Published in the ECHO Journal, November 2008
The recent case of Harvey v. The Landing HOA (2008) 162 Cal.App.4th 809 is instructive of how one California homeowner association did it right. The board’s actions were upheld by the Court of Appeal.
Case Facts
The Landing is a 92 unit four story condominium building in Coronado, California. On the fourth floor, each of the 23 units has attic space adjacent to its unit that is designated common area on the condominium plan.
For years, several fourth floor homeowners used the attic space for storage. In 2002, a homeowner complained to the board about this use. The board then inspected the fourth floor units and discovered that 18 of the 23 units were in fact using the common area attic space for storage. One fourth floor owner had even converted a portion of the common area attic space into habitable living space.
What The Board Did Right
Conducted an Investigation
Harvey (later the Plaintiff), who was president of the board, and two members of The Landing Architectural Review Committee (ARC) wrote a memorandum detailing the results of the inspection.
Used Its Architectural Review Committee
The ARC memo revealed that some homeowners had been using the attic space for over 15 years. Some had improved the space by adding wallboard, lights, floors, carpeting, closets, shelves and doors.
The CC&Rs, Article IV, section 12, stated:
The Board shall have the right to allow an Owner to exclusively use portions of the otherwise non-exclusive Common Area on nominal in area and adjacent to the Owner’s Exclusive Use Areas or Living Unit, and, provided further, that such use does not unreasonably interfere with any other Owner’s use or enjoyment of the Project.
The ARC memo found that the use of the attic common area by fourth floor homeowners did not violate the applicable section of the CC&Rs and that the use was “nominal.” The ARC recommended that The Landing enter into a license agreement with each of the fourth floor homeowners using the attic space. The ARC also recommended a one-time assessment of $350.00 to cover the costs and fees associated with the drafting and recording of the license agreement.
Harvey decided to meet with legal counsel. Legal counsel came to the conclusion that The Landing lacked authority to grant the homeowners the right to use the common area, because using an attic for storage was not a “nominal” use. Based on legal counsel’s opinion, Harvey requested that the board issue notices of violation to the 18 fourth floor homeowners who were using the attic common area. The board refused, and Harvey resigned as president but remained on the board.
The City of Coronado became involved. After it received a complaint, it issued a notice of violation under the California Building Code, served board members, including Harvey, with two building inspection notices from the City. The inspectors said the attic space could be used for storage but not living space.
Cooperated with the City
At its next meeting, the board voted 4 to 1 in support of a motion finding a violation of the CC&Rs and the building codes by the fourth floor homeowners using the attic space. The board then decided that 120 sq. ft. or less of the attic space common area could be used for “rough storage (boxes, Christmas decorations, luggage, etc.) Eighteen homeowners were using between 50 and 288 sq. ft. of the attic spaces. The board agreed to hold a workshop for homeowners to discuss restoration of the units that had violations.
Helped Homeowners Abide by the CC&R’s and the Law
Fourth floor units averaged 2,250 sq. ft.. The Landing had approximately 265,479 sq. ft., including 80,000 sq. ft. of common area. The total area approved for attic storage for all fourth floor units was 2,760 sq. ft. (23 x 120) or a little over one percent of the total building area, or approximately 3.5 percent of the total common area.
The board issued notices of violation to the fourth floor homeowners, telling them of the violation, directing them to restore the attic spaces to their original condition. They the owners could make a formal request to the board for permission to use up to 120 sq. ft. of the attic space for rough storage. In response, several homeowners retained legal counsel, who claimed those owners had obtained irrevocable rights to use the attic space which could not be disturbed by the board.
To avoid litigation, the board prepared a standard “permission form.” The form stated that the homeowner could use no more than 120 sq. ft. of common area and that the attic space was subject to the governing documents and all laws. The board then reserved the right to terminate its approval of such use “for cause.”
Tried to Avoid Litigation by Compromise
The board then consulted its insurance broker, who determined that the use of the attic space did not impact the association’s insurance. The board also required each fourth floor owner who used the attic space to obtain liability insurance of one million dollars.
Thought of All the Possibilities and Consulted an Expert
In 2004, the City conducted an inspection and found full compliance. In late 2005, the City conducted another inspection and found some minor noncompliance items.
In 2005, the board amended the Rules and Regulations of The Landing to state that residents could not store property in the common area other that in the garage storage lockers, or in cabinets installed in the pillars of entry patios, or in the attics of the fourth floor living units. The rule change was approved by a 56 to 7 vote of homeowners.
Conducted a Vote of Homeowners
In 2006, the board transferred to fourth floor homeowners the “exclusive right to use the common area attic space in that owner’s unit,” as allowed under Civil Code section 1363.07. The board’s resolution stated:
- all fourth floor common area attic space is accessible only from the inside of a condominium;
- all fourth floor common area attic space is freely accessible only by the owner of the unit in which. . . it is located;
- all fourth floor common area attic space is inaccessible to owners other than the owner of the unit in which it is located;
- all fourth floor common area attic space is of no general use to the membership at large, but only to the owner of the unit in which it is located;
- the maintenance and management of fourth floor common area attic space is a burden to the [LHA]
- because such space is located inside of the condominium, is generally inaccessible to the membership, and is of little use or benefit to the [LHA].
Complied with Civil Code 1363.07 and Did Not Exceed Its Scope of Authority
What happened next? Harvey filed a lawsuit for trespass, breach of fiduciary duty and injunctive relief. Defendants moved for summary judgment. At that point, The Landing stated, as a matter of law, that it was correct in its actions and had done nothing wrong. The Court agreed and found that the CC&Rs granted the board authority and discretion to determine whether to allow an owner to exclusively use portions of the common area and this necessarily included determining which portions were “nominal” in area. The Court found that the board acted within its scope of authority, conducted a reasonable investigation, and acted in good faith with regard for the best interests of the community association and its members.
The Court also found that the directors who voted in favor of allowing limited use of the attic space common area had no conflict of interest with the association merely because they owned units on the fourth floor, and that the vote of the homeowners overcame any potential conflict.
Harvey’s trespass claim failed because the attic space was being used by fourth floor homeowners with the board’s express permission. The Court then awarded The Landing attorney fees of $116,794 and $10,220 for costs.
Important Court Reasoning
The Court held that the rule of judicial deference applied to the board’s decision allowing fourth floor homeowners to use up to 120 sq. ft. of inaccessible attic space common area for rough storage.
In making its ruling, the Court relied on Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal.4th 249 and Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863. The rule of judicial deference is as follows: there must be a duly constituted board, in good faith, and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common area. If this exists, then the court should defer to the board’s authority and presumed expertise.
The Lamden court adopted a rule of judicial deference to community association boards’ decision making that affords homeowners, community associations, courts and advocates a clear standard for judicial review of discretionary economic decisions by community association boards, mandating a degree of deference to the board’s business judgments sufficient to discourage meritless litigation. (Lamden dealt with a board’s decision to fumigate plaintiff’s units for termite infestation.)
The Haley case expanded Lamden’s rule of judicial deference from “ordinary to community board decision making not involving maintenance decisions.” As long as the board undertakes a reasonable investigation and acts in the best interests of the association, its decisions will be defended by the courts.
Reasons the Court Deferred to the Board’s Authority
The Court deferred to the Board’s authority because the Board did all of the following things:
- conducted an investigation of fourth floor attic use;
- met with City officials to ensure compliance with building codes;
- consulted its insurance broker;
- conducted workshops for homeowners to discuss compliance;
- had homeowners sign a “permission form”;
- took steps to correct minor noncompliance items discovered by the City;
- called for a special election to determine whether the Board should permit homeowners to use the attic space;
- passed a resolution transferring to fourth floor homeowners the exclusive right to use the common area attic space.
Harvey, through his cause of action for breach of fiduciary duty, asserted that the various resolutions failed to obtain the required three votes for adoption unless the votes of the directors owning a unit on the fourth floor were counted.
Harvey also maintained that various board members who authorized the use of the attic spaces for storage constituted a thinly veiled maneuver to gain a valuable asset for themselves. The Court concluded that there was no evidence to support Harvey’s argument that the fourth floor directors obtained a “material financial interest,” as required by Corporations Code section 7233, when they voted in favor of allowing the attic space common area to be used for storage.
The Court also concluded that a disinterested majority approved the resolution with full disclosure by fourth floor members. The Court further upheld the Board’s actions because they were “just and reasonable” as to the Association.
Conclusion
When faced with a decision that is controversial, a board needs to step back from the conflict and take measures to correctly assess the situation. Listen to all sides. Investigate. Consult experts (legal counsel, insurance, contractors, etc.). Do everything in writing to create a paper trail to document your findings. Poll homeowners. Act within the governing documents and the law.
If a board’s actions are taken in good faith, done within the scope of its authority, in compliance with governing documents and laws, in reliance upon reasonable investigation, and with regard to the best interests of the association and its members, courts should defer to the board’s authority and presumed expertise.
Tom Fier is an attorney practicing community association law for over 30 years in San Mateo. He is a member and past chair of the ECHO Legal Resource Panel. Kerrington Fier is a legal researcher with the Law Offices of Tom Fier.