Roseman & Antoni, LLP

Case Law Update January 2006

A number of reported decisions were issued in 2005 which relate to and/or impact common interest developments.

A. James F. O’Toole Co., Inc. v. Los Angeles Kingsbury Court Owners Association (2005) 126 Cal.App.4th 549.

In Kingsbury, the Court of Appeal found associations must levy special assessments in order to pay judgment creditors.

Kingsbury concerned a vendor who obtained a judgment against an association. The association refused to pay the judgment and claimed that the association’s regular assessments were exempt from execution, pursuant to Civil Code Section 1366(c), because they were necessary for the association to perform "essential services." The trial court agreed that the regular assessments were exempt from execution. However, the trial court also found that the association had the power to levy a special assessment and a duty to meet its legal obligations. The trial court therefore ordered the association to levy a special assessment in order to satisfy the judgment. The association appealed this order, which was upheld by the Court of Appeal. While agreeing that Civil Code Section 1366 did not expressly obligate the association to levy special assessments to satisfy the judgment, the Court of Appeal found that the legislative history surrounding this section supported the finding that associations must levy special assessments in order to satisfy judgments. The Court of Appeal also rejected the notion that the association’s decision not to levy a special assessment was subject to deference under the business judgment rule. The association’s decision not to levy a special assessment was simply a "refusal to pay a final judgment long since due," the Court of Appeal found, and not a business judgment to which the courts must defer.

B. Brown v. Professional Community Management, Inc. (2005) 127 Cal.App.4th 532.

In Brown, the Court of Appeal found that Civil Code Section 1366.1, which essentially prohibits associations from seeking to earn a profit, did not apply to property management companies, which are free to earn a profit in performing duties on behalf of an association.

Civil Code Section 1366.1 provides: "An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied." The plaintiff alleged that the association and its property management company had violated Civil Code Section 1366.1 by charging assessments and fees greater than the amounts necessary to defray the relevant costs. The Court of Appeal, in sustaining the trial court’s dismissal of Plaintiff’s claims against the management company, found that the plain language of Section 1366.1 dictated the finding that it applied only to associations and not to property managers. The Court of Appeal noted that associations are governed by "volunteer homeowners" who cannot be expected to perform all of the duties of the association at "no cost." Rather, associations must contract with vendors who will necessarily have to earn a profit in connection with performing duties on behalf of the association. According to the Court of Appeal, the costs incurred by an association "necessarily include the fees and profit the vendor charges for its services. While [Section 1366.1] prohibits an association from marking up the incurred charge to generate a profit . . . the vendor is not similarly restricted. Plaintiff would have it that no vendor . . . to an association could charge a fee, or, indeed, continue in business as a profit making enterprise. That cannot be the law."

Parties can recover expert witness fees pursuant to Code of Civil Procedure Section 998 even if such fees were paid by the parties’ insurer and not by the parties personally.

Skistmas concerned an unsuccessful action brought against individual members of an association’s board. The board member’s request for expert witness fees was denied by the trial court on the grounds that the expert fees had been pay by the board members’ insurer and not by the board members personally. The Court of Appeal, in reversing the trial court, found that parties did not have to have personally pay expert fees in order to recover them pursuant to Section 998. In so finding, the Court of Appeal noted that it is well established that parties can recover attorney’s fees even if they had not personally incurred an obligation to pay such fees.

Construction restrictions in CC&Rs should be interpreted in light of restriction’s language and the association’s presumed intent in enacting the restriction. Additionally, courts may "read" language into restrictions to make them reasonable, if such additional language is consistent with the presumed intent of the drafters.

Zabrucky concerned a dispute between members of a coastline association regarding the construction of a CC&R provision relating to view obstructions. The provision provided, in relevant part, that "[n]o fences or hedges . . . shall be erected or permitted . . . nor shall any tree, shrub or other landscaping be planted or any structures erected that may at present or in the future obstruct the view from any other lot." The trial court found that this provision applied only to "landscape type structures" and therefore did not operate to restrict the proposed construction (which did not consist of landscaping) which spawned the dispute. In reversing, the Court of Appeal found that a more expansive reading of the restriction, to include non-landscape type structures, was consistent with the significance of homeowners’ views on property values and the presumed intentions of the drafters of the CC&Rs. According to the Court of Appeal, "much of the value of any property . . . depends on the quality of the view. To significantly obstruct any homeowner’s view of the Pacific Ocean is to depreciate the economic worth of the property— often by several hundred thousand dollars . . . " In light of this consideration, the Court of Appeal found that "it seem[ed] highly unlikely those who framed [the provision] intended to limit its protections to ‘fences, hedges and landscaping’ and not to the erection of other kinds of ‘structures’ that might significantly destroy the views and value of homes in the . . . development." However, the Court of Appeal agreed with the trial court’s sentiment that it "would have been impractical" for the drafters of the CC&Rs to have intended that the restriction would operate to ban all construction which might obstruct another owner’s view. The Court of Appeal therefore essentially rewrote the provision at issue to preclude only that construction which "unreasonably" obstructed another owner’s view. In this regard, the Court of Appeal found that "it would be keeping with the intent of the drafters . . . to read into [the restriction] a provision that the new may not be unreasonably obstructed, thus the sentence would read, ‘may at present or in the future unreasonably obstruct the view from any other lot.’"

E. Woodbridge Escondido Property Owners Assn. v. Nielson (2005) 130 Cal.App.4th 559.

A wooden deck constituted a "permanent structure" under the CC&Rs and therefore had to be removed from easement.

Woodbridge concerned a homeowner who had a side yard easement over the adjoining property of his neighbor. After receiving permission from the association’s architectural review committee ("ARC") to do so, the homeowner constructed a wooden deck which encroached on the easement. The association’s board later determined that the ARC had given this approval in error because the CC&Rs expressly prohibited the installation of any "permanent structure," other than irrigation systems, on the easement. Upon learning of this mistake, the association ordered the homeowner to remove the deck and offered to pay for the cost of its removal. The homeowner refused to remove the deck and the association brought an action seeking the removal of the deck. After a motion for summary judgment was granted in favor of the association, the homeowner appealed. On appeal, the homeowner contended that the deck did not violate the CC&Rs because it was not a "permanent structure." The Court of Appeal disagreed. After noting that the dictionary defines "permanent" as "designed to continue indefinitely and without change," the Court of Appeal found that the deck— which was attached to the homeowner’s house and had supporting posts buried in the ground— fell within that definition.

Association was not responsible for injuries to security guard who acted beyond the scope of his "observe and report" responsibilities in responding to a complaint regarding a party at the association.

Tilley concerned claims made by a security guard employed by a security company which contracted with the association. The guard, after responding to complaints made about a "youth party" at the association, was physically assaulted by a partygoer when he attempted to detain the partygoer until authorities arrived. The guard alleged that the association owed him a duty to provide safe premises for him to guard and violated this duty by failing to impose restrictions on youth parties. The guard further alleged that the association had increased the danger he faced by requiring him to work unarmed and to respond personally to complaints made about parties. The trial court dismissed the guard’s claims against the association and the Court of Appeal affirmed. According to the Court of Appeal, the association neither expected or required its guards to confront or detain potentially violent persons and could not be liable for a guard’s decision to act beyond the scope of his duties. The Court of Appeal further found that, based upon the records, there was no basis to find that the association had a duty to restrict or curtail youth parties on its premises.

Owner of a parcel on which condominiums were planned to be built, but had not yet been built, was nevertheless required to pay regular assessments because the parcel consisted of "condominiums" within the Davis-Stirling Act.

Bear Creek concerned the owner of a parcel in a planned and partially built development. The owner, who intended to build eight units on the parcel, refused to pay regular assessments on the grounds that such assessments were chargeable only to "condominium units" and not to undeveloped parcels. In affirming the trial court, the Court of Appeal found that the owner’s parcel met the definition of "condominium" under the Davis-Stirling Act and the owner was therefore required to pay assessments. The Davis-Stirling Act applies to common interest developments where "a separate interest coupled with an interest in the common area or membership in the association is, or has been, conveyed." The Court of Appeal found that the deed by which the owner received an interest in the parcel demonstrated "that the property received does qualify as a ‘condominium’— eight of them, in fact— consisting of both an ‘undivided interest’ in common areas and a fee simple interest in a condominium unit. [The] deed conveyed an ‘undivided 8/16th fractional interest’ in the common areas . . . " The Court of Appeal also found that the association’s CC&Rs clearly provided that the obligation to pay assessments began when the declarant sold the first lot to an individual owner, and was therefore not contingent on units actually being built out on the parcel.

Voluntary payments made prior to trial, and after expiration of offer to compromise, are properly considered in determining whether a party is a prevailing party entitled to attorney’s fees.

Arias concerned an action brought by a homeowner against an association arising out of the association’s failure to maintain common areas, which the homeowner claimed caused toxic mold to develop in and around her unit. Prior to trial, the association offered to settle the suit for $50,001 pursuant to Code of Civil Procedure Section 998. This settlement offer expired. Thereafter, prior to trial, the association stipulated to liability on certain of the homeowner’s claims and paid the homeowner $88,939.75. The remaining claims were litigated and the homeowner was awarded $6,400 in damages. Thereafter, each side filed motions seeking to recover attorney’s fees as the prevailing party. The trial court found that the homeowner was the prevailing party because she had obtained a more favorable judgment than the association’s $50,001 offer to compromise. The trial court reached this conclusion by adding the association’s post-settlement offer payments (of $88,939.75) to the amount of damages awarded at trial ($6,400). In affirming the trial court’s decision, the Court of Appeal found it proper to add voluntary payments made after the expiration of a 998 offer to the amount awarded at trial in determining which party was the prevailing party.

I. Andrews v. Mobile Aire Estates (2005) 125 Cal.App.4th 578.

Landlords have a duty to take steps to ensure that tenants shall have quiet enjoyment and possession of their premises.

Andrews concerned a suit brought by a mobile-home resident against the park owner from whom the resident leased a mobile home space. The resident contended that the park owner had breached the lease by failing to take action against the resident’s neighbor, also a park resident, who the resident contended had violated numerous park rules and was harassing the resident. The trial court awarded summary judgment to the park owner, finding that the park owner had no duty to take action against the allegedly misbehaving neighbor. The Court of Appeal, in reversing the trial court, found that every lease contains an implied covenant whereby the landlord impliedly promises that the tenant shall have quiet enjoyment and possession of the premises. Given this implied covenant, the Court of Appeal found, triable issues of fact existed relating to whether the park owner had breached this covenant by failing to take action against the neighbor.

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