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Answer: There are few planning issues that evoke more passionate debate than gated communities. Some people see gated communities as fundamentally undemocratic, enclaves for the well-to-do or racists who want to keep everyone else out. The truth, of course, is more balanced. Most residents simply want to slow down traffic so their children can play safely, keep out graffiti artists and criminals, and help foster a sense of neighborhood. In one experiment, streets in a declining, racially diverse area of Dayton, Ohio were gated to create numerous small neighborhoods. In the subsequent year, traffic dropped 66%, crime dropped 25%, traffic-related accidents were cut in half, and property values climbed approximately 15%. On the other hand, street barriers and gates destroy the "diffuse" traffic flow encouraged by transportation planners, and can interfere with emergency vehicle access.

There may be legal barriers to creating gated communities. For example, Portland Oregon prohibits any barriers even on private streets. Even in cities which allow gates, there are strict regulations governing fire access. If the streets have already been dedicated to the local government, your Association will need to obtain permission to "vacate" or de-dedicate them. In any case, the first step is to contact your city’s Planning Commission and ask about their guidelines for vacating streets, fire access, and street barriers, and work from there.  BACK

Resolving Construction Defects
An issue that rears its ugly head at homeowner association are problems with the initial construction, more commonly called "defects". Most licensed builders are competent, experienced and honest. However, the building industry is changing for several reasons: Builders move from state to state to take advantage of housing booms. In "hot" markets, buildable land can become scarce, enticing builders to place new construction in steep areas, floodplains and other places they previously avoided. The scarcity of competent construction labor means some projects are being built by less experienced workers. Because of premature failure of products like Louisiana-Pacific (LP) siding, some builders are using new materials with which they may not be fully experienced (such as stucco). In some cases, builders are trying their hand at constructing condominiums and other larger structures, in response to high-density land use laws. These factors are causing construction defects to become more common.

What if construction defects are suspected and the builder’s warranty has expired? Most builders sell homes with fairly short express warranties, often no more than a year. After the warranty expires, some builders deny responsibility for repairing problems. But even when a builder’s warranty has expired, state law gives homeowners and homeowners associations certain rights. New home construction carries implied warranties which may exist even after the express warranty has expired. Homeowners normally have between one and six years to file suit after a problem is discovered. A contractor’s negligent repair attempts may themselves give rise to a claim. Many states that have a statute of limitation for construction problems that lasts a number of years, 10 in Oregon for example. Therefore, although you should always act promptly when a problem is discovered, you still may have legal rights, even after the contractor’s original warranty has expired.

Are there any special rules for row houses, condominiums or other homeowner associations? Many states give special protection to purchasers of condominiums, row houses and other common interest developments. In Oregon, for example, individual condo unit owners automatically are given a one-year warranty and the association is given a similar warranty on the common areas. To recover under these warranties, notices must be delivered in a timely fashion -- within one year of purchase for problems in individual units, longer for common-area defects -- but once those notices have been given, recovery for defects can be relatively straight forward. For multiple homeowners associations that are located within a larger "umbrella" or master association for architectural review, recovery can be a little more complicated, but homeowners can obtain leverage and "economies of scale" by pursuing matters together.

What should happen if construction defects are suspected? First, give the developer written notice of the problems. It is always a good idea to give the developer a chance to resolve the problems. Most builders are responsible and want to make their customers happy. If your builder does not adequately address your problems, however, or if you have any concern about a warranty or statute of limitation expiring, you should consult an attorney to protect your rights.

A good attorney should not interfere with a developer’s good-faith efforts to solve the problems. However, an attorney can:

1. Negotiate a "freeze" on the statute of limitations while the builder attempts repairs;
2. Help you get the attention of a builder who may otherwise be too busy with new projects to pay attention to your problems;
3. Negotiate with your insurance carrier to obtain payment for some problems;
4. Explain the pros and cons of bringing a complaint with the state construction contractor licensing agency instead of a court, and help navigate the process where appropriate;
5. Work with a team of construction professionals to be sure all problems -- not just the ones you know about -- are identified and fixed before you sign any releases; and
6. Understand the technical aspects of construction and explain them to a jury if litigation is necessary.

Construction defects can be a confusing and contentious situation. Resolving the issues is an important step to keeping the association on track. The technicalities are complex enough that warrant the assistance of an attorney that is competent in construction and homeowner association law plus litigation.  BACK

Who’s Responsible for Maintenance?
Question: Our attorney advises that the association cannot have mandatory unit inspections. As our units are apartment style, floods, insects and dry rot problems can spread from one unit to another easily. What can the association do to limit its liability for repairs which originate from a unit? (Our by-laws state that a resident that causes the problem is responsible). Also, how can the association prove what caused the problem?: Our attorney advises that the association cannot have mandatory unit inspections. As our units are apartment style, floods, insects and dry rot problems can spread from one unit to another easily. What can the association do to limit its liability for repairs which originate from a unit? (Our by-laws state that a resident that causes the problem is responsible). Also, how can the association prove what caused the problem?

Answer: Mandatory inspections typically are not the association's right unless there is a strong, compelling reason and even then, the association may have to get a court order if the resident refuses access.

First, it’s important to distinguish between fault, negligence and responsibility. "Fault" indicates an action taken that causes a problem. "Negligence" indicates a failure to act that causes a problem. Sometimes neither fault or negligence are at work, such as a windstorm that damages the roof which then leaks, damaging a unit. "Responsibility" indicates the party charged with maintenance or repair costs.

In any common wall community, there are potential problems like pests, dryrot and flooding that can spread from one unit to another. It often takes some detective work to determine the source of the problem. This is best done by a third party like a pest control company or plumber which can provide written documentation as well as correct the problem. Once the source of the damage is found, the chargeable party can be determined.

So, how is responsibility determined? The Bylaws are the first place to look, however, even there the answer often isn’t clear. Fortunately, a policy tool is available that determines responsibility BEFORE disaster strikes called an Areas of Responsibility List.

This is how it works: A detailed list of building components is developed which includes plumbing, electrical, roof, walls, floors, doors, siding, etc. Individual categories may have several subcategories like Plumbing-Unit and Plumbing-Common. This list may total a 100 items or more. Responsibility for repair or replacement is then assigned either to the association or homeowner, using the Bylaws as a guide. For example, common supply and drain pipes are usually the responsibility of the association. Unit supply and drain pipes from the point of connection to the common pipes are usually the responsibility of the unit owner. In this example, if dry rot damage resulted from a leaky unit toilet seal, the cost of the dry rot repairs would be chargeable to the unit owner. If, however, the same dry rot was caused by inadequate exterior flashing or caulking, usually an association responsibility, the association would be responsible for the cost of repair.

Notice that the "cost of repair" is discussed and not the "repair" itself. When doing repairs on association components, usually only properly trained, licensed, bonded and insured contractors should be used. The unit owner can do unit repairs like a toilet seal replacement but should not be allowed to repair association property. (Owners often offer to do repairs or get someone cheaper to do the work when made aware that repair costs will be charged to them. Don’t fall into this trap. The association deserves competitively priced, competent and guaranteed repairs, not cheap fixes).

There is another BIG advantage of an Areas of Responsibility List when it comes to insurance claims. The association needs to be very careful about accepting liability for claims that are not its responsibility. Filing multiple insurance claims will result in costly premiums or cancellation. The Areas of Responsibility List makes it clear for the homeowner insurance carriers whether or not their insured is responsible for the cost of repair.

The Areas of Responsibility List is a great way to minimize disputes that would otherwise inevitably happen. It is a great way to help forge a harmonious community.  BACK

Parking Q&A
Question: Our association prohibits residents and their guests from parking commercial and recreational vehicles and equipment within the community. Are there guidelines on what constitutes "commercial" and "recreational"?

Answer: The Board of Directors has the legal right to establish reasonable rules and regulations that affect the homeowner association property and its members. These rules can be more restrictive than zoning requirements as long as they do not violate state or federal statutes. For example, while zoning ordinances may allow a day care facility in your community, your governing documents may prohibit them.

There are two major issues surrounding parking restrictions, limited parking and curb appeal. Certain kinds of vehicles and equipment detract from the residential nature of the community and adversely impact property values. Associations often restrict such vehicles if parked in plain view. If they are parked in the garage, there is usually not an issue. Due to limited parking available , the association may also prohibit the use of garages for personal property storage or living area if it forces resident vehicles to park in the driveway or street. For the same reason, there is often a restriction on the total number of vehicles a resident may park.

A commercial vehicle is any vehicle that is routinely used for business purposes and typically, but not always, have exterior signage, are special use vehicles like delivery trucks or modified to accommodate a business use, like a pickup truck that has been fitted with special racks to hold material and tools. There are a myriad of custom vehicles designed for strictly commercial purposes such as the pizza delivery trucks.

Other restricted vehicles include buses, recreational vehicles [RVs], boats, snowmobiles, jet skis, utility trailers and campers. Another class of restricted vehicles includes stored, wrecked or broken down vehicles.

If a resident cannot store a restricted vehicle in the garage, this often means finding some place away from the community. An alternative solution, where possible, is for the association to provide a rental storage lot and turn the problem into a profit center.

The key to effective parking regulations [or any kind of regulation for that matter] is consistent enforcement. All violators should be notified of the infraction in writing and given a reasonable time limit, say ten days, to remove the offending vehicle. I would suggest also taping a highly visible copy of the notice directly on the car to attract attention. Since the association only has direct rule enforcement authority over owners, renter violation notices should go to the owner or the owner's management agent. If the offending vehicle is not removed within the time limit, a flat or per day fine should be levied that is large enough to prompt action. Ultimately, the most effective penalty is towing. Towing both cures the infraction quickly and the hefty recovery charges usually make a lasting impact on the owner.

Consistently enforced parking policy can be one of your community’s greatest assets. By controlling curb appeal and limiting the number of vehicles, the association will reinforce a sense of community pride. Pride in community makes good neighbors.  BACK

Mechanics of Mechanics' Liens
What happens to a community association when a lot, unit or common area is improved and there is a dispute concerning payment? Can the contractor place a lien on all lots or units within the complex or is his remedy limited to the specific property improved?

A mechanics' lien is a form of security that creates an interest in real property to assure payment for services rendered or materials furnished for its improvement. When an obligation is secured by real property, the person owed the money can foreclose on the property if the obligation is not paid. This provides a second source for payment should the owner refuse to pay.

The mechanics' lien is a document that states the work performed on a specific property, who owns the property, who did the work and the amount owed for the work. This document is then recorded at the county recorder's office in the county where the property is located.

A mechanics' lien creates a cloud on the title. This makes it difficult for the owner to sell, lease or borrow against the property and in turn encourages payment by the owner. At this point, the crucial difference between a lien recorded for nonpayment of assessments and the mechanics' lien becomes apparent. While a lien recorded for nonpayment of assessments remains in force and effect until released, the mechanics' lien is only good for 90 days.

It is clear from an overview of the mechanics' lien law that the legislature has attempted to balance the interests of the owner and contractor. It has provided contractors with a significant remedy that must be pursued in an expedient manner to prevent clouding the title in an unreasonable way or for extended periods of time.

Associations contracting for improvements, which include maintenance and repair work, must be aware of the mechanics' lien laws and how to protect the association's property from liens. When paying for services rendered, it is wise to issue joint checks to the contractor and material supplier. In doing this, the association makes it clear that it intends to satisfy its obligation to the contractor and supplier at the same time. This intention is made clear by including the following language at the endorsement space: "Each endorser of this check acknowledges payment of the full face amount of the check."

In addition to payment language, the association should require signed lien "releases" from the contractor for progress and final payments on the contract. Lien releases are one more documentation that the contractor promises to pay his employees, subcontractors and suppliers.

Mechanics' liens require close adherence to specific timelines. In addition, there are significant notice requirements that exist to protect owners from liens that could be recorded from unknown sources. This area of the law has evolved in a way that clearly attempts to balance the needs of both the owners of real property and the contractors and material providers performing improvements to it. Article by Susan Abbott. BACK

Construction Defects in a Nutshell
A condominium association has the legal right to sue for defective construction. If the project is brand new rather than a conversion, there is a statutory warranty that the project has no defects. This statutory warranty is powerful, as it makes the developer fully liable for all of the project’s defects even if the developer was not at fault. If the association loses its warranty rights, its ability to recover from the developer may be drastically affected. A suit for negligence against a developer or contractor must be filed within two years after the property damage. This gives the association very little time in which to sue, even if it can show the defect actually resulted in property damage.

If the association loses its warranty rights, it will have to recover on other theories such as fraud or negligence. Fraud is hard to prove and, if claimed, the unit owners might have to join in the suit. There are rules that severely limit recovery from a developer on a negligence theory, if other contractors contributed to the defect. In addition, there may be no right at all to sue for negligence where defects have not yet resulted in physical damage. (No such limitation exists on the right to sue for breach of the statutory warranty).

A claim can be asserted even if no physical damage has yet resulted from the defect. Suit must be filed within five years after sale of the first unit, if the claim relates to the common areas. If the claim involves individual units, suit must be filed within five years after the first sale of the affected unit.

Five years may sound like a fairly long time but the problem is that the claimant loses any statutory rights not only if suit is not timely filed but also if written notice of the warranty claim is not timely made to the developer. Written notice of any common area defects must be given within three years from sale of the first unit. And written notice of defects in the units themselves or in adjacent exclusive use areas such as balconies and patios, must be given within one year after sale of the units affected.

In order to protect its warranty rights, the association should hire a knowledgeable professional to inspect the project soon after the Board takes over. That person should be a licensed architect or general contractor, and should have experience in evaluating construction defect claims. At minimum, all structures should be inspected. The association should also consider some minor "exploratory surgery" to see if there are any structural or fire code violations that would not be apparent in a mere visual inspection. Remember that it makes no difference whether the association knew about the defect or not. If the defect is not reported to the developer in writing within the required period, the warranty claim is lost.

There are no statutory warranties in condominium conversions. In order to establish liability for an undisclosed defect, the association would have to show either that the defect violated some express warranty made by the converter, or that the converter knew or should have known about the defect and failed to disclose it. In many situations, the association may have relatively little time in which to sue...in some cases, as little as two years.

Article by attorney Richard H. Levin. BACK

Pet Policy Provisions
There’s a maxim that the greatest challenges at community associations are Pets, Parking and People. The following provisions are offered to help you shape a workable pet policy. A carefully executed policy will promote the harmonious integration of pets and people. Remember, try not to be too "dog-matic" or you may run "a fowl" with "cat-astrophic" results. [Sorry, I couldn’t resist].

• No household pets shall be kept unless expressly permitted in writing by the Board of Directors (or management agent, if applicable).
• Only dogs, cats, birds or other traditional household pets are permitted.
• Reptiles, rodents and ______ are not considered to be household pets.
• No animal shall be kept or bred for commercial purposes.
• Pets may not exceed ____ pounds fully grown.
• Total number of pets and offspring per residence is limited to ____.
• All pets shall be registered and inoculated as required by local law.
• No pets are permitted to run at large.
• All pets must be kept on a leash at all times when on the grounds.
• All pet damage is the sole responsibility of the owner. Damage to association property will be repaired by the association and reasonable repair costs billed to the resident (or the unit owner if the pet owner is a renter).
• Owners shall pick up and dispose of all pet litter immediately. Any owner failing to clean up after a pet is subject to reasonable cleanup cost plus a $____ fine for each occurrence.
• Any pet that disturbs the neighbors, creates excessive noise, is allowed to run freely, is aggressive to people or destructive to association property is subject to permanent removal from the property. In such case, the pet owner (or the unit owner if the pet owner is a renter) will be given notice to remove the pet from the property within ___ days. If the pet is not removed by the deadline, a fine of $___ per day will be chargeable to unit owner’s account and subject to normal collection procedures established by the association.

Procedure for complaints: If an area pet is being offensive, offended party should first discuss the issue with the pet owner and request correction. If the condition persists, submit a written request for relief to the Board (or management agent, if applicable) explaining the offense, time and place.  BACK

Fiduciary Fundamentals
Members of a community association's board have the same legal duties as directors of for profit corporations like General Motors. They owe a fiduciary, or trust, duty to the association and its members. There are several important elements of fiduciary duty, loyalty and care. Loyalty denotes allegiance and faithfulness to the association alone, not personal interests. Care denotes prudence and caution in decisions made on behalf of the association. Loyalty and care guide the fiduciary relationship in association business dealings. Here are some other important aspects:

Duty to Act. The Board must make important business decisions in managing the affairs of the association. These decisions are not always easy to make. Enforcement of bylaws, rules and regulations on one’s neighbors can be a the true test of resolve. However, inaction is not acceptable.

The Board is also charged with maintaining association assets to protect and improve their market value. This means keeping fees at a level that allows a reasonable level of maintenance. The measure of effective maintenance is the results. If good maintenance can be obtained for less money, fine, but poor or no results at less money won’t do. It is more cost effective to deal with maintenance in a consistent preventive way rather than waiting for major failure. Translated this means a duty to act includes the duty to plan.

Good Faith. The Board must not be self-dealing or act with an ulterior motive. Self dealing is defined as using the position for personal gain or special privileges like making sure your unit gets painted first. Good faith also calls for fair and equal treatment for all members. To guard against making exceptions, the Board should adopt reasonable written procedures for collections and rules enforcement. Without written guidelines, the Board may be more easily pressed to bend the rules. Remember, there are often a good excuses given for breaking the rules but the Board needs to be extremely careful in granting exceptions. Once granted, the exception essentially modifies the rule. (A slightly oversized chihuahua can quickly become a 600 lb. gorilla).

Informed Decisions. All directors should have a working knowledge of current association business and finances so that informed decisions can be made. This means all directors should come prepared to all meetings by reviewing agenda material in advance. To help make informed decisions, the board should seek professional advice when appropriate from property managers, attorneys, accountants, engineers or other knowledgeable persons.

Ultimate Responsibility.  The Board is allowed to turn over execution of tasks to others. Delegating a task to, say, the property manager, however, still requires a good understanding of the task being delegated. Delegation does not nullify responsibility.

Reasonable Purpose. Directors should act reasonably and not jeopardize the interests of the associations and its members. The Board must act within the scope of their authority and in accordance with the requirements of the association’s governing documents.

The Board of a community association is composed of concerned homeowners and are not required to be experts in property management, the law, finances or other relevant areas. However, the basic fiduciary responsibilities of loyalty and care are required. Those that accept the fiduciary challenge will serve their community honorably and effectively.  BACK

The Meaning of Liening
A powerful collection tool available to homeowner associations is the lien for unpaid assessments. Liens allow the association to sue a delinquent unit owner and even sell the owner’s unit by foreclosure to pay the delinquency.

Since foreclosures are expensive, the Board should carefully consider a balance between the need for money versus the good will of the community. For example, if an owner disputes an assessment "as a matter of principle", a mediation process may resolve the issue before resorting to a lien. Also, if the delinquency is small, it is cheaper to obtain a money judgment instead of foreclosing on a lien. Fortunately, the statute allows the Association flexibility in formulating a reasonable collections policy.

So what things should be considered in formulating this policy? Under statute, the Association's lien may include a great deal more than the unpaid assessment itself. Depending on the Association's governing documents, it may also include charges for use of common elements like the pool or clubhouse and properly imposed fines. The statute allows the recovery of reasonable costs for invoice preparation, interest, late charges, attorneys fees and other assessment collection costs.

The Association is free to use a variety of collection efforts before filing a lien, such as dispute mediation, payment plans or turning the debt over to a collection agency or attorney. If these efforts are not successful, the collection costs are recoverable in the lien.

The statute requires the lien to be prepared as a written claim. The claim must certain information required by the statute, verified under oath, and must be filed in the county in which the unit is located. The claim becomes legally effective when filed. There is no short filing deadline for these claims as with most other lien statutes, so the Association has time to try other collection methods without losing its lien rights. However, the legal doctrine known as "latches" suggests that money claims should be brought within a reasonable time, typically 6 years. In comparison, construction liens generally have to be foreclosed within 120 days.

The priority of liens on a unit will determine whether it is worthwhile to file a claim and foreclose. Under the statute, the Association's lien has priority over the owner's "homestead exemption." A homestead exemption protects a portion or all of the owner's interest in a bankruptcy or a collection proceeding so priority over the homestead exemption is very valuable to the Association. However, the Association's lien will generally not have priority over a prior mortgage, unless written notice is given to the lender of the owner’s default.

Even then, the lender can maintain its priority, and usually does, by acting within prescribed time lines. Finally, the Association's lien does not have priority over tax liens. This alone determines whether the Association's lien has any real value; that is, whether any of the foreclosure proceeds will go to pay the Association.

Liens provide a flexible collection remedy which should be part of a broad collections policy reflecting both economic reality and community good will. Since lien and foreclosure requirements are numerous and one-size-does-not-fit-all, the Association's should seek competent, legal advice when formulating and implementing a collection policy.

Article by Jack Levy  BACK

Be Reasonable!
A California appellate court has ruled that an "objective test of reasonableness" should be used to decide whether a homeowner association has properly maintained the common areas. Before this decision, the traditional standard used was the Business Judgment Rule, which is less stringent.

The new standard for common area maintenance was decided in Lamden v. La Jolla Shores Clubdominium Homeowners Association. The owner, Lamden, felt that the association should fumigate a building for termites. A building inspection ordered by the association showed that fumigating the entire building was one option. However, the inspection report also stated that the association could spot-treat the building.

After considering the cost of fumigating the entire building versus spot treating; the cost and inconvenience of moving people out of their units for fumigation; and the opinion of experts regarding the extent of the damage, the association elected to perform spot treatments only. Lamden sued, claiming that the spot treatments were inadequate.

The first judge who heard the case used the traditional standard, the Business Judgment Rule, to decide the dispute. The Business Judgment Rule is a presumption made by the courts that directors' decisions are based on sound business judgment. Generally, courts will not hold such directors liable for errors or mistakes in judgment, so long as the board members were disinterested and independent, acting in good faith and reasonably diligent in informing themselves of the facts.

At trial, the court ruled the association acted properly and in accordance with the Business Judgment Rule. Lamden appealed. The appellate court agreed with the trial court to a certain extent; the Business Judgment Rule does apply in certain circumstances. However, the court decided that homeowners have a "dual relationship" with their association.

The first part of the dual relationship is the fiduciary relationship directors have with members of the association. This relationship requires directors to exercise their powers in accordance with corporate law (the Business Judgment Rule). This was the standard that had generally been applied when evaluating directors' decisions. The second part of the dual relationship is the new standard which, as was applied here, is that of landlord and tenant.

In a landlord-tenant relationship, the landlord (the association) has a duty to exercise reasonable care to protect homeowners' units from damage. This standard includes the responsibility to use reasonable care in maintaining and repairing common areas. The court also compared the association's duties to another legal standard, that of a trustee, which requires prudence, discretion, and intelligence in managing its affairs.

Essentially, this new standard deems board decisions vulnerable to challenge based on hindsight. Board decisions can now be evaluated under an objective standard of reasonableness, as opposed to the subjective analysis of whether the board acted in good faith. The court concluded that a new trial was needed to evaluate whether the particular facts objectively proved that the association acted reasonably.

What does this case mean for the future of homeowner associations? Directors are no longer protected by the fact that they were disinterested, acted in good faith, and were reasonably diligent in considering the facts. Now, the analysis will be taken one step further, essentially asking whether the board reached the best conclusion.

Under the standard held to apply in this case, the Business Judgment Rule isn’t enough. The board is required to determine whether the association's decision will unduly shift risk or burden to an owner. Any questions regarding whether an association's decision will unduly shift risk or burden to an owner should be referred to legal counsel.  Article by David M. Peters and Simon J. Freedman.   BACK

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