We are currently facing an unprecedented crisis in our country and state, forcing us to adapt to conditions unlike any experienced in our lifetimes. Some have compared it to a state of war, circumstances so extraordinary that they justify at least a temporary suspension of basic civil liberties, while others believe that the response has been a gross overreaction in which the remedy is worse than the illness costing tens of millions of Americans their jobs, businesses, and life savings. No matter which of these camps you are in, the fact remains that our lives right now are controlled by federal, state, and local officials who are issuing orders, sometimes daily, that limit our ability to leave our homes. For those residents of California who are members of a homeowner association, you are also subject to important decisions of your Board of Directors to whom you are necessarily looking for wise leadership.
The governmental directives have not always been clear and consistent but we can identify at least some basic guidelines. In California, we prohibit gatherings of ten (10) or more people, we are required to keep a “social distance” of at least six (6) feet from each other, and we are now required to wear masks and/or bandanas when we are in public locations. The Los Angeles County Health Department extended the prohibition to all private gatherings of any size with the exception of people living in the same household. The constitutionality of at least some of these directives is questionable, but unless your association is prepared to make an expensive challenge in court, the Board must find a practical way to conform while at the same time meeting its fiduciary obligation to the members.
What has never been clear from the outset is precisely how the government directives apply on a practical level to residential homeowner associations. Most orders have not expressly referred to condominium buildings or planned developments, and many times their “one-size fits all” approach does not seem to logically apply to common interest developments. Associations do not fit neatly into any one category. Some observers view them to be a business, while others see them more as a private residence. It is also possible that some associations, in particular larger groups that have onsite employees, are a business while associations that have no employees and rely exclusively on outside vendors are not a business.
Yet, despite the lack of clarity, this much remains true: No matter what the federal, state, or local governments prescribe, your Board of Directors has a fiduciary duty to adopt policies that are in the best interest of the membership as a whole. Thus, no matter what the government says or does not say about your community’s gym or pool, about the subject of ongoing construction or remodeling activities, and whether you should or should not defer assessments right now for your entire membership or certain members, there is considerable room for the Board to decide in the exercise of its fiduciary responsibility on policies that are right for your development.
The shelter-in-place orders prevent associations from operating in the normal manner. To address the changed conditions, the Davis Stirling Act authorizes your Board to adopt emergency rules as necessary to conduct association business in these extreme conditions. Emergency rules may be adopted without the need for the normal 28-day comment period if designed to address an imminent threat to public health or safety, or an imminent risk of substantial economic loss to the association. Civil Code Sec. 4360(d).
Emergency rules can and should address, at a minimum, the following four crucial subjects: (i) How Board and association meetings, and hearings to the extent necessary, should be conducted in order to still comply with basic legal requirements; (ii) whether gyms, pools, lockers, social rooms, and other common area facilities should remain open, and if so, under what conditions; (iii) what construction and remodeling activities should be permitted at this time; and (iv) whether and under what circumstances assessments should be deferred for the membership as a whole or individual members.
Whatever emergency rules your Board adopts may legally remain in effect for a maximum of four (4) months.
Closing Common Area Amenities
One of the hardest decisions your Board will face is whether to close common area amenities and for how long. Owners pay for such amenities through their monthly dues. Some owners use the facilities as an important part of their health regimen. Despite that fact, most health authorities will tell you that these areas present a significant health risk to residents right now. Associations, even those with onsite personnel, are not in a position to effectively sanitize the amenities every time they are used (nor do employees want to be put in that position).
It is not legally mandated, but the Board has the power to close the facilities in the exercise of its best good faith business judgment and it appears that most associations have done so or severely limited their use. Though the CDC website states there is no evidence that COVID-19 spreads in pools and spas, there is danger in an infected person touching surfaces like gates, lounge chairs, tables, and the like, using the restroom, and spreading the virus in a manner which contaminates others, sometimes without even being aware that the user was infected
Cleaning of Frequently Used Common Areas
For the protection of members and employees, Boards should try to the extent possible to cause highly trafficked common areas (i.e., doors, elevators, lobby surfaces, stair railings) to be sanitized more frequently. Specialized cleaning services are available for decontamination or disposal or infected surfaces or to perform a deeper cleaning than the standard janitorial services typically utilized.
Disclosure of Infected Residents
In the event the association learns that a resident or employee has tested positive for the coronavirus, the Board will have to set a policy for whether to disclose that information to the members. The association probably has no legal duty of disclosure, but still, this is another area where most Boards feel a moral obligation to make some kind of disclosure on the theory that the residents would want to know.
Disclosure will involve a balancing of the privacy rights of the infected resident versus the need of other residents to be informed. This balancing of interests is the essence of a Board’s responsibility in fulfilling its fiduciary duties. Since there is no specific legal authority addressing the issue in the context of a condominium association or planned development, the following approach is recommended:
(a) If management is advised by a resident that he or she is infected with the coronavirus, notification should be communicated to all owners that a resident has been diagnosed with the virus but the identity of that person should never be disclosed.
(b) If a resident inquires as to the identity of the infected resident, that information should not be disclosed unless the infected person has provided written authorization to disclose.
(c) With regard to residents who have not been diagnosed, but have been quarantined, it would not be appropriate to disclose this to other residents.
(d) Where you suspect that someone may have the virus but it has not been confirmed, no disclosure is warranted. It just creates more stress and panic.
(e) The disclosure, when made, should be in writing since you can control precisely what is said and you have a record of what was said. Since this is not a mandatory notice, the disclosure can be made by email (if you have an email addresses) or even by posting in the community or building.
(f) If the number of confirmed cases escalates within a community, it will be necessary to evaluate the manner and frequency of notifications.
The general rule is that business can only be conducted at an open Board meeting. Most Boards do not want to meet in person at this time, so the best alternative is a telephonic meeting. Boards can meet via teleconference, audio, video or both, although it is necessary that all participants be able to hear one another at all times.
Notice of the meeting, including the agenda of items to be discussed, must be given to the members as provided in the Davis Stirling Act and your Governing Documents. Under normal circumstances, a physical location must be provided at which at least one Board member will be present, where any member can go to listen and participate. Under the current COVID-19 restrictions, even the single public location may violate governmental orders regarding social distancing, so dispensing with the requirement is recommended. Instead, the meeting should be held by teleconference and the owners should be given the “dial in” number so they too can hear the discussion. Members’ lines can be muted for all portions of the meeting except for the open forum when owners have a right to speak. Video conference systems, such as Zoom, provide similar video technology for a visual meeting.
Executive Session Meetings:
Executive session meetings, as permitted by laws, should be conducted in the same manner described above. The only difference is that members do not have a right to listen to the meeting.
Emergency Meetings – Telephonic or By Email:
Civil Code Section 4923 allows an emergency board meeting to be conducted called by the president of the association or by any two directors other than the president, if there are circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board, and which of necessity make it impracticable to provide the normal four day notice (or two days in the case of an executive session meeting) that is typically required by Section 4920 of the Civil Code.
If every director consents in advance and in writing, electronic transmissions (e-mail) may be used as a method of conducting an emergency board meeting. These written consents may be transmitted electronically and must be included kept with the minutes of the meeting, which are still required. Civ. Code Section 4910.
In the present uncertain environment in which we are living, the need for emergency action is likely going to be more common. Certain situations facing common interest developments cannot be reasonably foreseen and require immediate action rendering notice to all members impracticable. As always, to the extent a decision can wait for normal notice, the Board should provide such notice. However, in these tenuous times, it is good to know that the flexibility to address issues of immediate concern is available.
Construction and Remodeling Activities
One of the most difficult decisions your Board will have to make is whether to allow remodeling and construction activities in the development to commence, or continue, at this time. Such activities require outsiders to enter your building or community, in contravention of at least the spirit of the governmental orders which requires us to stay at home so we will not have to be exposed to outsiders; and because with people forced to stay at home all day, the noise from construction and remodeling is more likely to create annoyance.
The governmental pronouncements have generally recognized construction as an “essential activity” that is exempt from the current restrictions, but that is not the end of the issue. The motivation for such an exemption is that there is a housing shortage in California, and our officials do not want to slow down the construction of more housing and in particular low income housing. But how does the remodeling of an existing home or condominium advance that policy? Further, while remodeling a single family home may present less of a threat, in a condominium environment where residents live in very close proximity to one another and they all share the common areas, the threat would appear to be real.
Nearly all of the governmental pronouncements have failed to mention condominiums or planned developments, so the extent to which the broad exemption for construction applies to remodeling in a common interest development is not entirely clear. State and local officials have been forced to amend their orders as relates to construction, to make the working conditions at construction sites stricter in order to ensure that workers are wearing masks, are not working in close proximity to one another, and the like. But so far, few counties or cities have specifically addressed construction and remodeling in a common interest development.
This is one of those crucial issues on which the Board is going to have to decide on a policy. Even if the city or state generally permits construction, the Board is permitted to adopt stricter rules that are in the best interest of their development. The power to do so comes from the Board’s authority to manage and control the common areas, thus it has authority to limit or restrict non-residents from entering or using the common areas. There seems to be uniform agreement that no new remodeling or construction should begin in a condominium setting. As for existing projects, many Boards have suspended that work even recognizing that it presents a financial hardship to owner who is engaged in the remodel. But your Board needs to set the policy that is right for your development and re-evaluate that policy as the days and weeks pass.
Assessment Collection and Enforcement
If your association has not faced the issue yet, it is very likely that you will soon be asked by one or more members to defer (or even forgive) their assessments for a period of time in light of the current unstable environment in which most businesses are closed and many workers have been laid off. This is an agonizing question for the Board, and as human beings we all want to help people who are in need. However, the directors are not making such decisions for themselves, they are making it as fiduciaries on behalf of the entire membership. Board members have a fiduciary obligation to protect the financial condition of the association so that it can meet ongoing expenses, including management, insurance, utilities, security, maintenance and repairs.
In our opinion, the Board cannot and should not agree to suspend assessments either for the membership collectively or for any individual member (what you do for one you have to be prepared to do for all). You should do nothing to infer or suggest that it is acceptable not to pay assessments on time.
However, if a member does become delinquent, the Board must apply normal protocols and that includes making a business decision on whether to agree to enter into a payment plan with that member. The Board also has discretion with regard to the late charges and interest that may be imposed under the Civil Code, especially if the owner agrees to a payment plan and meets that obligation.
In sum, the Board should never announce that assessments will be deferred or forgiven. They remain due and payable as they accrue, and if they are not paid in a timely manner, there will be a delinquency. But once a delinquency occurs, if the inability to pay is caused by the Safer at Home guidelines or the effects of the COVID-19 regulations, the Board has flexibility to provide some relief in the form of agreeing to a payment plan. Boards should decide in advance what documents will be required in reviewing an owner’s request in support of his or her claim that the inability to pay is COVID-19 related. There is nothing to prevent the association from recording a lien in light of the delinquency, which may be necessary to protect the association from a loss. However, the association should not for the foreseeable future proceed with an actual foreclosure sale if it concludes the failure to pay is COVID-19 related.
For owners who were delinquent prior to the COVID-19 Safer at Home restrictions, Boards may consider whether to issue payments plans or provide relief as the delinquency is not COVID-19 related. The basis for excusing the late fees is not present and the enforcement decisions are broader. For owners with an existing lien recorded against the property, the Association may continue collection procedures without concern given to current pandemic conditions. The Board should initiate lien procedures if the delinquency exceeds $1800 and qualifies for lien collection procedures.
Borrowing From Reserves
To meet cash flow problems created by the pandemic, Boards may borrow from reserves without a membership vote. Civ. Code Section 5515. In order to do so, Boards shall give notice to the membership of their intent to borrow from reserves. The notice shall identify that the money is being borrowed to meet short term operating expenses arising out of the pandemic. It should also include options for repayment and whether a special assessment is being considered. If approved, the Board must list its findings in the minutes, define the reasons for the transfer and describe when and how the money will be repaid to the reserves. Such funds must be paid back within one year, though methods exist to delay the payment. Civ. Code Section 5515(d).
We are currently in the second month of a nationwide shut-down and most of us are anxiously awaiting a return to normal. But when, and even whether that will happen – some of our leaders have suggested we will never return to normal — remains very much in question. For the foreseeable future, Boards will be required to make crucial decisions that affect the lives of the members and residents and to re-evaluate those decisions on a frequent basis based on changed (or unchanged) conditions. Or course you need to be mindful of what federal, state and local officials are saying, but at the same time, as relates to common interest developments, your association, development, and membership are unique. That means your Board will have to continue to make decisions that it believes are in the best interest of the collective membership. Just as we need and expect the best from our government leaders right now, so, too, do your members deserve the best, most honest and diligent action that your Board can offer them at this time.
In sum, while efforts are being considered for easing the Safer at Home restrictions, most are not imminent. Moreover, there is great uncertainty as to what the post-COVID period will look like. The discussion above is based on conditions that exist at this moment. As we near a time when the restrictions are eased or even eliminated, Boards and managers will still need to decide in consultation with their legal counsel how to effectively address the post-pandemic conditions and meet the ongoing needs and concerns of the members.