May 6, 2020

California Residential Associations: Continued Operation Under Stay-at-Home Orders

Holland & Knight West Coast Real Estate and Land Use Blog
Stacie Andra Goeddel | Leizl Hinajon
Breaking Ground: West Coast Real Estate and Land Use Blog

It has been more than a month since California Gov. Gavin Newsom issued Executive Order N-33-20, directing all residents to stay home during the COVID-19 emergency except as needed to maintain essential operations. Homeowners associations for the state of California's common-interest communities have struggled to understand how to best continue operations during this emergency with no guidance. For comparison, in connection with its COVID-19 emergency order, the state of Florida issued an emergency order to expand powers of residential associations. While the Davis-Stirling Common Interest Development Act (the Act) includes certain provisions applicable to continuing residential association business during the California stay-at-home order, those provisions are of limited utility. Further expanding the Act to address emergency operations would be beneficial during the COVID-19 crisis as well as in future emergencies that occur periodically in California, such as wildfires or earthquakes.

Florida Emergency Order

The Florida Division of Business and Professional Regulation (DBPR) issued Emergency Order 2020-04 on March 27, 2020, expanding existing emergency powers for homeowners associations during physical disasters, such as a hurricane, to apply during Florida's current coronavirus state of emergency. The powers granted to an association under the Florida emergency statute are wide-ranging and contemplate many actions that may need to be taken by an association in an emergency such as rescheduling association meetings, closing portions of the association property, prohibiting or limiting access to the community by guests, vendors and others, imposing a special assessment without approval and suspending timing requirements for certain actions by associations. In general, the order provides that an association is allowed to take such action as is "reasonably necessary to protect the health, safety, and welfare" of the association, unit owners, residents, agents and guests during the state of emergency.

California Association Powers in an Emergency

California has no similar order specific to this current emergency or any other. The Act does include certain provisions applicable to continuing association business for common interest developments during an emergency; however, many of these powers are of limited help in an emergency due to additional requirements. Certain applicable powers are:

  1. Board Meetings. The Act allows association board meetings to be held by teleconference or videoconference; however, owners must be able to attend the meeting in a designated physical location where they have the ability to participate, such as a speakerphone in an association clubhouse. Because of the current social distancing requirements and prohibitions on gatherings, this requirement is impossible to meet. Anecdotally, association boards are moving forward with remote board meetings. The California Law Revision Commission (CLRC) has noted this issue and will consider proposed legislation at its May meeting to allow an association to conduct board meetings solely by audio or videoconference during an infectious disease emergency.
  2. Association Meetings; Owner Voting by Mail. The Act allows a vote of the owners to be conducted through the mail without a meeting, so long as owners are provided a summary of the proposed action, the timing, quorum and approval requirements, a ballot to indicate an owner's vote and a return envelope. However, for any vote for an election of board members, while the vote may be conducted by mail, the Act requires that the collected votes be counted at a physical meeting of the owners, which, as with board meetings, due to current stay-at-home requirements, cannot occur at this time.
  3. Emergency Rules. The Act expressly allows an association to adopt operating rules in an emergency on an immediate basis to address public health or safety matters. There is no requirement for such emergency rules to be adopted at a public board meeting or for there to be a 28-day notice period. However, any such emergency rule is effective for only 120 days. To address the concerns of the current coronavirus emergency, a board could adopt rules to require social distancing and face coverings in common areas and limitations on use of recreational amenities, such as the common-area pools, parks and playgrounds, similar to those measures required in public by state and local orders. Violators of any such emergency rules can be disciplined in the same way of a violator of any other rule, such as with verbal and written warnings and, if needed, a notice and hearing and fines.
  4. Borrowing from Reserves. The Act also expressly allows an association board, upon a majority vote of the board, to access reserve funds for emergency situations without a vote of the membership; however, any such funds are to be repaid by the owners within a year, unless the board takes further action to delay repayment. Prior to taking any action to borrow or delay repayment of reserves, an association board should consider its duty of care to the association to be diligent and careful in performing its undertakings and thoroughly review and discuss the effects of borrowing from the reserves.
  5. Deferred Expenses; Essential Workers. An association may further address its cash flow needs by reviewing and deferring proposed expenses; however, as with borrowing from the reserves, a board must consider its fiduciary duty to the association. The board must diligent review such expenses to defer only those that are not necessary for the ongoing function or the health and safety of the association and the community. An association cannot defer its ongoing fixed expense obligations such as utilities, insurance, security and routine maintenance. Further, any maintenance projects that are needed to protect the health and safety of persons or property cannot be deferred. Note that under the state and local stay-at-home orders, many of the service providers needed to maintain a common-interest community, such as plumbers, electricians and exterminators, are considered essential workers and should continue to provide services to the project.
  6. Association as Employer. While not addressed in the Act, many local jurisdictions in California have expanded their emergency order requirements to require the wearing of masks or other face coverings and specifically requiring employers to ensure that their employees are wearing face coverings when interacting with other employees or third parties. For example, the San Francisco Essential Workers FAQs were updated to include this requirement as of April 24, 2020. To comply with this order requirement, an association property manager, or the board if there is no property manager, should ensure that all management personnel, maintenance and security staff, and any third-party vendors providing services to the community, wear a face covering when near other people or entering into common areas or other areas where owners or other persons could be present.

To provide homeowners associations with greater flexibility to continuing association business during a state of emergency, California should consider incorporating a more fulsome set of provisions into the Act applicable during states of emergency established by the state, such as allowing board meetings to be held fully by video or teleconference, allowing owner elections for board members to be conducted completely by mail and allowing emergency rules to last as long as the length of a specific emergency.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this blog for timely advice.

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