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Accell Advisor
Save the Date!
Board Member Appreciation
NightNovember 1, 2012
Accell Property Management
appreciates the time and energy
our volunteer Board members
put toward bettering their
communities. To say “Thank
You,” we would like to invite
you to our second annual Board
Member Appreciation Night.
Join us on November 1st for hors
d’oeuvres, refreshments, expert
advice and prizes.
HOA Concerns in Contracting
with Vendors
Every Homeowners Association (HOA) will at some point hire a
vendor to perform certain tasks on behalf of the HOA, or to furnish
services to the HOA and its members. In doing so, a HOA may be
exposed to liability brought about by vendor actions and/or the
terms of the vendor contracts. Because such liability may
substantially impact the financial interests of the HOA and its
members, HOA Boards of Directors and community managers mustunderstand how to properly protect the HOA when hiring a vendor.
This article addresses three issues that are key to doing so: (1) the
necessity for hiring properly licensed, bonded and insured vendors,
(2) the employment status of a vendor as an “independent
contractor” or an “employee” of the HOA, and (3) the importance of
having proposed vendor contracts reviewed by legal counsel prior
to execution.
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F A L L 2 0 1 2
The
By The Tinnelly Law Group
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THE ACCELL ADVISOR FALL 2012
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Understanding how to Protect the Interests of the HOA and its Members
Licensed, Bonded and Insured VendorsIn California, anyone who contracts to perform work
that is valued at $500 or more for materials and labor
must hold a current, valid license from the Contractors
State License Board (CSLB) in the specialty for which he
or she is contracting. Because unlicensed vendors rarely
have bonding or worker’s compensation insurance, they
can pose a severe financial risk to the HOA in the event
of property damage or injury. A HOA that hires an
unlicensed or uninsured vendor also subjects itself to
potential liability for unpaid wage or worker’scompensation claims brought by the vendor’s
employees. Accordingly, as fiduciaries, the HOA’s
Board of Directors must be diligent in ensuring that a
potential vendor is properly licensed, bonded and
insured. HOAs and community managers should
therefore always check the online CSLB verification
page at www.cslb.ca.gov to verify the vendor is licensed
for the type of work to be performed, that no action has
been taken against the vendor’s license, and that the
vendor is properly bonded.
Employment Status: “Independent Contractor” or
“Employee”
The “independent contractor” versus the “employee”
status of a vendor significantly impacts the HOA’s
obligations and liabilities in hiring the vendor. In
addition to avoiding such issues as paying payroll taxes,
workers’ compensation insurance and IRS reporting
requirements, when a vendor is deemed to be the
HOA’s “independent contractor,” the HOA better
shields itself from potential liability for damage caused
by the vendor’s negligence during the course of the
vendor’s work. This is because the HOA is deemed to
have control over only the result of the vendor’s work,
not “the means by which such result is accomplished”
(Ca. Labor Code §3353). HOAs should thus include
provisions in their vendor contracts explicitly
designating the vendor as an independent contractor of
the HOA. So long as the HOA retains only “a broad
general power of supervision and control as to the
results of the work to insure satisfactory performance of
the independent contract… Including the right to
inspect, the right to stop work, the right to make
suggestions or recommendations about the details of
the work, and the right to prescribe alterations or
deviations in the work,” the employment status of the
vendor as an independent contractor of the HOA will
not be jeopardized (McDonald v. Shell Oil Co. [1965]).
If, however, the HOA does such things as train the
vendor, establish the vendor’s working hours, or provide
the vendor with tools and equipment, the HOA risks ashift in the employment status of the vendor to an
employee of the HOA. Additional factors used to
evaluate a vendor’s employment status can be found in
IRS Publication 1179.
Written Vendor Contracts Reviewed by Legal
Counsel
A written vendor contract, reviewed by legal counsel, is
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THE ACCELL ADVISOR FALL 2012
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Davis-Stirling CID Act Reorganization BillSigned, To Become Law 1/1/14
By Kelly G. Richardson, Esq., Richardson Harman Ober PC
On Friday, August 17, Governor Brown concluded
the long journey of the California Law Revision
Commission's project to reorganize the Davis-
Stirling Common Interest Development Act, when
he signed into law Assembly Bills 805 and 806. AB
805 relocates the Act to a different part of the
California Civil Code, while AB 806 updates the
many references to the Act in other parts of
California statutes to reflect the new correctstatute numbers.
The law does not take effect until January 1, 2014,
to give managers, boards and attorneys one year to
familiarize themselves with the reorganized
Act. Currently found at Civil Code Sections 1350-
1378, the Act starting at that date will be found at
Civil Code Sections 4000-6150.
The primary purpose was to reorganize and clarify
the law without making substantive changes. Thenew law does in fact enact approximately 16
substantive changes, none of which are believed to
be controversial. In HOA Homefront, the
newspaper column, HOAHomefront.com, and in
RHOPC.com articles, I will be providing updates in
2013 about these changes.
One of the comments already circulating this year
is that many associations are reluctant to improve
their governing documents, due to the coming newlaw in 2014. However, associations do not need to
avoid amending their governing documents until
2014, because the new law specifically provides for
associations to update their existing governing
documents (CC&Rs and Bylaws) by a board vote in
order to correct the old Civil Code references and
insert the new ones. The California Law Revision Commission has done
a commendable job on this law. CAI and this law
firm supported it, and welcome the improvement
and clarity it will bring.
The CLRC is not done with common interest
developments. The stated intention of the
Commission was to avoid as much as possible any
substantive changes during the reorganization of
the law. However, CLRC has stated that
substantive changes will be explored once this law
is in place.
Furthermore, the Commission is already exploring
modifications to the Act regarding commercial
common interest developments. There may also at
some point be an attempt to explore modification
of the Act to accommodate the small CIDs. Small
CIDs, which generally do not have counsel and
often do not have professional management, have
great difficulty tracking, let along complying with,
the myriad of legal requirements in the Act.
Kelly G. Richardson is Managing Partner of
Richardson Harman Ober PC, a former Chair of
CAI California Legislative Action Committee and a
current Trustee of CAI. He can be reached
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a necessity in every circumstance regardless of the size and
scope of the service/job for which the HOA is contracting.
This may seem like a “no brainer” to some HOAs and
community managers – especially to those that have been
badly burned by vendors in the past. However, we areconstantly surprised on how the smallest jobs can turn into
the largest problems where HOAs short-cut the process by
not having a written vendor contract without first having it
reviewed by the HOA’s legal counsel. In general, a written
vendor contract is paramount to establishing:
1) the scope of the work to be performed by the vendor,
2) the timeline with which the work must be performed,
3) the price to be paid for the work,
4) how the contract may be terminated and by whom,
5) the methods of payment,
6) how breaches of the contract will be addressed,
7) any warrantees concerning the work to be performed,
8) the employment status of the vendor,
9) indemnification of the HOA for any damages brought
about by the vendor during the course of the work.
Situations where HOAs suffer financial loss by not having
vendor contracts reviewed by legal counsel are often the
result of exculpatory clauses contained in the vendor
THE ACCELL ADVISOR FALL 2012
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contracts (e.g. indemnification and/or “hold harmless”
provisions) as well as the enforcement of exclusivity
term renewal, and arbitration provisions. Legal review o
vendor contracts also ensure that the HOA’s governing
documents grant the Board of Directors the authority to
enter into the desired contract and to bind the HOA to
its terms.
Summary
Despite how simple the process may seem to select and
hire a vendor, HOA Boards and community managers
should recognize the HOA’s potential exposure to
liability should a problem arise. Appropriate steps must
be taken to ensure that the interests of the HOA and its
members are protected. At a
minimum, these stepsinclude (1) verification that
vendors are properly
licensed/bonded/insured, (2)
obtaining written vendor
contracts, and (3) ensuring
that such contracts are
reviewed by the HOA’s legal
counsel prior to execution.