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SUE YOUR MANAGEMENT COMPANY

Q. 
We recently learned that the management company for our homeowners association owns a construction and maintenance company that they have utilized to provide services to our association. The management company did not disclose this relationship. The construction company completed a large renovation project exceeding $500,000 only few months ago and we’re certain they made a significant profit. Can we sue them?

A. 
Yes. You can sue them for breaching their fiduciary duty as your association’s agent and for unfair business practices. In such a suit, your association would normally ask the court to require the defendant to reimburse all profits they made plus all legal fees and costs incurred. You should consult with an attorney immediately to protect your rights. Top


SELECTION OF CONTRACTORS

Q. 
We live in a common interest development in Artesia. Based on the recommendation of our management company, our board of directors obtained three bids for landscaping maintenance and then selected the company with the highest bid. The bids were for identical work. Since all three companies were proposing to do the same work, shouldn’t our board have selected the lowest bid? Our monthly assessments are already too high and many of us live on fixed incomes.

A. 
The board should use its best judgment in deciding which company to use, based on all facts available. This is their legal duty. While the three companies may have submitted bids for the same work, it does not logically follow that all three companies will provide the same quality of work. Sometimes experience is helpful in determining which company will provide the highest quality work and, likewise, who will be the most reliable contractor. One of the advantages of hiring an established local management company, is that they have experience with contractors and can provide valuable recommendations to the board of directors. Top


MANAGEMENT COMPANY AS CONSTRUCTION MANAGER

Q. 
Our homeowners association recently hired a general contractor to make major repairs to our townhomes. Our management company is unwilling to supervise the construction and insists that we hire a construction manager for this purpose. Do management companies normally supervise construction work?

A. 
Management companies rarely supervise major construction work because they are rarely qualified to do so. Consequently, most management companies do not include this service in their management agreement as a service to be provided.

Those few management companies that are qualified to supervise construction, normally charge a separate fee for this work.

I recommend that you carefully review your management agreement to determine the exact scope of your management company’s responsibilities. It is unlikely that they have assumed responsibility for supervision other than for routine maintenance.

As a general rule, when interviewing management companies, you should determine the level of their expertise in construction. Even without a major construction project, a knowledge of construction is necessary to make good decisions about maintenance and repairs. Given that maintenance and repairs is generally a large budget item, a management company with experience in this area can save an association money. Top


MECHANIC'S LIEN RIGHTS

Q. 
Can a contractor file a mechanic’s lien on an entire condominium building if the contractor was hired by a single owner to do work on an individual unit?

A. 
No.  Only the individual unit can be liened. Top


MECHANIC'S LIENS

Q. 
What is a mechanic’s lien?

A. 
A mechanic’s lien is a form of security, much like a deed of trust, that creates an interest in real estate to assure payment for materials furnished or services provided for its improvement.

The holder of the mechanic’s lien can foreclose on the property if the obligation for payment is not paid.  This provides a secondary source of repayment if the property owner does not voluntarily pay. Top


MECHANIC'S LIEN ON COMMON AREA

Q. 
Our condominium management company is involved in a dispute with a contractor who did work on our common areas. The contractor is threatening to record a mechanics lien. Our management company has advised us that a contractor’s lien can never affect the individual units. Are they correct?

A. 
No. Labor performed or services or materials furnished for the common areas, if duly authorized by the association, is deemed to be performed or furnished with the express consent of each condominium owner. Consequently, the contractor may have a basis for filing a mechanics lien. Note that the owner of a condominium may remove his or her condominium from a lien by payment to the holder of the lien the fraction of the total sum secured by the lien which is attributable to his or her condominium. Finally, there may be other legal defenses to a mechanics lien which should be explored. Top


DEFENSE TO MECHANIC'S LIEN

Q. 
As a result of a dispute, a contractor recorded a mechanic’s lien against our condominium association’s property nearly six months ago and refuses to release it. What do you suggest?

A. 
A mechanic’s lien is invalid and unenforceable under Civil Code Section 3144, if the lien claimant fails to file a lawsuit to enforce the lien within ninety days of recordation. You should refer to this code section when making a demand that it be removed.

If necessary, your association may bring an action to have the lien released. Your association will be entitled to recover its costs and reasonable attorney’s fees. Top


DISABLED OR HANDICAPPED OWNERS

Q. 
Is an association required to make alterations to the common area in order to accommodate a member who is disabled or handicapped?

A. 
No. However, disabled or handicapped owners may make alterations to their units or the common area at their expense to accommodate their handicap. This may include the installation of handrails, wheelchair ramps or other modifications. The right to modify the common area is subject to the following:

  • Modifications must be consistent with applicable building codes;

  • Modifications must be consistent with the governing documents of the association;

  • Modifications may not impair the structural integrity of any structure or interfere with any mechanical systems;

  • Modifications may not prevent reasonable passage by other residents, and must be removed when the unit is no longer occupied by persons requiring the modifications; and

  • Owners who intend to make modifications must submit plans to the association and the association may not disapprove them without cause. Top


BIDS

Q. 
Should our association board expect our management company to write bid specifications?

A. 
No. Your board should ask the management company to have appropriate experts write bid specifications. The expert who writes the specifications should not submit a bid for the work in order to keep him or her as objective as possible. For large projects, the board should consider hiring a construction manager.
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UNINSURED CONTRACTOR

Q. 
Our board insists on using a gardener who is uninsured because he does a good job and is inexpensive. What risks are we taking?

A. 
Too many for this column, but I will focus on the biggest risk. If your gardener is seriously injured on the job, his attorney is certain to make the claim that he was your employee and not an independent contractor. If your association does not cover the gardener under a workers’ compensation insurance policy, the association may be sued for damages. Unless you purchase coverage , it is likely that the association's insurance policy will not cover the cost of defense which means the association will be required to hire its own attorney on an hourly basis. If the injured person decides to file a claim with the UEF (Unemployed Employers Fund) which is the State of California, the UEF also has the power to fine an uninsured employer up to $10,000 per violation. Obviously, it is important to make certain that everyone working on the common area is insured.
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WATER INTRUSION AND MOLD

Q. 
My twenty year old condominium in Los Angeles is located on a large slope which means that part of my living room is below grade. The wall has been leaking for five years because of poor water proofing. I have complained to the board but they refuse to spend the money for repairs since I am the only owner with this problem. What can I do? I am certain the wall is full of mold. I cannot sell my unit under the circumstances and I have been turned down for a lower interest rate loan because of the problem.

A. 
If your CC&Rs are written like most, the HOA is responsible for the repair. There is no reason for you to suffer any longer. Experienced HOA attorneys will represent you on a contingency basis and will advance any costs required.
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WATER INTRUSION CLAIM

Q. 
What is the most common claim made by a condominium unit owner against the association and how is it typically resolved?

A. 
The most common claim made by the owners of condominium units against their homeowner associations is that their unit is experiencing water intrusion because the association has failed to maintain the common area. Generally, this involves leaking roofs, decks, planters, walls, and windows, and often improper slopes and drainage. When a condominium unit owner makes a claim against the association, it is generally because the statue of limitations has run and therefore a claim cannot be made against the developer of the condominium community.

When a condominium unit owner has exhausted his or her patience with the board and files a lawsuit against the association, (not the board), the association will almost always contact its insurance company. Assuming there is coverage, the insurance company will hire a law firm to represent the association and the law firm will hire any appropriate experts needed to investigate the situation and provide advice on how to remedy the problem.

As part of the process, the plaintiff's attorney will hire one or more experts to provide advice and repair cost estimates.

After all experts have completed their investigations, have developed a scope of repairs, and cost estimates, a mediation session will be arranged so that the parties can avoid further litigation and settle the matter short of going to court. In 99% of these matters, the dispute is settled in mediation.

Settlements usually, but not always, consist of the following:

The association agrees to repair the common area in a manner that is acceptable to the expert working for the plaintiff's attorney;
   
The association agrees to pay the plaintiff a dollar amount sufficient to make interior repairs and pay for loss of use; and
   
The association agrees to pay all of the plaintiff's attorney fees and costs.
   
Most importantly, depending upon the insurance coverage, the cost of settling the case will be paid in part or completely by the insurance company.
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ELECTRIC VEHICLES

Q. 
Is our homeowner association required by law to provide common area electricity to owners of electric vehicles?

A. 
No. You may want to visit the website for Southern California Edison for information on how best to address this issue. Top


NOTICE OF NON COMPLIANCE

Q. 
Can our homeowner association legally record a document against a lot within our community that would put a future buyer on notice that the home is in violation of our architectural requirements?

A. 
No. Up until a few years ago, an association could record a Notice of Noncompliance with the County Recorders Office describing any violation of the CC&Rs. The process worked very well in protecting associations as well as potential buyers. Unfortunately, an activist court over - ruled the State Legislature making the notice procedure unlawful. Top


CLAIM AGAINST HOA FOR DEFECTS

Q. 
We live in a large townhome community in Riverside County, which has extensive common areas. There are numerous construction defects associated with the common areas. Unfortunately, the law firm which represents the association has advised us that we no longer have the ability to sue the developer due to the board's failure to take action on a timely basis. Do we as individual homeowners have the right to sue the association for the purpose of forcing it to correct the construction defects?

A. 
Yes. A condominium unit owner has legal standing to bring a claim for damages against the association for the cost of remedying defects to the common area. This rule has been established by many court decisions. In accordance with California law and the provisions included in most CC&Rs, the association is required to maintain and repair the common areas. This duty to repair and maintain the common areas exists, even though the association may be required to special assess its members to obtain the money to make the repairs. I strongly suggest you contact counsel to discuss this matter. This is a complex area of the law.  Top


BOARD REFUSES TO REPIPE

Q. 
Our condominium building in Los Angeles has old galvanized pipes that have been leaking for several years. The board makes repairs, but has refused to repipe the building because our reserves are inadequate. What is their legal duty?

A. 
The board should borrow the funds to repipe the building if possible. If a loan is not available, the board should immediately begin the process of increasing assessments so the work can be done at the earliest possible time.

Given that the board has knowledge of the deteriorating pipes, the association will probably be liable for the total cost of all repairs resulting for future leaks. Repiping will cut off the association's liability.  Top


AREA FLOODS AROUND TOWNHOUSE

Q. 
The common area of our homeowner association floods around the area of my townhouse every time we get a strong rain. The water easily reaches a depth of six inches which causes foundation movement and resulting interior damage. The flooding and damage are due to the failure of our board of directors to maintain the existing drainage system and to enhance it where needed. Is our association legally responsible for such maintenance?

A. 
Probably. In accordance with section 1364 (a) of the California Civil Codes, “Unless other wise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common areas other than exclusive use common areas***”

While you should check your CC&Rs (Covenants, Conditions and Restrictions), it is highly unlikely that they require anyone other than the association to maintain the area described.  Top


BOARD REFUSES TO SUE DEVELOPER FOR DEFECTS

Q. 
I live in a large condominium community in San Bernardino County with extensive common areas. The community is only two years old. While we have several serious construction defects, the board refuses to sue the developer because they want to avoid litigation and would rather special assess to repair the defects. Do I, as a member of the association, have the right to sue the developer for these defects?

A. 
Yes. As a member of a condominium association, you have standing to file suit. You should immediately consult with a construction defect attorney concerning your rights because they can be lost if you delay taking action.  Top


UNLICENSED CONTRACTOR

Q. 
What is the penalty for contracting without a license when one is required?

A. 
Contracting without a license is a misdemeanor punishable by up to one year in county jail and/or a fine of up to $15,000.  Top


DISABLED HOMEOWNER

Q. 
Is an association required to make alterations to the common area in order to accommodate a member who is disabled or handicapped?

A. 
No. However, disabled or handicapped owners may make alterations to their units or the common area at their expense to accommodate their handicap. This may include the installation of handrails, wheelchair ramps or other modifications. The right to modify the common area is subject to the following:

Modifications must be consistent with applicable building codes;
Modifications must be consistent with the governing documents of the association;
Modifications may not impair the structural integrity of any structure or interfere with any mechanical systems;
Modifications may not prevent reasonable passage by other residents, and must be removed when the unit is no longer occupied by persons requiring the modifications; and
Owners who intend to make modifications must submit plans to the association and the association may not disapprove them without cause.
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HANDYMAN LICENSE

Q. 
Are handymen required to have a contractor's license?

A. 
It depends. Work on a project for which the combined value of labor, materials, and all other items on one or more contracts is less than $500 does not require a contractor's license. However, work which is part of a larger project, whether undertaken by the same of different contractors, may not be divided into amounts less than $500 in an attempt to meet the $500 exemption. Also, unlicensed handymen must provide the purchaser with the written disclosure stating that they are unlicensed by the Contractors State License board, or the $500 exemption does not apply.  Top


CODE COMPLIANCE

Q. 
I am on the board of directors of my homeowners association located in Long Beach. We have an architectural committee. Traditionally, the architectural committee has been concerned with building code compliance. Is this an appropriate matter to be commented upon by an architectural committee?

A. 
No. Architectural committees should be concerned about compliance with the CC&Rs, rules and regulations and the appearance of proposed modifications. Compliance with building codes should be left to the local city or county. If your architectural committee assumes responsibility for making comments on possible code violations, it places your association in a position to be held liable in the event that it makes an error in judgment. There is no reason for an association to assume that responsibility.  Top


CONSTRUCTION DEFECT ATTORNEYS

Q. 
Our condominium association board has determined that we have no choice other than filing a construction defect lawsuit against the developer of our community. We have interviewed four attorneys. Three have quoted prices and terms that are nearly identical. One attorney quoted a substantially lower contingency percentage. Is it possible for an attorney to charge 20% less than other construction defect attorneys and get the same results?

A. 
It is possible but the odds are against you. Consider the following:

Construction defect trial dates are sometimes set by courts two years from the date of filing the lawsuit. Ask yourself whether the attorney has the financial resources, stamina, self-discipline, and patience to fight your battle for two years, without payment, while advancing thousands of dollars of litigation costs and overhead. If the answer is not a “definite yes,” you should be concerned.
   
Construction defect litigation requires many hours of intense legal work over a long period of time. Cases usually require at least two highly qualified construction defect attorneys working with a legal assistant to obtain a recovery. Does the attorney you are considering have the staff needed to perform over the long term, or will the defense attorneys bury him or her?
   
As the hours of work accumulate, will the financial pressure and volume of work cause the attorney to push for a quick but low settlement?
   

Paying a higher percentage to an attorney does not mean you will receive a smaller net settlement. If the fee you pay is small, but the settlement is also small, you may end up paying more than you originally anticipated.

The key is to hire a law firm with all of the resources needed to obtain the highest net result. Construction defect litigation is not a business for inexperienced attorneys working with an inadequate budget.  Top






Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.



 

 


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