approval of high-rise dwellings that allegedly had negative impact on nearby affordable housing was not actionable, despite an allegation that the city had also acted to restrict the availability of affordable housing. See §8.63.
For discussion of federal rules under the Americans with Disabilities Act regarding “service animals” and “emotional support animals,” see §8.54.
The maximum civil penalties for a violation of the Fair Housing Amendments Act of 1988 (FHAA) have increased. See §8.71.
In Orchard Estate Homes, Inc. v Orchard Homeowner Alliance (2019) CA5th 471, the court ruled that in a petition filed under CC §4275, the association was not required to allege or show that the failure to obtain the approval percentage for amending the CC&Rs (as stated in the declaration) was the result of voter apathy. NOTE: The California Supreme Court had granted review of Orchard Estate Homes in June 2019, but in September 2020, the court dismissed its review as moot. See §9.40.
REMINDER: In a long-awaited decision, McMillin Albany LLC v Superior Court (2018) 4 C5th 241, the California Supreme Court resolved the split among the appellate courts on the question of whether the Builder’s Right to Repair Law (CC §§895–945.5) is the exclusive remedy for residential construction defects in homes sold after 2002. The court ruled that the Right to Repair Law is the mandatory, exclusive process for all residential construction defect claims for homes sold after 2002, even when claims arise from actual damages; homeowners can no longer avoid the law’s requirements and prelitigation procedures by alleging only common law claims. See discussion in §§11.4, 11.21, 11.72.
In Hensel Phelps Constr. Co. v Superior Court (2020) 44 CA5th 595, the court held that the 10-year statute of limitations for a consumer’s claim established by CC §941(a) is measured from substantial completion of construction, which is normally a question of fact; substantial completion cannot be predetermined by contract between the developer and general contractor. See §§11.74, 11.92.
Effective January 1, 2020, under CC §5986, all developer-drafted preconditions under the Right to Repair Law or limitations on the board’s authority to commence and pursue any claim for construction defects included in a common interest development’s CC&Rs are “unenforceable, null, and void.” See discussion in §11.90A.