Duty to Investigate Complaints & Enforce Rules
The primary purpose of an association is to enforce the covenants on behalf of and for the good of all property owners. (Promenade at Playa Vista Homeowners Ass'n v. Western Pacific Housing., Inc., (2011) 200 Cal.App.4th 849, 867.) “Indeed, the defendants fulfilled their duty to the plaintiff as a shareholder by strictly enforcing the provision in the CC&Rs that prohibited alteration of the common areas except with the prior written consent of the board.” (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 513-514. If a board fails to enforce them, members can go to court to compel enforcement. (Ekstrom v. Marquesa.)
Investigating Complaints. Associations must investigate complaints by residents of rules violations. If a violation exists, associations must enforce their governing documents. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 373-374, 380-383.) The enforcement of CC&Rs must be "in good faith, not arbitrary or capricious, and by procedures which are fair and uniformly applied." (Liebler v. Point Loma Tennis Club (1995) 40 Cal.App.4th 1600, 1610; Nahrstedt, supra, 8 Cal.4th at p. 383; Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642, 650-652.) "This statutory presumption of reasonableness requires that recorded covenants and restrictions be enforced "'unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.'" (Market Lofts v. 9th Street Market Lofts.)
Delegating Enforcement. Boards can delegate to a Rules Committee the task of issuing violation notices, holding hearings, and imposing fines. Architectural violations can be allocated to the Architectural Committee or they can be assigned to a Rules Committee to handle all violations. The board can then hear appeals. Members do not have a right to Rules Committee minutes regarding disciplinary hearings. Associations may withhold or redact information if the records contain records of disciplinary actions, collection activities, or payment plans of members other than the member requesting the records. (Civ. Code § 5215.) Even though the Committee has decision-making authority, member disciplinary hearings fall into the executive session protections afforded by the Open Meeting Act. However, the decisions of the Committee should be generally noted in the minutes of the subsequent open meeting of the board. (Civ. Code § 4935(e).)
Schedule of Penalties
Purpose of Penalties. Fines should not be viewed as an opportunity to supplement the association's budget. Rather, they are a mechanism to deter unwanted behavior. To deter bad behavior, boards must adopt reasonable fine schedules that are appropriate to the demographics of their association. For example, a $25 fine that may be significant to owners in one association may be pocket change to owners in another. If the fines are too low, they will be viewed by some as a fee for the right to break the rules. If fines fail to deter bad behavior by an owner, boards must be prepared to take legal action and seek a court order as well as judgment for the fines which continue to accrue until judgment is entered.
Adopting a Fine Schedule. To impose penalties for rules violations, associations must adopt a fine schedule and give notice to the membership of that schedule. The procedure for adopting fines is the same as adopting rules. Fines must be reasonable and appropriate to the violations. A fine policy must include due process, i.e., giving members notice of the rules and individuals notice of violations and a hearing before the board with an opportunity to defend themselves against an alleged violation.
Authority to Fine. If an association has the 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 the point. The plaintiff in the case had challenged the association's authority to fine 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 and concluded, "because the authorization for the...rules is itself contained in the recorded...CC&Rs, Liebler is incorrect in asserting such fines are unauthorized... (Liebler v. Point Loma.) The conclusion of the court is that the authority to enact rules necessarily carries with it the authority to enforce those rules, whether by fines or otherwise. Once an association has authority to adopt rules, it can adopt a fine schedule.
Annual Notice of Disciplinary Policy. If an association adopts or has adopted a policy imposing any monetary penalty, including any fee, on any association member for a violation of the governing documents, including any monetary penalty relating to the activities of a guest or tenant of the member, the board must adopt and distribute to each member, in the annual policy statement describing the association’s discipline policy, if any, including any schedule of penalties for violations of the governing documents. (Civ. Code § 5310(a)(8).) The schedule of penalties must be in accordance with authorization for member discipline contained in the governing documents. (Civ. Code § 5850(a).)
Flexible Penalty Schedule. Fines should also be flexible enough to allow for a significant fine on the first violation rather than just a warning letter. Most associations have a fine policy that requires a warning letter on the first violation. This ties the board's hands if the directors need to discipline an owner who commits a serious violation as a first occurrence, such as endangering others. An owner who evacuates a building with a false fire alarm because he is angry at his neighbor's loud party, warrants a significant penalty rather than a simple warning letter. Unless an association's CC&Rs or bylaws require a warning on the first offense, boards of directors can adopt a fine policy similar to the following:
| |
PENALTY SCHEDULE
1st Violation.........................................warning or fine up to $200
2nd Violation (same offense)......................................$50 to $200
3rd Violation (same offense).....................................$100 to $300
Additional Violations (same offense)...........................up to $400
Safety Violation....................................warning or fine up to $500
Continuing Violation.....................................daily fines until cured
Suspension.....common area privileges may also be suspended
Assessment...............may be levied to reimburse HOA expenses |
Repeat Violations. An example of a repeat violation is where an owner violates a rule by letting his dog off the leash. The board holds a hearing and fines him. The next month the owner's dog is off the leash again. Boards cannot immediately levy another fine. They must hold another hearing where the person gets an opportunity to contexst the alleged violation before imposing a fine. The following month he does it again--a third hearing and another fine. The rules may allow for escalating fines, $50, $75, $100, but each incident requires a notice, a hearing, presentation of evidence, and a written decision.
Continuing Violations. For continuing violations, boards need the ability to impose daily fines so as to encourage compliance with the association's rules. For example, if the CC&Rs limit owners to one dog and an owner has 3 dogs, the board (after proper written notice and a hearing) may impose a daily fine until such time as the violation is cured. Or, an owner who paints his house blue when the color scheme for the development is earth tones may receive a daily fine until the house is painted with an approved color.
Recorded Notice of Violation. At one time associations could record a notice with the county recorders office whenever an owner was in violation of the CC&Rs. Such recordings are no longer allowed. (Ward v. Superior Court.)
Fining a Family Trust. When property is held in a family trust and the resident violates rules, associations cannot go after the trust itself because a family trust is neither an entity nor a legal person such as corporations are. A trust is a mechanism for transferring assets to a beneficiary without going through probate. As such, it cannot own property or be sued. Because a trust cannot own property, a condominium in a living trust must be owned by a trustee on behalf of the trust. That person's name appears on a recorded deed similar to the following: "John D. Smith as Trustee of the John D. Smith Family Trust dated 1/1/15." Or, "Mary Jones as Trustee of the John D. Smith Family Trust dated 1/1/15." If the occupants of the unit violate the rules, the trustee can be called in for a hearing and fined.
Collecting Fines. Once a fine is levied and goes unpaid, the following are methods for collecting fines.
- Suspend Privileges. Sometimes the best option is to suspend a person's privileges until the fines are paid.
- Small Claims Court. Associations can sue for fines in small claims court. The benefit is that there is very little expense involved and an abstract of judgment can be recorded against the owner's property.
- Superior Court. If the fines are over small claims limits, associations can file an action in superior court. If the association is awarded a judgment for the fines, an abstract of judgment can be recorded against the owner's property.
- Judicial Foreclosure. Because the prohibition on fines in liens only applies to trustee sales, associations may include monetary penalties (fines) in actions for judicial foreclosures.
- Nonjudicial Foreclosure. Fines cannot be collected through nonjudicial foreclosures (trustee sales) despite any authorizing language that might be contained in an association's governing documents. (Civ. Code § 5725(b).) Monetary penalties cannot be treated as assessments and cannot be included in delinquent assessment liens that are foreclosed nonjudicially. Fines can be included in liens that are foreclosed judicially.
- Late Charges & Interest. Associations cannot levy late charges and interest on unpaid fines.
Renter Violations
Although not true for all renters, as a rule renters tend to violate association rules more than owners. Renters do not have an ownership interest in the development and tend to view their residency as transitory in nature. As a result, they are generally less concerned about following rules.
Fining Tenants. CC&Rs will sometimes have a broad statement that the document is binding upon "each member, tenant, resident, and occupant" and each has a duty to follow the association’s governing documents. If so, penalties may be levied against tenants as well as owners for rules violations.
Hearing Notice. If the governing documents allow for penalties against tenants, and if the board intends to fine a tenant, hearing notices must go to the tenant as well as the owner of the unit so the tenant can defend himself/herself at the hearing. If the board intends to fine only the owner, the hearing notice must go to the owner but does not need to be sent to the tenant.
Tenant as Witness. If an owner is called to a hearing for the actions of his tenant, the board cannot prohibit the tenant from appearing with the owner. Even though the board will be fining the owner, the fines are because of the tenant's behavior. Due process requires that the owner and tenant have a right to defend themselves. The tenant cannot dispute evidence presented at the hearing if he is barred from attending.
Procedural Requirements For Enforcement
In addition to showing a violation of a restriction, an association must show that it followed its standards and procedures before pursuing such a remedy, that those procedures were fair and reasonable, that its substantive decision was made in good faith, and that it is reasonable, not arbitrary or capricious. (Ironwood v. Solomon.)
To enforce its rules, an association must have a rules enforcement policy in place. When an association has notice of a rules violation, whether through a board member, committee member, employee, managing agent, or resident, the following steps must be followed:
Breach of Contract. CC&Rs are equitable servitudes and not a contract. An "equitable servitude" creates an obligation or encumbrance on land, enforceable in equity. Because many attorneys and judges fail to understand the difference between breach of contract and breach of CC&Rs, the difference has been blurring. An argument can be made that the cause of action labels are not important. It is the substantive allegations that matter. "It is not what a paper is named, but what it is that fixes its character." (Parnham v. Parnham (1939) 32 Cal. App.2d 93, 96 [89 P.2d 189]; see also Williams v. Beechnut Nutrition Corp.(1986) 185 Cal.App.3d 135, at fn.3, quoting Parnham.) In addressing a demurrer, the court in Williams reasoned that it does not matter what one labels a cause of action; in that case, the plaintiff did not even label them. It's the substantive allegations that matter. Courts have characterized CC&Rs as a contract for limited purposes in the following cases:
[C]ourts have described recorded declarations as contracts. (E.g., Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 512-513 [CC&R's as contract between condominium owners association and unit owner]; Villa Milano, supra, 84 Cal.App.4th at pp. 824-826 [CC&Rs as a contract between the developer and community association]; see Barrett v. Dawson (1998) 61 Cal.App.4th 1048, 1054 [right of neighbors to enforce a recorded restrictive covenant limiting the neighboring property's use was "clearly contractual"]; Harbor View Hills Community Assn. v. Torley (1992) 5 Cal.App.4th 343, 346-349 [amendment to Civ. Code § 1717, which governs contractual attorney fees, applied to CC&Rs of community association]; see also Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 828, 833 [accepting parties' assumption that CC&Rs formed a contract between condominium owners and owners association].) (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (2012) 55 Cal.4th 223, 240.)
Attorney's Fees. Earlier cases construing the CC&Rs as a contract sought attorney's fees under Civil Code § 1717 (see Deane Gardenhome Assn. v. Denktas). Some attorneys seek fees under Civil Code § 1717 and Civil Code § 5975. (Martin v. Bridgeport Community Assn. [Fees were sought under both but awarded only under the predecessor to Civ. Code § 5975].) The court in Farber v. Bay View Terrace offered some guidance. "The court [in Salawy v. Ocean Towers] held fees were not recoverable because the action was based on a breach of promise, not the governing documents. (Salawy, at p. 671.) Here, the essence of Farber's claim is that the CC&Rs place the obligation to fix Stiffler's roof on the Association, so she cannot be liable for the cost. There is no promise here; it is only an obligation she finds in the CC&Rs. That is an action to enforce the CC&Rs, whether framed in terms of Farber's rights against the Association or Stiffler's.” (Farber v. Bay View Terrace)
Discretion to Litigate
Standing. Associations and members have standing to litigate the enforcement of CC&Rs, while tenants and non-members do not. See "Legal Standing."
Discretion to Litigate. Although a community association has the discretion to decide how to enforce its documents, this discretion must be exercised in a manner consistent with its fiduciary duties and the plain language of the CC&Rs. (Ekstrom v. Marquesa at Monarch Beach Homeowners Assn. (2008) 168 Cal.App.4th 1111, 1121-25; Ritter & Ritter, Inc. Pension & Profit Plan v. The Churchill Condominium Association (2008) 166 Cal.App.4th 103, 122; Posey v. Leavitt (1991) 229 Cal.App.3d 1236, 1247; Lamden v. La Jolla Shores Clubdominium Homeowners Assn (1999) 21 Cal.4th 249, 268.) Associations can enforce restrictions through monetary penalties, suspension of privileges, and legal action for injunctive relief.
Litigation Not Mandatory. Boards have discretion when they decide to litigate to enforce governing documents. Boards can weigh the cost of litigation, the gravity of the violation, and the likely outcome of the litigation and make a good faith determination to litigate or not to litigate a particular violation. (Beehan v. Lido Isle.) Litigation is so burdensome and expensive that it is no longer a viable option for most homeowner association disputes. Litigation costs are both direct and indirect.
- Direct Cost: Attorneys' fees, expert fees and court costs.
- Productivity Cost: The value of lost time and opportunities.
- Continuity Cost: The loss of ongoing relationships.
- Emotional Cost: Emotional distress from conflict and loss of sleep.
In Moran v. Oso Valley Greenbelt Assn., an owner was awarded attorneys' fees when the association failed to produce records after repeated requests. In addition to incurring tens of thousands of dollars in its own attorneys' fees, the association was ordered to pay the homeowner $54,485.24. The reverse is also true where the homeowner is ordered to pay the association significant amounts of money.
Judicial Deference. Although decisions of the board are granted deference under the business judgment rule, deference is accorded only if the association acts upon reasonable investigation in good faith regarding the best interests of the association and its members. Judicial deference precludes second-guessing decisions a board makes when choosing among options to address a violation. (Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 875.) As Haley makes clear, judicial deference applies when an association responds to a member-to-member complaint about CC&R violations by choosing from many options to resolve the matter. (Id. at 875-876.)
Failure to Enforce. When an association fails or refuses to enforce its CC&Rs, members can sue the association for damages and compel it to enforce the covenants. (Affan v. Portofino Cove: the board failed to investigate and take action to fix a sewer line; Telford v. Sagewood HOA: a board approved a construction project that violated the association's architectural guidelines and then failed to monitor the project the directors approved.)
Disclosing Disciplinary Actions
QUESTION: When a homeowner files a complaint against a neighbor for a violation of the governing documents, is that homeowner allowed to know the results of any disciplinary action?
ANSWER: Members do not have a "right" to know the results. Unlike the public court system where almost every detail of every criminal and civil action can be published, HOA disciplinary actions are held in executive session and minutes or other documents related to the disciplinary action are not subject to review by the membership. (Civ. Code § 4950, Civ. Code § 5215(a)(5)(B).)
Reported Generally. Even so, it is allowable to report in open meeting minutes and in the association's newsletter generic information. For example, "During the month of April, disciplinary hearings were held on the following violations: (i) dog not on a leash that resulted in a warning, (ii) nuisance noise from a late night party that resulted in a fine of $75, and (iii) a parking violation that resulted in a fine of $50." This kind of reporting keeps the membership informed without identifying the persons involved.
Possible Exception to Privacy. If the person being disciplined represents a foreseeable threat to the community, the board may have a duty to warn the membership. For example, a member who likes to set small fires in the common areas or has been vandalizing properties. That duty may be satisfied by publishing the board's findings in the newsletter. Boards should consult with their legal counsel on such issues.
Failure To Enforce Governing Documents
An association's failure to enforce its restrictions can result in legal action by members against the association for its failure to enforce the rules or an involuntary waiver of the association's right to enforce its restrictions.
Laches is based on the theory that equity aids the vigilant, not those who procrastinate when exercising their rights. If a person is slow to assert a right or claim such that the lapse of time harms the other party, the person may lose that right. "The defense of laches requires unreasonable delay plus either acquiescence in the act about which plaintiff complains or prejudice to the defendant resulting from the delay." (Pacific Hills HOA v. Prun.)
Waiver is the knowing, intentional relinquishing, or abandoning of a known right or privilege. (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1320.) “The right to enforce a restrictive covenant may be deemed generally waived when . . . ‘substantially all of the landowners have acquiesced in a violation to indicate an abandonment.’ ” (Alfaro v. Community Housing Improvement System & Planning Ass'n., Inc. (2009) 171 Cal.App.4th 1356, 1380.) However, failure to enforce one or even a few violations is insufficient to deem a restriction unenforceable. (Kapner v. Meadowlark Ranch Ass 'n (2004) 11 6 Cal.App.4th 1182, 1190.)
Estoppel may be found where the party to be estopped has, by false language or conduct, led another to do what they would not otherwise have done and, as a result, they have suffered injury. (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1315.) Thus, “the party asserting [estoppel] must be ignorant of the facts and reasonably rely on the other party’s conduct to his detriment.” (Alfaro v. Community Housing Improvement System & Planning Ass'n., Inc. (2009) 171 Cal.App.4th 1356, 1381.)
Statute of Limitations.
Presumption of Reasonableness
CC&Rs. An association's CC&Rs shall be enforceable equitable servitudes unless unreasonable. (Civ. Code § 5975.) Use restrictions in a recorded declaration are afforded a "presumption of validity" and enforced unless found unreasonable under a deferential standard. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 372, 383.) Whether CC&Rs are reasonable is determined not by reference to facts specific to the objecting homeowner but by reference to the common interest development as a whole. Restrictions contained in CC&Rs are presumed reasonable and will be enforced unless the restriction:
- Is arbitrary,
- Imposes burdens on the property that substantially outweigh the restriction's benefits to the development's residents or
- Violates a fundamental public policy. (Nahrstedt v. Lakeside Village)
CC&R provisions are presumptively valid, and the burden of proving otherwise rests on the challenging owner. (Villa De Las Palmas v. Terifaj.) Also, because CC&Rs are recorded, members are deemed to have constructive notice of the restrictions whether or not they received them in escrow or whether or not they read them.
Rules. Rules and regulations adopted by a board are not given the same presumption of reasonableness as CC&Rs. (Dolan-King v. Rancho Santa Fe.) Whether a rule is reasonable is to be determined not by reference to facts specific to the objecting homeowner but by reference to the common interest development as a whole. The same test of reasonableness used for CC&Rs is used for rules, i.e., rules should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit. (Sui v. Price.) To be enforceable, operating rules must meet the following criteria (Civ. Code § 4350):
- The rule is in writing.
- The rule is within the board's authority conferred by law or the association's governing documents.
- The rule does not conflict with governing law, the association's declaration, articles of incorporation, or bylaws. (Ekstrom v. Marquesa.)
- The rule is adopted, amended, or repealed in good faith and in substantial compliance with the requirements of this article.
- The rule is reasonable.
Because rules are not recorded, they must be distributed to owners to be effective.