Figuring out who pays for what in a HOA (the association or the homeowners) can be nothing but a headache. The best way to avoid these problems is to make sure the governing documents have clear provisions, discuss insurance options for individuals and the community association, and to act fairly while using common sense. Learn how to understand the law, manage your insurance, and determine maintenance responsibilities as a part of a community association.

This is one of the most frequently asked questions involving community associations. It can come up at 2 a.m. after a dishwasher flood has damaged four units; when a homeowners 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 HOA’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 unit 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 HOA’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.

Try Looking at Civil Code Section 4775

After you have looked at your governing documents, the next step is to check Civil Code Section 4775. That code section is part of the Davis-Stirling Act, and it currently states:

Unless otherwise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common area, other than exclusive use common area, 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 Civil Code Section 4775 controls, except as discussed later in this article. 

A bill was signed by Govenor Brown in September of 2014 that will significantly alter Civil Code Section 4775. While the new law will not go into effect until January 1, 2017, it’s important that your HOA is aware of the coming changes to prepare their CC&Rs to accomodate the law. Look to ECHO to provide tools and material to best help your HOA through the process.

Read more about the changes to Civil Code Section 4775 

How to Determine Common Areas and Exclusive Use Common Areas

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 Sections 4075-4190.

Civil Code Section 4185 provides that a separate interest in a condominium is a unit as described with detailed boundaries in the condominium plan (Civil Code Section 4125). In a planned unit development, a separate interest means “a separately owned lot, parcel, area or space.”

Civil Code Section 4185 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.

Learn more about designating maintenance responsibility for condominiums and planned unit developments

Another very helpful provision is found in Civil Code Section 4145, which defines exclusive use common area as follows: “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. 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” (emphasis added). 

The bottom line is that unless the CC&Rs say something else, the owners are responsible to maintain  the exclusive use common area and unless the CC&Rs say something different, the items listed in  Civil Code Section 4145 are all exclusive use common areas.

Damage Caused by an Individual

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 homeowners 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 HOA 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 for HOAs

The CC&Rs usually require a community association to purchase insurance for the common areas. The community 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 HOA will also purchase liability insurance, which will cover damage caused by the homeowners 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, HOAs should have a written policy, or a CC&R provision, setting forth who pays the deductible in various circumstances. Usually, if the HOA 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 homeowners association’s property policy won’t cover the separate interests. The HOA’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 homeowners associations amend their CC&Rs to require all owners to purchase liability insurance! Others at least strongly “urge” owners to do so.

Damage Done for the Good of the Community

Sometimes CC&Rs don’t address the issues that are presented when a community association must destroy or damage individually owned property for the common good. For example, perhaps there are exclusive use decks that prevent the HOA from accessing the roof membrane. When it’s time to re-roof the building, the association has to demolish the decks. Who pays?

The HOA may take the position that, because the CC&Rs and Civil Code Section 4775 says 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 homeowners 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 homeowners 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.

Changing the CC&Rs to Reallocate Maintenance Responsibility

Sometimes, HOAs 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 HOA 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.

Summary

Sometimes, figuring out who pays for what in a community association is a big headache, and the answer makes everyone unhappy. The best ways to avoid these problems are the following:

1. Amend your CC&Rs to make the solutions to these problems as clear as possible.
2. Require or encourage each owner to obtain his/her own liability insurance and adequate levels of property insurance.
3. Adopt clear policies about who pays the insurance deductible.
4. Act fairly and use common sense.

These steps will help you cope with these thorny issues.

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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.

Adapted from “Who Pays for What and How to Figure It Out” by Ann Rankin, the principal at the Law Offices of Ann Rankin.