Community Association Update: Issue # 49
  • Re-Opening HOA Facilities on an Honor System
  • Addressing Neighbor-to-Neighbor Disputes
  • Property Damage Claim and General Liability Coverage/Denial
  • Request for Installation of Accessory Dwelling Units
  • The Importance of Well-Drafted Short-Term Rental Restrictions
Dear ,

This Community Association Update is part of our commitment to providing the highest quality legal services to our clients and industry partners. If your company or Association would like to see a topic or issue covered in future editions, feel free to call our offices, email us, or submit a question online!

Sincerely,
Steven Tinnelly, Esq.
Tinnelly Law Group
Re-Opening HOA Facilities on an Honor System
We have previously blogged about successfully re-opening the common area amenities during the COVID-19 pandemic. Homeowner Associations (HOAs) are tasked with various responsibilities, including the health and safety of their memberships. California has made it clear that all businesses and facilities must follow the industry guidance to reduce the risk of COVID-19 before reopening. Willfully disregarding the state government directives and subjecting the membership to COVID-19 exposure is antithetical to this purpose. As such, it is possible for HOAs to expose themselves to substantial liability if they re-opened the common area facilities using only a member honor system to enforce the industry guidance to reduce risk of COVID-19.

Understandably, HOAs have probably not accounted for a pandemic in their prior operating budget, so retaining extra personnel to enforce health guidelines would no doubt put a strain on already allocated financial resources. However, in the interest of being safe, HOAs should follow the Blueprint and industry guidance policies, particularly when it comes to re-opening common area facilities. It is quite difficult to rely solely on HOA members and their guests to conform with both California State and County guidelines regarding the re-opening of HOA common area facilities. There are always a few outlying members unwilling to cooperate and keep clean the common areas/equipment after usage, thus leaving HOAs in a situation where HOAs may become liable.

Addressing Neighbor-to-Neighbor Disputes
Neighbor-to-neighbor disputes are on the rise. These types of homeowner conflicts are typically characterized as governing document violation complaints that are personality conflicts between neighboring homeowners rather than legitimate concerns that impact the Association and its membership more broadly. Refereeing these squabbles can quickly become burdensome and costly for an Association and its volunteer Board where the complaining homeowner is attempting to use the Association’s enforcement authority as a weapon against their neighbor. Accordingly, Associations plagued with complaints over these types of homeowner tiffs should consider setting clear limits to their involvement in such matters.

Due to uncertainties in determining what constitutes a neighbor-to-neighbor dispute and when to (and when not to) intervene, Boards are encouraged to contact their legal counsel to discuss adopting a Neighbor-to-Neighbor Dispute Policy. Such a policy may be drafted in a manner to prevent the Association’s involvement in a Neighbor-to-Neighbor Dispute until such time as the complaining homeowner demonstrates their willingness to expend their own resources in trying to work out a resolution directly with their neighbor through requiring participation in Alternative Dispute Resolution (“ADR”) before the Board will consider involvement.

Property Damage Claim and General Liability Coverage/Denial
When there is a potential for litigation regarding property damage, your association’s legal counsel will sit down with the Board of Directors to analyze whether the alleged property damage resulted from the association’s negligence in any form. If the association is put on notice of a potential negligence claim, it is advisable to immediately report the matter to your Commercial General Liability (“CGL”) insurance carrier.

However, what if the insurance adjuster denies the claim because it is not covered under the CGL policy or falls under one of the policy’s exclusions? This is where your legal counsel will dispute the adjuster’s argument and advocate why the CGL policy should cover the claim.

Most CGL policies will cover a potential property damage claim if: (1) the property damage is caused by an occurrence within the covered area; (2) the property damage occurs during the policy period; (3) the association did not have notice of the property damage occurring, in whole or in part; and (4) the claim was reported as soon as possible to the insurance company. Usually, property damage will be deemed to have been known to have occurred at the earliest time when the association received notice of an occurrence or a claim. Therefore, it is extremely important to notify the association’s insurance agent, property manager and your legal counsel as soon as possible if there is a potential for a claim.

Request for Installation of Accessory Dwelling Units
*Asked and Answered
Asked – Our HOA has recently started receiving architectural applications from owners who wish to install either an accessory dwelling unit (“ADU”) or junior accessory dwelling unit (“JADU”) upon their separate interest. However, our Board of Directors is concerned about the impact of additional traffic within the development and diverging initial intent of our community. Can our architectural committee (“ARC”) deny the applications on that basis?

Answered – Unlikely. On January 1, 2020, California Civil Code section 4751 (“Civil Code 4751”) went into effect and made sweeping changes to the way in which associations may limit its membership from constructing accessory dwelling units or junior accessory dwelling units. Specifically, Civil Code 4751 rendered void and unenforceable any provision of an association’s governing documents that “effectively prohibits or unreasonably restricts the construction or use of an accessory dwelling unit or junior accessory dwelling unit on a lot zoned for single-family residential use.”

In addition, Governor Gavin Newsom signed Assembly Bill 3182 (“AB 3182”) on September 28, 2020, which significantly limits the extent to which HOAs may impose rental restrictions and prohibitions. Under AB 3182, the newly codified Section 4741 of the California Civil Code renders void and unenforceable any provision in a governing document (or amendment thereto) “that prohibits, has the effect of prohibiting, or unreasonably restricts the rental or leasing of any of the separate interests, accessory dwelling units, or junior accessory dwelling units in that common interest development to a renter, lessee, or tenant.”

To ensure that the Association has a degree of discretion, at least regarding aesthetic features, such as appearance, materials, height, and other visuals, we recommend that the Association work with an architect to prepare and establish architectural guidelines for ADUs and JADUs consistent with the new law. Once created, we then recommend that the Association adopt relevant operating rules or an ADU/JADU policy that will serve to effectuate the restrictions on ADUs and JADUs that are permissible under AB 3182 and incorporate the new architectural guidelines.

The Importance of Well-Drafted Short-Term Rental Restrictions
*Unpublished Opinion
Short term rentals (“STRs”), which are generally defined as rentals for periods of thirty days or less, are lucrative investments that have withstood the economic impact of the pandemic far better than traditional hotels due to the perception of them being a safer alternative. However, STRs in residential homeowners associations are known for burdening said HOAs with a revolving door of transient occupants on vacation who often do not observe the community’s rules, disturb the quiet enjoyment of other residents, who place more wear and tear on community amenities, and who arguably detract from the residential character of the neighborhood. Homeowners associations may restrict such short term, transient use of property through express and explicit provisions contained in recorded Covenants, Conditions and Restrictions (“CC&Rs”).

California case law has upheld HOAs’ authority to restrict STRs. (See Watts v. Oak Shores Community Association (2015) 235 Cal. App. 4th 466.) However, for such a restriction to be effective, the language in the CC&Rs must explicitly restrict STRs as demonstrated by a recent unpublished California Court of Appeals decision from the Fourth District, Lastavich v. Nob Hill Homeowners Association et al.(Case No. D075466) (“Nob Hill”), which held that the CC&Rs of a four-unit condominium HOA located in the City of Carlsbad did not operate to restrict STRs. The applicable language in the Nob Hill CC&Rs stated that each of the units were to “be used as a single family residence and for no other purpose or purposes.” The Nob Hill CC&Rs notably did not expressly prohibit commercial or business use of the property nor did they expressly prohibit STRs or transient use of the property.

Ultimately, the appellate court held that restrictions on the use of land cannot be “read into” CC&Rs by implication and determined that the CC&Rs did not expressly or implicitly prohibit or restrict the use of the units as STRs. The court noted that to restrict STRs at Nob Hill, the CC&Rs would only need a single sentence in the CC&Rs, when originally drafted in 1986 or as amended, to limit the rental of the Nob Hill units to a certain minimum number of days. The absence of such language presented a fatal defect in Plaintiff’s case.

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