United States: West Coast Real Estate Update: Feb. 1, 2016

Stacie Andra Goeddel is a Partner in our San Francisco office, Susan Jennifer Booth, Karl J. Lott and Douglas A. "Doug" Praw are partners and Ashley K. Jason and Paul J. Park are Associates all in our Los Angeles office.

Residential Communities: Proposed Amendment to Allow Owners' Attorneys at Association Board Meetings

In an attempt to further broaden when a member of a common interest development association can bring his or her attorney to association meetings, Assembly Bill 1720 was introduced to the California Legislature on Jan. 27, 2016, which proposes amending California Civil Code Section 4925 to permit members' attorneys to attend association board meetings. Currently, Section 4925 permits members to attend and speak at board meetings, except executive sessions. This amendment would allow a member to bring an attorney to a board meeting or have an attorney attend a board meeting on behalf of such member. This proposed amendment would supersede a recent California case that held that a community association board could exclude a member's attorney from attending its open board meetings because the right to attend board meetings runs to the members and not their third-party representatives. See SB Liberty, LLC v. Isla Verde Association, Inc., 217 Cal. App. 4th 272 (2013).

This proposed amendment should raise many of the same concerns raised by the 2015 amendment to the Internal Dispute Resolution (IDR) provisions of the Davis-Stirling Act, which allow members to bring an attorney to an IDR meeting without notice to the association board. These concerns include the increase in costs to the association in preparing for the possibility of a member's attorney being present at an association meeting and the risk that any issues discussed could be used in later litigation. Although many vocal advocates stood up against the IDR amendment, consumer protection concerns prevailed. This could happen again with Assembly Bill 1720, requiring managers and boards of directors to plan for such presence at their board meetings.

Residential Communities: Energy Efficiency Over Aesthetics – Within Reason

New laws went into effect in January requiring California homeowners associations and landlords to permit outdoor air drying, a use commonly prohibited in community governing documents, but allowing some control over such use through "reasonable" restrictions. Section 4750.10 of the California Civil Code within the Davis-Stirling Common Interest Development Act provides that any provision of a governing document that prohibits the use of a clothesline or drying rack in an owner's exclusive-use backyard is void and unenforceable. While air drying cannot be expressly prohibited, such use can be "reasonably" limited under this new law, which allows an association to maintain some control over the aesthetics of the community. Governing documents may include "reasonable restrictions" regarding air drying so long as the restriction is not a significant cost to the owners. In addition, air drying can be restricted further through "reasonable" rules developed by the homeowners association. To the relief of associations in luxury resort communities, the new law specifically excludes balconies, railings and awnings as "drying racks," and owners and guests can still be prohibited from draping beach towels over balconies.

Section 1940.20 of the California Civil Code creates a similar right for tenants to air dry in their private outdoor areas, subject to landlord approval. In addition, landlords may impose reasonable time or location restrictions.

During El Nino, there may not be much call for use of clotheslines and drying racks. However, associations, landlords and managers should use this rainy season to identify "reasonable" rules and restrictions for air drying in their residential communities once the rains stop.

In re Perl and Loss of an Interest in Real Property

The U.S. Court of Appeals for the Ninth Circuit decided In re Perl on appeal from the Bankruptcy Appellate Panel (BAP) on Jan. 8, 2016, clarifying when an interest in real property is lost in an unlawful detainer action. The Ninth Circuit reversed the BAP's affirmation of the bankruptcy court, holding that upon the issuance of an unlawful detainer judgment and a writ of possession, a debtor no longer has a legal or an equitable possessory interest in a property.

In 2013, Eden Place LLC purchased a duplex property in Los Angeles previously owned and still occupied by Sholem Perl through a nonjudicial foreclosure. Eden Place served Perl with a three-day notice to quit and a subsequent unlawful detainer complaint. The court entered judgment and issued a writ of possession in favor of Eden Place, which resulted in the eviction of Perl. Prior to eviction, but after the issuance of the writ of possession, Perl filed a Chapter 13 bankruptcy petition, triggering an automatic stay. The bankruptcy court held that the eviction violated the automatic stay. On appeal, the BAP agreed and held that under California law, "mere possession" of real estate is often treated as a property interest, and the eviction should have been stayed. The Ninth Circuit reversed, concluding that in an unlawful detainer proceeding, which is expressly designed to determined who has superior title, a prevailing party with a writ of possession has the right to title and a right of immediate possession, and that a resident in actual possession has no remaining interest in the property. Because Perl had no legal or equitable interest in the duplex and no property to become a part of the bankruptcy estate, his eviction did not violate the stay.

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