December 2018 Update
The most significant recent legal developments affecting common interest development practice include the following:
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.
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.
At the end of the 2018 legislative session, Governor Brown vetoed a controversial bill, SB 1265, which proposed numerous changes to the elections process for homeowners associations within common interest developments. In his veto message to the State Senate, explaining why he was returning SB 1265 without his signature, the Governor stated: “California has over 50,000 common interest developments varying in purpose and size. Each one has governing documents that are tailored specifically for that individual community. This bill takes a once-size-fits-all approach, but not all homeowner associations are alike. If changes to an election process are needed, they should be resolved by the members of that specific community.” See http://leginfo.legislature.ca.gov/faces/billStatusClient.xhtml?bill_id=201720180SB1265.
As a reminder, effective January 1, 2017, CC §4775 was amended to state that unless the covenants, conditions, and restrictions (CC&Rs) provide otherwise, associations are responsible for repairing and replacing the exclusive use common area appurtenant to a separate interest (with the owner of the appurtenant separate interest remaining responsible for maintenance of the exclusive use common area appurtenant to that separate interest). See §§1.16, 5.71.
Beginning January 1, 2018, the annual budget report that is distributed to association members must include a copy of the completed “Charges For Documents Provided” disclosure identified in CC §4528 (see §2.130). See AB 690 (Stats 2017, ch 127), adding CC §5300(b)(12), discussed in §§1.26, 5.65.
New sections have been added to chapter 2 on adopting a Code of Conduct for directors of homeowners associations (see §2.17A), and on conflicts of interest under the Davis-Stirling Act (see §2.17B). A sample form of a resolution adopting a Directors’ Code of Conduct has been added as new App F. For discussion of whether volunteers serving on committees appointed by the board should be subjected to a Code of Conduct, see §2.149.
Effective January 1, 2019, SB 261 (Stats 2018, ch 836) amended CC §4360 to change the required period for notice to members, before the board may make proposed rule changes, from 30 days to 28 days. See §§2.150, 9.25A.
In Retzloff v Moulton Parkway Residents’ Ass’n, No. One (2017) 14 CA5th 742, the court ruled that associations cannot recover attorney fees under CC §5235(c) (on frivolous or unreasonable actions by members to enforce inspection rights) because that statute authorizes recovery of only costs, not attorney fees. See §§2.33, 2.124, 2.128, 12.39–12.40.
In Tract No. 7620 Ass’n v Parker (2017) 10 CA5th 24, the court upheld an association’s denial of a member’s request to inspect the association’s membership list and other records, finding the requesting member had an improper purpose for the inspection. See §2.116.
In Marina Pacifica Homeowners Ass’n v Southern Cal. Fin. Corp. (2017) 11 CA5th 54, the court rejected the association’s contention that the 2015 amendments of CC §§1098 and 1098.5 were intended to overrule the appellate court’s prior decision in Marina Pacifica Homeowners Ass’n v Southern Cal. Fin. Corp. (2014) 232 CA4th 494. Instead, the court found that the result intended by the legislature in those amendments was that the assignment fees were to remain enforceable, so long as the project developers’ successor in interest recorded a document reflecting the assignment fee, in a single document that complied with §1098(b) and §1098.5, before December 31, 2016. See §2.133.
Beginning January 1, 2017, associations or their agents must give specified notice to affected owners and tenants before applying any pesticide to the common area or to a separate interest. See new CC §4777 (added by Stats 2016, ch 330). The statute prescribes the content of the notice, the owners and tenants to whom it must be given, the manner of providing it, and an alternate notice procedure if the owner or tenant agrees to a different time for the pesticide application. For details, see §2.145A.
Also beginning January 1, 2017, each owner of a separate interest must annually provide the association with written notice of specified contact information, for purposes of receiving association notices. See CC §4041, discussed in §2.154.
The 2018 Tax Cuts and Jobs Act (Pub L 115–97, 131 Stat 2054) eliminated the graduated tax rate structure for corporations, but did not alter the 30 percent flat tax rate for homeowners associations under IRC §528. See §§3.2, 3.19, 3.28, 3.30.
In case you missed last year’s update, 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.
Effective January 1, 2018, new CC §4515 prohibits inclusion in governing documents of provisions that prohibit owners or residents from assembling or meeting with other members or residents, and their invitees, for purposes related both to the community and association issues, as well as public elections. See SB 407 (Stats 2017, ch 236), discussed in §4.37.
The Ninth Circuit ruled in McNair v Maxwell & Morgan PC (9th Cir 2018) 893 F3d 680 that attorneys who initiate judicial (as opposed to nonjudicial) foreclosure proceedings to collect delinquent homeowners association dues are “debt collectors” under the federal Fair Debt Collection Practices Act (FDCPA). The court also held that, by claiming postjudgment attorney fees that had not been court-approved as required under the applicable Arizona law, the attorneys falsely represented the status of the debt owed by the homeowner. See §§5.20, 5.22.
In another Ninth Circuit decision, Mashiri v Epsten Grinnell & Howell (9th Cir 2017) 845 F3d 984, the court held that an attorney’s letter to the homeowner attempting to collect overdue assessments and fees violated the FDCPA by not giving the homeowner the mandated amount of time to dispute the debt. See §§5.20, 5.22.
The Ninth Circuit has ruled that when a Chapter 13 debtor has surrendered all interests in a condominium unit purchased prepetition but retains only bare legal title, postpetition assessments are in the nature of “prepetition debt” and thus are dischargeable. Goudelock v Sixty-01 Ass'n of Apartment Owners (9th Cir 2018) 895 F3d 633. See §5.63.
Effective January 1, 2018, CC §714.1 limits an association’s right to establish a general policy prohibiting installation of rooftop solar energy systems for homes in which the owner resides (or on adjacent, exclusive garage or carport areas), and removing such uses from CC §4600’s requirement of an owner vote for exclusive use of the common area. See §6.3.
Also effective January 1, 2018, CC §4746 provides that an association must, on satisfaction of specified conditions by the owner of a unit in a multifamily dwelling, permit the owner to install a solar energy system on the shared roof. See §§6.3, 6.79.
In Colyear v Rolling Hills Community Ass’n (2017) 9 CA5th 119, the court held that a view dispute between two neighbors was a matter of public interest, entitling the defendant owner to anti-SLAPP relief. See §§6.11, 12.66.
For new discussion of the regulation of short-term rentals in common interest developments, see §6.49.
In Greenfield v Mandalay Shores Community Ass’n (2017) 21 CA5th 896, the court stayed enforcement of an association’s short-term rental ban on the basis that it constituted an impermissible violation of the California Coastal Act. See §6.53.
For new discussion of federal rules under the Americans with Disabilities Act regarding “service animals” and “emotional support animals,” see §8.54.
Effective October 14, 2016, HUD promulgated new rules regarding “Quid Pro Quo and Hostile Environment Harassment” that are intended to formalize standards for evaluating claims arising from harassment on the basis of a protected classification, including many types of neighbor-to-neighbor interactions. See 24 CFR §§100.7–100.600, discussed in §§8.61A–8.62, and the Note in §6.40. For sample language for an association enforcement policy addressing the new anti-harassment rules, see §7.21.
In Revock v Cowpet Bay W. Condominium Ass’n (3d Cir 2017) 853 F3d 96, the court reversed a summary judgment motion in favor of the association and its officers, who had extensively blogged derogatory comments regarding owners’ support animal requests; the court also held that a Fair Housing Act claim for retaliation survives the death of the injured party. See §8.62.
In Bank of America v City of Miami (2017) 581 US ___, 137 S Ct 1296, the U.S. Supreme Court held that a city had standing as an “aggrieved person” to file a civil damages action for violation of 24 USC §3613 in a charge that the bank intentionally used predatory lending practices in minority neighborhoods, resulting in disproportionate foreclosures and vacancies in such neighborhoods. See §8.65.
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 Acqua Vista Homeowners Ass’n v MWI, Inc. (2017) 7 CA5th 1129, the court held that as to defendants other than builders (such as material suppliers), a claimant under the Right to Repair Law must prove not only the violation of the statutory standard of construction but also that the deficiency was caused by the “negligent act or omission” or breach of contract by the nonbuilder-defendant. See Practice Tip in §11.72.
In Branches Neighborhood Corp. v CalAtlantic Group, Inc. (2018) 26 CA5th 743, the court ruled that an arbitrator did not exceed his powers in dismissing an arbitration claim against the developer for construction defects on the ground the association had not received the prior approval of its membership as required by the CC&Rs. The court of appeal rejected the association’s claim that it had an unwaivable right to ratify the decision to file the demand for arbitration. See §11.90A.
In Marina Pacifica Homeowners Ass’n v Southern Cal. Fin. Corp. (2018) 20 CA5th 191, the court found there was no abuse of discretion in denying attorney fees under CC §1717 when neither party prevailed fully on its claims. See §12.41.
The case of Hupp v Solera Oak Valley Greens Ass’n (2017) 12 CA5th 1300 involved a CC&Rs rule requiring pit bulls to be muzzled when walked in common areas. One co-plaintiff was designated a vexatious litigant, but his co-plaintiff was not. The court ruled that dismissal of the vexatious litigant’s claims under CCP §391.7 was proper, but dismissal of the co-plaintiff’s claims was not. See §§12.53, 12.67.
In Centex Homes v St. Paul Fire & Marine Ins. Co. (2018) 19 CA5th 789, the court held that the duty to appoint Cumis counsel is triggered on an actual, rather than a potential, conflict of interest. See §12.81.