Posted On: October 31, 2008

Political Signs and Community Associations in California

Early voting is underway and, as expected, we have received calls complaining about political signs. You may be getting questions or comments about sign regulation in your communities, so we thought it would be a good idea to let you know what goes, and what does not, in community associations with regard to political signs. Some people assume that there is no way that community associations can regulate political signs because prohibiting signs would violate a resident's right of free speech under the First Amendment to the Constitution. While there is some validity to this assumption, it is not entirely correct in the community association context.

It is common to have sign regulation in community associations, particularly with respect to “For Sale” signs. Civil Code sections 712 and 713 make any blanket prohibitions void. While owners can have these signs on their property, they are not entitled, for example, to post these signs on the common area.

The question, then, is whether there is a distinction between “For Sale” signs and political signs, considering the fact that political signs seem to have more to do with free speech than "For Sale" signs. When analyzing government regulation of speech, the courts often distinguish between "commercial speech" and other types of speech, and find that commercial speech is not entitled to the same level of protection as other types of speech. But does that matter in a community association?

The answer is that pursuant to Civil Code Section 1353.6: The governing documents, including the operating rules,
 may not prohibit posting or displaying of noncommercial signs, 
posters, flags, or banners on or in an owner's separate interest,
except as required for the protection of public health or safety or 
if the posting or display would violate a local, state, or federal 
law.

Follow this link to see the entire code section, including what constitutes a sign.

While there are no court decisions in California on this issue, it is interesting to see what court decisions have come down in other states.

In Kansas, the legislature passed legislation which makes it illegal for neighborhoods to adopt restrictive covenants prohibiting political yard signs. David Hudson, a First Amendment scholar at Vanderbilt University, has done research to cast doubt on the legitimacy of such laws. He states: “The First Amendment generally protects people only from government interference with speech.” Mr Hudson cited a Pennsylvania court ruling which stated that an association did not violate the First Amendment by removing political signs in accordance with the association’s declaration prohibiting the posting of signs at the individual units. The judge included the following statement in the ruling:

The courts of the Commonwealth have vigorously defended the rights which are guaranteed to our citizens by both the Federal and our Commonwealth’s constitutions. One of the fundamental precepts which we recognize, however, is the individual freedom to contractually restrict, or even give up those rights. The homeowners challenging the sign prohibition contractually agreed by the provisions in the Declaration at the time of purchase, thereby relinquishing their freedom of speech concerns regarding placing signs on their property.

Another significant case was decided in New Jersey. In a ruling that could have implications beyond New Jersey, in 2007 the New Jersey Supreme Court upheld the right of homeowners’ associations to restrict the posting of political signs and other forms of constitutionally protected speech, as long as the restrictions are not “unreasonable or oppressive.

In a unanimous decision, the Court ruled:

We conclude that in balancing plaintiffs’ expressional rights against he association’s private property rights, the association’s policies do not violate the free-speech and right-of-assembly clauses of the New Jersey Constitution.

So, what’s the best way to deal with the issue?

We advise that when dealing with any signs, consider the Civil Code as to size, etc. and location, and if the sign is placed in their window or on their property, then it must likely be permitted.

On the other hand, a mannequin dressed to look like a political candidate hanging from a noose (as was the case in West Hollywood until governmental pressure convinced the owner that it should be removed) is not a “sign” that must be permitted.

In the meantime, we urge you all to exercise your right to vote and let your preferences be known in order to fully participate in the electoral process.

Posted On: October 31, 2008

Swedelson & Gottlieb Publishes its 2008-2009 Annual Checklist

For those California community associations that have a calendar fiscal year, they are likely in the process of developing their 2009 budget. Pursuant to California Civil Code Section 1365, “[n]otwithstanding a contrary position in the governing documents, a copy of the operating budget shall be annually distributed not less than 30 days and no more than 90 days prior to the beginning of the association’s fiscal year.”

However, it is important to keep in mind that the budget is not the only disclosure California community associations are required to make. Swedelson & Gottlieb’s Annual Disclosure Checklist sets out the additional information and disclosures associations are required to distribute to the owners on an annual basis. Typically, the disclosures are made as part of the budget package.

For those of you that are wondering what happens if you don’t get the budget out timely, Civil Code Section 1366 states that the board loses the ability to increase the amount of assessments without the approval of the homeowners.

There are other required disclosures that if not made could have a negative impact on the association. For example, the failure to distribute the insurance disclosures and to provide for the appropriate level of insurance could impose personal liability on board members and/or homeowners. We encourage all Board members and association managers to review the checklist to make sure that their associations are fully complying with the disclosure requirements under California Law.

Download Swedelson & Gottlieb's 2008-2009 Disclosure Checklist

Posted On: October 31, 2008

We Hate to Say We Told You So But Associations Need to Budget for Bad Debt

For the last two years, we have been recommending that California community associations add a bad debt allowance in their budgets. Since about 2000, rising home prices and the level of equity in those homes meant that few homeowners were willing to lose their homes through foreclosure for non-payment of their assessments. As a result, community associations were, for the most part, able to collect delinquent assessments and the fees and costs incurred in collecting same, and as a result, they did not see a disruption in the flow of income. Over the last year, we have seen a significant change in the economy. Many homeowners who could not really afford to buy their homes were able to purchase them with little or no money down and finance them with either subprime or Alt-A loans. They are now losing their condominiums, townhomes, and single family homes in planned developments in record numbers, as they cannot afford the increased costs of their loan and their association’s levied assessments. As a consequence, many community associations are not receiving the income that they expected when they distributed their budget for 2008. This shortfall has resulted in many associations not funding reserves. We are advised that some are not making all of the appropriate repairs and are deferring renovation and maintenance of the common area. This is NOT a good idea and could subject an association to liability if, for example, that failure to maintain or repair caused damage or injury.

The point is that if you have not yet distributed your 2009 budget, the board and management need to seriously consider adding what most businesses call a “bad debt allowance” in their budgets to compensate for the income that the association may likely not receive.

Having been in the community association business as attorneys for more than twenty (20) years, this is not the first time that we have seen an increase in homeowner defaults. We saw it in the eighties and again in the nineties, when homeowners were “upside down” on their mortgages. Now they call it “negative equity,” and already one million homes have been foreclosed on nationwide, with another one and a half million other homeowners potentially losing their homes in 2009.

Experts forecast a slow recovery through 2009. It is likely that many more owners who have negative equity will let their homes go to foreclosure. Associations need to collect as much income as necessary to carry out all of the association’s responsibilities; it is most likely the association’s only source of income. It is just not appropriate for associations to scrimp on important common area maintenance and repairs. While it might hurt financially, especially because there are so many homeowners that are seeing cutbacks or actual job losses, associations must be run like businesses and must have sufficient income to carry out the appropriate level of maintenance and repair. So, consider increasing assessments sufficient to meet an expected deficit in income from assessments.

Posted On: October 30, 2008

Associations Must Act Timely and Decisively to Enforce Covenants

Associations Must Act Timely and Decisively to Enforce Covenants

This summary of a recent Court of Appeals decision was published in the October 2008 edition of the Community Association Law Reporter published by Community Associations institute. What do you think of the Court's decision?

Pacific Hills Homeowners Association v. Prun, No. G038244, Cal. App. Ct., March 20, 2008

Covenants Enforcement: If an association does not act timely and decisively in enforcing covenants, then the association may face penalties if the dispute goes to court.

Jon and Linda Prun live in a planned community in Mission Viejo, Calif. Their property is subject to a declaration of covenants, conditions, and restrictions, which is enforced by the Pacific Hills Homeowners Association ("association"). The declaration requires that prior written approval from the association's architectural committee is needed before construction of any improvement, including a fence or wall, can commence. The association also adopted architectural guidelines that limit fences to six feet in height unless the fence is within 20 feet of the front property line, in which case the maximum height is three feet.

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