Appellate Court Rejects Class Action Claims Against HOA Management Companies Over Transfer Fees

On Oct. 28, 2013, the California Court of Appeal issued a key decision further clarifying a community association manager’s ability to charge transfer fees upon a change of ownership.  Richardson Harman Ober PC filed an Amicus Brief on behalf of CAI in support of the Respondents/Defendants in Fowler which raised many legal and policy arguments reflected in the Court of Appeal’s decision.

In Fowler vs. M&C Association Management Services, Inc., the Court of Appeal rejected potential class action claims against a management company for charging transfer fees to update homeowner records. The plaintiff claimed that unless the company filed a notice of the fee with the County Recorder (i.e., “recording”), charging such fees violated Civil Code Section 1098.5. That statute requires the recording of prior notice of “transfer fees,” as defined in Civil Code Section 1098, before such fees can be collected. However, the Court of Appeal concluded that the fees charged by the management company for its services were not transfer fees as defined in Section 1098, noting that the statute contains an express exception for any transaction “authorized by the Davis-Stirling Common Interest Development Act.”

Analysis & Decision
In its analysis, the Court of Appeal expanded upon principles set forth in the prior decisions of Berryman v. Merit Property Management, Inc. (2007) 152 Cal. App. 4th 1544 and Brown vs. Professional Community Management, Inc. (2005) 127 Cal. App. 4th 532. As set forth in this article summarizing the Fowler decision, the Court of Appeal left no doubt that a for-profit management company is permitted to charge transfer fees without recording a notice of such fees, as long as the fees charged reflect the “actual costs” for performing transfer services. The Fowler Court went a step further by concluding that while such “actual costs” may include an element of profit for the management company, there may be no “override” for the benefit of the association. In addition, the Court discussed that whether a management company’s transfer fees are too high is a contract issue between the management company and the association, not a basis for claims by homeowners.

The Fowler decision reaffirms the integral role of association managers in community association operations.

Lesson To Be Learned
An additional lesson to be taken from this case is the importance of the Community Associations Institute (“CAI”) and its active legislative action committee, monitoring laws that impact homeowners associations both within, as well as outside of, the Davis-Stirling Common Interest Development Act. Specifically, the Fowler decision demonstrates the need for the uniform drafting and consistent interpretation of laws regulating the approximately 45,000 associations in California, and the estimated 9 million homeowners in those associations. Without uniformity and consistency, management companies and associations may find themselves targets of costly and time-consuming lawsuits.

J. Andrew Douglas, Esq. is an attorney with Richardson Harman Ober PC