HARDWOOD FLOORS
REMOVED

QUESTION: An owner installed hardwood floors in his 3rd-floor unit in direct violation of the rules. He was notified before, during and after installation. The owner thumbed his nose at the HOA. He was fined and the HOA hired an attorney to enforce the rules. Only after the HOA filed suit did he remove the flooring.

ANSWER: Some owners love to play chicken. They violate the rules and dare the association to do something about it. We had a similar situation where the board gave an owner warnings before, during and after the floor installation. We took the violation to binding arbitration and the owner was ordered to remove the floors and pay the association's legal fees. To everyone's relief, he sold his unit and moved.

Second Story Ordered Removed.An even more dramatic example came down two weeks ago from the Court of Appeal. It involved an owner who thumbed his nose at an association's height restrictions when he added a second story to his house. See Gary Kessler's "Condo Court" for details.

CC&R AMENDMENT
WITHOUT LEGAL INPUT

QUESTION: Our board opted to amend our CC&Rs to require the association to carry "studs out" insurance. Is it necessary to hire an attorney or can we just write what we intend and take it to the county and record it?

ANSWER: The board can prepare the language on its own but it runs the risk that the language may create unintended consequences that an experienced attorney would spot. Moreover, the board cannot draft the language and then record it; the amendment must first be approved by the membership using secret balloting. Finally, the amendment must be in proper format for recording purposes and properly certified, otherwise it will be rejected by the Recorder's Office. Avoiding legal fees is a good idea when it makes sense. I'm not sure this is one of those times.

REQUIRING OWNERS TO
CARRY INSURANCE

QUESTION: Can owners be made to purchase H06 policies? Can docs be amended to include this requirement?

ANSWER: Yes, CC&Rs can be amended to require owners to carry insurance. The requirement can extend to tenants as well.

Renter's Policy. Renters can be required to carry an HO4 policy which protects a tenant's personal property against loss and limits exposure to personal liability claims. Protecting the tenant against loss protects the association.

Owner's Policy. Owners should be required to carry an HO6 policy ("Homeowners 6" or "Condominium Unit Owner Policy"). Without it, they are exposed to loss and are more likely to sue the association. Moreover, the secondary mortgage market is now requiring protection for owners. Owners' insurance should cover the following:

1.  Personal Property Coverage that insures unit contents such as clothing and furniture.

2.  Personal Liability Protection which pays for bodily injury and property damage.

3.  Loss of Use Protection that pays for extra expenses (hotel, restaurants, etc.) while the owner's home is uninhabitable because of damage.

4.  Loss Assessment Coverage that covers the owner's portion of special assessments levied by the association resulting from insured losses.

5.  Real Property Coverage that insures those portions of the premises not insured by the association's master policy.

RECOMMENDATION: Associations should amend their CC&Rs to require both owners and tenants to carry insurance. To avoid potential liability, the amendment should also relieve the association of enforcement requirements related to the amendment. In addition, boards should regularly publish reminders that owners and tenants need to carry their own insurance.

Thank you to Margot Crowl Brick of the Frank Crowl Co. and Timothy Cline, President of the Timothy Cline Insurance Agency for their input on this issue.

LEGAL FEES CLAUSE

QUESTION: Our CC&Rs are silent on the issue of attorneys' fees. To discourage lawsuits, should we amend our CC&Rs to allow the award of attorneys' fees if a matter goes to litigation?

ANSWER: Attorneys' fees clauses are double-edged swords. While the provision allows an association to recover legal fees, it often becomes the driving force behind litigation. For example, each side might spend $50-100,000 litigating a matter that has a disputed value of $12,000. When that happens, settlement becomes almost impossible. The plaintiff wants $12,000 in damages PLUS another $100,000 to cover his legal expenses. The defendant might agree to pay $7,000 to make the litigation go away but will never pay plaintiff's legal fees (nor will the insurance carrier). That means each side will spend another $50-75,000 taking the matter to trial just to get a shot at recovering their legal fees.

Eliminating Fee Awards. If each side had to bear its own legal fees each time a matter was litigated, they would be forced to weigh the costs before jumping in. This would slow down the filing of lawsuits. Once in litigation, legal fees would also speed settlement since neither side wants to spend a non-recoverable $100,000 over a $12,000 dispute. Unfortunately, putting the brakes on litigation would require amending the Davis-Stirling Act. Currently Civil Code §1354(c) provides:

In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney's fees and costs.

It is unlikely the legislature will ever eliminate this provision, which means legal fees will continue to encourage litigation because plaintiffs always think they have a winning case and will recover legal fees. And, legal fees will continue to impede settlements when expenses spin out of control. It also means that owners who live in litigious associations will inevitably face higher dues for insurance premiums and potential special assessments for legal fees.

FEEDBACK

Legal Fees - Peer Pressure. It seems that special assessments for legal fees would result in peer pressure against owners who repeatedly sue the association since everyone will know who caused the problem. -David A.

RESPONSE: For some people, peer pressure has no effect. They don't mind isolating themselves from their neighbors--some delight in it. Chronically litigious owners are not suited for community association living. They would be happier living with unabomber Ted Kaczynski in a remote cabin in Montana, except that making their neighbors miserable makes them even happier.