2008 Statute and Case Law Update

Published in the ECHO Journal, February 2009


Legal developments in 2008 affecting homeowner associations were predominated by case law. Numerous decisions of the California Court of Appeal, which are summarized below, evidence the ever growing importance of common interest developments in California real estate and the complex relationship between associations and their members. Although the California Legislature grappled with many aspects of community association operations, several bills that emerged in this session were vetoed by the Governor, including AB 2259, which addressed the issue of rental restrictions, AB 952, concerning payment plans by delinquent owners, and AB 567, which would have established a new state agency to oversee common interest developments.

Legislative Developments

Civil Code Section 714 – Solar Energy Systems

Existing Civil Code Section 714(a) makes void and unenforceable any covenant, restriction or condition that effectively prohibits or restricts the installation or use of a solar energy system. That statute also permits a homeowner association to impose reasonable restrictions on solar energy systems that do not significantly increase the cost of the system or decrease its efficiency or specified performance; those reasonable restrictions may allow for an alternative system of comparable cost, efficiency, and energy conservation benefits. The statute specifies industry standards that must be met in such installations and defines significant cost increases and efficiency decreases.

As amended in 2008, Section 714 has a new sub-paragraph (e)(2), which imposes particular restrictions on homeowner associations that are evaluating applications for solar energy systems. First, the approval or denial of an application must be in writing. Secondly, if the application is not denied in writing within sixty days of receipt of the application, the application is deemed approved, unless the delay is the result of a reasonable request for additional information. The amended version of Section 714 also applies to all governing documents, including the association rules.

Civil Code Section 1367.6 – Disputed Charges

A new Section 1367.6 was added to the Davis-Stirling Act to permit owners to pay under protest disputed charges levied by the association, including, but not limited to, assessments, fines, penalties, late fees, collection costs and monetary penalties imposed as a disciplinary measure, and to then pursue an action in Small Claims Court to determine the validity of the disputed charge or sum levied by the association. The association retains its right to record liens for delinquent regular and special assessments and to foreclose those liens. The owner may pursue recovery of the payment under protest in a Small Claims action while also pursuing the internal dispute resolution procedure under Civil Code Section 1363.810. The owner may only dispute assessments, fines, penalties, late charges, collection costs and monetary penalties under the new statute if the amounts in dispute do not exceed the jurisdictional limit of the Small Claims Court ($7,500 for an individual). A new paragraph was added to the notice that is distributed to the members during the sixty-day period preceding the beginning of the fiscal year to reflect this new right of payment under protest.

Request for Notice           

Section 2924b of the Civil Code was amended to empower homeowner associations to record a request that a mortgagee, trustee, or other person authorized to record a notice of default regarding a residence in the subdivision, mail the association a copy of any trustee’s deed upon sale. The law requires that the trustee mail the information to the association within fifteen business days following the date the trustee’s deed is recorded. The association’s request must include a legal description or the assessor’s parcel number of the residences, the name and address where the information is to be sent, and confirmation that the requesting party is a homeowner association. The request must be recorded at the time of the filing of the notice of default in order to be effective. The recording of such requests for notice of trustee’s sales may help associations more effectively collect assessments from lenders who take title through foreclosure.

Pool and Spa Safety

The Virginia Graeme Baker Pool and Spa Safety Act became effective on December 19, 2008. It requires that, after the effective date, public swimming pools, wading pools, spas and hot tubs must have drain covers that meet certain federal safety standards. In addition, certain public pools and spas must have additional devices or safety systems designed to prevent suction entrapment. It is now unlawful to manufacture for sale, offer for sale, distribute or import into the United States, a drain cover that does not meet the entrapment protection standards referenced in the statute. The Act establishes severe potential civil penalties and potential criminal liability for violation. According to the staff of the Consumer Product Safety Commission, the pool and spa safety requirements of this act preempt state laws concerning swimming pool or spa drain covers. Homeowner association pools are subject to this standard.

Fire Code Amendment

The California Fire Code was amended to prohibit charcoal burners and other open-flame cooking devices on combustible balconies or within ten feet of combustible construction in multi-family dwellings. The Fire Code further prevents liquid petroleum gas fueled burners having an LP gas container with a water capacity greater than five gallons (commonly known as a 20 lb. cylinder) from being located on combustible balconies or within ten feet of combustible construction. This has been interpreted to mean that standard size propane barbeques are acceptable on combustible balconies or within ten feet of combustible construction, but charcoal and other open-flame barbeques may not be operated on combustible balconies or within ten feet of combustible construction, including both horizontal and overhead construction.

Exclusive Service Contracts for Video Services

Effective March 7, 2008, the Federal Communication Commission ruled that cable operators cannot require condominium owners to deal exclusively with them to provide video programming service. The Commission found that such exclusivity agreements harm competition and impair the provision of programming to residents of “multiple dwelling units.” In so ruling, the FCC relied upon the Communications Act of 1934, which prohibits unfair methods of competition, but applied it to the current reality that exclusivity contracts with cable providers prevented multi-channel video programming distributors from providing satellite broadcast programming to subscribers and consumers. The FCC ruling did not address exclusivity clauses by providers of direct broadcast satellite or similar multi-channel video programming distributors that are not cable operators because the 1934 Act only applied to cable operators. Existing exclusivity clauses are not enforceable, and no future exclusivity clauses may be imposed by cable operators.

Case Law Update

Fourth La Costa Condominium Owners Association, 159 Cal.App. 4th 563 (2008) (“La Costa”); 

Mission Shores Association vs. Pheil, 166 Cal.App. 4th 789 (2008) (“Mission Shores”)

Under what circumstances will courts approve “CC&R amendments” (including those with lease limitations) that have not been authorized by the required number of membership votes? How will appellate court’s address challenges by association members contesting amendments authorized by trial judges?

These two cases address these questions. In both, the associations filed a petition seeking judicial approval of CC&R amendments pursuant to Civil Code Section 1356. Generally, that law authorizes a court to approve proposed amendments to the CC&Rs if they have received the approval of more than fifty percent of the members, even if less than the higher supermajority (e.g., 67% or 75%) affirmative vote specified in the declaration. The court may, but is not required, to grant the petition. Among other things, it must be shown that the balloting was properly conducted, that reasonably diligent efforts were made to allow eligible voters to vote, and that more than fifty percent of the members voted for the amendment. The members of the association receive notice of the association’s application for court approval of the amendment, and they have an opportunity to object to it. The purpose of the law is to allow reasonable amendments to be adopted despite voter apathy. Thus, to obtain judicial approval of amendments, the association must show both that the voting process was “fair” and proper and that the proposed amendments are “reasonable.”

In La Costa, a member objected to provisions in the proposed amendments that allegedly impaired her right to lease. She claimed the amendments had to be voted on at a meeting, not by ballot (this case arose before the secret ballot process became mandatory). The Court affirmed the ballot procedure because it was not prohibited in the association’s governing documents. The Court also determined that Section 1356 properly authorized a reduction of the required number of approvals even though the Corporations Code may have required a higher percentage of approval.

The La Costa declaration also required that the amendment receive the written consent of 75% of the lenders. The Court held that this consent was obtained by the association sending the amendment to the lenders by certified, return receipt mail, together with a letter stating that the consent would be deemed given after thirty days, unless a ballot was returned. The La Costa Court also ruled that the association had satisfied the requirement of showing that a reasonably diligent effort was made to secure the vote of the members because three reminders were sent out after the ballot was mailed and a special meeting was held.

Under Section 1356, the petition cannot be granted unless the Court finds that the proposed amendment is “reasonable.” The La Costa Court confirmed that association has the burden of proving “reasonableness” and there is no legal or statutory presumption of reasonableness (as would be the case once the proposed CC&Rs amendments are actually approved by the Court or the membership). Having said that, the Court held that the association had met its burden and that the particular rental clauses objected to by the owner, including one that required leases to be in writing and another that tenants are bound by the declaration, were found to be reasonable.

Importantly, the La Costa Court ruled that petitions for Court approval to amend bylaws under Corporations Code Section 7515, an analogous clause to Section 1356, can be filed after the vote is taken and do not need to be filed in advance of the balloting, as claimed by the owner. This permits the association to file one petition for Court approval of all of the amended governing documents at one time.

In Mission Shores, the Court also granted a Section 1356 petition approving an CC&R lease amendment (the one at issue in this case required a minimum lease term of thirty days). The objecting owners claimed that the developer’s selling agent promised that their home could be rented on any terms, which was important to them because they bought the residence as a vacation home.

The Mission Shores Court ruled that the amendment was reasonable because it applied equally to all owners and did not violate a public policy. The association’s purpose was to prevent the use of the homes as hotels. The Court also found that the ballot materials were not misleading, as claimed, and that a redline version of the amendment provided owners with the terms of the amendment. The Court also stated that the amendment was not invalid even though the association violated Civil Code Section 1363.03(g) by failing to give the owners the tabulated results of the election within 15 days. Finally, the Court found that the amendment did not impair the security interest of any lender, which would have otherwise prevented the granting of the petition, and that the amendment did not require approval of the lenders under the specific terms of the declaration.

These two cases demonstrate that courts will authorize CC&R amendments which are approved by at least a majority of members, and are “reasonable,” provided the vote was conducted in a lawful and reasonable manner. These cases have three important ramifications for boards and mangers: first, that proposed amendments will be carefully scrutinized and “cookie cutter” language may not withstand judicial review; second, that project planning before amendments are submitted to the members is essential for their success, whether by vote or judicial action; and third, that the voting process can be as important as the content of the amendments themselves. Being aware of and properly implementing voting requirements (including fairness, timeliness, confidentiality, and proper ballot maintenance) is essential for the successful conclusion of the amendment process.

E. Miles Harvey vs. The Landing Homeowners Association, et al., 162 Cal.App. 4th 809 (2008)

What legal standards will a court employ in reviewing a decision of the board of directors concerning the interpretation of the CC&Rs?

Harvey was the former president and member of the board of directors of a 92-unit condominium complex. The fourth floor of the complex included 23 units, each of which had adjacent to it attic space shown as unrestricted common area on the Condominium Plan. In response to a complaint, the board investigated the use of the attic spaces and found that 18 of the fourth floor owners were using 50 to 288 square feet for storage, and 10 were using in excess of 120 square feet.

The CC&Rs authorized the board to permit an owner to exclusively use portions of the nonexclusive common area that were nominal in area and adjacent to the owner’s living unit if it did not unreasonably interfere with other owners’ use and enjoyment of the project. The association’s Architectural Review Committee found that the attic use was nominal and therefore permissible under the CC&Rs, but recommended a license agreement with the owners prohibiting further modifications or expanded use without association consent, and requiring a recorded license agreement to be paid for by the owner. The city inspected and found the use was appropriate for storage, but not living space.

On further consideration, the board issued notices of violation to the fourth floor homeowners that the attic use violated the CC&Rs and the California Building Code. Facing legal opposition from the owners, the board prepared a standard “permission form” that limited the size of the storage area to 120 square feet, permitted only “rough storage,” specified that the use was subject to the governing documents and law, and allowed the board to terminate its approval “for cause.” The board also obtained written confirmation that the attic use would not impair the association’s insurance coverage and required the fourth floor attic spaces to conform to Code. Subsequent city inspections found that no unit had storage exceeding 120 square feet and that all were in compliance with the Building and Fire Codes. The board also adopted a resolution in 2006 transferring to the fourth floor owners the exclusive right to use the attic space adjacent to the owner’s unit pursuant to Civil Code Section 1363.07(a)(3)(E).

Harvey filed a suit against the association, certain members of the board and certain fourth floor residents alleging trespass, breach of fiduciary duty and injunctive relief. The Court granted the defendants’ motion for summary judgment and awarded attorney’s fees against Harvey of almost $117,000.

On Harvey’s appeal from the summary judgment in favor of the defendants, the Court made the following findings:

  1. The CC&Rs clearly empowered the board to manage the common area, to adopt reasonable rules consistent with the CC&Rs and to authorize an owner to exclusively use nominal portions of the common area adjacent to the owner’s unit that do not unreasonably interfere with any other owner’s use or enjoyment of the project;
  2. Under the authority of Lamden vs. La Jolla Shores Clubdominium Homeowners Ass’n., 21 Cal. 4th 249 (1999), the trial court appropriately deferred to the authority and presumed expertise of the board regarding its sole and exclusive right to maintain, control and manage the common areas when it granted the right of the fourth floor owners to use up to 120 square feet of inaccessible attic space common area for rough storage. The Appellate Court’s deference to the board’s decision was influenced by the board’s investigation of the actual use of the attic spaces, the duration of the use, the meeting with City officials concerning Building Code compliance, the consultation with an insurance broker, a “workshop” sponsored by the board with the homeowners, the permission form signed by the owner, the requirement of separate insurance, the board’s action to correct minor noncompliance items found in the course of the inspection, a special membership election to determine whether the board should permit homeowners to use the fourth floor attic spaces for rough storage, and the resolution adopted pursuant to Civil Code Section 1363.07(a)(3)(E). These actions demonstrated the board’s reasonable investigation and good faith action in the best interests of the association.

The Appellate Court also upheld the trial court’s finding that the directors who lived on the fourth floor and voted in favor of the storage spaces did not have a conflict of interest. A disinterested majority of the board had approved the transactions, and the directors in question had no “material financial interest” as defined by Corporations Code Section 7233 when they voted in favor of allowing the spaces to be used for storage.

Ritter & Ritter, Inc., et al. vs. The Churchill Condominium Association, 166 Cal.App.4th 103 (2008).

What standard governs association maintenance decisions? Can an association be liable for neglected maintenance while the board of directors is not?

Owners of condominiums in a 110-unit, 13 story condominium building brought suit against the association and its directors for failing to fireproof slab penetrations that permitted smoke and other odors to permeate adjacent units. The property was a condominium conversion and the unfilled penetrations were a code violation dating back to original construction. The owners’ expert engineer investigated and offered an opinion that the holes were a fire hazard and should be filled or fire stopped. The board hired its own professional engineer and ventilation system expert who agreed that the odor problem was caused, at least in part, by the slab penetrations and agreed that the slab penetrations posed a significant fire hazard. The board concluded, after a formal hearing, that these owners were obligated to fill the floor penetrations because they had remodeled their unit and imposed fines on the owners, agreeing to waive them if the holes were filled within 30 days after the order was made.

Although the cost of repair was only $2,700 per unit, the owners filed suit against the association and the board of directors alleging nuisance, negligence, breach of fiduciary duty, breach of CC&Rs, breach of the covenant of good faith and fair dealing, permanent injunctions and declaratory relief. The association cross-complained to require the Ritters to fill the penetrations. A jury found for the unit owners and against the association for breach of the CC&Rs and breach of fiduciary duty, as well as negligence, but in favor of the directors. The Court issued an order that the association was to fire stop and seal all of the slab penetrations adjacent to the two units owned by the plaintiffs. The Court did not order the association to fill all of the other slab penetrations, but it did require the association to bring the issue of the slab penetrations to the attention of the full membership and obtain their vote on the issue of a special assessment to fire stop all slab penetrations.

The Appellate Court refused to reverse the judgment against the association and in favor of the directors on the basis that the decisions were inconsistent. It ruled that the association’s liability is separate and distinct from the personal liability of the directors. The Appellate Court held that the trial court was not required to defer to the board’s good faith decision “whether to undertake building improvement projects,” stating that this was an unwarranted expansion of the “judicial deference” theory. The Court distinguished the Lamden case as being restricted to “ordinary” decisions involving repair and maintenance actions that were clearly “within the board’s discretion under the development’s governing instruments.” It held that the Lamden rule of judicial deference provides protection from personal liability for the individual directors of a non-profit homeowners association, but the same rule of judicial deference will not automatically apply the association itself. This distinction is unsound because the Lamden decision only involved the liability of the homeowners association and not its individual directors.

The condominium owners were awarded $531,159 of attorney’s fees, expert witness fees and costs; the association and directors were denied their request for $775,000 in defense fees and costs, even though the individual directors were found to have no liability in the action. Using judicial sleight of hand, the Appellate Court ruled that although the individual directors were not found to have any liability, the owners were the prevailing parties entitling them to attorneys’ fees because the directors merely “avoided liability.”

Treo vs. Kettner Homeowners Association, 166 Cal.App.4th 1055 (2008)

Can the CC&Rs bind the association to a private judicial resolution of construction defect suits and waive the right to trial by jury?

The developer of this condominium project included a provision in the CC&Rs requiring all disputes between it and the association to be decided by a general reference pursuant to California Code of Civil Procedure Section 638. This statute permits the parties to a contract to agree that all disputes will be resolved outside of court using a private judge without the right to a jury trial. When the association filed suit for construction defects, the developer endeavored to enforce this clause.

The developer succeeded in the trial court, but on appeal the association prevailed in its argument that a CC&R clause is not a contract subject to Code of Civil Procedure Section 638. The Court relied on the earlier case of Villa Milano Homeowners Assn. vs. Il Davorge, 84 Cal.App. 4th 819 (2000) that held that while CC&Rs can be construed as a contract between the association and its members, it does not suffice as a contract when the issue is waiver of the constitutional right to jury trial pursuant to Section 638. It noted that the right to trial by jury is founded in the California Constitution and that case law acknowledges the right as a fundamental one which may be waived only by a party receiving actual notice and an opportunity for reflection. Treating CC&Rs as a contract such that they are sufficient to waive the right to trial by jury does not comport with the importance of the right to a jury trial, the Court concluded, noting that CC&Rs are notoriously lengthy and are adhesion contracts written by developers, recorded before the owners buy, and cannot be modified by the association. Moreover, the CC&Rs are not signed by the association or its members.

Ekstrom vs. Marquesa and Monarch Beach Homeowners Association, 168 Cal.App. 4th 1111 (2008)

What is the scope of discretion of a board in the enforcement of CC&Rs?

This common interest development was comprised of single family homes, many of which had ocean views. The CC&Rs required that trees, hedges and other plant materials be trimmed by the owner so that they do not exceed the height of the house, unless the trees would not obstruct the view from any other lots, as determined by the Architectural Review Committee. Owners of ocean view lots sued the association when it failed to enforce the CC&Rs against a number of owners who had planted palm trees. The board, some of whom owned lots with palm trees, endeavored to avoid liability by adopting a rule that exempted palm trees from the CC&R restriction. The board also attempted unsuccessfully to amend the CC&Rs to exempt palm trees. After the lawsuit was filed, the board adopted new rules defining a “view” in limited terms, so that it would not apply to the palm tree obstruction and prohibited removal of palm trees planted before adoption of the rule.

The trial court found for the view lot plaintiffs concluding that the CC&Rs were clear and rejected the argument that the CC&Rs gave the Architectural Review Committee discretion to allow palm trees. The Court found that the association had not waived, and was not estopped, to enforce the CC&Rs by having approved landscape plans or failed to enforce the CC&Rs in the past.

The Appellate Court rejected the argument that the business judgment rule in Lamden applied. That principle of judicial deference to community association board decision making is limited to cases where owners seek to litigate ordinary maintenance decisions entrusted to the discretion.

The Appellate Court found that the CC&Rs clearly prohibited view obstruction by any vegetation, including trees, and that the association could not exclude an entire species of tree from the operation of CC&Rs. The Court also held that it was not obligated to defer to the board’s rules concerning palm trees because they were in direct conflict with the CC&Rs. The board also could not define the term “view” in the CC&Rs in a manner to render it meaningless. These facts contrast with the situation in Harvey where the board had the specific power to adopt rules and regulations regarding storage in the common area under its general authority to manage the common area and authorize owners to use exclusively portions of the common area that were “nominally common area.”

Crestmar Owners Association vs. Stapakis, 157 Cal.App.4th 1223 (2008)

What is the statute of limitations to quiet title to a portion of the common area?

A developer converted a building into condominiums in 1977 and the association assumed management of the common area. The CC&Rs required the developer to transfer parking spaces in the building’s garage to anyone who bought a condominium, and, if any condominiums remained unsold after three years from the first sale, the developer was to convey all remaining unassigned parking spares to the association. The developer failed to transfer two unsold parking spaces to the association and, approximately 20 years later, conveyed those spaces to its president and sole shareholder and demanded the association pay back rent for the use of the spaces during that time. The association filed suit to quiet title to the spaces and was successful in the trial court.

On appeal, the owner contended that the association did not pursue its complaint in a timely manner, being four years from the breach under Code of Civil Procedure Section 337. The trial court had found that the statute of limitations on the association’s claim did not begin to run until the association made a demand for performance, which was in the four year window, relying on Cutujian v. Benedict Hills Estates Assn., 41 Cal 4th 1379 (1996). The Appellate Court held that the Cutujian case did not apply because the delayed accrual theory in that case was dependent upon a covenant not tied to a precise time, in contrast to the three year clause in the Crestmar CC&Rs. However, the Court found that the complaint was timely because the statute of limitations for an action to quiet title does not begin to run until someone presses an adverse claim against the person holding the property.

Pacific Hills Homeowners Association vs. Prun, 160 Cal.App. 4th 1557 (2008)

What statute of limitations applies to an association’s enforcement of architectural restrictions? How do the equitable defenses of waiver and laches apply?

The Pruns owned a home in a planned development subject to CC&Rs. The CC&Rs prohibited the construction of a “fence or wall” without prior approval of the Architectural Committee. The association’s architectural guidelines limited the height of fences to six feet unless they were within twenty feet of the front property line, in which case the maximum height was three feet.

In late 2000, the Pruns constructed a mechanical gate connected to a fence and pilasters across their driveway without permission from the association. They then submitted plans after construction, which were denied by the association. The association sent demand letters and threatened fines in 2001. In 2002, the City of Mission Viejo sent a letter to the Pruns that their gate violated the city setback requirements. In 2002, 2003 and 2004, the association sent further demand letters. A suit was filed in 2005. The trial court ruled for the association, finding that the 5 year statute of limitations in CCP Section 336(b) applied and concluded that the defendant had not proven the affirmative equitable defenses of estoppel, laches or waiver. The court ordered that the defendants lower their fence, gate and pilasters to a maximum of three feet or set them back at least twenty feet from the property line, in which case they could be of a height up to six feet. The court ruled that, if they chose to relocate the fence and gate, that the association would be required to pay two-thirds of the cost of relocation.

On appeal, the trial court’s ruling that the five year statute of limitations of CCP Section 336(b) was found to be correct, even though the architectural standards were not recorded. That statute imposes a five year statute of limitations for an action for violation of a restriction as defined in Civil Code Section 784, which is a limitation on, or provision affecting, the use of real property in a deed, declaration or other instrument.

The association was found to have delayed in enforcing the setback restriction, which was not condoned by the court but was found not to give rise to a defense of waiver or laches because the defendants could not show prejudice. They began constructing the gate before they submitted an application for approval.

The Court likewise found that the association had not waived its right to enforce the architectural guidelines. The Pruns produced evidence in the litigation that their neighbors had obtained the association’s approval to build pilasters within the twenty foot setback area and had constructed them to six foot height in violation of the guidelines. The association proved that it was unaware of the violation until the pendency of the litigation, but then it made demand on the neighbors to modify the pilasters to conform to the guidelines, and also determined in apparent reliance on its consulting architect and engineer, that the neighbor’s pilasters were only a minor obstruction and not as dangerous as the defendant’s construction, which was found to be a safety hazard. Therefore, the defendants did not prove that the restriction was being enforced in an arbitrary or capricious manner.


Taken together, these key appellate decisions in 2008 establish a road map for association success in disputes with members relating to the interpretation and enforcement of CC&Rs. The clear language and intent of the CC&Rs cannot be avoided through contrived rules. Instead, changes to controversial CC&R clauses should be submitted to the members for voting approval. When acting on controversial issues, the board should consider advice from legal counsel, insurance agents, engineers and other appropriately qualified experts. The board also should consider calling meetings of the members to discuss the issues and alternatives. The position of the “government agencies” should be sought in appropriate cases. Alternatives should be considered together with conditions of approval. And finally, where human safety is involved, and the cost of repair is not significant, the association should give serious consideration to acting, even if its legal responsibility may be uncertain.

Jeffrey A. Barnett is an association attorney with legal offices in San Jose. He is a past member of ECHO’s Board of Directors and a current member the Legal Resource Panel, the Legislative Committee and several regional resource panels.