Keys to Maximizing Critical Relationships with Association Professionals

BY WANDEN P. TREANOR

The relationships that a board of directors of a common interest development has with the professionals that advise the board is critical. Often, with the press of work and family obligations, it is easy to let the communication with legal counsel go through the community manager. While it is reasonable to delegate some of the board’s responsibilities to the manager, lack of direct communication between the board and its attorney can cause problems. Think about each delegation and ask, “Is it in the best interests of the association?”

The Davis-Stirling Act (Civil Code Section 4000 et. seq., “Act”) went into effect in 1985. In the years following enactment of the new statutory scheme, lawyers did their best to interpret the Act. And the Act grew. Legal professionals and board members had to keep up with the Act’s proclivity for expanding and reinventing itself. Amendments to the Act often placed more burdens on already overburdened pools of volunteer board members.

Initially, there was little legal precedent to guide attorneys in advising board members. There were only a few law partnerships or solo practitioners who had working knowledge of the Act and this emerging area of law. At the same time, construction of housing units governed by the Act increased dramatically. The number of issues needing the assistance of competent legal counsel grew. An “industry” developed almost overnight.

This industry developed around a newly coined term: “common interest development” (CID).

The role of general counsel emerged. These attorneys are predominantly transactional. They are the ones who advise about updating and interpreting the governing documents, review construction and big-ticket or high-liability contracts, and draft disclosure documents.

Litigation counsel may bring enforcement actions, breach of contract, collection, and any affirmative claims the association may have, including

construction defect claims. Litigation counsel and general counsel may be one and the same attorney and/or law firm.

Often, special counsel is engaged for issues requiring unique legal competencies, such as zoning or probate and trust claims. Few attorneys or law firms can competently cover all the areas of law affecting associations. General counsel may recommend another attorney (without losing their underlying relationship with the association) who could more effectively and economically handle a given matter. This is often in an association’s best interest.

At the end of the last century, the lack of precedent to guide board members and legal counsel created tremendous uncertainty. With the risk of having to pay the prevailing party’s attorney’s fees, associations were reluctant to bring enforcement actions, for fear they would lose. A great example is Bernardo Villas Management Corp. v. Black, (1987) 190 Cal.App.3d 153. The Bernardo Villa’s recorded declaration of covenants and restrictions included language found in most CC&Rs at the time. The Bernardo CC&Rs stated, “No truck, camper, trailer, boat of any kind or other form of recreational vehicle shall be parked on the [Bernardo] Villas 6 project, except temporarily and solely for the purposes of loading and unloading, without the prior approval of the Architectural Committee.” This case was litigated long before today’s omnipresent SUVs and pickup trucks.

An owner purchased a truck for personal use and parked it in the owners’ restricted use common area carport. The association levied fines of more than $2,000 for violating the CC&Rs and sued to enjoin the owner from parking the truck in the carport and to collect the fines.

The association lost, and the appellate court stated: “Here, the subject of controversy was a new, clean pickup truck which the defendants used solely for personal transportation primarily to and from

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work. The court’s impression was that the pickup with its camper shell was the equivalent of a station wagon. Beauty — even with cars — is in the eye of the beholder. In this world where those persons concerned with upwardly mobile status frequently drive off-road vehicles including well-appointed jeeps or pickup trucks, we think the trial court’s ruling is eminently sensible. The pickup truck, often both

comfortable and economical, has become for many the equivalent of the convertible in earlier years. As times change, cultural perceptions — including society’s acceptance of certain types of vehicles — also change. The pickup truck no longer has a pejorative connotation. One person’s Bronco II is another’s Rolls-Royce.”

The Bernardo Villas decision was a deterrent for associations seeking to enforce CC&Rs, due to the legal expense required and the heavy burden to prevail, as well as the financial risks inherent in losing a case.

The uncertainty continued until Nahrstedt v. Lakeside Village Condominium Assoc. (1994) 8 Cal.4th 361, when the California Supreme Court ruled that CC&Rs are presumed to be reasonable unless they violate public policy, are arbitrary, or the burdens outweigh the benefits of enforcement. By shifting the burden to the owner to prove unreasonableness, it was possible for board members and their legal counsel to pursue reasonable interpretations of governing documents without the fear of being second-guessed by judges.

Prior to the Nahrstedt decision, it was difficult to weigh the risk of enforcement of any provision. Common sense and reasonable minds prevailed in deciding when or whether to enforce a particular provision in any declaration. Legal counsel worked closely with board members in deciding whether to pursue claims. Trust was essential, as the risks were high.

The “industry” was launched by small management firms, many of them women-owned. Many started out as bookkeeping services and morphed into property management. Now, larger regional and national management firms are taking over the “higher-touch” small management firms. The services provided and the comprehensiveness of what can be offered by the larger corporations may well be superior in terms of data collection, tracking information, and developed standards in the industry, but it may come at a cost.

Volunteer board members are hardworking owners with very little time to devote to all that must be done under the mandates of the Act. They are legally required to make sure the manager follows through on all that needs to be done between meetings. No one can assume everything will get done. It is better to use the phone, rather than just emailing. However, calls should be scheduled to avoid “playing phone tag.” All managers can be assumed to be overcommitted. They need to be given a headsup on what will be discussed so they have time to prepare for the call and the meeting.

Technology can be embraced for its ease of use, ability to connect the community, and convenient storage and retrieval of data and communications, but associations mustn’t lose sight of person-toperson connections for building relationships and trust.

The relationship with the board and its community manager must be built on trust. The same is true of the board’s relationship with the association’s legal counsel.

California Rules of Professional Conduct, Rule 1.13, provides in pertinent part:

Rule 1.13 Organization as Client (a) A lawyer employed or retained by an organization shall conform his or her representation to the concept that the client is the organization itself, acting through its duly authorized directors,

The individual attorney or law firm representing a homeowners association represents the nonprofit mutual benefit corporation or unincorporated association. Board members are represented when they are acting in the interests of the association. The attorney’s representation typically includes the community manager in their role as agent for the board, unless there is a conflict.

It is crucial for the board to have a trusting, candid relationship with its attorney(s). To support this relationship, it helps if the full board meets in person (or via teleconference) at least annually with the association’s attorney(s).

While it may be prudent to ask the manager to relay information from the attorney to the board or to relay questions from the board to the attorney, this must be considered before delegating. Does having

increase the potential for miscommunication? The manager should not be delegated as the main contact between the client (the board) and the attorney.

If a board is lucky enough to work with a competent manager for several years, it may be okay to have the manager work directly with the association’s lawyer on routine issues. However, with the changes in management companies and individual managers moving from firm to firm, boards risk missing information and losing connection with their attorney.

Typically, the board president is the liaison with the association’s attorney(s). Boards should expressly designate a board liaison who will commit to taking on the role, and expectations should be defined. The liaison should keep all board members informed of communications with the attorney(s).

When communicating with the lawyer, the liaison should commit to expressing the board’s view, as opposed to personal opinions or desired outcomes; this will help avoid conflicts of interest or unilateral decision making. A special board meeting can be scheduled if needed.

It takes work to maintain an attorney-client relationship that is grounded in trust and honest

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communication. The board must be clear with counsel about its expectations, especially in terms of deadlines. The information needed should be defined and a specific response date provided. Everyone is busy and sometimes it requires being a squeaky wheel. If the board expects an update from the attorney, they shouldn’t wait until the day of the board meeting. Rather, they should be proactive and understand that the attorney may not be able to respond if contacted on the day of the meeting.

It takes common sense and reasonable minds to work through issues. Today there is legal precedent to rely on, yet there is growing discontent and distrust in government and community association leadership. Transparent communication is required if CIDs are to be healthy and stay out of court. Trust is a key ingredient. Trust can be lost in an instant through poor communication or unintentional missteps.

Associations need to be thoughtful and consistent in deciding when or whether to enforce a particular rule or restriction. They should make genuine efforts at internal dispute resolution. It is best to compromise early rather than capitulate and end up with the same result after spending thousands of dollars on legal fees. It could spare the association irreparable damage to neighborly relations and trust.

Unfortunately, there are difficult owners whose conduct requires resorting to the legal system. Everything possible should be done to solve issues within the community itself. When that fails, the board should work closely with the association’s attorney to achieve the best result for their community.

Wanden P. Treanor served as general counsel to boards of directors for common interest developments for 35 years. She has qualified as an expert witness in the standard of care of board members, served as a court-appointed receiver, and presented at numerous seminars on the roles and responsibilities of boards of directors of nonprofits, as well as public boards. She is a publicly elected member of the College of Marin Board of Trustees and was a long-term Echo board member.

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Nevertheless, it was a solution for restarting housing and the economy of California in a difficult environment. Hence, the strategy to leverage the California Condominium Act and the various existing code was launched and the anemic industry began to grow.

Early in the 1970s, many industry professionals realized that for this experiment to be successful, an emphasis would need to be on the details and nuances of tens of thousands of uniquely managed communities and the issues confronting them. Having no situational context for how the law would be applied, professionals in the field were often left guessing about their decisions and expressed great frustration, since their only recourse may have been to duke it out in the courts. But decisions were made and the era of the “wild, wild West,” as many called it, gradually ended as case after case and challenge after challenge was resolved to establish reliable conduct and structure for common interest developments.

A few years after the incorporation of Echo in 1973, many new laws were written or modified, such as parts of the California Condominium Act, which ultimately resulted in the promulgation of the Davis-Stirling Common Interest Development Act. On January 1, 1986, the “Act,” as it is known in the industry, became the leading body of law governing the HOA industry today. Echo’s founding members envisioned the importance of their involvement with the formation of HOA law, and it proved to be of enormous value to the legislature and to the Echo membership.

In 2023 we will celebrate the 50 years of work Echo has done as a nonprofit association for the good of all people concerned about the development of community in homeowners associations. It is a proud heritage and one to be embraced and lauded. We have moved a great distance in time away from the “wild, wild West” days of the industry in the 1970s. We endured and have succeeded in creating a new and efficient model to build communities and make housing affordable and available in our great state. So, in 2023 we celebrate 50 years of laying a solid foundation for a grand experiment in community living. Echo is a place to convene and discuss continuous improvement of our industry. The mission of Echo remains the pillar of our existence: to foster “a better quality of life in community associations through education, advocacy, and networking.” In these words, you can hear that the Echo mission is founded in hope, is alive today, and is entrusted to us by you, our loyal members. Come celebrate the Echo vision with us in 2023 and join the resounding voice of an industry that echoes with truth and influence throughout the state.

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