Benefits of Amending CC

QUESTION: In your Jan. 6 column, “If CC&Rs; Work, No Need to Redo,” attorney David Swedelson did not recommend amending the CC&Rs; unless absolutely necessary. But many owners in our association feel it is confusing to have certain restrictions in the legal documents that are superseded by the state law.

Our association’s board is revising our documents and we have hired an attorney to work with us on the project. After reading your column, we are wondering if we are wasting our money.

ANSWER: As I wrote in the column, not all attorneys agree on this issue. Swedelson stated that it is not mandatory that associations amend their documents solely to bring them into conformance with the law. However, there are excellent reasons for amending your association’s legal documents, and many associations decide that it is worth the work and expense.

Attorney Daniel Shapiro responds to your question:

“Some associations find it helpful to have their CC&Rs; updated to conform to California law merely to assure that there is no ambiguity between the CC&Rs; and state law. Although a letter informing the owners of the differences between current law and their community association’s governing documents might suffice, in many cases owners discard or ignore such correspondence.

“Additionally, many people do not accept what is stated in such a letter, believing that the CC&Rs; represent the sole governing document of their association’s affairs. The problem can be particularly acute in the case of an owner who is a first-time purchaser of a unit in a community association.

“The new owner would not likely be aware of the Davis-Stirling Act or other statutes relating to community associations, nor would such a purchaser be likely to receive such a letter that is not part of the association’s legal documents.

“The untenable result may be that the new owner would purchase the unit with a lack of information, if not actual misinformation, concerning the rules governing the association.

“One example of an ambiguity that may exist between the majority of CC&Rs; and state law is the issue of responsibility for the maintenance and repair of ‘exclusive use common area.’

“The Davis-Stirling Act provides that individual owners are responsible for the maintenance and repair of exclusive use common area property (balconies, front doors, windows) unless ‘otherwise provided’ in the association’s governing documents.

“Very often, those documents are silent as to ‘exclusive use common area,’ but may provide that the association shall maintain all portions of the common area, including exclusive use common area. Such issues are important in the day-to-day operation of an association, and the elimination of such an ambiguity is essential.”

Shapiro lists some other reasons to consider amending CC&Rs;:

“Many associations are now faced with issues that weren’t even contemplated at the time the documents were drafted. Documents often need to be amended to give the association’s board of directors latitude in creating rules and regulations.

“The association may want to provide for flexible monetary penalties that may be enforced through the imposition of liens. CC&R; provisions relating to enforcement can be amended to provide quick, effective and enforceable notice and hearing procedures for disciplinary purposes.

“In many instances, the insurance provisions need updating. Many CC&Rs; require the association to obtain only minimal insurance that may not adequately protect the association and may lead to difficulty for owners attempting to obtain financing on their units.

“Many CC&Rs; require substantial amendments to bring them up to current standards in lender protection provisions. Numerous owners have been informed by their lenders that increased lender protection in the CC&Rs; would make the units in the association easier to refinance and open up a greater number of loan options to potential buyers.

“Obviously, in the current real estate market, this type of amendment may be highly appealing to owners.”

Shapiro feels that each association should decide whether amending the documents is beneficial for its particular situation. While some associations might not have a compelling need to amend the documents, other associations that have had problems with interpretation or enforcement may find it extremely beneficial to amend or even completely revise the CC&Rs.;

Owners Should Pay Back Assessments

Q: I serve on the board of directors of a homeowner association. Our management company’s staff failed to enter four homeowners’ names into the computer for billing of the assessments. For four years, they have been receiving statements showing a zero balance. Now they owe approximately $3,700. A new management company found the error and brought it to the attention of the board.

The board of directors met with the delinquent owners and waived the late charges to minimize the owners’ hardship. Some of the owners feel that the association should waive the full amount.

My contention is that the billing statements are only a reminder and the owners had an obligation to check into the matter and pay their share of expenses. What is your opinion?

A: The association board should have consulted an attorney prior to taking any action on this matter. I am not an attorney but in my opinion the owners are obligated to pay their share of the expenses of the association. Each owner should have been receiving a copy of the budget each year.

Therefore, they should have known that assessments were being collected from everyone else and should have checked with the board or management company to find out why their statements were incorrect.

The CC&Rs; likely require each member of the association to pay assessments. In a sense, the CC&Rs; are a binding contract between the association and the owners.

Board Can Raise Annual Assessments

Q: The board of directors of our homeowner association just raised the annual assessments in excess of 10% without a vote of the membership or even notifying the membership that such an increase was being contemplated. What is the legal limit for such an increase, and what law governs this situation?

A: Your association’s declaration may state that assessments can only be increased 10% per year. However, California Civil Code, Section 1366, supersedes your legal documents.

The board has the right to impose a 20% increase over the prior year’s regular assessment when the new annual budget is approved. This can be done without taking the proposed budget to the homeowners for a vote.

The board can also approve special assessments of up to 5% of the annual budget at any time during the fiscal year. Special assessments larger than that should be submitted to the owners for a vote unless the assessment is an emergency.

Section 1366 defines the type of emergency situation that does not require a vote of the owners. The board must justify the collection of an emergency special assessment greater than 5% of the annual budget by passing a board resolution, which must contain written findings as to the necessity of the extraordinary expense and why the expense was not foreseen.

If an emergency does arise, such as unforeseen roof or boiler repair, there is no limit as to the amount of the special assessment as long as the board complies with the resolution requirements in state law.

Hickenbottom is past president of the Greater Los Angeles chapter of the Community Associations Institute (CAI), a national nonprofit research and educational organization. She welcomes readers’ questions, but cannot answer them individually. Readers can write to her in care of “Condo Q&A;,” Box 5068, Thousand Oaks, Calif. 91360.