Are California Community Managers Required to have a Contractor's License?

By Tyler Berding and Julia Hunting

                 The blogosphere has been burning up lately over a new California law that some commentators say might require community association managers to have a General Contractor’s license to perform their jobs.  Since property managers can be said to “oversee” bids for construction projects it has been suggested that they might fall within the expanded definition of “consultant” which was added to the basic contractor’s licensing statute by Assembly Bill 2237.[1]                           

               

                California Business and Professions Code Section 7026.1(b)(1) defines who must have a General Contractor’s “B” license as follows: 

                                                                         

                “Any person, consultant to an owner-builder, firm, association, organization, partnership, business trust, corporation, or company, who or which undertakes, offers to undertake, purports to undertake, purports to have the capacity to undertake, or submits a bid to construct any building or home improvement project, or part thereof.” 

          

                AB 2237 added subsection (2) which states that a “consultant” is someone who: (A) Provides or oversees a bid for a construction project; or (B) Arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project.” 

                Question: “These sound like tasks that a community manager might perform for their client associations during construction projects so why don’t they need to be licensed under the new law?”

                Answer: The new subsection modifies 7026.1(b)(1) by adding a further definition of “consultant,”[2] but it does not remove or change the other qualifying language in that same section which defines a “contractor” as someone offering to construct a building or part of a building.

Owners stuck with a failed condo project

The Privatopia Papers: In Carrboro, working-class condo owners must pay $...: In Carrboro, working-class condo owners must pay $5,400 fee—in three weeks | Orange County | Indy Week : The fees are intended to generate n...

If you read the entire article at the link above, you will see a perfect example of one generation of owners passing deferred maintenance on to the next generation and so on until the building becomes an obsolete condo project at the end of its life. At that point, since it is essentially an apartment house owned by multiple owner/tenants, there is no source of repair funds other than the remaining owners and it is unlikely they will be able to raise the necessary capital. This happens because previous boards of directors wouldn't make the tough decision to raise assessments sufficiently to maintain reserves for repairs.

Reaching the Pinnacle?

California Supreme Court Rules That CC&R Arbitration Provisions Are Enforceable Against HOAs

Matt J. Malone

This is the first in a two-part series on the Pinnacle case.  In this first part, attorney Matt J. Malone describes the nature of arbitration, the details and reasoning behind the ruling, and the issues and questions remaining now that Pinnacle is the law.  In the second part, attorneys Tyler P. Berding and Randolph M. Paul will discuss both the myths concerning arbitration and the reasons why not all developers or insurers will jump at the chance to arbitrate association defect disputes.

For the past several years, the Courts of Appeal in California have struggled with the enforcement of arbitration provisions in homeowner association Conditions, Covenants and Restrictions (“CC&Rs”).  These provisions waive an association’s right to jury trial in construction defect disputes against developers or converters.  And largely, the Courts of Appeal had refused to enforce them on the grounds that associations never consented to them and/or they were unconscionable.  But in August, the issue finally came before the California Supreme Court in the case of Pinnacle Museum Towers Association v.  Pinnacle Market Development (U.S.) LLC.  And the Court spoke clearly:  CC&R arbitration provisions are valid, enforceable and are not unconscionable under California law.

In order to provide a background for why enforcement of arbitration provisions is such a significant issue for associations, this article will begin by briefly discussing the arbitration process and its potential difficulties.  Then we examine the Pinnacle decision itself, to understand why the Court enforced CC&R arbitration provisions even though an independent, owner-controlled association never consented to them.  Finally, we take a look forward to examine the potential effect of Pinnacle on associations with defect claims, as well as what other consequences may arise from the Court’s decision.

Disaster!

No Reserves. No Insurance.  
What’s Left if a Natural Disaster Destroys a Community Association?

By 

Tyler P. Berding and Steven S. Weil

       Hurricane Sandy attacks the East Coast of the United States. We have recently seen horrific earthquake disasters in New Zealand and Japan. There has been widespread loss of life and destruction of infrastructure and buildings. California has a history of devastating earthquakes as well—the San Francisco, San Fernando, Northridge, and Loma Prieta earthquakes, among others. Heavy rains have created landslides, mudslides and shoreline erosion all over California, damaging homes and property, some of it in community associations. Wildfires in the past decade have destroyed hundreds of homes. Rising sea levels are threatening to flood low-lying developments, including many common interest developments. 

Where have all the seismologists gone?

Italian Scientists found Guilty for failing to Predict Earthquake!

We see disasters all of the time--hurricanes, forest fires, floods, and earthquakes. Many of them damage community associations. But an Italian court just found 6 scientists guilty of manslaughter for failing to accurately predict the intensity of an earthquake that killed several hundred people in Italy several years ago. First of all, if I were a scientist in the business of predicting disasters--climatologists, seismologists, civil engineers--I would be tempted to make no predictions at all after this.

And what was accomplished, even setting aside the ridiculous idea that the intensity or even the date of an earthquake can be accurately predicted at all? Scientists will have to re-consider whether to leave the public without guidance of any sort, or to overstate the danger to avoid this same fate. Neither outcome benefits the public when prediction of most natural disasters is inexact at best.

It would seem that the prosecutors in Italy should have focused on the hundreds of ancient masonry buildings that crumbled and their owners who failed to properly retrofit them for earthquake safety.

Are Rental Apartments the New Condos?

 Will Developers Stop Building Common Interest Developments?

          If you check in regularly with the community association social media—blogs, Twitter, Facebook—you cannot miss the group of correspondents who have a decided bias against community associations. It’s not always possible to separate fact from fiction, or personal bias from social concern, but the message is clear—there are many people who don’t like their homeowners association specifically or the entire concept generally. Claims of over-reaching by boards of directors or managers; vendors who see community associations as a piggy bank; and professionals—attorneys especially—who are blamed for overzealous enforcement of the rules and regulations and foreclosures, are all listed as reasons why community associations are not a good thing, or maybe even unconstitutional!

          Of course, these commentators’ understanding of the legal framework of homeowner associations can be a little thin and hence their opinions often lack practical application, but the passion is clearly there. I have read many times that we should (somehow) restrict or ban this type of housing altogether. I can empathize with some of the frustration that they feel because it is obvious that community associations are often creatures of convenience for developers and municipalities rather than organizations with their eventual owners in mind. They are created under laws enacted by state legislatures that respond more to the notion that we need to build more affordable housing now than to the idea that it has to be practical to maintain and manage in the long run. Regardless, boards, managers, and vendors inherit the real-life responsibility for these projects no matter how flawed they may be in concept. 

          But for now, the pundits' prayers may be answered—at least for a little while. Rental, rather than owned, housing seems to be the real estate concept du jour. And of course, rental housing does not come equipped with a homeowner’s association. That’s not the same as banning them outright as some politically naïve souls might like, but it probably has the same practical effect—you will be able acquire affordable housing without the drawbacks of an association of owners to weigh you down and interfere with your constitutional rights.[i]  

San Bernardino, CA--Another Ponzi Scheme?

Cities are going bankrupt because they made promises they couldn't keep—will community associations be next?

            Vallejo, California declared bankruptcy in 2008. The city of Hercules defaulted on its bond debt repayments. In June, Stockton California filed for Chapter 9 bankruptcy. On July 10, 2012, the city council of the City of San Bernardino, California voted to file for bankruptcy. That's two major California cities seeking bankruptcy protection within the last 30 days. Other U.S. cities and counties have either declared Chapter 9  bankruptcy or are on the brink. Central Falls, R.I.; Harrisburg, Pa; Boise County, Idaho, and Jefferson County, Alabama all share that distinction.[2] Stockton may be the biggest city in the nation to declare bankruptcy.

            Each of these public entities has a unique reason for its financial problems. Base closings. Industry shutdowns. A gradual financial decline. But Stockton’s case is somewhat different and perhaps presages more accurately the fate of many other municipalities—they spent money they didn’t have and failed to determine if they ever would. 

          “The city's fiscal history "has eerie similarities to a Ponzi scheme," says Bob Deis, the city manager Stockton hired in 2010. Over the years, the city promised employees huge—and unfunded—salaries and benefits...”[3]

            Essentially, the Stockton City Council approved ever-higher salaries and pension benefits for public employees without the slightest idea of how these benefits would be funded.

            “Perched precariously atop this mountain of obligations are retiree health benefits. Stockton officials awarded these to city employees in a series of votes in the 1990s but made no effort to fund them, intending simply to pay costs out of their budget as workers retired…Stockton Mayor Ann Johnston voted for these expensive measures when she served on the city council. ‘We didn't have projections into the future what the costs might be…I learned that you don't make decisions without looking into the future’… ‘Nobody gave thought to how it was eventually going to be paid for,’ says Mr. Deis, the city manager. “[4]

               Why would public officials be so shortsighted? Part of the reason was political pressure from public employee unions--pressure that is being applied even today to prevent further job and salary cuts. But part of it is that is just too simple to satisfy present day political demands by borrowing funds from future generations--essentially kicking the funding debt down the road.