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The

Accell Advisor

HOA Concerns in Contracting with Vendors

By The Tinnelly Law Group

Save the Date!

Board Member Appreciation Night
November 1, 2012

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 must understand 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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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 doeuvres, refreshments, expert advice and prizes.

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FALL 2012

Understanding how to Protect the Interests of the HOA and its Members Continued from page 1
Licensed, Bonded and Insured Vendors In 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 workers 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 workers compensation claims brought by the vendors employees. Accordingly, as fiduciaries, the HOAs 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 vendors 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 HOAs 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 HOAs independent contractor, the HOA better 2 shields itself from potential liability for damage caused by the vendors negligence during the course of the vendors work. This is because the HOA is deemed to have control over only the result of the vendors 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 vendors working hours, or provide the vendor with tools and equipment, the HOA risks a shift in the employment status of the vendor to an employee of the HOA. Additional factors used to evaluate a vendors 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

Davis-Stirling CID Act Reorganization Bill Signed, 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 DavisStirling 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 correct statute 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 13501378, 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. The new 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.

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 at krichardson@rhopc.com

One of the comments already circulating this year is that many associations are reluctant to improve their governing documents, due to the coming new law 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

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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 are constantly 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 HOAs legal counsel. In general, a written vendor contract is paramount to establishing: 1) the scope of the work to be performed by the vendor,

contracts (e.g. indemnification and/or hold harmless provisions) as well as the enforcement of exclusivity, term renewal, and arbitration provisions. Legal review of vendor contracts also ensure that the HOAs 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 HOAs 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 steps include (1) verification that vendors are properly licensed/bonded/insured, (2) obtaining written vendor contracts, and (3) ensuring that such contracts are reviewed by the HOAs legal counsel prior to execution.

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