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This is one of the most frequently asked questions involving common interest developments. It can come up at 2 a.m. after a dishwasher flood has damaged four units; when an association is re-roofing a building and wants to demolish people's decks to gain roof access; when an owner's uninsured contractor makes a hole in a pipe and causes a flood; or when mold is found as a result of leaks in common areas and owners' failure to ventilate units properly.
The question has no easy answers and usually generates heated emotions. Here are some general principles that may help you sort out the answer.
What Do the Governing Documents Provide?
The first place to look is in the association's Declaration of Covenants, Conditions and Restrictions (CC&Rs). The most helpful provisions will usually be the following:
Definitions. Is the area in question Common Area, Exclusive Use Common Area or a Separate Interest? (In a condominium, the Separate Interest is a Unit. In a planned development, it's the Lot and the Residence.)
Division of Property: This section often explains who owns and maintains various areas of the development.
Powers and Duties of the Association. See what the CC&Rs say about the association's maintenance responsibilities.
Owner Maintenance Responsibilities. See what it says about the owner's maintenance responsibilities.
Reviewing these provisions will answer a high percentage of questions about who must pay for various items. If your CC&Rs are unclear about specific areas, this should be addressed when you revise your governing documents. The attorneys who prepare the revisions usually don't know nearly as much about your building as you do; so be sure to bring any ambiguities about this subject to the attention of the attorneys who are preparing the revisions.
If That Doesn't Work, Try Looking at Civil Code 1364(a) and at Civil Code 1351
After you have looked at your governing documents, the next step is to check Civil Code 1364(a). That code section is part of the Davis-Stirling Act, and it states: "Unless otherwise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common areas, other than exclusive use common areas, and the owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common area appurtenant to the separate interest."
This is one of the few provisions of the Davis-Stirling Act that does not prevail over contradictory provisions of the CC&Rs. But if the CC&Rs don't "otherwise provide," then CC 1364(a) controls, except as discussed later in this article.
CC 1364(a) goes on to state that in a planned development, unless the documents say something different, each owner of a separate interest is responsible for damage caused by wood-destroying pests or organisms.
How do you figure out what is common area, what is exclusive use common area and what is a separate interest? First, look at your documents. If that doesn't help, review Civil Code 1351.
Civil Code 1351(l) provides that a "separate interest" in a condominium is a "unit" as defined in CC 1351(f). In a planned development, a "separate interest" means "a separately owned lot, parcel, area or space."
Civil Code 1351(l) goes on to say, "Unless the declaration or condominium plan, if any exists, otherwise provides, if walls, floors or ceilings are designated as boundaries of a separate interest, the interior surfaces of the perimeter walls, floors, ceilings, windows, doors, and outlets located within the separate interest are part of the separate interest and any other portions of the walls, floors, or ceilings are part of the common area."
Thus the surfaces of walls, floors, etc., are separate interest but, unless the documents say something else, the sheetrock, subfloor, etc., are common area.
Another very helpful provision is found in Civil Code 1351(i), which defines "Exclusive use common area" as follows: "Exclusive use common area means a portion of the common areas designated by the declaration for the exclusive use of one or more, but fewer than all, of the owners of the separate interests and which is or will be appurtenant to the separate interest or interests. (1) Unless the declaration otherwise provides, any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, exterior doors, door frames, and hardware incident thereto, screens and windows or other fixtures designed to serve a single separate interest, but located outside the boundaries of the separate interest, are exclusive use common areas allocated exclusively to that separate interest."
The bottom line is that unless the CC&Rs say something else, the owners are responsible to maintain "Exclusive Use Common Area," and unless the CC&Rs say something different, the items listed in CC 1351(i)(1) are all Exclusive Use Common Areas.
The Rule May Be Different If There is Damage Caused by Someone's Fault
The above principles are modified by the common law of negligence and, sometimes, by other CC&R provisions. Under the common law, everyone has a "duty" to act reasonably to avoid foreseeable risk of harm to other people. The failure to do this is negligence. If someone's negligence causes property damage, wrongful death, bodily injury, etc., the negligent person is responsible for the consequences.
Thus, even though the separate interest is usually supposed to be maintained by an owner, the rule is usually different if the association was supposed to maintain the roof, a common area, but did so negligently; and, as a result, the roof leaked and damaged the separate interest. In that case, it's up to the association to fix the damage to the owner's separate interest and personal property.
This rule doesn't always help, though. What if an owner's dishwasher leaks and causes a flood? Can you prove the owner was negligent? Or did the dishwasher leak all of a sudden, with no warning, in which case maybe the owner wasn't negligent, after all? Fortunately, such damage is often covered by insurance!
Insurance Considerations
The CC&Rs usually require an association to purchase insurance for the common areas. The association will purchase "property insurance," which covers the common areas if they are damaged by an insured peril, such as a fire or windstorm. The association will also purchase "liability insurance," which will cover damage caused by the association's negligence. Many times, damage to the common area will be covered by one or both of these policies. Most policies define "Common Area" in the same way it is defined in the CC&Rs. However, associations should have a written policy, or a CC&R provision, setting forth who pays the deductible in various circumstances. Usually, if the association was negligent, or if no one was negligent, the association pays the deductible. If the damage originated in an owner's unit, then often, the owner is asked to pay the deductible, whether or not the owner was negligent.
Insurance does not cover all possible damage, however. What happens if an owner does not have liability insurance; he hires an uninsured contractor to do work in his unit; the contractor whacks a common area water pipe and causes a flood, and the flood damages the separate interests? The association's property policy won't cover the separate interests. The association's liability policy won't cover it either—the association did nothing negligent! The owner who hired the contractor is liable, but if the damage is hundreds of thousands of dollars—which can happen, neither he nor the uninsured contractor can afford to pay. Sometimes the individuals whose separate interests are damaged are underinsured. This can result in owners, who are innocent victims being displaced for months, having all their property destroyed, with no good source of obtaining payment! For this reason, although it's hard to enforce, many associations amend their CC&Rs to require all owners to purchase liability insurance! Others at least strongly "urge" owners to do so.
Association Conduct Similar to Eminent Domain?
Sometimes CC&Rs don't address the issues that are presented when an association must destroy or damage individually owned property for the common good. For example, perhaps there are exclusive use decks that prevent the association from accessing the roof membrane. When it's time to re-roof the building, the association has to demolish the decks. Who pays?
The association may take the position that, because the CC&Rs and Civil Code 1364 say that the owner of the separate interest must maintain the exclusive use common area decks, the owner must pay.
The owner will say there was nothing wrong with the deck; it had to be demolished to re-roof the building, and the cost is part of the association's cost of maintaining common area.
Many courts have made analogies between associations and mini-governments. Under this analysis, we can conclude that the association, in demolishing the decks, is doing something like what a government does when it takes privately owned property for a public purpose. The association, like the government, must compensate the property owner for the taking. However, if the deck was nearly worn out, the association should pay only for the deck's remaining useful life, not for a brand-new deck.
What About Changing the CC&Rs to Alter Who Pays for What?
Sometimes, associations change the allocation of responsibilities by amending the CC&Rs. This may or may not be a good idea.
Sometimes, the original CC&Rs required owners to maintain particular components. If some owners don't do this in a timely manner, it can damage other people's property values. Sometimes, the association can achieve economies of scale by replacing all decks at the same time; it would cost a lot more if each owner replaced only one deck. It may be particularly appropriate for an association to assume maintenance responsibilities when it's impractical for individual owners to maintain a component. How reasonable is it to expect individual owners to maintain, repair and replace windows on a multi-story building? Each owner has to scaffold the building in order to replace one window! That makes no sense. If an association is going to assume maintenance of components, be sure to reserve for the new component.
When an area is inaccessible, it's often easier to have the owner maintain it. But sometimes, associations with financial problems try to solve them by shifting responsibility for components to individuals. This isn't always wise; it can lower property values because not all owners have pride of ownership, and fixing each component individually loses all ability to get economies of scale.
Conclusion
Sometimes, figuring out who pays for what in a common interest development is a big headache, and the answer makes everyone unhappy. The best ways to avoid these problems are the following:
- Amend your CC&Rs to make the solutions to these problems as clear as possible.
- Require or encourage each owner to obtain his/her own liability insurance and adequate levels of property insurance.
- Adopt clear policies about who pays the insurance deductible.
- Act fairly and use common sense.
These steps will help you cope with these thorny issues.
This article is a summary only and is not a substitute for legal advice. If you are facing a particular legal issue, contact qualified counsel.
Ann Rankin is the principal at the Law Offices of Ann Rankin, in Oakland, CA. The firm specializes in representing common interest development associations and has been in business for 21 years.
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