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connect A PUBLICATION OF THE GREATER INLAND EMPIRE CHAPTER OF CAI
ISSUE THREE 2016
Unique ideas and resources community leaders use to adapt to the ever-changing HOA world
connect A PUBLICATION OF THE GREATER INLAND EMPIRE CHAPTER OF CAI
www.cai-grie.org
OFFICERS Dana Mathey, CMCA, AMS, PCAM........................................... President FirstService Residential Jeremy Wilson, MBA, CCAM, CMCA, AMS, LSM, PCAM ...President-Elect Associa-PCM Linda Cooley........................................................................ Vice-President Rosetta Canyon Community Association Chet Oshiro................................................................................ Secretary EmpireWorks Phil Hakopian, CIRMS..................................................................Treasurer Cornerstone Commercial & Personal Insurance Services, Inc. Nancy I. Sidoruk, Esq............................................................Past President Epsten Grinnell & Howell, APC
Table of Contents
Features 4 Beyond the Maintenance Matrix By Tina Neubauer, CMCA, CIRMS and Tiffany Smith-Nguyen, Esq.
8 Failure to Plan is a Plan to Fail By Adam Armit, ISA, CLT, CWM, QAL
BOARD DIRECTORS Greg Borzilleri............................................PCW Contracting Services, Inc. Jackie Fromdahl.....................................................Painting Unlimited, Inc.
17 The Rise of Short-Term Rentals By Matt D. Ober, Esq, CCAL
George Gallanes, CMCA...................................... Sunnymead Ranch PCA Cyndi Koester, CMCA, AMS, PCAM.................Seacoast Commerce Bank Shelly Risbrudt..............................................Pilot Painting & Construction
22 How a Reserve Study Protects Owner Value
Robert Serdoz................................................ Elite Pest Management, Inc.
By Kevin Leonard, RS
Kimberly Lilley, CMCA, CIRMS....................... Berg Insurance Agency, Inc.
Christy Towner-Quesada, CMCA........................... FirstService Residential CHAPTER EXECUTIVE DIRECTOR DJ Conlon, CMCA ADMINISTRATIVE ASSISTANT Ginny Aronson-Hoke EDITOR IN CHIEF Brittany Ketchum, Esq..........................................Beaumont Gitlin Tashjian
Departments
7 President’s Message By Dana Mathey, AMS, PCAM
12 Editor’s Link By Brittany A. Ketchum, Esq.
13 New Board Member Spotlight Featuring Hallie Kirkingburg, CMCA
14 Triple Crown – A Night at the DerbyMonte Carlo Night Photos 27 Buckin’ Bowlin’ Photos
24 Crunching Numbers Really Can Make Your Life Better! By Robert Riddick, CMCA
2 6 Be Prepared: AB968 Takes Effect January 1, 2017 By Brittany A. Ketchum, Esq.
PUBLICATIONS COMMITTEE Linda Cooley...............................Rosetta Canyon Community Association Robert Riddick, CMCA......................................... Sunnymead Ranch PCA DESIGN & PRODUCTION Kristine Gaitan....................Rey Advertising & Design/The Creative Dept.
All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Connect or the Community Associations Institute – Greater Inland Empire Chapter. Information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting or other professional services and should not be relied upon without the consultation of your accountant or attorney.
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Connect is an official quarterly publication of Greater Inland Empire Chapter of the Community Associations Institute (CAI–GRIE). The CAI–GRIE Chapter encourages submission of news and articles subject to space limitation and editing. Signed letters to the editor are welcome. All articles submitted for publication become the property of the CAI–GRIE Chapter. Reproduction of articles or columns published permitted with the following acknowledgment: “Reprinted with permission from Connect Magazine, a publication of the Community Associations Institute of Greater Inland Empire Chapter.”
Advertisers Alliance Association Bank..........................12 AMS Paving, Inc..............Inside Front Cover Association Reserves.................................19 Beaumont Gitlin Tashjian...........................19 Berg Insurance Agency, Inc.......................20 Diversified Asphalt Products......................11 Elias Bros. Contractors, Inc........................23 EmpireWorks...............................................6 Epsten Grinnell & Howell, APC.................21
Fiore Racobs & Powers APLC...................25 Keystone Pacific Property Management, Inc.....18 Mutual of Omaha Bank..............................7 NPG - Nelson Paving.... Outside Back Cover Steven G. Segal Insurance Agency, Inc.....26 The Inspectors of Election.........................10 The Management Trust.............................10 Union Bank HOA Services........................16
Copyright © 1998–2016 CAI-Greater Inland Empire Chapter. Advertising, articles or correspondence should be sent to: CAI-GRIE Chapter 5029 La Mart, Suite A • Riverside, CA 92507-5978 (951) 784-8613 / fax (951) 848-9268 info@cai-grie.org
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The Greater Inland Empire Chapter of CAI hosts educational, business and social events that provide the Chapter’s Business Partners various opportunities to promote their companies’ products and services to Community Association owners and managers serving the Community Association Industry. It is expected that all participants in Chapter events — whether they be educational, business or social — will conduct themselves in a professional manner representative of their business or service organization so as not to detract from the experience of others seeking to benefit from their membership in the Chapter. CONNECT WITH GRIE • ISSUE THREE 2016
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BY TINA NEUBAUER, CMCA, CIRMS AND TIFFANY SMITH-NGUYEN, ESQ.
Beyond the Maintenance Matrix Understanding the Difference Between Maintenance and Insurance Responsibility
M
s. Jones, an owner at Golden Slumber Condominium Association had a pipe burst underneath the bathroom sink causing damage to the interior of the unit. The manager tells Ms. Jones she cannot file a claim on the Golden Slumber Condominium Association’s insurance policy, known as the “master policy,” because any pipes that service her unit are her responsibility to maintain as is the interior of the unit including any damage that the water caused. Is the manager correct? The question of maintenance and insurance responsibility comes up more often than not when it comes to claims filing and whether the association’s insurer will pay for some or all of the damages. Many managers and boards are under the impression that maintenance responsibilities and insurance responsibilities are the same. If maintenance responsibility for the component that failed or was damaged
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ISSUE THREE 2016 • CONNECT WITH GRIE
lies with the homeowner, then surely the responsibility to insure it also lies with the homeowner. Well we are here to tell you… not exactly. Insurance adjusters will sometimes receive the maintenance matrix from managers with instructions to deny a claim. Unfortunately that’s not exactly how it works and here is why. Maintenance responsibilities and the duty to insure often differ even under the same set of CC&Rs. To add to the confusion, actual insurance coverage may exceed an association’s duty to insure under the governing documents. In short, responsibility for maintenance of a component does not always determine who is responsible for insuring that component and the association’s insurance may cover components for which the association is not usually responsible. Let’s go back to the example. Ms. Jones is smart and
has a personal unit owners policy referred to as an HO6, she files a claim with her carrier and waits to hear from her adjuster. The savvy adjuster knows the association insurance game and asks for the association’s governing documents. He pays close attention to the insurance section that specifies the insurance responsibility of the community. In his investigation he determines that the Golden Slumber Condominium Association must have a “walls-in” policy. This includes coverage for the interior of the units including the fixtures, as opposed to a bare walls policy where none of the interior components are covered. The savvy adjuster requests that Ms. Jones file a claim with the master policy. Why you ask? Simple. While the duty to maintain the pipe is the responsibility of the unit owner, the ensuing damage is likely covered under the master policy because the CC&Rs require the Golden Slumber Condominium Association to
insure the interior of the units. In this example, the Golden Slumber Condominium Association’s CC&Rs specified the Association had the duty to carry a “walls-in” policy. Not all CC&Rs are this specific and some are actually quite vague, focusing on policy limits and allowing the board to determine the type of policy. Most CC&Rs also only set a minimum duty to insure, and in some cases, the policy purchased by the association may actually be more comprehensive than strictly required. Back to Ms. Jones. In this example, the manager’s assertion that maintenance and repair responsibility for the burst pipe belongs to Ms. Jones is correct. The master policy may not pay to repair the pipe. The onus for those repairs would be on Ms. Jones, but the ensuing damage Continued on page 6 CONNECT WITH GRIE • ISSUE THREE 2016
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Beyond the Maintenance Matrix Continued from page 5
would likely be covered by the master insurance policy (subject to the deductible), even though Ms. Jones is responsible for maintenance of the interior of her unit. Why you may ask? Remember that in this case, the Golden Slumber Condominium Association has a “walls-in� policy that covers some aspects of the interior of a unit. But that’s not fair! The interior
of the unit is not the Golden Slumber Condominium Association’s responsibility. Why should the Association’s insurance policy pay for it? This is a question association attorneys and insurance professionals sometimes get. Try to think of the association’s insurance policy as an asset the association acquires for the benefit of the association and its members in case of an unfortunate event. It “belongs� in part to each of the members. Since the members
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pay for the policy through their assessments, they should be entitled to receive the benefits of the policy. This is not to say that an association is helpless in protecting its master insurance policy from minor or nuisance claims by members. Deductibles and clear protocols regarding who is responsible for payment of the deductible – and under what circumstances – can help ward against expensive premiums and nuisance or minor claims. Associations that are concerned about whether their insurance meets or exceeds their insurance responsibilities or that wish to establish clear deductible protocols are encouraged to have their policies and governing documents reviewed by qualified professionals. Communication is key. Be sure to communicate the basic information about your insurance policy, including any changes, to the association’s membership. Make the notification clear and concise so that all unit owners are aware of their insurance responsibility and can work with their individual agent or broker on selecting the appropriate insurance protection for their individual needs. Remember, the association’s maintenance responsibilities are not the same as the association’s duty to insure and each association’s governing documents are unique. If you have any questions about responsibility or coverage, contact the association’s insurance broker or legal counsel.
PRESIDENT’S MESSAGE As members we enjoy the benefits of our membership, not realizing the behind-the-scenes collaboration between our Executive Director, DJ Conlon, the committees and board of directors. Calendar planning has already started for 2017. Robust conversations have been held discussing availability of dates, times and locations for our Dana Mathey AMS, PCAM luncheons, events and educational series. Quarterly, A Regional Director for at our chair check-ins, we are discussing how we FirstService Residential and can make your experience as a CAI member even 2016 CAI-GRIE Chapter President. better. Our Outreach Committee project for this year is a “LoveBox.� A special delivery of love, care and hope for families of children at Steven’s Hope Hospital. The boxes are filled with donated items for individuals from infants to parents. LoveBox is a way for children and their parents to know that someone is thinking of them and that we care, as they spend countless hours in a hospital or waiting room. What is outstanding is how many people are willing to help the families who are going through a tough time with a child who is ill. Thank you CAI friends, families and co-workers for donating LoveBoxes for the benefit of another person, and thank you to the Outreach Committee for heading up a great outreach project! As members we are benefiting from the volunteer committee members and board members who donate their time and ideas to our Chapter. Our Chapter annual meeting will be held in September with nine nominees vying for five seats. You can be one of those members who contributes to the CAI cause; just ask a board member or call DJ Conlon or Ginny Aronson-Hoke at the Chapter office. When you attend one of our luncheons, education programs or events give a “shout out� on Facebook or seek out a committee member to thank them for a great event. We always welcome feedback on how we can improve your member experience.
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CONNECT WITH GRIE • ISSUE THREE 2016
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BY ADAM ARMIT, ISA CERTIFIED ARBORIST, CLT, CWM, QAL
Failure to Plan is a Plan to Fail Learning from Hasty Decisions made in Response to the State of Emergency Due to Drought in California
T
he most common buzz word in the community association landscape industry of the last eighteen months is surely “drought tolerant conversions.” Typically these conversions consist of removing turf or other water thirsty plant materials and converting to drip irrigation and a lower water demanding plant pallet. This is no secret and virtually each and every manager and board of directors has discussed it or has implemented it in some form. Many communities have done “test” areas or eliminated parks and parkways 8 |
ISSUE THREE 2016 • CONNECT WITH GRIE
in favor of sparsely planted seas of mulch, rock, or decomposed granite. The question we must examine is are these projects being well-received by the membership or are boards of directors doing more harm than good? It was not long ago that the vast majority of community associations were looking to reduce operating costs by any means necessary. The largest single reoccurring monthly budget line item is typically landscape maintenance followed closely by irrigation water cost. When push came to shove, landscape was “the low-hanging fruit” to fill any budget
shortfalls caused by the economic difficulties earlier this decade. Many community associations looked to reduce services and water in an effort to reduce their overall exposure. Budgets were cut, trimming rotations were lengthened, planting renovations were halted, watering was reduced, and many boards of directors chose to hunker down and weather the storm. Just as most community association assessment collections were recovered and reserves were rebuilt, bolstered in some cases by windfall payments from past unpaid balances, another budget buster occurred: Drought.
Community associations that were just getting back to higher levels of service and beginning deferred renovation and replacement plantings, struggled with the dilemma of choosing between spending some of their extra revenues on irrigation water or choosing to make longer term renovation projects a reality. Faced with this dilemma, many boards of directors immediately started removing or letting the most waterthirsty plants wither. Encouraged by statewide campaigns that touted “gold is the new green” in reference to letting turf areas brown out from
a lack of water, many community associations simply told their preferred landscape vendor to turn off the spigot. As the declines due to lack of irrigation mounted – coupled with the defrayed planting due to the recession – many community association common area landscapes are not looking their best. Although many homeowners understand the reasons behind this, a growing number are becoming increasingly impatient. Now that the economy is doing fairly well, home values have recovered and interest rates are low, many homeowners have begun to spend money to improve their own homes and wonder why the community association isn’t doing the same. The unspoken secret is that to many people lush landscape and grass adds value. Sure, in times of drought it is easy to malign its thirst for water and after all, we do live in a desert that will perpetually be in some stage of drought. But owners love grass. They like to walk pets through it, have their kids play on it, and like the way it looks. They also like lush looking landscapes. Even though these lush areas demand excessive water, residents generally feel like lush equals good. The issue here is that many California-friendly and so-called drought-tolerant plants simply do not have the lush look that people are fond of. They may have more vibrant flowers or striking foliage but they simply have a different look. This difference can be mitigated with a solid overall plan, a plan that in the haste to meet drought watering restrictions, many boards of directors skipped. By moving forward with no plan and with no vetting by the ownership, many boards were faced with angry owners. Without a succinct plan and good communication, many residents have complained, rightfully so, that these water-saving areas are not up to the standards of the rest of the association. And many boards
agreed, stopping these projects only to leave a scar of a poorly planned conversion where a lush established landscape used to exist. So have these “test areas” and “conversion areas” done more harm than good? From a water cost standpoint they are generally successful. From a public relations standpoint they generally are met with a lukewarm reception. To bridge this gap more planning is needed. The increased cost of water brought on by the drought is not going away. Even if we have record rainfall it is doubtful that water rates will drop. Associations must look forward and continue to reduce and eliminate water-thirsty plants but many associations simply are not in a situation where this is an emergency. The news may tell you otherwise but California has water. Allocations from the state water project are up, and although we still have a need to reduce, it simply is not the overstated emergency we have been lead to believe.
Adam Armit is the Senior Sales Executive at Park West Landscape, Inc. He is a Certified Arborist, Certified Water Auditor, Qualified Applicator, serves as President of the Board of Rosetta Canyon HOA, a 975 unit community in Lake Elsinore, a board member for IREM and the current Chairperson for the Planning Commission for the City of Lake Elsinore.
CONNECT WITH GRIE • ISSUE THREE 2016
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EDITOR’S LINK While the beginning of a new school year signifies the end of summer and a change in the weather for most of the country, here in the Greater Inland Empire, we expect more of the same smoldering heat. Although water restrictions in California may have been lifted, the Governor’s declared state of emergency due to drought is still in full force and effect. As the drought continues, community associations have learned to adapt to new laws. This issue of Connect explores more of the unique ways in which community leaders continue to adapt with the changing times. In this publication, we examine contemporary scenarios where community leaders have the opportunity to be proactive, rather than reactive, Brittany A. Ketchum, Esq., an associate attorney with after performing due diligence (e.g., relying on experts, investigating, asking questions and Beaumont Gitlin Tashjian, has devoted her career to seeking answers) and with careful planning and flexibility. We explore the rise of shortrepresenting common term rentals and how communities can address this new phenomenon. We also deep dive interest developments. She can be reached at into one of the most common sources of confusion: insurance coverage and tendering bketchum@bgtlawyers.com. claims, as distinguished from maintenance, repair and replacement responsibility set forth in the governing documents. By consulting professionals and planning ahead, community associations can minimize (reduce and even eliminate) exposure to liability and avoid expenditure of the association’s valuable resources (time and money). As always, I am honored to serve as your 2016 Editor of Connect. As a member of our team, we invite you to continue with our Chapter’s 2016 motto of “Team We Can” by sharing your ideas for magazine content or contributing articles on vital issues. With these insightful articles, we hope that readers will be inspired to find ways to improve their individual communities, bringing innovation to the entire community association industry. AAB_Innov_CAI-GRIE_HalfPg_Cardoza_120215.pdf 1 12/2/2015 5:59:37 PM
New Board Member Spotlight Hallie Kirkingburg, CMCA As part of our continuing series of introducing our newest chapter board members, in this issue we spotlight another new member who ‘came on board’ as the result of our 2015 chapter elections. This issue’s focus is on Mr. Hallie Kirkingburg, CMCA, of FirstService Residential.
Connect Staff – Hallie, thanks for taking the time to do this interview. First of all, what made you decide to run for the GRIE Board of Directors? Hallie – From the very first time I walked into a CAI luncheon, I was humbled by the willingness of each committee member, board member, and staff member to give so much of themselves, their talents, and their time to provide an educational program for me to enjoy. When I felt the energy and positive attitude from my fellow managers, the business partners, and the community volunteer leaders in that room, I became excited about my career path and realized that I was a part of something way bigger than my management portfolio. I actually began to enjoy what I do for a living. I ran for the GRIE Board of Directors because I wanted to contribute to providing that same high level of support and encouragement to other managers, business partners, and community volunteer leaders. Connect Staff – What an interesting perspective for getting involved with the chapter at the governance level. And now, with your successful election-run now over, what ideas would you like to “bring to the table,” as far as what you’d like to see considered and adopted by the board? Hallie – This is a tough one. I’m sitting at the table with very talented people who are more intelligent, better educated and more seasoned than I am. These leaders have everything under control; the membership can rest
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ISSUE THREE 2016 • CONNECT WITH GRIE
assured that the Chapter is in good hands. That being said, and remember this is coming from a community manager, I would like to see an emphasis on creating an environment where community managers feel safe bringing our community board members to our Chapter events. This is an unspoken concern that managers have. We are in a bit of a weird spot. We want to encourage our community board members to be a part of CAI. However, in so doing, will we be inviting them to an event where a competitor will subtly approach them? I have to stop at this point and say, “In the three years that I have been a part of this Chapter, I have not witnessed what I just wrote in that last sentence.” Which says a lot about my fellow managers. What I have actually seen is competing managers giving mutual respect to one another, of which I am proud. Still, we are not inviting our community board members to participate in the Chapter enough. In order to address this issue, I would like the GRIE board to consider creating a forum in which community managers can begin to openly talk with one another about this issue, not as competitors, but as colleagues with the same goal, which is to advance our industry. We hold the key that will open the door of our Chapter breaking through the 600-member mark and way beyond. That key is the relationships we have with our association boards. I believe that our community board members trust us and will respond to our invitation to be a part of our chapter. Connect Staff – What one objective would you like to accomplish during your term(s) on the board? Hallie – I would like to see our chapter blow past 600 members, linger there for about a year, and then hit 700 members. Simple as that, and I believe it’s attainable. Continued on page 16 CONNECT WITH GRIE • ISSUE THREE 2016
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ISSUE THREE 2016 • CONNECT WITH GRIE
CONNECT WITH GRIE • ISSUE THREE 2016
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New Board Member Spotlight Continued from page 13
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Connect Staff – What strength do you bring to the board that you feel will strengthen the Chapter also? Hallie – This is an easy one to answer. I really believe that there is strength in numbers. And, in that regard, I truly want this chapter to grow. I consider the one strength I like to think that I bring to the board is my ability to listen. And, I mean that I will listen to anyone who has an idea, great or small, of how to get our chapter’s growth on an upward path. I also realize that I am smart enough to know that I don’t have all the answers. That’s what being part of a team is all about, and a team-player I am. Connect Staff – It sounds like you know exactly what you want to accomplish during your tenure on the board, and I also have a sense that with your mindset of “listening and then acting,” that you are going to prove to be yet another invaluable asset,
as well as resource for our Chapter through your leadership and desire to accomplish as much as you can while serving. I have a feeling that your idea regarding the creation of a forum for managers to candidly and openly talk about the issue you mentioned, will ultimately be well-received by your fellow managers. Time will certainly tell. Hallie, we recognize that you are a busy man, doing an amazing job in your role as an engaged property manager, so we’ll end our interview with one closing comment: the GRIE Chapter, all of its members, and all of the communities that fall under your management-domain are that much better off as a result of your dedication to wanting to make the industry, as a whole, that much better for all of us. Thank you, Hallie, for taking the time to allow us the opportunity to find out and share with our readers just who one of our newest Chapter board members is.
The Rise of Short-Term Rentals by Matt D. Ober, Esq., CCAL
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ISSUE THREE 2016 • CONNECT WITH GRIE
Mahendra Sami Regional Account Executive 213-236-5029 mahendra.sami@unionbank.com
hether through the Courts, the Legislature or human nature, from drought restrictions to email prohibitions, community associations are often forced to adapt quickly to change in order to govern effectively. In the case of the short-term rental craze, this change seems harder to tackle. Indeed, the short-term rental market is having an increasing impact on community associations. Residents often complain that short-term renters – who are transient by definition – do not treat association common areas with the same regard as resident owners. Most are unaware of association rules and contribute to mounting security, trash removal, parking, and noise-related concerns, not to mention the increased common area expenses that come with the increased burden of handling short-term renters. On an emotional level, residents are often uncomfortable with the fact that their neighborhoods are filled with unfamiliar faces, many of whom are on-site for only a few days at a time. The idea of transient rentals in our communities seems at odds with the objective of maintaining the residential character of our neighborhoods. We all have seen provisions in our communities’ documents that prohibit “nonresidential” use of a unit, or that restrict use of property for “private singlefamily residential purposes.” While many associations have adjusted to an increase in tenant occupied residences in their communities, this “business” use of a residence, where unfamiliar groups of people share the common
Associations concerned about managing shortterm rentals may need to be proactive in order to get out in front of this issue.
Continued on page 18
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area and facilities for brief periods of time, never to be seen again, is incompatible with everything we’ve come to know and understand about community associations. The shortterm use of a residence only adds to the resentment towards tenants who are often scorned for not having a financial stake in the community. Moreover, safety and security concerns are heightened by the ever-changing faces walking through lobbies, hallways and courtyards. “Who are these people? How did they get in here?” On-site owners are on
guard and on edge. Many feel like strangers in their own communities. The force against these legitimate concerns is the great demand from property owners seeking extra income from their vacant or unused assets. Some homeowners support shortterm rentals, arguing that it provides homeowners with supplemental income and can prevent unoccupied units from staying empty for extended periods of time. There is at least an argument that permitting short-term rentals augments property values by enhancing a property’s ability to produce income. Short-term rentals increase the cash flow from ordinary
rental property without the hassle for the landlord of a long-term lease and the obligations that come along with that. People pay up front, stay for a few days and are on their way. Thus, there is a divide between those who desire to increase income from their homes and those that desire to preserve the residential character of the community. Associations concerned about managing short-term rentals may need to be proactive in order to get out in front of this issue. Although some cities are aiding the case against short-term rentals through citywide bans, insurance mandates or other controls, the responsibility for enforcing short-term rental bans in community associations rests with the board and will depend largely on what is contained within the community’s governing documents. There are also many factors an association should consider when seeking to manage, regulate, or restrict homesharing and short-term rentals. For example, depending upon the age of the governing documents, most community associations prohibit short-term rentals either through lease restrictions, minimum rental periods, business use restrictions and transient occupancy prohibitions. Other communities may need to amend their CC&Rs to address the rise in short-term rentals. Below are some options to consider when addressing short-term rentals in your associations:
Quiet enjoyment: Short-term rentals as a nuisance. Even if your governing documents do not prohibit short-term rentals or the business use of a residence, look to your general nuisance provision for relief against disruptions created by short-term rentals. For example, the short-term transient rental of a residence may place an increased undue burden on the community in terms of increased patrol, access, increased traffic, parking, loud music and/or disturbance from several different and unidentified people in and out of the residence, and the common areas, week to week. This increased burden constitutes an annoyance and a nuisance. In this regard, the short-term or vacation rental of a unit interferes with the other residents’ right to quiet enjoyment of their homes. Moreover, allowing unidentified persons access to the property for short intervals is a safety risk. The residents have a right to be secure in their homes Continued on page 20
Los AngeLes orAnge County InLAnd empIre Kern County CentrAL CoAst
The Rise of Short-Term Rentals Continued from page 17
How is leasing defined in your governing documents? To prevent short-term use by friends and relatives (such as with house exchanges or swaps) look to see how lease or leasing is defined. The term should be defined broadly to include use or occupancy of the unit solely or exclusively by anyone other than the owner. Alternatively, if your community wants to allow short-term use of a residence by relatives, the definition of tenant could be drafted to exclude members of the immediate family. 18 |
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A FuLL ServiCe Community ASSoCiAtion LAw Firm General Legal Counsel Governing Document Amendments Enforcement Legal Opinions Contracts Dispute Resolution
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The Rise of Short-Term Rentals Continued from page 19
knowing who their neighbors are and being able to know or identify those who have a right to be present on the property. Look to City or local ordinances for support. If there is not a specific ordinance regulating short-term or vacation rentals, there may be zoning restrictions that your community can use. For example, a Los Angeles ordinance, which defines short-term as use or occupancy intended for 30 days or less, prohibits short-term rentals in certain residential zones. Of course, every community is different and not everyone considers short-term rentals a bad idea. Times are changing and communities may need to be more flexible in their short-term rental regulation, particularly in areas closer to recreation areas or tourist attractions. Boards should survey their members,
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decide what may be acceptable, and enact rules and regulations or amend the CC&Rs to clearly state what type of short-term rental use is permitted and under what circumstances. We know of at least one recent Court opinion, Watts v. Oak Shores Community Assn., 235 Cal. App. 4th 466 (2015), that supports an association’s ability to adopt reasonable rules and impose fees on its members relating to shortterm rentals of units, provided there is a legitimate basis for the rule and it is not inconsistent with the CC&Rs. In Watts, absentee property owners within the Oak Shores Community Association regularly rented out their homes to short-term renters, many of whom used the recreation facilities and amenities. Some brought boats onto the property for use during their short-term stay. After studying the problems caused by short-term renters in the community, including increased wear on association roads and parking lots, the association enacted regulations to minimize the impact of
short-term rentals on the community. Against a challenge that the short-term rental rules were discriminatory and exceeded the Board’s authority, the Court ruled in favor of the association, finding that (1) Associations have the right to regulate short-term renters; and, (2) Associations have the right to impose reasonable fees to offset increased costs associated with shortterm renters. “The CC&Rs gives the Board broad powers to adopt rules... Nothing in the article or elsewhere prohibits the Board from adopting rules governing short-term rentals, including fees to help defray the costs such rentals impose on all owners. The Board may reasonably decide that all owners should not be required to subsidize Watts’ vacation rental business.” Finally, while Watts supports an association’s authority to enact reasonable rules regarding short-term rentals, the decision also underscores the importance of having specific evidence to support the rules. An essential part of the Watts decision was that the association established that its short-term rental rules were reasonable by presenting specific evidence that short-term rentals had a significant impact on the enjoyment of the community by other residents. There are also many other factors an association should consider when seeking to manage, regulate, or restrict home-sharing and short-term rentals. For example, depending upon the age of the governing documents, most community associations prohibit short-term rentals either through lease restrictions, minimum rental periods, business use restrictions and transient occupancy prohibitions. An owner is permitted to rent his unit provided he does so within the CC&Rs restrictions stated. But enforcement is a challenge. Although some cities are aiding the case against short-term rentals through citywide bans, insurance mandates or other controls, the responsibility for enforcing short-term rental bans in community associations rests with the board and will depend largely on what is contained within the community’s
governing documents. As one can expect, there is debate as to whether association rules alone, as opposed to amended CC&Rs, should govern a homeowner’s rental of their home. Where the CC&Rs are silent on rentals, the sound approach is to amend the CC&Rs to include such restrictions. Accordingly, associations seeking to curb or prohibit homesharing and short-term rentals in their communities are advised to seek the advice of legal counsel for assistance in drafting or enforcement. Matt D. Ober is a senior shareholder of Richardson Harman Ober PC where his practice is dedicated to the exclusive representation of community associations throughout Southern California. Matt has served as counsel to community associations for over 22 years and has made significant contributions to the Community Association industry through both the Community Associations Institute (CAI) and the California Association of Community Managers (CACM). Matt is a member of CAI’s National Faculty, and a CACM faculty member. He is a Fellow of CAI’s College of Community Association Lawyers (CCAL) and serves as a member of the CCAL Board of Governors. Matt is also a Delegate to CAI’s California Legislative Action Committee (CLAC) and serves as Secretary of CLAC’s Executive Committee. He also serves on CAI National’s Government and Public Affairs Committee.
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CONNECT WITH GRIE • ISSUE THREE 2016
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How a Reserve Study Protects Owner Value by Kevin Leonard, RS
K
eeping adequate reserve funds for the repair and replacement of common area facilities is an essential board responsibility in all association governed communities. But too many boards fall short of the mark, focusing instead on short-term decisions, conflict management, and routine rituals of organizational life. It’s easy to see why unit owners resist contributing to reserve funds. Reserve projects may be scheduled years into the future, while routine operating expenses occur every month. Some owners expect to sell their units before major repair and replacement costs arise. Others simply don’t understand that the cost of ongoing deterioration is as real as any other association expense. Boards and managers that argue for a prudent monthly reserve contribution face a hard sell. Maintaining an adequate reserve fund is a bit like saving for retirement: a bit of self-denial now prevents a bigger problem later. But self-denial is never popular. Many individuals fail to make adequate provisions for their own retirement. It’s no wonder many board members and managers struggle to persuade owners to adequately fund their reserves. A well-managed reserve fund obviously benefits future owners. Less obviously, current owners benefit as well. A reserve study helps boards explain how a sound plan for maintaining or
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refreshing common property benefits all owners right away, as well as in the long run. As soon as their association receives and begins to implement the reserve study report, current owners benefit in several ways: Reduced conflict. Assessments based on a reserve study are founded on hard facts and objective analysis. Owners may still disagree about how quickly to top up their reserve fund, but with the report in hand, discussion can proceed from a baseline of accepted facts. Predictable costs. Without a reserve study, owners never know when the next maintenance surprise will bring about a sudden special assessment. Once leaders start to act on the reserve plan, owners know what to expect, and develop confidence in their manager and board.
owners benefit from a reserve study right away. To maximize these short-term benefits, the board needs to communicate effectively with owners as soon as it receives its reserve study report.
Reserve Studies Disclose the Facts
If the reserve study shows that the association has fallen seriously behind in funding its reserve, the board may be tempted to keep the results to themselves, for fear buyers might be frightened by a frank sign of the likelihood of increased future assessments. Excessive secrecy is not the answer as buyers are entitled (by law in most states) to the full financial disclosure a reserve study affords. Savvy buyers who might be daunted by a report of a reserve shortfall could be inclined to discount their purchase offer. So the other owners’ market value already has been negatively impacted. The reserve study is a first step toward correcting that situation. With the report in hand, the association has an opportunity to enhance owner value by starting to adequately fund the cost of ongoing deterioration. By balancing owners’ short-term interest in low assessment rates with their long-term interest in property values, the board protects all of its constituents. Reserves are not about hypothetical future risks – they are about the predictable cost of ongoing deterioration. Underfunded reserves hurt every owner’s property values right now, so now is the time to correct the situation,
which enhances the value of every owner’s unit in the process. As the reserve fund approaches a strong (over 70% funded) level, prospective buyers will feel confident in making their best offer, knowing that the current assessment rates will protect the value of their investment. When associations wait for routine maintenance to turn into emergency repairs, boards and managers lurch from crisis to crisis. Unit owners worry about losing value, second‐ guess their leaders, and resist even minimal assessment increases. By commissioning a reserve study, your board takes the first step toward a calmer, firmer form of leadership. In the long run, people are most influenced by information that their leaders present calmly and consistently over time. Prudent planning for predictable repair and replacement costs benefit future owners, to be sure. But present owners benefit as well. With a reserve study and firm, steady communication, boards and managers can help the present generation of owners understand that they, too, can enjoy their share of the benefits of prudent reserve planning. Kevin Leonard, RS is President of Association Reserves - Inland Empire.
Enhanced resale values. Savvy buyers take association fees into account when they decide how much to offer for a unit. One of the most frequent objections selling agents hear from prospects is, “How do I know fees won’t go up after I buy?” A professionally written reserve study is the best response to this concern, because it provides exactly the disclosure buyers are entitled to and the assurance they need. In all these ways, the current
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Crunching Numbers Really Can Make Your Life Better! By Robert Riddick, CMCA
W
ithin the world of Community Associations Institute (CAI) and its sixty-plus chapters both nationwide, as well as worldwide, there is an “associate” organization that is relatively unknown to the majority of the almost fortythousand members of CAI. It is also an organization that is responsible for producing some of the most comprehensive and up-to-date statistical information regarding today’s trends that exist, and that are constantly changing, within the common interest community (CIC) industry. Whether it is information regarding the latest salary survey statistics that track the various national and regional pay-scales for managers involved in the industry, or whether it is producing knowledgebased information that deals with such issues as population-movements from more traditional communities (urban, rural and suburban) to common interest communities, the results are always the same: factbased information that is designed to be used by professionals within the industry, as well as homeowners, board members, community managers, developers and others that work or reside in an estimated 320,000 U.S. community associations, and who collectively represent more than 63 million Americans. With impressive group numbers like these, you may think that such an organization might be easily recognized. An organization that has instant name-brand recognition, right? Well, not quite. Who is this organization whose work-product is, and has been, 24 |
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responsible for an incredible amount of research dedicated totally to identifying those trends within the industry that have an ultimate impact on the quality of life for so many of us? None other than the Foundation For Community Association Research, or FCAR, for short and as it is known by those who either direct its work, or by those who have been aware of it for years. The Foundation was created in 1975, and since its inception, it has built a solid and unparalleled reputation for producing accurate, insightful and timely information, including the sponsoring of needsbased research aimed at helping community association industry stakeholders better address specific challenges, and to prepare for future emerging issues. It also publishes “best practices” reports on critical topics including governance issues, strategic planning, energy efficiency, and financial planning. It even has funds allocated specifically to provide research scholarships for graduate students. In addition, the Foundation works closely in support of our own CAI, and in doing so is dedicated to fostering vibrant, competent, and harmonious community associations. Its mission is pretty simple, yet succinct in its objective: The Foundation for Community Association Research provides authoritative research and analysis on community association trends, issues and operations. Our mission is to inspire successful and sustainable communities. The structure of the Foundation leadership closely follows the model
of CAI, in that it is led by a sixteenmember board of directors, comprised of industry-respected leaders and dedicated volunteers who give of their time, expertise and energy, and who are drawn from members representing all three representation-groups that also make up CAI. They include business partner members, manager members and association volunteer leader members. When looking at what the Foundation does, it is sometimes not easy to recognize immediately, the reap-able benefits of their research. That is, until you actually take a moment to evaluate it by simply reading what they produce. For instance, the 2015 Community Association Fact Book documents the history, the current status, trends and future issues of U.S. community association housing, as well as providing community association information on a state-by-state basis. The Foundation also produces Snap Surveys, which are targeted surveys of key industry groups, to produce interesting, intriguing, or newsworthy research. Often, as members of CAI, we’ll hear or read a story about life in common interest communities, especially here in California, that sometimes come across as sounding like the residents don’t like their associations, or that the association is, once again, inherently being portrayed as the “bad guy” when it comes to dealing with issues or disputes among a community association and its members. One of the recent surveys presents clear and strong empirical evidence that the majority of residents who live in common
interest developments have a morethan-positive opinion of life where they live. The National Survey of Community Association Residents was conducted by Public Opinion Strategies on the Foundation’s behalf. The survey reveals overwhelming satisfaction among community association residents. For the most complete, accurate and up-to-date compensation data on the common interest community industry, the Compensation and Salary Survey is a valuable tool that can be used by association board members, managers, and other professionals involved in the industry to keep abreast of changing trends in salaries within the industry. One more work product produced by the Foundation is an on-going series of reports known as Best Practices Reports. As an association board member or resident, have you ever wondered just what makes a good community association? Or what makes a good one into a great one? All these questions are easily answered, but not without a tool, namely a set of best practices. These are practices that the Foundation, through its research, has found work effectively when employed in communities across the country. It is worthy to note that at any given time there is at least one research project in the works that the Foundation is responsible for bringing its results to the CAI family table. Currently there are research efforts being conducted that deal with issues like community aging-in-place challenges that many associations are facing now, and in the immediate future; research into dealing with security-related association issues in protecting association assets and how vulnerable they may be in today’s high-tech world; and research is also being conducted that deals with the long-term ramifications of droughts and their impact on water usage within associations nationwide, and particularly in those regions like the west, southwest, and southeast
areas of the country who have been dealing with record water shortages for unusually-extended periods of time now. Sometimes considered by some as tedious and even boring work, it can still be clearly demonstrated however, that the end result of the many projects undertaken by the Foundation do, in fact, produce valuable usable information, that if employed as intended, consistently show to measurably improve the quality of life of countless residents here in the United States who call common interest communities their home. It should be noted that the Foundation is funded by the generous donations of individual CAI members, CAI chapters, and generous donations by those organizations that partner with both CAI and the Foundation. With the Foundation being a 501(c) (3) organization, a donation to it is taxdeductible. The Foundation’s website has all the information for making a donation, as well as how donors can
be recognized as one of its generous donors. In closing, there is a wealth of information about the Foundation and it is easily accessible through their website. The CAI members who comprise the board of directors of the Foundation are located geographically all over the country, and are easily reachable if you have any questions about what the Foundation does beyond what was described in this article. For more information on the Foundation for Community Association Research, go to www.cairf.org. Robert is the current President of Sunnymead Ranch PCA, and a past GRIE-Chapter President. He is a past Chair of the CAI National CAVL committee, and past National Board of Trustees member. He is also a past member of the GRIE-Chapter Board of Directors, and currently serves as the CAI-GRIE chapter CLAC Liaison. He is also currently serving as a board member for the Foundation for Community Association Research.
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BUCK’IN BOWL’IN
Be Prepared: AB968 Takes Effect January 1, 2017 By Brittany A. Ketchum, Esq.
S
ection 4775 of the Civil Code currently holds associations responsible for maintaining, repairing, and replacing common areas while owners are responsible for maintaining their separate interest (e.g., condominium unit or lot) and any attached exclusive use common areas, unless the community’s governing documents state otherwise. However, the current law fails to delineate whether associations or owners are responsible for the repairs and replacements of exclusive use common areas if the community’s governing documents do not clearly establish same. In trying to clarify the current code’s language, the legislature passed Assembly Bill No. 968 to amend Section 4775. Effective January 1, 2017, associations will be responsible for maintaining, repairing, and replacing the common areas and repairing and replacing the exclusive use common areas while the owners of each unit are responsible for maintaining, repairing, and replacing their units and merely maintaining the exclusive use common areas, unless the community’s CC&Rs provide otherwise.
This new bill may affect your community’s obligations pertaining to exclusive use common areas. Reviewing your community’s governing documents with legal counsel is strongly recommended to ensure that the new Civil Code language does not change how your association assigns maintenance duties. As many community’s governing documents do not clearly establish responsibilities for the repair and replacement of exclusive use common areas, associations may now be responsible for them, which could significantly impact your community’s budget. Brittany A. Ketchum is an associate attorney with Beaumont Gitlin Tashjian, where she counsels the firm’s clients on all areas of community association law. Ms. Ketchum works closely with managers and board members to evaluate risk to the association at all steps with the objective of avoiding and reducing liability, including internal conflict and liability claims.
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CONNECT WITH GRIE • ISSUE THREE 2016
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