A Framework for Developing Reasonable and Enforceable Operating Rules

Drafting reasonable and enforceable operating rules can be one of the most challenging tasks for a board. If done properly, it promotes a harmonious and enjoyable community, where expectations and consequences are clearly understood and respected. If rules are unreasonable and/or unclear and are not consistently and equitably enforced, resentment, distrust and discontent can build up in a community, not to mention legal fees.

Rules should reflect the needs and best interests of a community at a given point in time. While boards have significant discretion in the content of rules, there is a legal framework that must be respected. The purpose of this article is to help boards develop rules within that legal framework.

The first question a board should answer before it starts down the road of implementing a new restriction, requirement, or procedure is whether it is an operating rule, a provision of the declaration of covenants, conditions, and restrictions (CC&Rs), or a provision of the corporation’s bylaws. Rules (sometimes called “Rules & Regulations,” “HOA Rules,” “House Rules,” or simply “Rules”) are called “operating rules” by the Davis-Stirling Act and are defined as “a regulation adopted by the board that applies generally to the management and operation of the common interest development or the conduct of the business and affairs of the association” (Civ. Code § 4340). Rules are distinct from CC&Rs and

from corporate bylaws, both procedurally and substantively, and the distinctions commonly confound boards.

“Operating rules” include a rule or regulation that applies to one of the following: • Use of the common area (e.g., guest parking, installation of solar panels, use by pets) or of an exclusive-use common area (e.g., condominium balcony) • Use of a lot or condominium • Aesthetic or architectural standards that govern alteration of a lot or condominium • Member discipline, including any schedule of monetary fines and penalties for violation of the governing documents and any procedure for

the imposition of penalties • Resolution of assessment disputes and delinquent assessment payment plans • Election procedures • Dispute resolution procedures • Clarification or definition of a term in the CC&Rs

Whether characterized as a regulation, procedure, policy, standard, guideline, or rule, they are “operating rules.” And while some operating rules that do not require the 28-day member review process are characterized in the industry as policies, procedures, or some other similar term, they are still operating rules (e.g., FAQs restating certain provisions in the CC&Rs).

A Framework for Developing Reasonable and Enforceable Operating Rules Continued from page 35

Per Civil Code § 4355(b), the following do not fall under the definition of an operating rule, and the board is free to take

these actions without providing members with a 28-day comment period: • A decision regarding maintenance of the common area • A decision on a specific matter that is not intended to apply generally (e.g., granting a member a variance) • A decision setting the amount of a regular or special assessment • A rule change that is required by law, if the board has no discretion as to the substantive effect of the rule change • Issuance of a document that merely repeats existing law or the governing documents

The next question a board should ask themselves when starting down the road of drafting rules is “Does the board have the authority to adopt the rule?” To adopt rules, a board must have rulemaking authority conferred by law, the CC&Rs, articles of incorporation, or bylaws (“governing documents”). (Civ. Code § 4350(b).) Some older developments are silent

on rulemaking authority, so their CC&Rs need to be amended to add authorizing language. Fortunately, governing documents in newer developments all have rulemaking authority, since the Department of Real Estate requires it. (Cal. Code Regs, tit. 10, § 2792.21(a)(7).) The board can adopt rules once rulemaking authority has been established. Absent rulemaking authority in the governing documents, associations still have statutory authority to adopt rules for specific matters, such as election rules (Civ. Code § 5105), architectural rules (Civ. Code § 4765), internal dispute resolution policies (Civ. Code § 5905), and collection policies (Civ. Code § 5730).

Following the advice of leadership expert Simon Sinek, the board should be clear about why they are wanting to implement the rules. The why should be because it promotes harmony among neighbors, enhances the aesthetic of the buildings or landscaping, protects the quiet enjoyment of residents, or protects property values. The why should not be to punish a particular member that the board finds annoying or hostile. The why should not be to generate revenue through the imposition of monetary fines, and the why should never be to serve the self-interest of a few board members.

To be enforceable in court, a rule must be reasonable. The term reasonable should be understood to mean the definition found in Black’s Law Dictionary, which includes “fair, proper, just, moderate, suitable under the circumstances... not immoderate or excessive... rational, honest, equitable, fair, suitable.”

Courts have held that a rule is unreasonable if it is (1) arbitrary, (2) imposes burdens on the property that substantially outweigh the restriction’s benefits to the development’s residents, or (3) violates a fundamental public policy. Whether a rule is reasonable is to be determined not by reference to facts that are specific to the objecting homeowner but by reference to the community as a whole.

Homeowners associations have a number of documents controlling the development. Not all documents are created equal – some have more authority than others. CC&Rs are like California’s constitution: in the same way that only voters can amend the constitution, only members can

amend the CC&Rs. Rules are like state laws. Just as legislators in Sacramento can pass laws consistent with the constitution, boards may adopt rules consistent with the CC&Rs. Since operating rules are at the bottom of that hierarchy, the board needs to ensure that the rule they are considering is consistent with and does not contradict those authorities. As provided for in Civil Code § 4205 (effective January 1, 2014) the hierarchy of authority is as follows: • Law (unless the statute defers to the governing documents) • CC&Rs • Articles of incorporation • Bylaws • Operating rules

The exception to rules being in last place is that election rules, which are a type of operating rule, may contain provisions, such as qualifications for serving on the board of directors, that supersede bylaws and CC&Rs.

It is important that the restriction be drafted with enough specificity and clarity that members understand what is expected of them and can confidently comply with the rule. Similarly, specificity and clarity are important so that boards can fairly and consistently enforce violations of a restriction. A rule that states that “yards should be kept attractive” without any objective standards leaves too much room for misunderstandings, assumptions, and arbitrary and inconsistent enforcement. To avoid disputes, a member should be able to comply with the rule

Continued on page 38

• Open to current or recent HOA board members only • Opportunities to meet other board members • Share ideas and information • Learn peer-to-peer

https://bit.ly/ECHO-BMC

A Framework for Developing Reasonable and Enforceable Operating Rules Continued from page 37

without making assumptions or speculating about what is expected of them.

Formatting rules so that they are easy to read is important. Also, applying a numbering convention to rules allows the association and members to easily refer to specific rules when addressing violations.

Boards must ensure that rules do not violate fair housing laws (e.g., Americans with Disabilities Act, Federal Fair Housing Act, California Fair Employment and Housing Act, and California Unruh Civil Rights Act). Boards must take special care that rules that treat children differently than other residents are not illegally discriminatory. Even rules that are intended to protect children in pools have been found to be illegal by the Department of Fair Employment and Housing.

In addition to rules that a board may want to adopt, there are rules that an association is required by statute to adopt and publish to the membership, including the following: • Written procedures for reviewing architectural applications (Civ. Code § 4765) • Associations must adopt and annually distribute their collection policies (Civ. Code § 5310) • Dispute resolution policy: Associations must provide a “fair, reasonable and expeditious” procedure for resolving disputes between the association and its members without charging a fee to the member participating in the process (Civ. Code § 5910)

• All associations are required to adopt election rules that comply with Civil Code § 5105 • Associations must adopt and distribute to each member an annual policy statement describing the association’s discipline policy, if any, including any schedule of penalties for violations of the governing documents (Civ. Code § 5310(a)(8))

The purpose of a penalty schedule for violations of rules is not to punish or shame members; rather, it is to motivate them to comply with the rules. A board should consider the financial status of its members and set appropriate monetary fines. For example, given the amount of income that a short-term rental can generate for a member, a fine of $20 per violation is not going to motivate a member who makes $100 a night renting a condominium. Conversely, associations imposing monetary fines in a community of members

on fixed incomes should be sensitive to their limited financial resources.

The penalty schedule should also address continuing violations, so that a daily fee is imposed for every day that the violation is not abated. The penalty schedule can include nonmonetary penalties such as losing privileges to common area facilities.

For associations that are professionally managed, many managers walk the development on a regular basis, noting violations such as landscaping and maintenance issues. Members can report violations to the manager and then the manager can try to independently verify the violation. For self-managed developments, the board should create a committee to consistently conduct routine inspections. Establishing consistent and routine inspections

is important to be able to rebut the most common response from homeowners cited with a violation: disparate enforcement – “You’re picking on me!” If the board inspects the property only in response to complaints, it will be difficult to prove that they equally enforce rules against all members. The second most common reaction to a violation is denial – “I didn’t do it!” The committee should also be tasked with obtaining evidence such as photographs, video recordings, or advertisements for short-term rentals.

The board has the duty to investigate complaints made by residents about neighbors. For self-managed associations, the board may want to establish a committee of one or two directors to conduct these investigations. The most common complaints in condominiums are about noise. The association should interview other neighbors to see if they also are disturbed by the noise and should attempt to obtain recordings and/or sound level readings of the offending noise.

If, after the proposed rules are sent out to the membership for the 28-day comment period, the board receives significant negative feedback, it should be willing to amend the rules before adopting them. Enforcement of unpopular rules is timeconsuming, affects the morale of the board and the community as a whole, and can escalate to a legal challenge, thus doing more harm than good to the community. Also, if an unpopular rule is adopted, members may force the association to hold an election to reverse the rule. Members owning 5% or more of the separate interests may call a special meeting of the members to reverse a rule change. (Civ. Code § 4365.) The written request must be delivered to the association within 30 days after the members of the association are notified of the rule change. (Civ. Code § 4365(b).) The rule change may be reversed by the affirmative vote of a majority of the voters represented and voting at a duly held meeting at which a quorum is present, unless the CC&Rs or bylaws require a greater percentage. (Civ. Code § 4365(d).) A rule change reversed under this section may not be readopted for one year after the date of the vote reversing the rule change. Nothing in this section precludes the board from adopting a different rule on the same subject as the rule change that has been reversed.

Given the impact that rules have on a community, boards need to be prepared to invest time and resources into drafting them. This includes consulting with legal counsel to ensure that they are enforceable. The community will be better served by spending resources on proactive legal consultations than on legal fees and insurance claims triggered by homeowners challenging unreasonable and unenforceable rules.

Karen St. Onge is an experienced HOA attorney with Adams | Stirling, PLC serving the San Francisco Bay Area. Karen is drawn to community association law because it touches on the personal, economic and societal aspects of our lives as neighbors, community members and Californians.

Laura Ravazza, CCAM-PM, PCAM is a certified community association manager who has served the industry since 2004. Laura recently joined Silvercreek Association Management as their director of marketing and education. Laura has helped her client communities with varied projects including major construction work and rewriting governing documents. She has strong ties with many industry professionals and is a frequent expert speaker at industry events.

777 S. Alameda, 2nd Floor Los Angeles, CA 90021 (562) 244-9447 www.Fairclaims.com

Four Embarcadero Ctr., Ste. 1400 San Francisco, CA 94111 (415) 433-6400 www.auneassociates.com

Stefan Murphy 990 Reserve Dr., Ste. 208 Roseville, CA 95678 (800) 220-5454 smurphy@alliedtrustee.com www.alliedtrustee.com

Ramona Acosta, PCAM 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (888) 818-5949 contact@alterracollections.com www.alterracollections.com See our Advertorial on page 11

331 Piercy Rd. San Jose, CA 95138 (408) 365-9600 www.asapcollect.com

Community Legal Advisors Inc.

COMMUNITY ASSOCIATION ATTORNEYS

Mark T. Guithues, Esq. 509 N. Coast Highway Oceanside, CA 90254 (760) 529-5211 mark@attorneyforhoa.com www.attorneyforhoa.com See our Advertorial on page 23

234 E. Colorado Blvd., Ste. 800 Pasadena, CA 91101 (626) 449-5577 www.roattorneys.com

5250 Claremont Ave., Ste. 141 Stockton, CA 95207 (800) 464-2817 www.adamsstirling.com

1990 North Carolina Blvd., Ste. 950 Walnut Creek, CA 94596 (800) 680-4001 www.angius-terry.com

4 Embarcadero Center, Ste. 1400 San Francisco, CA 94111 (916) 669-3500 www.bayjaclaw.com

Jill Jackson 2175 N. California Blvd., Ste. 500 Walnut Creek, CA 94596 (925) 838-2090 jjackson@berding-weil.com www.berding-weil.com

235 Montgomery St., Ste. 935 San Francisco, CA 94104 (415) 402-2712 www.briscoelaw.net

2029 Century Park East, Ste. 1200 Los Angeles, CA 90067 (310) 843-6300 www.carltonfields.com

2236 Mariner Square Dr., Ste. 300 Alameda, CA 94501 (510) 864-3600 www.cnilawfirm.com

One Embarcadero, Ste. 400 San Francisco, CA 94111 (415) 984-8500 www.clarkhill.com

Community Legal Advisors Inc.

COMMUNITY ASSOCIATION ATTORNEYS

Mark T. Guithues, Esq. 509 N. Coast Highway Oceanside, CA 90254 (760) 529-5211 mark@attorneyforhoa.com www.attorneyforhoa.com See our Advertorial on page 23

Tiffany Christian Director of Client Relations 10200 Willow Creek Rd., Ste. 100 San Diego, CA 92131 tchristian@epsten.com 858.527.0111 www.epsten.com See our Advertorial on page 7

2300 Clayton Rd., Ste. 250 Concord, CA 94520 (510) 832-7770 www.ericksenarbuthnot.com

8880 Rio San Diego Dr., Ste. 800 San Diego, CA 92018 (619) 489-3100 www.flanaganhoalaw.com

215 California St. El Segundo, CA 90245 (323) 375-5999 www.garciamarsalli.com

John Paul Hanna, Esq. 525 University Ave., Ste. 600 Palo Alto, CA 94301 (650) 321-5700 jhanna@hanvan.com www.hanvan.com

70 S. First St. San Jose, CA 95113 (408) 286-9800 www.hopkinscarley.com

Amy K. Tinetti, Esq., CCAL 2820 Shadelands Dr., Ste. 160 Walnut Creek, CA 94598 (925) 926-1200 atinetti@hughes-gill.com www.hughes-gill.com See our Advertorial on page 19

579 Auto Center Dr. Watsonville, CA 95076 (831) 724-2441 www.hbllp.com

Richie Lipson, Esq. Director of Client Relations 18100 Von Karman Ave., Ste. 750 Irvine, CA 92612 rlipson@kasdanlaw.com (866) 578-3328, ext. 317 www.kasdancdlaw.com

A. Jeanne Grove, Esq. 425 California St., Ste. 2100 San Francisco, CA 94104 jgrove@kdvlaw.com (415) 826-7630 www.kdvlaw.com See our Advertorial on page 21

8220 University Ave., Ste. 100 La Mesa, CA 91942 (619) 589-8800 www.krigerlawfirm.com

790 Mission Ave. San Rafael, CA 94901 (415) 485-2200 www.bschaeferlawfirm.com

Deon Stein, Esq. 885 University Ave. Sacramento, CA 95825 (916) 640-0102 dstein@deonstein.com www.deonstein.com

905 Melaleuca Ave., Ste. C Carlsbad, CA 92011 (858) 692-9292

3 East Third Ave. San Mateo, CA 94401 (650) 342-0873 www.garviclaw.com

605 Middlefield Rd. Redwood City, CA 95063 (650) 365-9800 www.kevinfredericklaw.com

560 Lennon Lane, Ste. 100 Walnut Creek, CA 94598 (925) 280-1192

675 Mariners Island Blvd., Ste. 106 San Mateo, CA 94404 (650) 572-1900 www.tomfier.com

PO Box 998 Larkspur, CA 94977 (415) 891-8200

200 Tamal Plaza, Ste. 135 Corte Madera, CA 94925 (415) 945-9998 www.lightfootlawfirm.com

66 Bovet Rd., Ste. 250 San Mateo, CA 94402 (650) 347-5000 www.mballenlaw.com

Rachel M. Miller, Esq. 235 Montgomery St., Ste. 930 San Francisco, CA 94104 (415) 437-1800 rachel@constructiondefects.com www.constructiondefects.com See our Advertorial on page 25

999 Corporate Dr., Ste. 100 Ladera Ranch, CA 92964 (949) 654-1510 www.ndhoalaw.com

100 Pine St., Ste. 1250 San Francisco, CA 94111 (415) 481-0825 www.noland-law.com

634 N. Santa Cruz Ave., Ste. 204 Los Gatos, CA 95030 (408) 369-0800 www.prattattorneys.com

1101 5th Ave., Ste. 100 San Rafael, CA 94901 (415) 453-9433 www.rflawllp.com

1108 Irwin St. San Rafael, CA 94901 (415) 454-1090 www.younglinglaw.com

6010 Commerce Blvd., #148 Rohnert Park, CA 94928 (707) 578-7555 www.zp-law.net

234 E. Colorado Blvd., Ste. 800 Pasadena, CA 91101 (626) 449-5577 www.roattorneys.com

140 Geary St., 7th Floor San Francisco, CA 94108 (415) 433-1099 www.sfcounsel.com

Sandra Gottlieb, Esq. 350 Sansome St., Ste. 300 San Francisco, CA 94104 (415) 762-1889 slg@alslien.com www.lawforhoas.com

Ramona Acosta, PCAM 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (949) 588-0866 ramona@tinnellylaw.com www.tinnellylaw.com See our Advertorial on page 17

Craig Combs Managing Partner 7955 Raytheon Rd. Ste. A San Diego, CA 92111 (858) 505-9500 info@wk4law.com www.wkc4law.com See our Advertorial on page 13

1530 The Alameda, Ste. 215 San Jose, CA 95126 info@wm-llp.com (408) 345-4000 www.wm-llp.com

234 E. Colorado Blvd., Ste. 800 Pasadena, CA 91101 (626) 449-5577 www.roattorneys.com

Ramona Acosta, PCAM 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (949) 588-0866 ramona@tinnellylaw.com www.tinnellylaw.com See our Advertorial on page 17

Jill Jackson 2175 N. California Blvd., Ste. 500 Walnut Creek, CA 94596 (925) 838-2090 jjackson@berding-weil.com www.berding-weil.com

2236 Mariner Square Dr., Ste. 300 Alameda, CA 94501 (510) 864-3600 www.cnilawfirm.com

Amy K. Tinetti, Esq., CCAL 2820 Shadelands Dr., Ste. 160 Walnut Creek, CA 94598 (925) 926-1200 atinetti@hughes-gill.com www.hughes-gill.com See our Advertorial on page 19

Richie Lipson, Esq. Director of Client Relations 18100 Von Karman Ave., Ste. 750 Irvine, CA 92612 rlipson@kasdanlaw.com (866) 578-3328, ext. 317 www.kasdancdlaw.com

Rachel M. Miller, Esq. 235 Montgomery St., Ste. 930 San Francisco, CA 94104 (415) 437-1800 rachel@constructiondefects.com www.constructiondefects.com See our Advertorial on page 25

Community Legal Advisors Inc.

COMMUNITY ASSOCIATION ATTORNEYS

Mark T. Guithues, Esq. 509 N. Coast Highway Oceanside, CA 90254 (760) 529-5211 mark@attorneyforhoa.com www.attorneyforhoa.com See our Advertorial on page 23

634 N. Santa Cruz Ave., Ste. 204 Los Gatos, CA 95030 (408) 369-0800 www.prattattorneys.com

Ramona Acosta, PCAM 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (949) 588-0866 ramona@tinnellylaw.com www.tinnellylaw.com See our Advertorial on page 17

Deanna M. Libert, Owner 1175 Branham Lane, #18787 San Jose, CA 95118 (408) 482-3525 deanna@hoaelection.com www.hoaelection.com

42612 Christy St. Fremont, CA 94538 (707) 539-5810, ext. 352 www.pas-inc.com

PO Box 659 Murphys, CA 95247 (209) 559-1448 Info@pro-ei.com www.pro-ei.com

Maria C. Kao 235 Montgomery St., Ste. 935 San Francisco, CA 94104 (415) 402-2712 mkao@briscoelaw.net www.briscoelaw.net

4040 Civic Center Dr., Ste. 200 San Rafael, CA 94903 (800) 500-8505 www.appliedreserveanalysis.com

1278 Indiana St., Ste. 400 San Francisco, CA 94107 (415) 694-8931 www.reservestudy.com

4000 Executive Pkwy., Ste. 100 San Ramon, CA 94583 (925) 355-2100 www.helsing.com

Check out the Professional Service Provider Online Directory. We have a new look that is easy to navigate and user friendly. This Professional Directory is a one-stop shop that provides access to 250+ HOA industry experts!

www.echo-ca.org

Almost 100% of our clients are homeowners associations,planned unit developments, condominiums, condominium conversions, COOPs, tenancies in common and timeshare projects ...

Working with approximately management companies in Northern California out of a total of 300 serving community associations ...

Since 1977—more than 40 years’

experience ...

Serving more than2,500 community associations (3 to 6,700 units) in Northern California out of a total of approximately 17,000 ...

Which enables our professional sta of 12

including 6 CPAs and 6 CPA candidates (growing to almost 20 professionals during “tax season” from January to April) to ...

to community associations including …

• Financial statements and income tax returns — audits, reviews and compilations • Comparative 2-year financial statements— more meaningful to readers • Reserve funding plans, or updates • Annual budget reports (pro forma budget + assessment/ reserve funding summary) • Pro forma operating budgets and PUPM assessment computations • Assessment and reserve funding disclosure summaries • Inspector of election services • Board and member meeting presentations • Litigation support services (developer budget adequacy, fraud investigation, owner complaints, etc.)

• 2020 Condominium Greenbook™, the 290-page financial reference book for

Association treasurers • 2020 Community Association Financial

Survey of over 1,500 associations • A Management Fee Survey of more than 1,900 associations • ...and numerous other surveys of reserve study practices, percent funded, etc.

As well as more than 40 years of important business contacts to help associations connect with the

BEST.

290 King Street, Suite 12, San Francisco, CA 94107 (415) 981-9350 bill@hoa-cpa.com

5669 Snell Ave., #249 San Jose, CA 95123-3328

JANUARY 2023

11 North Bay Resource Panel In-Person, 11:30 am to 1:00 pm Edgewater Condominiums 1583 South Novato Blvd. Novato, CA 94947 19 Community Conversation: Elections Online, 1:00 pm to 2:30 pm 25 East Bay Resource Panel In-Person, 11:30 am to 1:00 pm The Donner Room at the Event Center 1021 Stanley Dollar Dr. Walnut Creek, CA 94595 26 Community Conversation: Better Meetings & The Open Meeting Act Online, 1:00 pm to 2:30 pm

FEBRUARY 2023

9 Community Conversation: Topic TBD Online, 1:00 pm to 2:30 pm 15 Central Coast Resource Panel In-Person, 11:30 am to 1:00 pm Santa Cruz Library 18 Educational Seminar: Topic TBD Online, 9:00 am to 12:00 pm 22-23 Educational Workshop: Ethics 101 Online, 1:00 pm to 2:30 pm

HOA board members change all the time. Take a moment and check your community’s profile and make sure we have the most current and correct information for your board. Echo needs this information to continue to deliver your membership benefits to the right people.

In 1973, fifty years ago, a group of concerned HOA suppliers, managers, and attorneys banded together to form the Executive Council of Home Owners, ECHO. Their intent was to build a nonprofit association that represents and echoes the voice of those who live in common interest developments. The Echo founders realized that the largely unregulated HOA housing community type needed to bring people together to provide a single voice on how to organize, regulate, and manage its growth. Out of this need, the Echo founders forged its mission to improve the quality of life in HOAs through education, advocacy, and networking. After 50 years and being the oldest association in the nation focused solely on the improving the quality of life within HOAs, Echo is ready to celebrate its mission, purpose, and accomplishments. Echo invites its members and friends to help celebrate the Echo vision by participating in its 50th anniversary year! In this issue of the Echo Journal, long-term, recently retired Echo board member, Wanden Treanor, writes about her experience as a new attorney helping HOA board members manage through the “Wild West” years of the burgeoning industry. She portrays in her articles, the challenges facing a new “industry” in its formative years and how Echo organized influencers to construct a foundation from which common interest developments would be organized and

More event HOAs formed. information, On May 5, 2023, Echo will celebrate in grand including fashion, inviting back many of its early members sponsorship to share gifts of the storied past and hopes for the future. Echo is the oldest association of its opportunities, kind – dedicated to homeowners and board is coming soon! members. It is time to celebrate the many past accomplishments of Echo and its members, and enjoy conversation, fun, and connection with

Mark your members to help advance the goal of a better calendars now! quality of life in HOA communities.