MAINTAINING SEWER LINES UNDER A CONDOMINIUM UNIT

Generally, in a condominium project, the Homeowners Association (“Association”) is responsible for the maintenance of the roof, exterior and common areas of the project. On the other hand, a condominium owner (“Owner”) is responsible for the maintenance of the unit and the exclusive use common areas. Unfortunately, maintenance obligations can sometimes be uncertain.

In the case of Dover Village Association v. Jennison (2010) 191 Cal.App.4th 123, a dispute arose between an Owner and the Association over the maintenance of a leaky sewer pipe located two feet beneath the concrete slab underlying a condominium unit. The issue in this case turned on whether the leaky sewer pipe was “Exclusive Use Common Area” for which the Owner was responsible, or “Common Area” for which the Association was responsible.

A four-inch cast iron sewage pipe beneath the Owner’s condominium had deteriorated over time, and eventually, the leak seeped up into the floors and carpet of the Owner’s unit and the unit of another. The Association was notified, and it called out a plumber to make repairs. The repairs were extensive, costing about $15,000. In order to make the repairs, the plumber needed to cut through the Owner’s floor, jack hammer the concrete slab underneath, and trench out and replace approximately 50 feet of sewer pipe that connected the Owner’s condominium with the main service line.

The Association sent a letter to the Owner stating that because the sewer pipe exclusively serviced the Owner’s condominium, it was his responsibility to maintain and repair the sewer pipe. The letter directed the Owner to pay the $15,000 plus additional repair costs. The Owner refused to pay, so the Association filed a lawsuit against the Owner.

Agreeing with the trial court, the Court of Appeal held that, as a matter of law under both the CC&Rs and the Davis-Stirling Common Interest Development Act (the “Davis-Stirling Act”) (Civil Code Section 1350 et seq.), the sewer pipe under the condominium unit is “common area” to be maintained and repaired by the Association.

The Court first noted that only two exclusive use common areas are expressly mentioned in the CC&R's: Patio and garage areas. The court found that the most natural reading of the CC&R's is that sewer lines are not "exclusive use common areas appurtenant" because by expressly stating patio and garage areas come within the category, the CC&R's impliedly state that sewer lines do not.

Turning to the Davis-Stirling Act, the Court stated that an Association is normally responsible for repairs to "common area," but an Owner is responsible for repairs to any exclusive use common area appurtenant to the condominium unit (Civil Code Section 1364(a)). “Exclusive use common area” is defined as “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 unit (Civil Code section 1351(i)). Except as provided in the CC&amp;Rs, shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patio, exterior doors, doorframes, and hardware incident thereto, screens and windows <em>or other fixtures designed to serve a unit</em>, but located outside the boundaries of the unit, are exclusive use common areas allocated exclusively to that unit. (Civil Code Section 1351(i)(1)).

The Association argued that under the Davis-Stirling Act, the pipes are exclusive use common area because they come within the definition of <em>“other fixtures” designed to serve a unit</em> in Civil Code Section 1351(i)(1). The Court rejected that argument. The Court stated that “interconnected sewer pipes cannot really be said to be the "fixtures" of any particular unit” because a sewer system is a series of interconnected pipes which ultimately feed into one common line.

As shown in the Dover Village case, when a condominium Owner and an Association are trying to determine maintenance responsibility, a careful examination of both the Association’s governing documents and the Davis-Stirling Act is required.

Santa Cruz County Vacation Rental Ordinance

DISCLOSURE ISSUES AND DEADLINES RELATING TO THE
SANTA CRUZ COUNTY VACATION RENTAL ORDINANCE

By: Terry Rein
Bosso Williams, APC

Santa Cruz County’s vacation rental ordinance was approved unanimously by the California Coastal Commission on July 12, 2011.  The vacation rental ordinance applies to a single-family dwelling unit, duplex, or triplex (including condominium and townhouse units, but not including apartments or manufactured homes in a mobile home park), which are rented for the purpose of overnight lodging for a period of not more than thirty (30) days.  The vacation rental ordinance affects the entire unincorporated area of the County (but not incorporated cities and not the Pajaro Dunes area).  Some of the vacation rental ordinance regulations include:

• Maximum Occupancy.  The maximum number of guests allowed in a vacation rental cannot exceed two people per bedroom plus two additional people, except for celebrations and gatherings between 8:00 a.m. and 10:00 p.m., when the maximum number of people allowed is twice the maximum number of guests allowed.  Children under 12 are not counted toward the maximum numbers.

• Local Contact Person. All vacation rentals are required to designate a contact person within a 30-mile radius of the vacation rental. The contact person shall be available 24 hours a day to respond to tenant and neighborhood questions or concerns. The name, address, and telephone number(s) of the local contact person must be submitted to the Planning Department, the local Sheriff Substation, the main county Sheriff's Office, the local fire agency, and supplied to the property owners of all properties located within a 300 foot radius of the boundaries of the parcel on which the vacation rental is located. The name, address and telephone number(s) of the local contact person must also be permanently posted in the rental unit in a prominent location(s). Any change in the local contact person's address or telephone number shall be promptly furnished to the agencies and neighboring property owners.

• Signs. All vacation rentals are required to have a sign identifying the structure as a permitted vacation rental and listing a 24-hour local contact person responsible for responding to complaints and providing general information.  This sign must be placed no more than 20 feet back from the nearest street. The sign may be of any shape, but cannot exceed 216 square inches. There is no minimum sign size so long as the information on the sign is legible from the nearest street.

• Posting of Rules. Vacation rental rules must be posted inside the vacation rental in a location readily visible to all guests. The rules need to include, but not necessarily be limited to, the following: number of guests allowed (2/bedroom + 2, children under 12 not counted; for celebrations and gatherings between 8:00 a.m. and 10:00 p.m., the maximum number of people allowed is twice the maximum number of guests allowed ), number of vehicles allowed (not to exceed the number of existing on-site parking spaces, plus two additional on-street spaces), noise, illegal behavior and disturbances, trash management (e.g., trash to be kept in covered containers only).

• Noise. All residential vacation rentals are required to comply with the County’s noise ordinance (Chapter 8.30 of the County Code) and a copy of that chapter must be posted inside the vacation rental in a location readily visible to all guests.

• Transient Occupancy Tax. Each residential vacation rental owner is required to meet the regulations and standards set forth in Chapter 4.24 of the County Code, including any required payment of transient occupancy tax for each residential vacation rental unit.  Owners of vacation rentals must obtain a permit and pay transient occupancy taxes.

Existing vs. New Permits.  There are two types of vacation rental permits, existing and new.  To be considered for an existing vacation rental permit the owner shall provide a complete application to the Planning Department within 90 days after the certification of the ordinance by the California Coastal Commission, including evidence of payment of the applicable Transient Occupancy Tax.  The benefit of obtaining an existing vacation rental permit is that no public hearing or notice of application for a permit is required.  AN APPLICATION FOR AN EXISTING VACATION RENTAL PERMIT WILL NOT BE ACCEPTED BY THE COUNTY IF SUBMITTED AFTER THE 90 DAY DEADLINE.

Live Oak Designated Area.  In the Live Oak Designated Area (“LODA”), a new vacation rental permit cannot be approved if 20 percent or more of the total parcels on that block are existing vacation rentals.  In addition, no more than 15 percent of all of the parcels that allow residential use in the LODA may contain vacation rentals. Notwithstanding these maximums, each block in the LODA that has parcels that allow residential use may have at least one vacation rental. Staff reports that they believe that around 10% of all parcels in the LODA are vacation rentals, but this information has not been confirmed.  If eligible, owners should move quickly to apply for an existing vacation rental permit in the LODA.  The 90 day deadline is all the more important for vacation rentals in the LODA.

Life of a Permit.  Each vacation rental permit runs with the land in perpetuity, except a vacation rental permit issued for property located within the LODA expires five (5) years from the date of issuance of the original permit.

Revocation of Permits.    Vacation rental permits are subject to revocation as provided for in County Code Section 18.10.136.  A permit may be revoked upon a finding that any term or condition of the permit has not been, or is not being complied with or that the permit has been issued or exercised in violation of any statute, law or regulation, or in a manner which creates a nuisance, or is otherwise detrimental to the public health and safety. Following the revocation of a permit, no application for a permit for the same or substantially the same use on the same parcel shall be filed within one year after the date of revocation, without the prior consent of the Board of Supervisors.

Disclosure Issues.  When selling property in the unincorporated area of the County outside of Pajaro Dunes, Realtors should consider disclosure issues relating to the new vacation rental ordinance.  Where appropriate, it is recommended that a copy of the vacation rental ordinance be given to prospective purchasers.  If requested by the purchaser, a proposed sale could be conditioned upon the issuance of a vacation rental permit.  If a client has questions, they should be referred to the County Planning Department, and the County Treasurer-Tax Collector for Transient Occupancy Tax issues, to obtain more information. Most importantly, clients need to be informed of the 90 day deadline to apply for an existing vacation rental permit, because failure to do so could result in a loss of a valuable property right.

When Can a Buyer of Real Property Recover Lost Profits?

Greenwich S.F., LLC v. Wong
Aggrieved Buyers Can Recover Lost Profits
For a Seller’s Breach

By: Terry Rein
Bosso Williams, APC


When a Seller breaches a Real Estate Purchase Agreement by refusing to close escrow, the Buyer may seek specific performance or recover the measure of damages allowed under Civil Code §3306, which provides for recovery of:

• The price actually paid;
• Title and escrow expenses;
• The difference between the price agreed on and the value of the property at the time of breach;
• Expenses in preparing to enter the property;
• Consequential damages; and
• Interest.

In Greenwich S.F., LLC v. Wong, the Court of Appeal broke new ground in determining that lost profits are properly included in “consequential damages” recoverable by the Buyer under California Civil Code §3306.  In that case, the Buyer entered into a real property sale agreement with plans to renovate and sell the property at a profit.  The original contract price was $760,000, but the Seller later breached the agreement by demanding more.  In the lawsuit that followed, the trial court awarded the Buyer $600,000 for the lost profits that the Buyer had expected to earn after improving and re-selling the property, in addition to other damages.

On appeal, the Greenwich S.F. court explained that consequential damages are those damages that Buyers and Sellers could reasonably have considered to be a likely consequence of a breach at the time of entering into the contract.   The Court  limited the recovery of lost profits to cases where “such profits are  the natural and direct consequence of the breach, where the amount of the lost profits can be established with reasonable certainty, and where the Seller knew of the Buyer's intent to use the property for profit." The requirements are cumulative, and all must be met if lost profits are to be recovered.

The requirement that the Seller must know of the Buyer’s intent to use the property for profits was established in Greenwich S. F., but the Buyer was not able to establish lost profits with reasonable certainty.  Thus, the appellate court reversed the trial court’s award of $600,000 in lost profits because the profits were too “uncertain” and “speculative.”

REALTORS® representing Buyers who intend to renovate and sell property at a profit should consider making the Seller aware of the Buyer’s profit plans in the Real Estate Purchase Agreement or contract document in appropriate cases.  If the Seller is not informed of the buyer’s profit intentions at the time of entering into the contract, lost profits will not be awarded.

California Homeowners Association Law Prohibits Meetings by Written Consent

By: Terry Rein
Bosso Williams, APC


Governor Brown recently signed into law Senate Bill 563 which amends the Davis-Stirling Common Interest Development Open Meeting Act (Civil Code § 1363.05) to prohibit the board of directors of a homeowners association (“HOA”) from conducting meetings via e-mail effective January 1, 2012.

HOA’s are involved in the management of subdivisions, condominiums and stock cooperatives.   The new legislation is intended to close an inconsistency between the Open Meeting Act and the Corporations Code concerning a member’s right to attend meetings.  On one hand, the Open Meeting Act provides that “any member of the association may attend meetings of the board of directors of the association, except when the board adjourns to executive session”.  On the other hand, the Nonprofit Mutual Benefit Corporation Law (Corporations Code § 7211) allows boards to take action on a matter without a meeting if all members of the board consent in writing to that action.  The new legislation specifically provides that HOA boards cannot conduct board meetings via e-mail or take action by written consent.

While the purpose of the new law is to ensure that residents be given the opportunity to hear and participate in HOA board decisions, it does so at a significant cost to a board’s ability to take action efficiently.  In addition to specifically prohibiting meetings via e-mail or action by written consent except in emergency situations (as defined in Civil Code § 1363.05(g)), the new legislation also:

• Broadly prohibits a board from taking action on any item of business outside of a meeting.  “Item of business” is defined in Civil Code § 1363.05(k)(1) as any action within the authority of the board, except those actions that the board has validly delegated.
• Requires that notice of executive session meetings be given to association members at least two days prior to the meeting.  This is in contrast to the existing requirement of four days notice for regular board meetings.
• Permits members of the board to participate in meetings by telephone or video conference if at least one board member is present at a physical location where members may participate and if the connection allows all participants in the meeting to hear and be heard.


Critics of the new legislation feel that volunteer boards should have the ability to respond to issues quickly as they arise.  Holding off on approval of any matter until the next board meeting (which may not be for months) may be impossible or impractical for a variety of reasons.  SB 563 mandates additional notices,  which will cost HOAs more money.  The new law is also difficult to enforce.  Even casual conversations would be unlawful, resulting in the potential for litigation.    There appears to be no end to the overwhelming procedural burdens imposed on the board of directors of HOAs.  Unfortunately, SB 563 is yet another trap for the unwary.

Thompson v. Canyon Examines the Statute of Limitations in Actions against Realtors

By: Terry Rein
Bosso Williams, APC


In the recent case of Thomson v. Canyon (2011) 198 Cal.App.4th 594, Regina Thomson (“Seller”) agreed to sell her home to an investor (“Buyer”).  The Buyer verbally represented to the Seller that he would clear the liens for a service fee of $10,000, and then he would sell the home back to the Seller.  The sale was meant to “salvage” her home from foreclosure.

The Seller retained a real estate broker (“Broker”), to memorialize and close the transaction.  However, the Broker failed to include the sell-back agreement in the written contract executed by the Seller and the Buyer.  The Buyer purchased the property, refused the Seller’s demand that he convey the property back to her, and sold the property to a third party for a profit of $140,000.

After unsuccessfully suing the Buyer for fraud, the Seller sued the Broker for breach of fiduciary duty for failing to include the Buyer’s oral promise to reconvey the property to her in the written contract.  The Broker argued that the Seller’s claim was time-barred by the statute of limitations.

The Court of Appeal stated that a plaintiff is generally permitted to allege different causes of action—with different statutes of limitations—on the same underlying facts.  Here, the Court was comparing the statute of limitations in a cause of action for professional negligence with a cause of action for breach of fiduciary duty.

The elements of a cause of action for professional negligence are failure to use the skill and care that a reasonably careful professional operating in the field would have used in similar circumstances, which failure proximately causes damage to plaintiff.  A cause of action for professional negligence is governed by a two year statute of limitations (Code of Civil Procedure Section 339).  

The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.
The court found that there is no specific statute of limitation on claims for breach of fiduciary duty by a broker to a seller, and therefore California’s default limitations period of four years applies.  The Court of Appeal also found that the statute of limitations period begins to run at the time that the Seller suffers actual damages which in this case was when the Buyer sold the property to a third party for a significant profit.

The appellate court also considered whether the Seller’s verbal instructions to the Broker “to prepare the necessary paperwork” to implement her sell-back agreement were admissible to prove her claim.  Ordinarily, parties to a lawsuit may not introduce evidence to vary, alter, or add to the terms of a written agreement where the writing was intended to be the parties’ final, complete, and exclusive statement of the terms of the agreement (this is known as the parole evidence rule).  However, the court held that since the parole evidence was not being offered to reconstruct the contractual obligations of the Seller and the Buyer (the parties to the real estate sale contract), evidence of the Seller’s verbal instructions to the Broker, including references to the sell-back agreement, are admissible.

It is important to remember that other statutes of limitations apply to Brokers, including the two year statute of limitations applicable to a Broker’s duty to inspect and disclose (Civil Code Section 2079) and the three-year statute of limitations which applies in a buyer’s suit for breach of fiduciary duty against an exclusive buyer’s broker for failure to disclose material facts.  (See, Field v. Century 21 Klowden-Forness (1998)).  

In Thomson v. Canyon, the Court of Appeal allowed the Seller’s breach of fiduciary claim to proceed against the Broker because it had been filed within the four year statute of limitations from the date of the Buyer’s sale to the third party.  The Court also found that the time limit for filing a claim for professional negligence had passed.  Thomson v. Canyon is a reminder that a Broker may be confronted with a menu of possible causes of action, each with a different statute of limitations and each with a different time for calculating when the limitations period begins to run.