Author:HPham

Many homeowner associations have declarations of covenants, conditions and restrictions (CC&Rs) that limit the number of rentals allowed in a community. (As of January 1, 2021, rental caps cannot be lower than 25%.) How can a homeowner association enforce these limitations? What challenges do associations face when attempting to enforce rental caps? What tools are available to assist them?

An HOA, through its board of directors, has a fiduciary duty to enforce rental caps, if such caps are identified in the CC&Rs. Limiting the number of rentals benefits the community in several ways. A lower number of rentals meets financing guidelines which helps owners obtain mortgages and refinance existing loans, lowers the association’s insurance premiums, and reduces wear and tear in the common area.

When the maximum number of rentals permitted has been reached, owners who wish to rent their separate interests must be placed on a waiting list maintained by the association before they may do so. If the property was purchased before the recordation date of the CC&Rs that impose the rental cap, the owner has “legacy status” and is exempt from this restriction which may result in more rentals in a community than is permitted by the CC&Rs. (For example, if a 100-unit community has a 25% rental cap, the maximum number of permitted rentals is 25. However, because owners with legacy status are exempt from the rental cap, the actual number of rentals may exceed 25 until the legacy owners sell their separate interests.)

Enforcement Challenges

Associations face several enforcement challenges when working to keep the number of rentals in the community at the required level:

• Association cannot enforce the rental cap against owners with legacy status.
• Owners fail to inform the association when they rent so the association does not know if a home is being rented.
• Owners with legacy status fail to inform the association when they sell their homes, so the association does not know that the new owners are subject to the rental cap restriction.
• Association does not have contact information for the owner or tenant.
• Association does not have a legal relationship with the tenant, and thus are unable to evict the tenant.
• Local ordinances make it difficult for owners to evict tenants.
• Heavier workloads caused by maintaining the waiting list and associated recordkeeping.
• Expensive to take enforcement action (attorneys’ fees, etc.).

Enforcement Options

To enforce rental caps, the following options may be available if specified in the HOA’s governing documents:

• Suspend privileges for use of recreational facilities (if any).
• Levy fines and/or a reimbursement assessment for legal fees incurred to obtain compliance with the rental cap (if authorized by the CC&Rs).
• Request internal dispute resolution (IDR) to meet and confer with the owner.
• Serve a request for resolution by mediation with the owner.
• If the owner still refuses to comply after participating in the dispute resolution procedures above, the board of directors may consider a lawsuit for a court order enjoining the rental of the home.

Enforcement Tools

To assist in rental cap enforcement, the association should consider having the following in place:

• Rental restriction policy to supplement the CC&Rs rental cap, requiring owners to provide a copy of their lease before occupancy and to submit an occupancy form annually. The occupancy forms enable the association to enforce the rental cap and respond to lender questionnaires (when owners are selling or refinancing) requesting the number of rentals in the community.
• Create a waiting list (if none exists) to track and manage rentals.
• Compile a list of owners who are exempt from the rental cap (purchased their home before the date of the recordation of the restriction in the CC&Rs that imposes the rental cap).
• Adopt or amend a fine policy to deter violations by: (i) increasing the fine for violations of the rental cap and (ii) imposing a fine against owners who fail to provide their lease or return their occupancy form within a designated time period (e.g., 30 days).

Given the significant economic interests at stake, many owners choose to contest any enforcement action by the association. As a result, associations should prepare for an uphill battle and consult with experienced counsel before taking enforcement action.

Given the unexpected spike in homeowners’ insurance rates in California, one step condominium associations can take to help minimize claims filed against their master policy is to adopt a Water Leak Policy. Beyond insurance considerations, having this type of policy in place is just smart governance. This policy supplements the governing documents and provides homeowners with guidance for dealing with water leaks, repairing units, filing insurance claims, and paying deductibles.

Condominiums often suffer water leaks due to an owner’s failure to properly care for their plumbing fixtures (i.e. angle stops, shower valves, bidets, etc.) or such plumbing fixtures fail without any negligence. However, many governing documents do not spell out who is responsible for repairing the owners’ unit components, who is responsible for filing insurance claims, or who is responsible for paying for the association’s insurance deductible when water damage occurs within a unit. As a result, associations spend substantial time and money repairing water damage within units without any contribution from the responsible owner of the unit where the water damage originated. Filing too many claims may cause an association’s insurance company to discontinue property insurance coverage if there is an excessive claims history.

What’s in a Water Leak Policy?

In order to develop a plan for responding to water leaks and to prevent the association from filing excessive claims against its master policy, the board of directors should consider adopting a Water Leak Policy that:

• Clarifies that owners are responsible for their unit components such as plumbing fixtures;
• Requires owners to pay for the association’s insurance deductible if claims are filed as a result of water emanating from the owner’s unit or the owner’s negligence;
• Recommends that owners purchase a comprehensive HO-6 insurance policy to cover their unit interior and personal property;
• Requires owners to repair and replace their own unit interiors, including damaged cabinetry, floor coverings, and personal property, unless the association’s negligence caused such damage;
• Provides protocol for owners’ prompt notification, investigation, and repair so that water leaks can be quickly repaired; and
• Specifies preventative steps such as periodic inspections and repair of plumbing supply lines, hoses, sewer lines, shut-off valves, appliances, and fixtures to avoid future water leaks.

A Water Leak Policy would not require a membership vote, so it can be an important tool to deal with water damage claims until the CC&Rs are amended to clearly assign maintenance responsibilities, require owners to carry insurance, and add exculpatory language for water leaks coming from the common area.  Once the Water Leak Policy is adopted by the board of directors, this Policy becomes part of the association’s governing documents.

This blog information is general in nature and is not a substitute for qualified legal advice. Contact us at (925) 926-1200 if you require specific legal advice.

Even though HOA election laws were last updated in January 2022, many are still understandably confused by the complicated statutory procedure required to elect directors without balloting when a board of directors election is uncontested (the number of candidates does not exceed the number of open seats on the board). An HOA can save considerable time and expense (mailing secret ballot packages to the members, hiring an inspector of elections) by following the steps outlined below if an election by acclamation is a possibility.

Election Rules

All associations, regardless of size, can now use the election by acclamation procedures set forth in California Civil Code section 5103 even if the association’s CC&Rs, Bylaws, and election rules are silent or conflict with the statute. The governing documents do not need to be amended to allow election by acclamation, but the election rules must have been amended to comply with changes in the law effective January 1, 2020. If an association did not amend its election rules after October 2019, it needs to do so before conducting any election in order to ensure the SB 323 requirements are incorporated. Failure to do so may subject any director election, special assessment vote, or amendment of governing documents to challenge.

Statutory Procedure

In addition to updated election rules, the following conditions must be satisfied as set forth in California Civil Code section 5103:

• Regular Election in Last Three Years: A regular (secret ballot) election must have been held in the last three (3) years.

• 90-day Initial Notice: At least 90 days before the deadline for submitting nominations, members must be provided by individual notice (i.e., first-class mail or email if consent has been provided) a notice that includes: (1) the number of open board positions to be filled at the election; (2) the deadline for submitting nominations; (3) the manner in which nominations can be submitted; (4) statement informing members of the possibility of an election by acclamation.

• Reminder Notice: A reminder notice must be provided between seven (7) and 30 days before the nomination deadline which includes: (1) the same information in the 90-day initial notice; (2) a list of the qualified candidates as of the date of the reminder notice; (3) statement reminding members of the possibility of an election by acclamation.

• Acknowledgment of Receipt: Within seven (7) business days of receiving a nomination, the association must acknowledge (by written or electronic communication): (1) receipt of the nomination and (2) must advise the nominee whether the nominee is a qualified candidate. If disqualified, the association must state the basis for the disqualification and the internal dispute resolution procedure by which the nominee may appeal the disqualification.

• Open Board Meeting Held to Declare Election by Acclamation: At least four (4) days before the meeting, the association must provide a meeting agenda to members which includes the names of each qualified candidate to be seated by acclamation. At the meeting, the board votes to elect those candidates by acclamation. The meeting minutes should reflect that the directors were elected by acclamation. It is also a good idea to identify the length of the newly-elected directors’ terms of office in the minutes.

Plan ahead if you think election by acclamation may be a possibility. In order to take advantage of this time- and money-saving option, members must be notified about the potential for election by acclamation well before nominations are received. This information must be provided in the initial and reminder notices, beginning at least 90 days before nominations are due.

This information is general in nature. It is not a substitute for qualified legal advice. Contact us at (925) 926-1200 for legal advice specific to your association.