Is a Homeowners Association Under a Duty to Inspect for Latent Damages?

Is a Homeowners Association Under a Duty to Inspect for Latent Damages?

 

In 2003, the Right to Repair Act took effect and completely transformed the process for California homeowners and homeowners associations to recover against builders and contractors for construction defects.  Significantly, the Right to Repair Act bars any actions for damages from being filed more than 10 years after substantial completion of the construction.  As the 10-year anniversary of the Act approaches, questions arise regarding the Act’s impact on the scope of duties owed by homeowners associations and whether homeowners associations have an obligation to inspect for latent defects before the 10-year expiration date. 

Residential Construction Defect Litigation in California

 

The Right to Repair Act, also known as SB 800, comprehensively reformed residential construction defect litigation in California.[1]  Generally speaking, the Right to Repair Act sets forth several standards for major pieces of construction—roofing, foundation, plumbing, electrical—and a mandatory pre-lawsuit procedure that gives builders the “right to repair” any failures to satisfy the prescribed standards.[2]

The Act was the Legislature’s response to a California Supreme Court decision that held homeowners could sue only for breach of contract to recover for construction defects that had not yet caused physical damage.[3]  In other words, prior to 2003, if the homeowner’s only damage was “economic loss” (e.g., the cost of fixing the problem), then the homeowner was precluded from suing for negligent workmanship. 

The Act created an exclusive remedy for homeowners to recover for defective construction resulting in economic loss or property damage.[4]  In that respect, the Act not only overturned to the Supreme Court case, but also created a comprehensive statutory framework applicable to nearly all construction defect claims.  However, no lawsuit can be filed more than 10 years after substantial completion of the construction.[5]  This outer limit to bring claims, known as the statute of repose, is an “‘absolute requirement’…whether or not the defect was or even could have been discovered within that period.”[6]  

Homeowners Associations

 

A homeowners association (HOA) is a nonprofit group, whether or not formally incorporated, created for the purpose of managing a common interest development, such as condominiums, subdivisions, and apartment complexes.[7]  Thus, a homeowners association, acting through its directors and officers, owes certain duties to the homeowners. 

  • Duties as Landlords: First, associations that act as landlords by maintaining common areas, often in larger communities, owe a duty of care to the homeowners in their maintenance.  This duty includes an obligation to timely respond to known maintenance issues.[8] 
  • Duties under the Covenants, Conditions and Restrictions (CCRs): CCRs are rules, usually enforced by the HOA, that govern the use of property in a development.  CCRs can include rules about exterior paint colors or fences as well as specifications about HOA maintenance requirements (e.g., an obligation to keep the common area in “first class condition”).  Associations therefore have contractual duties under these CCRs to the homeowners.[9] 
  • Fiduciary Duties: Finally, HOA board members owe a duty of care and undivided loyalty for the interests of the association.  This duty of care includes the obligation to make reasonable inquiry into matters that other prudent people would under similar circumstances.[10] 

Consequently, if an association fails to adequately maintain common areas or comply with its obligations under the CCRs, the HOA and its board members may be liable to the homeowners.

Homeowners associations are provided some deference, however, when it comes to decisions regarding routine maintenance.[11]  For example, in one case, the HOA decided to spot treat a termite infestation instead of fumigating the entire complex.  A homeowner sued the HOA, claiming that it breached its duties by not fumigating.  The Court declined to intervene, stating that when an association makes a routine maintenance decision based “upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members … courts should defer to the board’s authority and presumed expertise.”[12]

This deference does not apply to inaction.  One court held that a HOA was not entitled to deference with respect to a plumbing problem because, although the board discussed various maintenance options, it never acted upon any.  The court held that the “judicial deference doctrine does not shield an association from liability for ignoring problems.”[13]  Interestingly, the court did not find dispatching plumbers to snake the drains in response to individual incidents sufficient “action” to trigger the doctrine.[14]

Duties under the Right to Repair Act

 

Against this background, it appears a colorable argument exists that a HOA has an obligation to inspect the common areas for latent defects before the expiration of the statute of repose under the Right to Repair Act.[15] 

As an initial matter, homeowners associations have standing to bring claims under the Right to Repair Act for issues concerning common area maintenance.[16]  Moreover, it appears that initiating claims, such as those under the Right to Repair Act, was specifically contemplated by the Legislature.  California law protects HOA directors and officers from personal liability for decisions made within the scope of their duties as board members.[17]  While the statute disclaims any intent to modify the scope of duties,[18] it clarifies that the scope expressly includes decisions “[w]hether to conduct an investigation of the common interest development for latent deficiencies prior to the expiration of the applicable statute of limitations.”[19]  This lends support for the argument that the decision to conduct an investigation prior to the expiration of Right to Repair Act claims would fall within the traditional scope of the HOA’s duties. 

Further, as seen above, the doctrine of judicial deference does not apply to inaction.  While there may be “some rare situations where an association’s decision to do nothing to address a common area maintenance issue deserves judicial deference,” it is clear that any such decision should be the result of a deliberative process and carefully weighed alternatives.[20]  Given that the burden of showing entitlement to judicial deference rests on the HOA,[21] as a practical matter, HOA directors would be wise to order, at minimum, a general inspection of the common areas before the 10-year deadline to file a claim.

In conclusion, while it may be difficult to argue that the Right to Repair Act creates a new duty, the 10-year limitations period is not new in construction defect litigation.[22]  Further, as fiduciaries, HOA board members have a duty to exercise due care and to make “reasonable inquiry” into matters as needed.[23]  This duty in conjunction with the affirmative burden required to invoke the judicial deference doctrine provides practical incentive for HOAs to undertake at least minimal investigation into potential claims under the Right to Repair Act before the expiration of the 10-year deadline.

If you have questions about the scope of homeowners association duties or claims under California’s Right to Repair Act, the attorneys at Wood Litigation are here to help.  Please contact us for an initial consultation. 

[1] McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, 250.

[2] Cal. Civil Code § 895, et seq.

[3] McMillin, supra, 4 Cal.5th at pp. 246-47 (referencing Aas v. Superior Court (2000) 24 Cal.4th 627).

[4] McMillin, supra, 4 Cal.5th at p. 247.

[5] Cal. Civ. Code § 941(a).

[6] Hensel Phelps Construction Co. v. Superior Court (2020) 44 Cal. App. 5th 595, 613-614.

[7] Cal. Civ. Code § 4080. 

[8] Frances T. v. Village Green Owners Assn (1986) 42 Cal.3d 490, 499 (“And traditional tort principles impose on landlords, no less than on homeowner associations that function as a landlord in maintaining the common areas of a large condominium complex, a duty to exercise due care … in those areas under their control.”).   

[9] Sands v. Walnut Gardens (2019) 35 Cal. App. 5th 174 (finding trial court erred by granting nonsuit as to claim for breach of contract based on association’s obligations under the covenants, conditions, and restrictions).

[10] Frances T., supra, 42 Cal.3d at p. 513 (“Directors of nonprofit corporations such as the Association are fiduciaries who are required to exercise their powers in accordance with the duties imposed by the Corporations Code. [Citation.] This fiduciary relationship is governed by the statutory standard that requires directors to exercise due care and undivided loyalty for the interests of the corporation.”).

[11] Lamden v. La Jolla Shores Clubdominium Homeowners Assn (1999) 21 Cal.4th 249, 253 (“Thus, we adopt today for California courts a rule of judicial deference to community association board decisionmaking that applies, regardless of an association's corporate status, when owners in common interest developments seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations' boards of directors.”).

[12] Lamden, supra, 21 Cal.4th at p. 265.

[13] Affan v. Portofino Cove Homeowners Assn (2010) 189 Cal. App. 4th 930, 942.

[14] Affan, supra, 189 Cal. App. 4th at p. 933. 

[15] See, e.g., Smith v. Superior Court (1990) 217 Cal. App. 3d 950 (finding case against individual board member for failure to inspect for latent construction defects before expiration of statute of limitations time barred).

[16] Cal. Civ. Code § 895(f) (“‘Claimant’ or ‘homeowner’ includes the individual owner of single-family homes, individual unit owners of attached dwellings and, in case of a common interest development, any association as defined in Section 4080 [the Davis-Sterling Common Interest Development Act].”); see also Cal. Civ. Code § 5980 (“An association has standing to institute, defend, settle, or intervene in litigation…in its own name as the real party in interest and without joining with it the members…”). 

[17] Cal. Civ. Code § 5800(a)(a).

[18] Cal. Civ. Code § 5800(f)(2) (“It is the intent of the Legislature that this section clarify the scope of association duties to which the protections against personal liability in this section apply.  It is not the intent of the Legislature that these clarifications be construed to expand, or limit, the fiduciary duties owed by the directors and officers.”).

[19] Cal. Civ. Code § 5800(f)(1)(A).

[20] Affan, supra, 189 Cal. App. 4th at p. 942 (emphasis in original). 

[21] Affan, supra, 189 Cal. App. 4th at pp. 940-41 (“Thus, the defendant has the burden of establishing the requisite elements for applying the [Lamden] rule.”).

[22] Cal. Civ. Proc. Code § 337.15 (10-year statute of limitations for construction defect claims).

[23] Frances T., supra, 42 Cal.3d at p. 513 (citing Cal. Corp. Code § 309).


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