WAITING FOR GODOT ?
Or Should Associations Defer Updating Governing Documents to
See What the Legislature Is Going to Do About the Davis-Stirling Act?
Waiting for Godot is a famous play by Samuel Beckett in which the characters wait for Godot, who never arrives. Homeowner association boards who are considering updating their governing documents may feel like they are living that scenario.
For years there has been discussion about a major overhaul of the Davis-Stirling Act. Last year a major bill was introduced in the Assembly (AB 1921). The bill was passed by the Assembly and sent to the Senate where the author withdrew the bill for reconsideration. It is not known when this or another bill may be introduced, but it seems inevitable that it will occur. While many associations are proceeding with already-planned governing document update projects and many continue to seek proposals to undertake projects in their upcoming budget year, some boards are wondering whether governing document revisions should be deferred until we know what the Legislature is going to do about the Davis-Stirling Act.
When Depends on Why
The question seems to suggest that the reason for doing a governing document update project is solely to make old documents conform to changes that have been made in the Davis-Stirling Act over the years or, in the case of developments created before 1986, the enactment of Davis-Stirling, itself. Actually, changes in the law are a reason but they are not the only reason or even, necessarily, the most important reason. The expression “updating our governing documents” really functions as a shorthand way to refer to a host of reasons why boards decide to undertake governing document rewrites. And when an association undertakes a document update project depends on why they are doing it.
Why Governing Documents Need to Be Rewritten
Apart from changes in the law, many existing governing documents suffer from deficiencies in the way the information is organized and presented and in the concepts and content that are presented. Having done complete rewrites and other amendments for hundreds of associations, and having reviewed in detail hundreds if not thousands of other sets of documents over the years, I do not believe that most problems with most governing documents are the result of the way the law is organized (or disorganized) or the fact that the law has changed. Instead, I believe that partially these deficiencies are an inherent result of the way real estate development is regulated and partially they are a result of a lack of understanding or respect for the important impact governing documents have on the ongoing successful operation of homeowner associations.
Original developer documents are written to satisfy the requirements of the Department of Real Estate in connection with that agency's regulation of real estate sales. The Department of Real Estate does not regulate homeowner associations as such and does not have expertise concerning their long term operational challenges. Neither the DRE nor the developer has “walked the walk.” Consequently (and it should not be a surprise) original developer documents may not address issues that 10 or 20 or 30 years down the line are important to associations. In some cases, it also seems that developer documents written for a particular kind of project (e.g., a condominium with no private streets) are re-cycled for a different kind of project (e.g., a planned development with attached “townhouse” style of architecture and private streets) and necessary modifications are not made accurately or at the most logical places in the documents or may be overlooked. When that subsequent document is itself re-cycled for yet another project with other variations, more changes are grafted in and, again, not always effectively or in the most logical place.
I have also seen my share of original or previously re-written documents that appear to have been written (or cut and pasted from other documents) by amateurs, as well as some that seem to be the work of attorneys not particularly knowledgeable in the operational needs of homeowner associations or not gifted in the art of drafting complex documents. You would not go to a tree surgeon or brain surgeon for your hip replacement surgery. Similarly, an association member who is an estate planning lawyer or the litigator who did such a great job on your association's construction defect case is not necessarily the best choice to rewrite your governing documents and having that litigator's first year associate take a whack at it . . . well, even less so.
Whatever the historic source of the particular deficiency may be, the point is that many of the problems with the form and content of governing documents that need to be rewritten are not caused by, and are not the result of, changes in the law.
“Non-Law” Problems with Form and Content
Some common problems with organization and presentation that make governing documents a candidate for a rewrite include:
— A lack of logical organization. This can result in fragmented documents in which provisions concerning a particular topic are scattered throughout, in Section 4.10, Section 5.12(a), Section 8.6(d)(ii), and Section 11.2 of the CC&Rs and Section 3.9 of the Bylaws.
— Unpredictable division of a particular topic between documents. Some of the pertinent provisions concerning, for instance, election of directors are (properly) placed in the bylaws but the nomination procedures for no apparent reason are in the CC&Rs.
— Partial or complete redundancy between the documents. Lengthy provisions that logically should be in the bylaws (e.g., board meetings) are repeated in full in the CC&Rs. Or vice versa: e.g., assessment provisions that logically should be in the CC&Rs are repeated in the bylaws. This can lead to conflicts over time when one document is amended but the identical provision in the other document is overlooked.
— Internal inconsistencies in the same document or between documents. My personal favorite was a set of documents where the CC&Rs contained two inconsistent provisions on a particular topic and the bylaws contained yet a third different provision; the topic was one that properly should have been addressed in the bylaws; and the “conflict” provisions in the documents said that in case of a conflict the CC&R's controlled.
— Impenetrable format. Lists without headings that go from item (a) to item (t) so you have to flip back 4 pages to find the beginning of the sentence and another 3 or 4 pages to find out you are in Article III, Section 4.
Some typical problems with concepts and content include:
— Poor definitions. For example, “Common Area means everything except the Units. Units means everything except the Common Area.” I paraphrase, but only slightly.
— Lack of provisions to deal with foreseeable problems. For instance non-resident owners who do not respond to issues concerning their tenants, or a complete lack of “damage and destruction” provisions.
— Vague maintenance provisions. Sometimes this is due to a combination of poor definitions and failure to address a foreseeable issue.
— Provisions that do not address maintenance responsibilities as they have evolved during the life of the development. This can result in inconsistent handling of a maintenance issue by the association and resentment by some members.
— Fundamental lack of understanding by the drafter concerning the nature of the community. For instance, condominium terminology mashed together with planned development concepts.
The Cost of Non-Law Problems
These kinds of non-law problems in the organization and the content of governing documents can result in the need for an association to spend thousands of dollars on legal opinions to sort out confusing and contradictory provisions in its documents (the resolution of which does not necessarily depend on provisions of the Davis-Stirling Act). Or, worse, they can give rise to lawsuits by members and to consternation in the community which can range from the insidious (member mistrust of the board or manager) all the way to member outrage (resulting in recall elections and renegade unauthorized meetings) and requiring costly intervention of legal counsel to calm the waters.
Associations with documents that suffer from non-law deficiencies have a strong motivation to rewrite their documents, completely independent of the ebb and flow of the legislative cycle.
When Also Depends on Other Internal and External Factors
When an association undertakes a document rewrite project also depends on its own internal considerations and on external factors. These factors can cut both ways.
Internally, if an association is involved in litigation or major reconstruction, it may not have the financial or manpower resources to take on a governing document project at the same time. On the other hand, if an association is funding a major reconstruction, the board may decide to also rewrite the documents at that time to clarify or modify maintenance obligations. Similarly, a brewing controversy over an impending major maintenance or enforcement issue or assessment may be the trigger for a particular association to decide to go forward with a rewrite project but might cause another association to postpone until emotions settle down.
Externally, the recent and continuing dislocation of the mortgage market has resulted in some associations postponing projects due to inability to collect assessments from lots or units that are in limbo pending foreclosure, but has prompted others to go forward due to a desire to address enforcement and maintenance issues.
Another external factor can be pending legislation. But, in the case of any legislation affecting homeowner association, attorneys who practice in the field will study, interpret, and apply it.
If necessary, attorneys who devote their practice to rewriting governing documents will develop appropriate changes to their template documents. Effective governing documents are organized based on the reality of how associations operate and not on how applicable statutes are organized. Just as the current law is not the reason existing poorly organized governing documents are that way, so a “re-organization” of Davis-Stirling, if an when it occurs, will not cause attorneys' existing document formats for rewrites to automatically become obsolete.
A typical life cycle for a governing document rewrite project, from request for a proposal to completion of voting and recording of the amended CC&Rs, can be one to two years. This is about the same as the life cycle of a bill in the Legislature. With two relatively slow moving objects, there is room to maneuver. Practitioners will develop procedures for keeping project documents that are in the pipeline up to date prior to taking the documents to a member vote. And they will advise their clients about modulating the schedule of the project if developments in the Legislature warrant.
There can be benefits to an association having its project underway when legislation is enacted. If legislation does result in important substantive changes, it is likely that there will be a surge in the demand for document rewrites. Those associations with projects in the pipeline at the time will benefit because the changes can be immediately incorporated in their documents. Associations who sat on the sidelines could find themselves waiting in a long line for the finite resources of knowledgeable and experienced attorneys with expertise in rewriting governing documents, and all the while continuing to live with the “non-law” deficiencies in their existing documents.
So, SHOULD you defer updating your association's governing documents to see what the Legislature is going to do about Davis-Stirling? Let's go back to our play.
Our production of Waiting for Godot is set in Sacramento. The backdrop is Proposition 13 which makes it impossible for cities and other local agencies to raise revenues to provide for many community amenities and ensures that homeowner associations will continue to be with us in order to maintain unstable hillsides and pay for parks, streets, and other facilities.
Our cast is the constantly revolving stream of Assembly members and Senators. Probably some version of a major revision of Davis-Stirling will be enacted eventually. But when it is and whenever it is, that will not stop continuing future changes from being made to the re-organized Davis-Stirling Act.
And that's how the play ends. We will always be dealing with pending legislation. Godot does not arrive.