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Are you a director or member of a Home Owners’ Association with oversight of common areas, or an owner of a building containing three or more multifamily dwelling units, with exterior elevated balconies in California? A new requirement for inspections of those exterior elevated balconies takes effect on January 1, 2025. Do you have an adequate reserve of funds to cover future required maintenance and repairs of those elevated elements? Many older buildings may require major revisions to their maintenance budgets causing HOA fees to become unmanageable by some owners and renters.
New Requirements for HOAs of CIDs on January 1, 2025
By Kelly A. Stone, Esq.
July 15, 2024
In August 2019, the Governor signed into law SB 326[i], requiring inspections of elevated load-bearing elements (i.e., exterior balconies) by HOAs, and a further requirement to provide inspection reports to local code compliance agencies if the inspection reveals an unsafe risk to an occupant. Further, any recommendation for immediate repair would allow the association authority to impose an emergency assessment on the association’s members without a vote by the membership. For buildings or developments with permit applications in place before 2020, the first inspection report is due on January 1, 2025.
Proposed and enacted in 2019, SB 326 created the following requirements which should be highlighted with property managers and board members of HOAs. The requirements were developed in response to the fatal balcony collapse at the apartment complex in Berkley, formerly known as Library Gardens at 2020 Kittredge Street. Builders did not follow specific construction plans. A different quality of wood was substituted for the balconies, and the placement of a protective membrane for waterproofing was delayed thereby exposing the exterior portion of the balconies to heavy rains. Conditions led to a balcony sheering off from the building during a party, dropping 13 attendees to the ground. Six died, and the other seven were seriously injured.
Beginning with SB 721[ii], Section 1954 of the Civil Code was modified in 2018 to allow landlords extended authority to enter a dwelling unit “[t]o comply with the provisions of Article 2.2 (commencing with Section 17973) of Chapter 5 of Part 1.5 of Division 13 of the Health and Safety Code”[iii] to inspect “[e]xterior elevated elements that include load-bearing components in all buildings containing three or more multifamily dwelling units.”[iv] These inspections were then extended to associations of Common Interest Developments in 2020 by SB 326. SB 326 added Section 5551 to the Civil Code to require the board of an association of a condominium project to “cause a reasonably competent and diligent visual inspection to be conducted by a licensed structural engineer or architect”[v] of essentially all exterior elevated elements (i.e. balconies) that are elevated more than six feet above ground level which are designed for “human occupancy or use, and that are supported in whole or in substantial part by wood or wood-based products.”[vi] The inspection is intended to determine whether the balconies, and their associated waterproofing systems, for which the association has maintenance or repair responsibility, are in a safe condition. There are time requirements for the inspections depending on when the building or development was permitted for construction.
Applicability
The typical language of a declaration of covenants, conditions and restrictions for a condominium development includes providing authority for the association to maintain the exterior portions of the units and allows the assessment and collection of assessments against the unit owners. There is typically language in the declaration stating for example:
Association Maintenance and Decoration Authority. The Board, or its duly appointed agent, will have the exclusive right to paint, decorate, repair, maintain, alter or modify the exterior walls, balconies, railings, exterior door surfaces, roofs, and all installations and improvements on the Common Area. No Owner of a Unit will be permitted to do or have any such work done. The prior written approval of the Board will be required for the installation of any awnings, sunshades, or screen doors. The restrictions set forth in this Section will not apply to the initial construction of the buildings or other improvements by Declarant.[vii]
A typical definition of a condominium unit by the declaration includes the elements of the unit that are owned individually and not in common with owners of other elements of the project or development. Accordingly, the areas subject to the Common Area are often balconies providing access to the units, stairs, walkways, and balconies that overhang the Common Area shared by all units. The Common Area is usually defined within an exhibit to the CC&Rs and it may include elements, such as exterior balconies of the units, even though the balconies may only be accessed by the unit owner from inside the unit.
Section 5551 (a)(3) specifically identifies and defines load-bearing components as those extending “beyond the exterior walls of the building to deliver structural loads to the building from decks, balconies, stairways, walkways, and their railings, that have a walking surface elevated more than six feet above ground level”[viii] which will most likely match the language in many CC&Rs defining the areas under the control of the association. Section 5551 also requires the inspection of newer buildings, those for which a building permit application has been submitted on or after January 1, 2020, to occur no later than six years following the issuance of a certificate of occupancy.[ix] For older buildings built prior to 2020, the first inspection shall take place by January 1, 2025, and every nine years thereafter. The inspections are required only for “buildings containing three or more multifamily dwelling units.”[x]
Inspection Requirements
The inspection and inspector requirements can also be found in Section 5551 of the Civil Code. Definitions of the associated waterproofing systems, exterior elevated elements, and load-bearing components are found in subsection (a) of Section 5551. The inspection consists of a visual inspection as defined in subsection (a)(5) consisting of a visual observation which may include the use of “moisture meters, borescopes, or infrared technology.”[xi] The inspection does not need to include all units of the development; subsections (a), (b), and (c) of Section 5551 only require a statistically significant sample providing a 95 percent confidence that all types of each exterior elevated element of which the association has maintenance or repair responsibility are represented.
The inspector shall exercise their best professional judgment in determining the need for further inspections beyond a visual inspection. Some architects and engineers employ a qualified waterproofing expert to assist with the inspection of the associated waterproofing systems. A written report shall be issued containing the details set forth in subsection (e) of Section 5551 of the Civil Code, including identification of the components comprising the loadbearing components and associated waterproofing system, the condition, whether there is an immediate threat to the health and safety of the residents, expected performance and remaining useful life, and recommendations for necessary repairs or replacements.
Reporting Requirements
If the inspector determines that an immediate threat is posed by the elevated elements to the occupants, it shall then provide the written report to the association immediately, with a copy to the local code enforcement agency within 15 days of completion. The association shall take preventative measures, including preventing occupant access until repairs have been inspected and approved by the local code enforcement agency. Costs are recoverable by the agency. There are additional recordkeeping requirements of the association in subsection (i) of Section 5551.
Given the reporting requirement for immediate safety risks, it may be advisable for the association to undertake visual inspections on a regular basis so that maintenance is ongoing. Routine inspections can provide information to the association for proper and timely maintenance, proper budgeting, and bigger savings on insurance premiums resulting in decreased expenses by avoiding more costly repairs or replacements.
Financial Impact and HOA Operations
When repairs or replacement of elevated elements or the associated waterproofing system require immediate resolution pursuant to the inspection report, the association must determine whether the costs are earmarked within the reserve budget. If the expenses are not budgeted, the association will need to assess members for the expense. Because the report will be provided to the local code enforcement agency, there will be enforcement of the repairs. Access to the areas of immediate risk should be prevented or restricted by the association until the repairs have been inspected and approved by the local enforcement agency. Given the cost of repairs or replacement of balconies, it can be financially devastating to individual unit owners if the expense must be covered by surprise, mandatory assessments.
Section 5610 of the Common Interest Development Act of the Civil Code, provides an exception to the limitations of assessments by an association on its members, as well as an exception to the assessment approval process. Section 5610 allows the association’s board to impose an emergency extraordinary expense assessment on the association members without observation of the regular member approval formalities of voting. Per Civil Code Section 5610 (b), an emergency situation includes “[a]n extraordinary expense necessary to repair or maintain the common interest development or any part of it for which the association is responsible where a threat to personal safety on the property is discovered.”[xii] The only information to be provided to the members regarding the emergency assessment is in the form of a formal resolution to the members showing the “necessity of the extraordinary expense involved and why the expense was not or could not have been reasonably foreseen in the budgeting process, to be distributed with the notice of assessment.”[xiii]
Associations of Common Interest Developments may need to prepare to handle the process for inspections as well as the cost for these inspections and any required emergency assessment. The additional costs of the required inspections and any further inspections that may include destructive testing should be highlighted with associations so that they can budget for them. Further, associations will need to become better at maintenance and foresight of projected future repairs in their budgeting process. You should also point out the unknown regarding whether or not an individual owner is exempted from similar inspection and repair obligations based on circumstances of the elevated element being defined as part of an individual unit and not that of a common area. Future declaration drafting could be refined to contemplate these issues. If you are representing an association board or property managers, you should also help them by reviewing the risks associated with any non-compliance.
With an unforeseen need to plan for additional assessments to cover additional inspection costs and future maintenance, individual unit owners could find themselves in a financial crisis upon imposition of an emergency assessment or assessment increases they cannot afford, which could result in foreclosures. Likewise, assessment increases create an affordability problem for buyers. Further, the inspection report could affect the value of the development as a whole as well as the individual units. Changes in value due to inspection reports and emergency assessments could create issues with FHA and VA loans. With older condominiums that need more attention, this scenario will pose problems with lenders and may require individual owners to come up with alternative and creative financing options. To be able to afford the emergency assessment and increased assessments, reverse mortgages may be necessary for some residents, while selling and relocation or foreclosure may be a requirement for others.
Kelly A. Stone, Esq. is Senior Associate Attorney in the Business, Real Estate and Litigation Departments of Kirk & Simas, PLC in Santa Maria, California. If you are looking for legal advice or representation please contact Kelly or any one of our talented attorneys at Kirk & Simas, PLC at (805) 934-4600.
[i] 2019 Cal ALS 207, 2019 Cal SB 326, 2019 Cal Stats. ch. 207
[ii] 2018 Cal ALS 445, 2017 Cal SB 721, 2018 Cal Stats. ch. 445
[iii] Civ. Code, § 1954 (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[iv] Health & Saf. Code, § 17973 (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[v] Civ. Code, § 5551 (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[vi] Id.
[vii] 11 California Real Estate Law & Practice § 385.131 (2024)
[viii] Civ. Code, § 5551 (a)(3) (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[ix] Civ. Code, § 5551 (k) (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[x] Civ. Code, § 5551 (l) (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[xi] Id. at subsection (a)(5).
[xii] Civ. Code, § 5610 (b) (Deering, Lexis Advance through the 2024 Regular Session Ch 22)
[xiii] Civ. Code, § 5610 (c) (Deering, Lexis Advance through the 2024 Regular Session Ch 22)