What better way to start the new year, our legislators have added more requirements to the Davis-Sterling Act. If you are having trouble sleeping then you should read this:

Davis-Stirling Act Amendments Effective January 1, 2012

 

Following is a straightforward summary of the most important new amendments to the Davis-Stirling Common Interest Development Act which will become operative January 1, 2012.

1.         Civil Code Section 1353.9.

Under this provision, an association’s governing documents may not prohibit the use or installation of electric vehicle charging stations.  Any provision in the CC&Rs or the Rules which purports to prohibit such charging stations will be void.  Reasonable restrictions are permissible, which are defined as limitations that “do not significantly increase the cost of the station or significantly decrease its efficiency for specified performance.”  The term “electric vehicle charging station” means a station that is designed in compliance with all applicable building standards and delivers electricity from a source outside an electric vehicle into one or more such vehicles.

The association’s governing documents may require prior approval by the board or architectural committee.  The approval or denial shall be in writing and if not denied within 60 days the application will be deemed approved unless the delay is the result of a reasonable request for additional information.

The owner has a right to put the electric vehicle charging station in the common area or exclusive use common area.  The association must approve that installation if the owner agrees to the following conditions:  (i) to comply with the architectural standards for the installation of the station, (ii) engage a licensed contractor to install the station, (iii) within 14 days of approval, provide a certificate of insurance that names the association as an additional insured under the owner’s liability policy which shall be for not less than $1,000,000, and (iv) pay for the electricity usage.

The owner, and all future owners of the parking space where the charging station is located, are responsible for all damages caused by the station, for the cost of maintaining, repairing and replacing the station, the cost of electricity, and for disclosing to prospective buyers of his or her unit the existence of the station and of the duties related to such station.

An association that violates these restrictions is liable for a civil penalty in an amount not to exceed $1,000.  In any legal action to enforce the provisions the “prevailing plaintiff” shall be awarded reasonable attorneys’ fees.

2.         Civil Code Section 1360.2.

Effective January 1, 2012, owners will not be bound by any restriction in the governing documents which “prohibits the rental or leasing” of any unit, unless the restriction was in effect “prior to the date the owner acquired title to his or her separate interest.”  In effect, if such a provision exists in governing documents prior to January 1, 2012 it is binding on all owners in the development.  If such a restriction is adopted after January 1, 2012, it is only binding on those owners who purchase their units after the restriction is adopted.

It is not entirely clear how broadly courts will interpret the term “prohibit.”  However, the following popular restrictions could arguably be interpreted as a prohibition:  (i) no leasing permitted during first year of ownership, (ii) no owner may lease more than one of his or her units at a time (assuming that member owns multiple units), and (iii) no more than a certain number of units in the development can be leased at any one time (e.g., 20%).

3.         Civil Code Section 1363.05.

This section is known as the “Open Meeting Act.”  It has been amended in the following respects.

First, at the present time the board need not give any notice to the members of an upcoming executive session meeting.  Effective January 1, 2012, the owners must be given at least two days’ notice of any executive session meeting (except in emergency circumstances).  Parenthetically, the law has also been clarified.  The statute used to say the board could “adjourn” into executive session which some argued meant the board could only meet in executive session when a regular open meeting was “adjourned” to commence an executive session.  The law now provides that an executive session may be held “when the board adjourns to, or meets solely in, executive session.”

Also with reference to executive sessions, the new law will provide that owners be given upon request a copy of the agenda for any executive session meeting.

If an owner consents, notice of any meeting can be provided to him or her electronically.  To save costs and promote efficiency, management may want to obtain such consents from all owners as a routine matter so a master email mailing list can be generated and all notices can be sent by email rather than by U.S.mail.

Under the new law, board meetings may be conducted by teleconference.  The owners must be so notified and there must be one location designated where the homeowners can appear in order to observe the telephonic meeting.  At least one board member must be present at that location.

The new law expressly prohibits the board from conducting meetings through a series of emails, except in the case of an emergency.  Specifically, the statute states:  “The board of directors shall not conduct a meeting via a series of electronic transmissions [email].”  This generally means the board may not “discuss or deliberate upon any item of business that is within the authority of the board” if done by email.  There is one exception:  “Electronic transmissions may be used as a method of conducting an emergency meeting if all the members of the board . . . consent in writing to that action and if the written consent or consents are filed with the minutes of the meeting of the board.  Written consent to conduct an emergency meeting may be transmitting electronically.”

4.         Civil Code Section 1368:

Section 1368 describes the information and documentation that must be provided to a prospective buyer when a unit is sold.  Under the new law, if requested by a prospective buyer, the association shall provide to a buyer at the seller’s direction “a copy of the minutes of the meetings, excluding meetings held in executive session, of the association’s board of directors, conducted over the previous 12 months.”  The association is required to provide information to the buyer on a special form that is reflected in Section 1368.2 of the Civil Code, including among other things “a written or electronic estimate of the fees that will be assessed for providing the requested documents.”  The documents required under Section 1368 may be provided electronically or posted on an association website (if agreed by the owner).  The association may collect a reasonable fee “based upon the association’s actual cost for the procurement, preparation, reproduction and delivery of the documents.”  No other fee is permissible.

ADA Lawsuit Abuse Part 1:

Warning to all Business owners and commercial Property owners:  Times are tough and there are rings of plaintiffs who are going around centers to find any small violations and sue you.  The statutory penalty is up to $4000.00 per violation.  With the average case costing business and/or property owners over $45,000.00 you can’t afford not complying.  Being ADA compliant is good business.  20% of all Americans can be considered disabled and the number of “professional plaintiffs” will only grow.  The purpose of the article is to give you a few points to help you before you get sued.  Most of what I learned was from a very excellent attorney named David Peters, he is the lead counsel for “Lawyers Against Lawsuit Abuse” his website www.adalawsuits.com can give you much more detailed information on this subject.

1. Get Compliant.  Seems obvious, but can be a very complicated process.  This begins by having a CASP Survey done. A compliance survey will cost you around $1000.00 and can provide you an important defense in the event of a lawsuit. 
2. Fix the “Red Flags”.  The first of these is Parking.  More than any other source lawsuits come from your parking lot.  Many plaintiff attorneys use scouts to look for non-compliant parking lots.  If the parking lot is 100% compliant in stems to reason that these scouts would just go onto the next building.  Making parking renovations is one of the easiest and least expensive renovations that a business can make.  Entrances are the next big item you can be sued for.  Make sure door entrances are at least 32 inches in the clear, ramps are installed, the height of the thresholds are less than ½ inches.  Also make sure nothing is blocking access to restrooms, doors, ramps, and parking. Restrooms: If you provide restrooms to the general public, they need to be fully accessible.  There is a whole list of items needed for compliancy, its best to use an expert to help you design a proper bathroom. 
3. Use Common Sense: Look at your business or property, and imagine if you were disabled.  How would you accomplish the things you would need to do as a customer or employee of that business. 
4. Video Monitoring:  Invest in large number of hard drives and keep records going back for at least a year.  Many times these plaintiffs never visit the sites, or if they visit the sites they don’t use the disable access arrangements, or show up without their wheelchairs. 

 

This is the first of many articles I will be writing on the subject. 

Energy-You should be concerned.

How Will Updated California Energy Standards Affect
Multi-Family and Commercial Real Estate?
The Energy Efficiency Standards for Residential and Nonresidential Buildings were established in 1978 in response to a legislative mandate to reduce California’s energy consumption. The standards are updated periodically to allow consideration and possible incorporation of new energy efficiency technologies and methods.
According to the California Energy Commission, the 2008 Standards went into effect January 1, 2010, and supersede the 2005 Standards. Projects that apply for a building permit on or after this date must comply with the 2008 Standards.
California’s building efficiency standards (along with those for energy efficient appliances) have saved more than $56 billion in electricity and natural gas costs since 1978. It is estimated these standards will save an additional $23 billion by 2013.
Okay, what does all this mean to the Commercial Real Estate field?  It means that buildings as they are remodeled and upgraded will need to meet much stronger energy efficiency requirements.  This will affect virtually all areas such as the type of windows that are installed, the types of Heating and AC units used, the type of light bulbs installed, the roofing materials used, the type of plumbing fixtures allowed and on and on.  The regulation delineating energy requirements alone is 176 pages long!
The most notable areas that will be affected are the Heating and Air and the roofing from a buyer’s standpoint.  These are the two systems that wear out the fastest and are the most costly.
The best roofing solution I have come across recently is the “cool roofing” methods.  There are many types and styles but all are much more energy efficient, keep the interior of the buildings cooler thus using less energy and usually cost roughly ½ of what a new traditional roof does. Many times this type of roof can be installed over existing roofing materials.
Unfortunately for Heating and AC, I have found the opposite to be true.  Just a few years ago a commonly used roof mounted unit cost approximately $1800 to buy plus the labor to install it.  Now this same unit is well over $3,000 just to purchase and will be more in the near future.  The reason for these costs all have to do with energy efficiency.  It is true they are much more efficient and over the long run, 7 – 10 years, usually will end up saving money but most commercial buyers want current costs to be the lowest and the units to last the longest.

We are starting to test windmill power on commercial setting.  They are fairly cheap to install. I will let you know how are experiment turns out.

HOA Reserves-Why its important to have enough.

According to the Sterling-Davis Act, Home Owner Associations are supposed to complete or update a reserve study every year. 90% do not. When we usually take over an association, and I ask for their latest reserve study, I either get something that is 5 years old, or they just do not have one.
About 6 months ago we started to manage an association, with a severe reserve problem. They had only $3500.00. This is an eight unit building that is over 30 years old, and things are starting to fall apart.
There first project they wanted to tackle was the repair/replacement of the patios and decks. The bids to do the work were between 12-17 thousand dollars. None of them included underlying wood replacement. The board decided to move forward with the $12,000 bid. They did a special assessment and raised $17,000.00, because it was obvious there was underlying wood damage.
The contractors started to remove the old Magnesite and damaged wood. They were only 25% done with the demo work when we asked them to stop. The damage to the patios was so extensive that only 20% of the area was salvageable, the rest of it had to be completely demolished and rebuilt. Total damages and cost will exceed $42,000.
The work has been partially completed, with all underlying wood replaced, iron work repaired, and new floor drain lines installed, for a little more than the $17,000.00 that was already raised. It was important to get to this level of the work to prevent injury, and prepare it for the installation of the Magnesite. The board now needs to go back to the homeowner’s and prepare another special assessment for the remaining $25,000.00 to complete the job.
We have since ordered a reserve study. Were waiting for the results, but my guess is the association will need to raise their HOA dues a minimum of 20% per year for the next five years, plus special assessments of at least $10,000.00 per unit, in order to save enough to perform termite damage remediation, painting, landscaping, fire-sprinkler repair, iron/fence work upgrades, and lighting replacement.
The previous board had never wanted to raise the HOA Dues which where half of comparable properties in the area. Because they never had any substantial money to perform any real improvements to the building, the current owners are stuck with a huge bill, tons of differed maintenance, and units that are difficult to sell.
My tip of the day for HOA’s: Get your reserve study current, and implement the findings. The ultimate cost may be a heck of a lot more if you do not keep your HOA dues inline.

Leasing in a volatile Market

Its summer time, and if you manage residential properties, your entering into your busy season.  Close to 70% of all tenancy turnover occurs during the summer.  With vacancy rates continuing to increase and falling rental prices, how can you lease out your properties quicker and maintain income levels.  Here is a few pointers.

- The waived pro-rated rent approach. While many property owners are opposed to waiving pro-rated rent for a mid-month move-in, we think it’s a great marketing tool. We try to explain to owners that the only true alternative is a vacant property and there is no upside in leaving the home vacant for 1-2 weeks while we wait for a tenant to move-in. By having the option to offer this as a bonus (free rent) to a potential applicant we have an advantage over other agents who do not have this option.

- The early move-in. Many moving tenants view the move as a stressful time where they have 1 weekend at best to finish packing, load a truck, move their items, and unpack before getting back to work on Monday. We have closed a ton of leases by just offering an extra week or two to begin moving items into the property. The tenants generally do not “live” in the unit during this time but use the time to bring in carloads of items based upon their schedule. They also have time to set up cable/satellite, utilities, etc. Cutting down on a potential renter’s stress is of great value to them. If a home is vacant and parties are agreeable to an early move-in period it can often make the difference.

- Reduced security deposit instead of reduced rent. We have dealt with literally thousands of tenants and I can remember only small percentage of them where we did not refund at least half of the security deposit to the tenant. In most cases we are returning 80-100% of the deposit upon move out but still we insist upon 1 month rent or more as our deposit guideline. Most renters are worried about the up-front cost associated with moving. They are less concerned about the amount of deposit that will be refunded 1, 2, or 3 years later. Instead of taking half off of the first month’s rent, offer half off of the security deposit. It accomplishes the same goal for the tenant by reducing up-front costs while keeping the rental income for the property fully intact. We even see $0 security deposit offers when times are tight although that’s more risk than we are willing to take on.

- Avoid psychological pricing barriers and rental search tiers. These are different in every market but they exist everywhere. There are cities where tenants won’t pay more than $X amount for a particular property type or location. You may be in a market where $1,000 for 2 bedroom apartment is the breaking point. No matter what you do you can’t rent units for more than $1,000 regardless of how nice they are. We have to be aware of these barriers and market accordingly. People in that market are not running online searches for properties $1,000-$1,499. They are searching $500-$999 generally and your property may not even be viewed by people searching in those ranges. The $995 or even $999 rental price is not only a psychological pricing issue for people who want to stay under $1,000 but due to the way that many rental website searches display listings you may be missing out on a huge number of potential tenants by overpricing units by as much as $1.

- Teaser or promotional rent rates. We only use these in times of high vacancy in larger multi-unit properties but this obviously works. By offering a significantly discounted rental price for 3-6 months which then re-rates to standard rental rates you can quickly fill properties with high vacancy rates. Now, the property owner must be prepared for the decreased potential cash flow in the short-term but if vacancy is an issue it should be considered as an option. We recently had a 72 unit property with 12 vacancies that we were having a hard time filling. We marketed $750 units for 2 year leases at $500 per month for the first 6 months and $750 for the last 18 months of the lease. We rented all 12 units in 30 days and they are now fully occupied. We had so much interest during that time that we now have 10 people on a waiting list although the promotional pricing program has ended. The owner’s potential income for the property was decreased by $3,000/month for 6 months but the 100% occupancy and longer term leases were well worth that risk in the short-term.

- Providing multiple payment options. A more recent option is the ability to offer multiple payment options. Offering online payments, weekly payments, accepting credit cards, Paypal, and other methods of payment open up options for tenants who otherwise may have to wait to sign a lease and move. The fact that these options are now being integrated and even offered by management software companies makes it all that much easier for us to implement these programs.

There are dozens of other tactics out there and every market and agent should have options suited to their area and business practices. The important point is that a bit of flexibility and creative structuring of leasing deals can make a big difference in leasing success and decreasing vacancy rates overall.

Online Reputation, more important than you might think>

The following article was published by Buildium
“We all work hard to build our reputations. I was speaking with a potential property management client yesterday, when I asked him if he had any questions about my firm. His reply was simple; “Yes, are you honest?” I chuckled and reminded him that he was a referral from one of our oldest clients. The fact of the matter is that people like to do business with those they know, like, and TRUST. In property management the TRUST part is a big piece – after all the owner of the property is basically saying here is my single biggest asset, you’re in charge; please make me lots of money.

In the old days you would go to a chamber of commerce meeting, or an apartment association meeting, or a similar in-person event (we still do these things). In today’s internet-driven world, clients often first find you online then send you an email or fill out an online prospect form. The consumer will then conduct research online to find out all they can about you and your firm. The hard part is knowing what is said about you online – have you ever given thought to how many websites are out there?

It would be impossible to independently search all of these locations to see if someone has tweeted, posted, liked or criticized you or your firm. Luckily you don’t have to, as there are services on the web like ReputationDefender.com that you can hire to keep an eye on things. These types of services can not only monitor your reputation, but can actively assist in promoting a good reputation and suppressing negative content.”

If your in business, purchase a membership. You do not want to have any bad comments said about you. I even had a competitor make a nasty comment about me. It was nearly impossible to have it removed. Don’t let that happen to you.

Emergency Preparedness

Emergency Preparedness Plans

Reproduced from Buildium

Having property-specific emergency preparedness plans in place will help mitigate damage and protect the safety of your tenants in case of an unexpected event. The American Red Cross has all of the resources necessary to help you formulate your own emergency preparedness program. Following are some items every emergency preparedness plan should cover:

• Know how 911 is notified in case of emergency – you may well have detection systems (such as fire alarms) that will trigger this but, if not, know who is responsible for contacting 911 and how to best ensure such calls are placed as quickly as possible.
• Clearly mark all emergency exits and fire-safe stairwells; if your property is large, place diagrams where tenants can clearly find them (such as near elevators).
• Make sure fire extinguishers are strategically placed throughout the property and are clearly visible. (Also be sure they are checked on at least an annual basis – your local fire department should be able to help with this.)
• Have explicit, easy-to-read instructions about how a fire extinguisher should be used clearly displayed next to extinguishers. In case of a fire, make sure tenants know to close all doors behind them to stop the fire from spreading and not to use elevators.
• Consider designating a fire warden on the property to account for all tenants and make sure necessary actions are taken (if a landlord does not live on the premises, these duties can potentially be designated to a responsible tenant).
• Identify “safe spots” (such as doorways) in case of an earthquake and disseminate this information to tenants.
• Make sure you are aware of any residents who may have difficulty evacuating, such as the elderly or handicapped.
• Suggest that residents with pets place decals indicating they have a pet on unit doors or windows so that emergency services know to look for pets should a rescue be necessary. Such stickers can be found at your local SPCA, fire department, alarm company, or online.
• Make sure all tenants have emergency numbers on-hand to reference. This should include the fire department, police department (a general non-emergency number for cases when 911 is not necessary), poison control, and a property management company number that can be used during off-business hours.

Of course, we all hope that none of these plans will ever have to be put into action. But for your own and your tenants’ best interest, it’s vital to know exactly what to do… just in case.

Timshares Part IV.

This chapter will involve what to do now that you have your timeshare.  The main thing is to plan your vacations well in advance.  I usually do this in the fall.  I get my kids vacation schedule and see when could be the best time to take a trip.  I usually go somewhere in the Spring for a week, and  I’ll do 2 weeks in the summer.  Wait I am getting 3 weeks of vacation for my one week of timeshare I own.  Yes that is right.  You see once your a member of RCI and HSI,( The two largest exchange companies )you get all these travel offers.  Such as trading 1 week for 2.  You may have to pay 2 maintenance fees, but if you will be using the the vacation rental, its well worth it.   Also, you will be offered bonus weeks for 2-5 hundred dollars.

So what do you do if you can’t travel one year.  Rent it out.  Its really not that hard.  I usually advertise on Craigslist and Redweek.com. Do not use one of these agencies.  They usually just take your money and do nothing.   Since I usually exchange 1 week for 2, I have had to rent out my timeshare out a couple of  times.  In both occasions I was able to to cover my advertising costs, exchange fees, and most of  my maintenance fees.  I met one couple who had purchased 8 weeks of a particular timeshare(all resales), was exchanging 2 for 1 weeks, so now they controlled 16 weeks of vacations, and was leasing 12 of the weeks.  With the revenue they were generating, they were able to essentially pay for their entire vacation of 4 weeks,  including air fare, food, car rental, & activities.

Timeshares Part 3

This segment will deal with the type of timeshare you should look for.  There are many types.  One type that RCI Promotes is the Point Program.  RCI is an exchange company.  We will talk about “exchanging” in the next part.  RCI values your timeshare and gives it a point rating.  The better the timeshare, the more the points.  The more the points, the more the maintenance fees.  For instance if you have a Timeshare in Hawaii, the point value may be 20,000.00.  You can use the 20,000 points to exchange for a timeshare with a comparable 20,000 point vacation spot.  If you trade for an 18,000 point unit, you can retain the 2000 points for future vacations, dinners, or car rentals.  If your trade is 22,000.00 then you can buy points to make the difference.  The problem, I have heard, is that the point redemption values change.  For instance if you bought your timeshare 5 years ago, and you were given 20,000 points, today to stay at the timeshare you own, may be 25,000 points.  In other words, you do not have enough points to stay at your own resort, with out having to buy more points.  Also your not guaranteed the week you own.

The other type of timeshare, is you own your week, and you are always guaranteed that week.  You can exchange it, if you wish to travel to other resorts.  This is a traditional type of timeshare, and can be great especially if you own specific weeks that you will always travel on and always want to return to the same location.  For instance if you like to ski, and you own a timeshare in Lake Tahoe  for the fourth week of  December. This is the least flexible plan. Also, if you have a timeshare that is not in high demand, it may be difficult to trade for a resort you like.

The other type of timeshare is a floating week.  In this type of timeshare you can return to your location any time of the year.  They will not always guarantee the week you want to travel, but if you book far enough in advance, you can usually get the dates you want. Also, you will have better trading power with a floating week timeshare.

Look for resorts that is part of a group.  For instance, with the timeshare we own, we can go to 10 different locations without exchange fees, and we get preferred placement. Look for a place that is in high demand,  it will give you better trading power.

Should residential tenants make unit upgrades?

Every now and then, a tenant offers to make repairs to the unit he’s living in. Often, such offers are made in exchange for rent (in other words, the cost of the repairs is deducted from the monthly rental rate). In other instances, the tenant simply wants certain upgrades in his unit (a new paint job, removed carpet, etc.) and offers to do them himself. The argument for this is that the tenant can enjoy a place that “feels like home” and you reap the rewards of these upgrades once the tenant vacates the unit.

Let’s say that one of your long-time tenants wants to repaint his living room from the standard white all of your units are painted in to a more colorful rustic red. You agree that the color would suit the space well and tell your tenant he can deduct the price of paint and labor from his next rent payment.

When the first of the next month rolls around, the tenant presents you with a painting bill that accounts for most of his monthly rent. You ask to check out the living room and find that not only is the paint a much different shade of red than you had anticipated, but also the painting has been shoddily done. It’s uneven, red paint runs over the edges and is splashed on the white ceiling, and has also splattered over the carpet. Clearly, this is not what you bargained for, but your tenant argues that you agreed he could deduct painting costs from rent. You are now faced with either battling over rent money with your tenant or eating the cost to keep the tenant happy. Not only this, but you have lost money because you will have to repaint and re-carpet for the next tenant once this one vacates the unit.

Unfortunately, situations like this occur frequently when tenants take on repairs and upgrades themselves, no matter how good both of your intentions are. While it’s true that some of your tenants may be perfectly capable of taking on repairs and upgrades themselves, this is not a skill you can identify simply by how responsible your tenant is in other areas.

With all of this in mind, even if some tenants are perfectly capable of taking care of upgrades, you are best to make an across-the-board rule to avoid conflicts with all tenants: Repairs and upgrades can only be completed by licensed contractors at your discretion.