DISSOLVING THE ASSOCIATION
QUESTION: I am a homeowner in the Paradise Pines Owners Association. On November 8, the Camp Fire struck our association. It was the largest fire in California history and wiped out the town of Paradise and many homes in our association.
Many owners lost employment, many are still displaced and will never return. Homeowners are finding themselves in dire straits whether their home survived or not.
Our association serves no purpose for what is left. Many of us would like to dissolve our association. Are their special circumstances to dissolution due to this disaster?
ANSWER: The Camp Fire was stunning in its speed and destructive power. I understand the desire by some to never return to the area. Your ability to dissolve your association depends on your governing documents and various approvals.
Governing Documents. Your CC&Rs should have a section labeled "Damage/Destruction to Improvements" or something similar. It addresses destruction of common area elements, reconstruction costs, insurance, and possible membership approval regarding reconstruction or dissolution.
Amenities. For a planned development such as yours, dissolving the association could be difficult to justify. If common area amenities were damaged or destroyed (a clubhouse, playground, etc.) but homes remain largely intact, dissolving the association may not be an option since rebuilding amenities may be fully covered by the association's insurance.
Property Values. Restoring amenities would increase property values. A home in an association with amenities has more value than the identical home in the same location without amenities. For that reason, existing mortgagees (lenders) might have a voice in the decision.
Sale of Common Areas. Dissolution of the association means the common areas must be sold since there will be no entity to maintain them. Depending on the configuration of your common areas, they may have little or no value. If the common areas cannot be sold and if the county is unwilling to take ownership, a court may be unwilling to dissolve your association even if the membership approved the dissolution.
Board & Membership Approval. Because of the significant impact of dissolution, it must be approved by the board of directors (Corp. Code §§7911(a)(1) & 8610(c)) and 100% of the membership (Corp. Code §8724).
RECOMMENDATION: Your board needs to consult legal counsel about possible dissolution of your association and the various legal requirements for doing so. For more information, see "Dissolving an Association."
AUTHORITY TO FINE
QUESTION: I am on the board of my association. Can we fine members who violate our rules? Do our governing documents have to give us permission to do so? Our complex is 40-years old with no mention of fines. The authority to enact fines, I think, would have to be voted on by our membership. That thought to me is like trying to get drivers to pass fines for speeding!
ANSWER: Adopting fines does not require a vote of the membership. The board can implement rules and sets fines once rulemaking authority has been established. CC&Rs and rules are related so I will address both.
Enforcing CC&Rs. The ability of an association to enforce its CC&Rs is well established. CC&Rs are enforceable equitable servitudes and, unless the CC&Rs state otherwise, can be enforced by the association. (Civ. Code §5975(a).) Moreover, associations have a duty to enforce their governing documents. (Nahrstedt v. Lakeside Village.) If a board fails to enforce them, members can go into court to to compel enforcement. (Ekstrom v. Marquesa.)
Enforcement Mechanism. What's missing from the Davis-Stirling Act and case law is any mention of how enforcement occurs. The Act simply states that CC&Rs are enforceable. (Civ. Code §5975(a).) The enforcement mechanism is left to associations to decide. Most use three methods: fines, suspension of privileges, and litigation. The same applies to enforcing rules.
Adopting Rules. To adopt rules, an association must have rulemaking authority conferred by law, the CC&Rs, articles of incorporation or bylaws. (Civ. Code §4350(b).) Some older developments are silent on rulemaking authority. Fortunately, governing documents in newer developments all have rulemaking authority since the Department of Real Estate requires it. (Cal. Code Regs, tit. 10, §2792.21(a)(7).)
Even older association without rulemaking authority have statutory authority to adopt rules for specific matters such as election rules (Civ. Code §5105), architectural rules (Civ. Code §4765), IDR policies (Civ. Code §5905) and collection policies (Civ. Code §5730).
Authority to Fine. If an association has authority to adopt rules, the ability to enforce those rules using monetary penalties (fines) is implied. The court of appeal in a 1995 case, addressed this issue. The plaintiff in the case had challenged the association's authority to impose fines pointing out the CC&Rs did not grant the association the power to impose fines.
The court did not dispute plaintiff's assertion but, instead, noted the governing documents gave the association the authority to enact rules: "The right of the Corporation to establish uniform rules and regulations pertaining to the use of the Common Area..." (Liebler v. Point Loma.) The conclusion by the court is that the authority to enact rules necessarily carries with it the authority to enforce those rules, whether by fines or otherwise.
Imposing Fines. Once an association has authority to adopt fines, the Davis-Stirling Act sets conditions on their use. To impose monetary penalties, an association must adopt a fine schedule and give notice to the membership. Fines must be reasonable and appropriate to the violations. Moreover, they can only be levied after due process has been followed.
RECOMMENDATION: Your board should have legal counsel review your documents and provide a legal opinion on your authority to adopt and enforce rules.
I am pleased to announce that attorney Michelle Fassberg joined our firm.
Education. Michelle earned her Juris Doctorate from the University of Southern California School of Law. Prior to USC, Michelle graduated with honors from UC Davis with a Bachelor of Arts in Communications and Psychology.
Experience. Michelle comes to us with experience in real estate law where she drafted nationwide loan documents, nondisclosure agreements, purchase and sale agreements, condominium riders, loan modification and assumption documents, and related legal agreements.
Michelle is a welcome addition to the firm. If your association needs legal services, contact us for a proposal.
Kudos #1. Thanks for another year of your most excellent newsletter; always informative, often humorous, never dull. -Kit C.
Kudos #2. This is my first newsletter that I have received and I love it wish you all a happy healthy holiday. Thank you. -Sharon S.
Kudos #3. Kudos to whoever does the graphics for your newsletter. It is in support of the good humor with which you are able to treat serious business. I am on a small board in Palm Springs and we have all members subscribe. Whether they read it or not is up to them but the pictures must certainly enhance the attraction. Your Rhode Island Red chicken in the recent edition is a good example of this. Cluck cluck. -Earl R.
Smoking #1. What a great picture illustrating the smoking article! -Jerold B.
RESPONSE: If Frankenstein's monster recoiled from smoking, boards should pay attention when members express concerns about secondhand smoke. The trend statewide is for associations to restrict or ban smoking altogether.
Smoking #2. Our rules require complaints be verified by a staff member (a smoker lacking a sense of smell), management (either not onsite or also lacking a sense of smell), or a watch person (doesn't answer phone, slow moving or disinterested) to "investigate." As a result, many complaints are unresolved. Short of changing the board, management or the rules, do you have any suggestions? -Jean S.
RESPONSE: You covered most of your options. If no one is willing to investigate and you can't get support changing the board, management or rules, you may have no choice but to file suit. The upside is that courts have been sympathetic to owners suffering from secondhand smoke. The downside is the cost of litigation and uncertainty of the outcome.
Smoking #3. Thanks for the newsletter. Can the board make "no smoking rules" without revising the CC&Rs? Our new CC&Rs and bylaws were just granted by court less than a year ago. -Cecil L.
RESPONSE: Yes, a prohibition on smoking can be done through a rule change. Even so, somewhere down the road you should amend your CC&Rs to add the prohibition. Doing so makes it easier to enforce since the restriction is automatically presumed reasonable by courts and and much easier to enforce.
Smoking #4. I’m a bit confused by the article on smoking. California determined low levels to be a hazard, there is also a mention of a complete ban on smoking but finally there’s a suggestion that if detection of smoke is slight then a possibility no action needs to be taken. Please clarify. -John B.
RESPONSE: Yes, a board could make a good faith determination that a slight (barely detectable) odor is not sufficient to trigger action by the association. Also, the odor might not truly exist--the owner could have "phantom smell syndrome."
Cooking Odors #5. In addition to secondhand smoke, cooking odors can be a problem. Though I am not in favor of docking anyone's eating habits, this issue has come to our board. We have a nuisance rule and are in the exploratory research on this issue on how to approach it. -Jim W.
RESPONSE: Yes, this comes up from time to time in condominiums, especially when an owner cooks fish or strong ethnic foods with garlic, curry, etc. Sometimes, the offending owner will prop their hallway door open and/or open windows causing the cooking odors to waft into common areas and surrounding units. The problem is further exacerbated if the owner fails to turn on the exhaust hood over the stove. I've dealt with all these issues over the years. There are a variety of solutions to the problem. You should work with legal counsel to address it.