Many of the statutes in the Davis-Stirling Common Interest Development Act (Act) address common area maintenance and the calculation and levying of assessments needed to maintain and reserve for that maintenance. Directors and managers face the challenge of implementing these statutory directives, a task especially difficult during an economic downturn. Decisions have to be made: what must be repaired, what can be deferred; should we replace a component with a short term fix or with one that is more costly but will last longer? When the CC&Rs say common areas must be maintained in First Class condition is that different than requiring simply that common areas be maintained? Answering these and similar questions can affect habitability, enjoyment of the project and property values.
For new developments, the issues are even more complex. Title 7 of Division 2 of the California Civil Code (Title 7 which, before its enactment, was called SB 800) creates new standards and special statutory maintenance requirements for residential common interest developments constructed after 2003.1 These requirements, which can require compliance with a project Maintenance Manual, pose special risks for managers and directors because the failure to comply could reduce the recovery available to associations in construction defect claims or create liability to members or others if the new maintenance standards are breached.
The association's governing documents can add yet another dimension. Typical CC&Rs for new projects often contain specific requirements that the board must follow, including complying with the provisions of the maintenance manual and conducting all necessary inspections specified in such manuals.
Most maintenance manuals are detailed, but the maintenance that is required usually consists not of repairs, per se, but rather periodic inspections of various components. The ones that we have reviewed have few actual specifications for work to be performed for which contractor's bids could be obtained. Nevertheless, must the manuals be followed completely and if they are not, what is the consequence? This article is intended to help boards and managers navigate the liability risks created by the new maintenance standards contained in the manuals.
Managers and directors are given little statutory guidance for determining the extent of maintenance required by a common interest development. Section 1364 of the Act says:
(a) Unless otherwise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common areas, other than exclusive use common areas, and the owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common area appurtenant to the separate interest.
So, while we can understand from this what parts of the project must be maintained by the association, the Act does not outline exactly how, how often and at what expense that maintenance should be undertaken.
The lack of statutory maintenance standards was partially addressed in Title 7 for developments with residential homes sold after January 2003. Title 7 is actually a series of statutes intended to address mediation and related procedures for resolving construction defects. To set a benchmark for the performance of building components, we compare that performance in light of how the project was maintained after original construction. Civil Code §907 provides these maintenance guidelines:
A homeowner is obligated to follow all reasonable maintenance obligations and schedules communicated in writing to the homeowner by the builder and product manufacturers, as well as commonly accepted maintenance practices. A failure by a homeowner to follow these obligations, schedules, and practices may subject the homeowner to the affirmative defenses contained in § 944.
Importantly, the term Homeowner, as defined by Title 7, includes a community association in a common interest development.
The operative phrase is reasonable maintenance obligations and schedules provided by the developer of the project as well as commonly accepted maintenance practices. Civil Code §907 requires that reasonable written maintenance obligations and standards, if provided by the developer, be followed along with commonly accepted maintenance standards. But what if these two sets of standards conflict? Or what if the maintenance manuals prepared and delivered by the developer provide little in the way of actual specifications for necessary maintenance?
The Maintenance Manual has two main purposes: to provide guidance to the Association and to penalize it for failing to comply with the manual should it later bring construction defect claims against the developer. In light of this second purpose - to provide a defense to claims - the standards in the manual can overstate the maintenance activities that a particular component of the building may require. But are those maintenance requirements nevertheless reasonable?
The maintenance manual thus poses for a board a dilemma: comply with the manual literally, or provide less maintenance and risk undermining the Association's position in potential litigation with a developer or homeowner. Solving this dilemma requires a careful analysis of the maintenance manual for each particular development, a good understanding of the type of components required to be maintained (siding, roofing, metal fences, etc.) and how they function in conjunction with other components of a project.
Here are some ways a board can address these issues:
First and foremost, it is important not to assume more about the requirements of a typical maintenance manual than actually exists. Maintenance manuals are largely inspection schedules and most lack a specific scope for any actual work to be performed. The ones that we have reviewed say little about the scope of work necessary for repairs or replacement. So the first thing that the board or management should do is determine exactly what the manuals require and to understand the difference between doing inspections and doing actual work.
Here are some typical examples: In one manual, under the roofing section, it lists the following: Maintenance Suggestions - A competent roofing contractor should be employed to inspect all roof components and provide a detailed report to the association. The accompanying timetable merely says that the inspection should take place annually and that repairs should be performed as soon as problems are discovered or reported. It then goes on to relate all of the damage that might occur if repairs are not done. In another, the only specification for work is: Keep roof and drains clean and free of debris. The rest of the roofing section is simply an inspection schedule and an admonition that failure to properly maintain the roof may result in deterioration of the roof system and water infiltration.
To be fair, they don't claim to be specification sheets. And further, some of the suggestions above do fall into the category of maintenance work. But most focus on inspection schedules for an extensive array of project components, some minor repair or replacement of components, and reporting on the results of these inspections. For the most part they defer any decisions on serious work to contractors or other professionals, which brings us to the next paragraph. Keep this in mind: If the manuals don't specify the work to be done, no one can argue with the findings of the association's own expert.
An expert, either a contractor or design professional, is one with the necessary experience and education to specify how a particular building component should be maintained and on what schedule. The proper expert will also understand the standards of the industry and from that can conclude what is a reasonable maintenance program to be adopted by the board of directors. They should start with the list of components that the manual identifies and add their own opinions on how often the component should be inspected and what to do if problems are found. An opinion by an expert, who has reviewed the various provisions of a developer-written maintenance manual, can identify and provide the reasonable maintenance requirements of specific building components, providing actual specifications for which bids can be obtained, and will go a long way to filling in the gaps left in the manuals provided by the builder.
A board or its manager, having solicited and obtained the recommendations of a qualified expert on the maintenance standards and, more importantly, the specifications to be used to maintain and repair particular building components, are unlikely to be faulted for following those recommendations instead of the far more generic recommendations set forth in a maintenance manual provided by the developer.
Determining whether or not the developer's Department of Real Estate-approved budget is adequate to perform the maintenance required is another means of testing the validity of the developer's maintenance manual suggestions. Obviously, if the maintenance manual requires maintenance at a level for which funds are not available, it casts doubt on the developer's suggestions. Any maintenance or repair that the association performs must be funded.
We reviewed the budget for one association and compared it to the maintenance manual provided by the developer. There was only $6,240.00 included for routine maintenance and inspections and there was no break out between the two categories. It is impossible with a cursory review to tell if that amount of money will fund the various inspections and other routine maintenance suggested by the manual, but an expert's review of the inspection schedule will clarify that.
Much more important, however, is whether the cost of the actual repair work (re-roofing, painting, component replacement) has been properly funded in either the reserve or operating budget. This information is not going to be available from a maintenance manual that provides no specifications and must be obtained from whomever the association retains to do its periodic reserve studies, or from local experts, including contractors and design professionals who would normally be retained to provide bids for the association's repair projects.
It is unlikely that an outside expert would necessarily disagree with the inspection schedules set forth in the typical maintenance manual, because all competent experts agree that periodic inspection is important. But their opinions are necessary, not only in resolving any conflicts between the maintenance manuals and industry standards, but also to properly estimate the cost of the actual work necessary. It is the cost of the work, not the cost of inspections, which will have the greatest impact on an association's budget.
Once an outside expert has determined a schedule for maintenance inspections and repairs that comports with reasonable industry standards, and if that determination conflicts with provisions of the maintenance manuals or the developer's budget, an opinion from the association's legal counsel will give the board and management the assurance they need that following their own expert's guidelines will not subject the association, the board, or management to liability for any variance from the provisions of the developer's maintenance manual. Counsel can also review the association's governing documents to determine if they contain any provisions which require the board or management to follow any particular set of guidelines.
Finally, counsel can provide the type of safe harbor analysis that can be used to document the board's investigation and decision making process and to help gain for the board the business judgment rule protections afforded by the Civil and the Corporations Code.
The issue is this: must the association strictly comply with the maintenance manual or is it free to adopt and implement lesser maintenance techniques that are still adequate and reasonable and which will reduce maintenance costs without compromising the Association's legal position should defect lawsuits arise. Answering this question requires an independent technical and legal assessment of the development, the maintenance manual, the budget and the governing documents. Resolving these issues is important both for the protection of the community and the credibility of the board and its management team.