The spread of the coronavirus/COVID-19 has caused and will likely continue to cause unexpected interruption in the business of many California community associations. Many of our association clients are in the middle of large common area refurbishment and restoration projects. With increasing restrictions and/or recommendations by public officials and others intended to control the spread of the coronavirus, contractors/vendors may suspend or cease services/work and advance “force majeure” as a defense to the association’s breach of contract claim. It is important that board members and managers understand what force majeure means and how to respond when a contractor/vendor suspends or seeks to suspend their performance due to the coronavirus citing a force majeure clause contained in the contract between the association and the contractor or vendor. Follow this link to read SwedelsonGottlieb’s article that explains exactly what force majeure means and how it could impact your community association. And if you have Force Majeure issues or questions, contact SwedelsonGottlieb via email (firstname.lastname@example.org) or call us: 800/372-2207
Recently, an attorney that also represents California community associations sent out a newsletter that dealt with assessment collection during the pandemic. We already addressed this issue in our COVID-19 HOA Guidebook. We certainly do not agree with a lot of what that other attorney had to say on this issue and we know that most other community association attorneys that we have spoken with feel the same way. And we preface our comments by saying that we are certainly sympathetic to all those association owners who have been laid off or furloughed as a result of the COVID-19 pandemic. But we are also pragmatic and realistic about how the non-payment of assessments will negatively impact the hundreds of California community associations we represent.
The newsletter from the other attorney suggested that when addressing unpaid assessments as a result of the pandemic (which may not be that easy for boards to determine), association boards need to balance board duties. That newsletter correctly stated that boards have a fiduciary duty to keep their associations’ operational, meaning that they have to pay the utility bills, pay for insurance, for maintenance of the common area, the cost of dealing emergencies, pay vendors, etc. Our colleague suggested that boards need to balance these obligations against the fact that increasing numbers of members cannot pay their assessments because of the pandemic. The newsletter, however, offered no suggestions on how to do this as there is no way to effectively balance the obligations as associations need the money assessed to pay the association’s bills. Yes, boards can delay any discretionary projects, but most associations do not have significant discretionary projects.
As stated in the introduction, don’t misunderstand our pragmatic approach as suggesting that we are not sympathetic to those owners that have lost their jobs and cannot afford to pay their assessments; of course we are sympathetic. That said, those owners will need to find a way to pay their assessments or at the very least contact their associations to request a payment plan so that their associations can manage their expectation of payments and can continue to operate and meet its obligations.
The COVID-19 pandemic has disrupted the community association industry both in terms of operations and morale. Community association members, board members, and community managers are presumably staying home to avoid contracting the coronavirus, and are not meeting in person. This seems to have led to a reluctance, by some association boards, to conduct business. Further, the social distancing requirements imposed by our State and local governments are eliminating social interaction that is critical to the functioning of the community. Along with this, the fear and uncertainty of the COVID-19 pandemic has altered the mood and attitude of board members and professionals involved with operating the community association.
The disruption has become apparent and severe. However, we must examine the “silver linings” and “play with the cards we have been dealt” – so to speak – in order to preserve the integrity of our communities and functioning of same. The business that needed to be done before we all retreated to our homes to be safe still needs to get done and the longer boards wait to do that business, the more likely it is that there will be complications. Below are a few ideas that board members should consider moving forward in the face of this pandemic that may last for months.
1. Meetings. While in-person meetings should be avoided, associations may still be able to conduct meetings via conference call and/or videoconference (e.g., Zoom). The Davis-Stirling Act sets out a procedure for telephone conference meetings, but the Code requires that someone be at a physical location where the owners can listen to the call via speakerphone and participate during open forum. We believe that the ongoing pandemic would warrant a substantial compliance approach. That is, associations can conduct the meeting via telephone or video conference and attempt to comply with the applicable statutes, as much as possible, while at the same time complying with the State and City social distancing orders now in effect. This way, associations may still conduct business and hold meetings so that the common area components continue to be maintained, insurance policies do not lapse, and other obligations like enforcement of the Governing Documents are met. In other words, California community associations can still function while the board members and management are at the same time complying with government mandated social distancing requirements.
SwedelsonGottlieb updated its COVID-19 Community Association Guidebook on March 27, 2020. We put this Guidebook together to address our new reality and how California community associations should be dealing with the pandemic. We are all staying at home unless our jobs are essential and we are socially distancing ourselves from one another. The reality is that community associations cannot close down. Associations must continue to operate as they control the common areas where people live, and so much more. And the COVID-19 pandemic has created issues that we have never had to deal with in the past.
SwedelsonGottlieb is open for business; most of us are working remotely. And, we continue to receive inquiries from board members and managers concerning what community associations should be doing to address the COVID-19 pandemic and the impact on their communities. As we explain in the Guidebook, we do not believe that community associations have any direct or legal responsibility to deal with the coronavirus itself as it is each resident’s responsibility to protect themselves from contracting COVID-19. That said, some commonsense things should be kept in mind and we address those things in the Guidebook.
To be clear, this does not mean that associations should not be implementing policies to address the coronavirus, such as taking steps to clean and sanitize to the extent possible the common area, close common area amenities such as pools, gyms and recreation centers or clubhouses. But there is only so much that associations can do. As we explain in the Guidebook, there are things that each California community association can and should be doing, especially when an association learns that a resident has contracted or been exposed to the COVID-19 virus, to limit liability exposure.
It is not a hoax; it is a pandemic. And as a result, we are receiving inquiries from board members and managers concerning what community associations should be doing to address the coronavirus (COVID-19) pandemic and the impact of same on their communities. To address these questions, SwedelsonGottlieb published a guidebook that explains, among other things, why we do not believe that community associations have any direct responsibility to deal with the coronavirus; rather it is each residents responsibility to take steps to limit their exposure to the virus to avoid contracting the virus. That said, there are some commonsense things that should be kept in mind. And there are employees and staff to consider. Follow this link& to read and download SwedelsonGottlieb’s Guidebook. And note that as the information that we are all receiving about the coronavirus and how governmental agencies are dealing with the disease keeps evolving, so will our advice. So be sure to visit HOAlawblog for the latest coronavirus information and advice as it relates to California community associations.
Prepared by the Community Association Attorneys at SwedelsonGottlieb
Senate Bill 323, proposed new law that would impact how California community association conduct elections, was approved by the Senate and Assembly was presented to Governor Newsom for his signature. This proposed legislation will impact and change the procedural requirements for most California community associations’ elections. Unfortunately, this proposed legislation goes too far and it is not the right solution to whatever it is that motivated Senator Wieckowski to author this new legislation.
For example, under current law, Civil Code Section 5200(a)(9), members of a community association can request their association’s list of members, including the members names and addresses. Currently Civil Code section 5220 allows members the ability to opt out and keep their contact information, which they deem private, off the list. SB 323 includes a loophole that effectively eliminates the ability for owners to opt out of having their name and personal contact information provided to another member. This proposed new law requires owners to provide their name and address on the envelope that includes the ballot, which SB 323 would make part of the list of records available for member inspection.
From the Community Association Attorneys at SwedelsonGottlieb
The U.S. Department of Housing and Urban Development (HUD) has finally published the long-awaited final revisions to the Federal Housing Administration’s (FHA) condominium project approval rules. The FHA does not originate loans for purchasing condos, but rather insures these loans for borrowers who might not otherwise qualify for traditional financing requiring a 20% down payment. In practice, these changes will give more people access to FHA-insured financing, which should in turn provide many Californians with a better chance of purchasing a condo. The new rules go into effect on October 14, 2019. Some of the most significant changes in the FHA regulations include:
• The FHA is once again authorized to approve and insure up to 10% of individual loans in a condo project (formerly called “spot,” and now called “single-unit” approval), as long as the condo association as a whole is financially stable. The FHA may also insure these loans if the condo project itself has not obtained FHA approval, which can be an expensive and cumbersome process for many condo associations.
From the Community Association Attorneys at SwedelsonGottlieb
It is no secret that community associations are often targets for embezzlement. But they are not alone. Newspaper articles tell us that it happens to various types of businesses and organizations, even attorneys and lawyer/bar organizations. Fraud and embezzlement seems more likely to occur when no one is watching those that control the checkbooks. And unfortunately, many many condominium, stock cooperative and planned development boards of directors become too trusting and they don’t keep an eye on what their manager or treasurer are doing.
To ensure that community associations are better protected, the California legislature passed AB 2912, acknowledging that associations are susceptible to fraud and embezzlement, and that more is needed to completely achieve the goal of protecting community association funds. Pay close attention as there are new requirements for both managers and boards amending two sections of Civil Code and adding three new ones. AB 2912 made the following changes to the law:
By the Community Association Attorneys at SwedelsonGottlieb
Through SB 261, the California Legislature fixed some issues with prior legislation dealing with delivery of notices and related matters and generally fixed some issues that had come up after prior legislation was adopted. This bill became effective in January 1st and amends the following existing sections of the Civil Code as stated:
• Email Consent to Document Delivery — Civil Code §4040 (Individual Notice), which allows for individual delivery of notices and other documents by email if an owner consents to this in writing was amended to allow an individual owner to permit/revoke consent to allow individual notice by email. While most attorneys thought that an email was considered a writing, this amendment eliminates any confusion.
By Sandra Gottlieb and Alyssa Klausner, Community Association Attorneys at SwedelsonGottlieb
As many of you likely know, when a homeowner files a Chapter 7 bankruptcy, they may be able to “discharge” their obligation to pay the pre-bankruptcy petition debts including the assessments they owe their community association. And you likely know that when an owner files a Chapter 13 bankruptcy, they are looking for a way to reorganize and not discharge their debts. And we all understood, or at least thought we understood that the assessments that became due after the owner filed bankruptcy, the post-petition assessments, would not be discharged.
A new case in the 9th Circuit, Goudelock v. Sixty-01 Association of Apartment Owners, changes this understanding. The Court in that case held that post-petition assessments that become due after a debtor has filed for Chapter 13 bankruptcy are also dischargeable under Federal bankruptcy law (11 USC Section 1328 (a)). In the Goudelock case, the debtor/delinquent owner surrendered the property in her Chapter 13 Plan, and the lender subsequently foreclosed on the property. The association then sought to determine that the delinquent post-petition assessments from the date the debtor filed for bankruptcy until the date the lender foreclosed on the property were not dischargeable. While the bankruptcy court ruled in favor of the association, the Court of Appeal reversed the bankruptcy court holding that post-petition assessments arise from the pre-petition debt and therefore the debtor’s personal obligation to pay said debt (both the pre-petition and post-petition assessments) is eliminated when the debtor is granted discharge in his/her/its bankruptcy case.