THE BALCONY BILL - DEFINED

CALIFORNIA SENATE BILL 326

By Gordon A. Walters, Esq. Epsten Law Firm

On August 30, 2019, Governor Newsom signed Senate Bill No. 326 (S.B. 326) into law, adding two new statutes to the Davis-Stirling Act. Civil Code section 5551 adds a requirement for associations to perform inspections of balconies and other exterior structural elements that the association has an obligation to maintain. Civil Code section 5986 invalidates and voids developer friendly provisions in governing documents that require homeowner votes prior to filing of a construction defect lawsuit. Below is an overview of the important points you need to be aware of regarding these new laws, which will go into effect on January 1, 2020.

BALCONY INSPECTION Q&A

The balcony inspection portion of this bill will look familiar to many, as it resembles the bill passed one year ago (S.B. 721), impacting apartment buildings and other multi-family projects throughout California. Common interest developments were excluded from S.B. 721, as the legislature tinkered with the inspection requirements to make for a more bearable burden on associations.

WHICH ASSOCIATIONS ARE IMPACTED?

Associations with buildings with three or more multifamily dwellings.

What Needs to Be Inspected?

Any “Exterior Elevated Elements” for which the association has a repair or maintenance responsibility – generally, this will be any load bearing components that extend beyond the exterior walls of the building to deliver structural loads to the building. Primarily this includes balconies, decks, stairways, walkways and railings that are supported by wood or wood-based products and are more than six feet above the ground.

Who Can Perform Inspections?

Inspections must be performed by a licensed structural engineer or architect. Larger associations may also need to use a statistician, as the statute requires a statistically relevant sample size be inspected (95% confidence level, with a 5% margin of error).

When Do Inspections Need to Be Performed?

Inspections must be completed every nine years. The first inspection must be completed by the end of 2024. Buildings being constructed after this law goes into effect will need to complete their first inspection within six years of issuance of a certificate of occupancy.

What Must the Inspection Look For?

Visual inspections must confirm that areas are in a “generally safe condition” and “performing in accordance with applicable standards.” If the inspector sees signs that the waterproofing system has been compromised, or that there is risk of damage to the load bearing components of the building, they are to use best judgment to recommend further inspections. If there are any threats to safety of residents, the inspector must notify the association immediately and governmental inspection agencies within 15 days of issuing their report. The association must act immediately to prevent access to dangerous areas and take other appropriate preventive measures necessary to protect the safety of the residents.

WHAT REPORTS MUST BE GENERATED FROM THE INSPECTION?

The inspector must issue a written report that includes:

A. Identification of the applicable building components subject to inspection;

B. Current physical condition of the components and whether there is a present threat to the health or safety of residents;

C. Expected future performance of the components and remaining useful life; and

D. Recommendations for any repairs.

The inspector’s report must be stamped or signed and included in the association’s reserve study. The reports generated must be preserved in the association’s records for a period of at least two inspection cycles.

The five-year window to complete the first inspection will allow associations to coordinate the first balcony inspections to take place with an upcoming reserve study inspection. The nine-year balcony inspection cycles will then coordinate with every third reserve study inspection going forward.

Prior to moving forward, an association should also confirm that there are no more stringent inspection requirements in its governing documents or required by local government or enforcement agencies, as the code allows for more stringent requirements to be adopted locally.

CONSTRUCTION DEFECT LAWSUIT HOMEOWNER VOTING REQUIREMENTS

In August 2018, the Fourth District Court of Appeals, Division Three issued an opinion titled Branches Neighborhood Corp. v. CalAtlantic Group, Inc. (2018) 26 Cal. App.5th 743 (“Branches”). In Branches, a community association’s construction defect lawsuit against the builder of the project was dismissed because the association did not take a membership vote prior to filing the lawsuit, as required by a provision in the CC&R’s. The court dismissed the entire lawsuit, which sought over $5 million in damages to the association’s common areas, despite the fact that the homeowners overwhelmingly approved the filing of the lawsuit, voting to ratify the board’s decision to file, 92-1.

Because of the many short statutes of limitation and repose for construction defect claims, associations with similar CC&R’s provisions are often caught in a no-win dilemma. They can risk letting a statute of limitations run by complying with the vote requirement, which often takes months to complete in larger associations. Alternatively, the association can risk filing the lawsuit without conducting the homeowner vote to avoid letting a statute of limitations run, only to have their lawsuit dismissed for failing to take the homeowner vote prior to the filing of the lawsuit. While, on its face, requiring homeowners to approve litigation seems to be a pro-owner provision, as a practical matter, it served to insulate developers from liability by causing delay.

Recognizing the unjust result in Branches, and the no-win situation developers were effectively putting associations into with these onerous vote requirements, the Legislature has acted to invalidate governing document provisions that operate to limit the board of directors’ authority to decide whether to file a lawsuit against the builders of the project for construction defects. Any such provisions contained in governing documents are to be deemed unenforceable, null and void. The failure to comply with any precondition to filing suit, other than those conditions set forth in the Civil Code, cannot be asserted by the builder as a defense for claims brought against the builder.

The statute applies retroactively to all governing documents, whether recorded before or after the enactment of the statute. However, if a claim has already been resolved through a settlement, final arbitration decision or final judicial decision on the merits, the enactment of the statute will not revive any of those claims.

Notwithstanding the Legislature’s decision to invalidate these governing document provisions, associations can enact their own similar provisions, so long as the provisions are enacted solely by non-builder affiliated members of the association.