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FAQ – LFMWC & LFE

Below are commonly asked questions about Lake Francis Mutual Water Company and Lake Francis Estates, and the relationship between both entities. As many of you are aware, there has been much confusion about the proper role of the Lake Francis Mutual Water Company, Inc. (“LFMWC”) as it relates to the properties located in the Lake Francis Estates development. The Board of LFMWC has investigated these questions, consulted and vetted the answers with its retained legal counsel, and prepared this FAQ to assist shareholders. It is our hope that the answers to the below-listed questions clarifies the relationship between LFMWC and the Lake Francis Estates development.

Frequently Asked Questions (FAQ)

Lake Francis Mutual Water Company (LFMWC)

Lake Francis Mutual Water Company (LFMWC) is a private water utility corporation registered with the State of California, for the sole purpose of developing, distributing, supplying or delivering water to its shareholders.

Although the company is not yet registered with the State as a non-profit, LFMWC acts a non-profit entity for the mutual benefit of its shareholders. LFMWC is currently working towards changing its registration with the State in order to qualify for the many infrastructure grants currently available.

Currently, the fees for water for domestic and irrigation use is a flat fee of $1200 per year for a developed lot, and $300 for an undeveloped lot. At this point all connections are unmetered, however this may change sometime in the future.

No. In order for an entity to be subject to the Davis-Stirling Common Interest Development Act, it must fall into the definition of an association. Civil Code Section 4080 defines an association as "an unincorporated association created for the purpose of managing a common interest development."

Because LFMWC has no authority to manage a common interest development because its only purpose is limited to the delivery of water to the Lake Francis Estates development, as established in Section One of the Articles, it cannot be an association under the Davis-Stirling Common Interest Development Act.

No and No. Neither LFMWC's Articles of Incorporation or its Bylaws allow for any oversight over Lake Francis Estates ACC or its CC&Rs. Additionally the Articles of Incorporation specifically state that "the only purpose for which this corporation is formed is to develop. distribute, supply or deliver water for irrigation or domestic use, or both, to its members or shareholders, at actual cost, plus necessary expenses."

This shows that the only relationship between LFMWC and the Lake Francis Estates development is that LFMWC supplies drinking water to the Lake Francis Estates development.

Additionally, upon the text of the CC&Rs, LFMWC lacks any standing to enforce the provisions of the CC&Rs, and because it lacks standing, it is prohibited from enforcing violations of the CC&Rs.

Therefore, if LFMWC did attempt to enforce the CC&Rs, it exposes itself to legal risk violating its fiduciary duties, and the members of the LFMWC Board of Directors could even be held personally liable for these fiduciary duty violations.

The CC&Rs specifically state that the right to enforce the CC&Rs by legal remedy is up to individual subdivision property owners. Section 10 of the CC&Rs provides:

"Except as otherwise provided herein, any person or persons owning any property situated within said Subdivision shall have the right to prosecute at law or in equity any proceedings which may be appropriate against any person or persons violating or attempting or threatening to violate or failing to comply with any one of the restrictions, covenants or conditions hereof, and to maintain against any such person any action for injunction, damages or other relief which may be proper in the matter. "

Please also see the letter from the law office of BAYDALINE & JACOBSEN Re: Relationship Between Lake Francis Mutual Water Company and the Lake Francis Estates CC&Rs

Mutual water companies, such as LFMWC, are mutual benefit corporations, which are governed by the California Corporations Code Sections 7110–8910. Unless a more specific or more narrow provision of California law applying to mutual water companies exists, these provisions in the Corporate Code apply to LFMWC. In the case of meetings of mutual water companies, Corporations Code Section 14305—which is titled the "Mutual Water Company Open Meeting Act"—overrides other provisions in the Corporate Code because it directly regulates mutual water companies.

Under Corporations Code Section 14305(f), eligible persons must be given notice of the time and place of a meeting at least four days prior to the meeting, unless the bylaws provide for a longer period of notice. Article I, Section 4 of the By-Laws of Lake Francis Mutual Water Company, Inc. (the "Bylaws") establishes that notice of LFMWC meetings shall be provided no less than seven days before the meeting. As a result, notice of LFMWC meetings shall be provided no less than seven days before the meeting, even though this is greater than the minimum period of notice that Corporations Code Section 14305(f) requires.

The bylaws of LFMWC state a minimum 7 days for meeting notifications, which is in compliance with the "Mutual Water Company Open Meeting Act" minimum of 4 days notice.

There is nothing that prohibits the LFMWC from appointing an Assistant Vice President or Water Manager, but neither position has no express authority to act on behalf of the Board of Directors.

The Bylaws and Articles are silent on the question of providing compensation to individuals in exchange for service to LFMWC. This means LFMWC can provide compensation to individuals in exchange for service to LFMWC, so long as this compensation furthers the purpose of LFMWC to develop, distribute, supply, or delivery water to the people or entities entitled to receive water from LFMWC. LFMWC can also hire a third party to provide professional managerial experience and expertise to help the LFMWC Board achieve LFMWC's purpose.

The Fifth Section of the Articles addresses this question. It provides: "The shares issued by the corporation shall be appurtenant to the land described in the certificate issued therefore." This provision establishes that LFMWC stock is connected with the land owned by the shareholder. The definition of the land to which a LFMWC stock applies is the definition of the land that is located in the legal description of the certificate of the stock. For example, if three lots are merged into one lot, this merger does not alter the definition of the land located in the certificate of the stock. As a result, merging three lots into one does not also convert three LFMWC stocks into one. Instead, the owner of the merged lot now owns three LFMWC stocks.

This interpretation is consistent with Corporations Code Section 14302, which describes the process of how stocks run with the land and can be transferred to subsequent owners. It provides, in relevant part:

"Whenever the owner of real property to which water stock by the terms of the certificate thereof is appurtenant . . . transfers to another the real property with the appurtenances belonging to the property . . . the secretary of the water company that issued the stock shall, upon exhibition to him or her of a deed of the land duly recorded, or the necessary court order duly recorded, issue to the grantee named in the conveyance a new certificate of stock for the number of shares appurtenant to the land as shown by the books and records of the company. The secretary of the water company shall enter the name of the grantee upon the books of the company as the owner of the shares of stock and shall cancel on the books the number of former shares of stock so appurtenant to the land in the name of the grantor or of any previous owner of the land, or of any other person."

The bolded portion of Corporations Code Section 14302, as provided above, shows that the essential factor for determining ownership of stock is based upon the books and records of the company. Therefore, if the books and records of LFMWC base stock ownership on the legal definition of land prior to the land being merged, then merging multiple lots into one does not also merge the appurtenant LFMWC stocks into one. Instead, the LFMWC stock continues to exist as shown on the books and records of LFMWC, which is shown on each certificate of stock.

LFMWC has easements under and across LFMWC shareholder properties. These easements allow LFMWC to service its roads, wells, pumps, and water lines that it owns.

LFMWC does not actually own the property where its easements are located. Instead, the land that LFMWC easements run under and across is owned by the property owner. Therefore, according to California law, LFMWC can only use the property subject to these easements for the specific purpose of the easements — unless LFMWC is specifically undertaking the specific duties of the water company, such as performing improvements or repairs to its utility infrastructure located in the easement. When performing these maintenance duties, LFMWC has the right to cross a person's land only to the extent necessary to access its easement.

There have been instances in which LFMWC granted express permission to property owners to encroach on its easement, such as in the placement of a fence. Or there has been a known open & notorious encroachment of an easement for longer than 5 years, defined by law as a granted prescriptive easement.

In the above cases, LFMWC has no legal authority to require these encroachments be removed, until such encroachments interfere with LFMWC's use of its easement in order to service its utility infrastructure. An interference would occur if a fence crossing over an easement prevents LFMWC from performing repairs to the infrastructure located in its easement. In this situation, LFMWC has the right to seek a court order mandating the removal of the fence in order to access the easement. Unless LFMWC needs to perform emergency repairs to infrastructure in an easement, LFMWC will make an effort to make arrangements with owners or to provide notice to reduce any inconvenience to the owner when LFMWC needs to access its easement.

In the past, there has been much confusion about the proper role of the Lake Francis Mutual Water Company as it relates to the properties located in the Lake Francis Estates development. Because of this, rather than make a determination themselves, the Board of LFMWC consulted and vetted these answers with its retained legal counsel. Likewise, the Board will only welcome opposing opinions of the law unless they also come from an attorney. The letter must be sent via postal mail on the attorney's letterhead, specifically addressed to LFMWC, citing the legal arguments which have led them to a contrary opinion.

Lake Francis Estates Subdivision (LFE)

Created by Elmer and Emma Ingersoll in 1967, Lake Francis Estates is a Subdivision Development of approximately 20 acres, originally divided into 58 lots, which are subject to Covenants, Conditions & Restrictions (CC&Rs) recorded with the State of California. It has an Architectural Control Committee (ACC) that interprets the CC&Rs and issues subsequent guidelines.

When persons purchase property in Lake Francis Estates they are issued a share of stock in Lake Francis Mutual Water Company appurtenant to each original lot, which entitles the shareholder to receive water for domestic and irrigation use.

As there is no existing Homeowner Association for LFE, there are no association fees. However, there is a flat fee of $1200 per year for a developed lot, and $300 for an undeveloped lot, paid to the Lake Francis Water Company to provide water to lot owners for domestic and irrigation use.

No. In order for an entity to be subject to the Davis-Stirling Common Interest Development Act, it must fall into the definition of an association. Civil Code Section 4080 defines an association as "a an unincorporated association created for the purpose of managing a common interest development." Because there has been no association formed for the purpose of governing Lake Francis Estates, but only a binding CC&R document, it is not subject to the Davis-Stirling Common Interest Development Act. Additionally, an association cannot be formed without 100% of property owners voting that such an association be formed.

Some in the past have confused The Final Subdivision Public Report on Lake Francis, Tract No. 100 ("The Report") as proof of the formation of an Association. However, it is a non-binding report that merely reflects the Department of Real Estates' understanding of the rights and obligations of interested parties in the Lake Francis Estates development. Further, the understanding expressed in the Report expired on September 24, 1992, meaning the information contained in this Report can be inaccurate.

Additionally, In order to be subject to the Davis-Stirling Act, "there must exist a common area owned either by the association or by the owners of the separate interests who possess appurtenant rights to the beneficial use and enjoyment of the common area.”

No such common areas exist at Lake Francis Estates. The beach area, often mistaken to be a common area, is actually owned by the Yuba Water Agency. However, Lake Francis Estate property owners have a prescriptive easement walking path across private property in order to traverse the beach.

Like most jurisdictions, Yuba County Code defines their fence and wall ordinance separately from accessory structures, with different setback requirements. The CC&Rs of Lake Francis Estates (LFE) have rules for structural (building) setbacks, do not list any existing rules regarding fencing types or their setbacks. Therefore, we refer all LFE property owners to the Yuba County Regulations on Fences and Walls, Ordinance 11.19.040, regarding setbacks. This law states:

Setback from Right of Way. Within the Valley Growth Boundary, fences, walls and hedges shall be set back a minimum of five feet from an adjacent right of way line. In areas with detached sidewalks the fence shall not be any closer than back of walk. The area adjacent to the fence or wall shall be landscaped. Outside the Valley Growth Boundary, fences, walls, and hedges may be located at the property line so long as they are outside of any adjacent right of way or access easement and are not in conflict with a sight distance triangle of a road or driveway.”

LFE is not located within the Yuba County "Valley Growth Boundary", subsequently "fences, walls, and hedges may be located at the property line so long as they are outside of any adjacent right of way or access easement and are not in conflict with a sight distance triangle of a road or driveway."

Sources:
Official documentation of the Yuba County fencing ordinance quoted above can be found on page 10 of their online document here:

https://www.yuba.org/Yuba%20County/Community%20Development/Planning/Yuba%20County%20Development%20Code/Division%203%20Regulations%20Applying%20to%20Some%20or%20All%20Districts.pdf

Official documentation of the declared Yuba County Valley Growth Boundary can be found on their online map here:

https://www.yuba.org/revize_photo_gallery/Community%20Development/2030%20GP%20Land%20Use%20Diagram.jpg

Any home built within Lake Francis Estates must have a minimum of 600 Sq. feet of living space.

Additionally, as required by our CC&Rs, all homes plans must be submitted to and approved by the Architectural Control Committee prior to commencement of any construction.

For a full list of the CC&Rs, please click here.

No. Reason being, the CALIFORNIA CIVIL CODE CHAPTER 5. Property Use and Maintenance - ARTICLE 1, Section 4741., Protected Uses, prohibits it:

4741.a “An owner of a separate interest in a common interest development shall not be subject to a provision in a governing document or an amendment to a governing document that prohibits, has the effect of prohibiting, or unreasonably restricts the rental or leasing of any of the separate interests, accessory dwelling units, or junior accessory dwelling units in that common interest development to a renter, lessee, or tenant.”

Also of note, the code also explains that should the development adopt such a requirement in their CC&Rs, it still does not change the right of an owner who acquired title to property before the effective date to have any new rental limitations imposed upon them. (4741.h)

It also warns that should a development willfully violate this section of the law, they shall be liable to the owner for actual damages, and also pay a civil penalty to the owner, of up to $1,000. (4741.g)

Also noteworthy is Assembly Bill 670, which was adopted into California code 4751 on Jan 1, 2021. From that date forward, any provision in a Development's CC&Rs that prohibits or restricts either the construction or use of an additional or junior accessory dwelling unit (mother-in-law’s quarters, etc) - even if the lot is zoned for single-family residential use - is considered void and unenforceable. (4751.a)

So, while neither the ACC nor individual property owners has legal standing to enforce the restriction of the above types of junior dwelling rentals, the cited codes do not prohibit our development from adopting and enforcing a provision in our CC&Rs that prohibit short-term rentals for a period of 30 days or less - but only where the entire dwelling unit is being rented and is non-owner occupied. But - again, the law specifically states any newly adopted CC&R restrictions regarding whole-unit short-term rentals are unenforceable upon an owner unless the restrictions were in effect before the owner acquired the property. (4741.h)

Sources:

https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=4741.&lawCode=CIV

https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=4751&lawCode=CIV
(Additionally, Section 4741 & 4751 now supersede any legal case law previously adjudicated.)

Lastly, if we thought there might be any ambiguity - in December 2020 in the case Lastavich v. Nob Hill Homeowners Association the California court confirmed that short-term rentals are not considered an unauthorized commercial or business use of the home. In this case, the Court held that absent any express language specifically prohibiting short-term vacation rentals or providing for a minimum lease term in the CC&Rs, the owners’ rental activities were in fact an authorized, single-family use of the home for “a residential purpose”.

A downloadable copy of the case determination can be found here:https://lakefrancisestates.org/wp-content/uploads/Lastavich-v-Nob-Hill-Homeowners-Association.pdf

Therefore, in accordance with current California law, neither the ACC nor individual property owners have legal standing to enforce any rules regarding the short-term rentals, unless it is specifically adopted by amending the CC&Rs. To make a binding change, 100% of property owners would need to vote in agreeance to amend the CC&Rs to restrict short-term rentals. And even then, the prohibition would only apply and be enforceable upon owners who acquired property in the development after any such amendments were ratified. (4741.h)

Because there is no stated provision within Lake Francis Estates CC&Rs governing the process of amending the CC&Rs, 100% of property owners must agree to any amendment of the CC&Rs.

No. The CC&Rs specifically state that the right to enforce the CC&Rs by legal remedy is up to individual subdivision property owners. Section 10 of the CC&Rs provides:

"Except as otherwise provided herein, any person or persons owning any property situated within said Subdivision shall have the right to prosecute at law or in equity any proceedings which may be appropriate against any person or persons violating or attempting or threatening to violate or failing to comply with any one of the restrictions, covenants or conditions hereof, and to maintain against any such person any action for injunction, damages or other relief which may be proper in the matter."

Also, upon the text of the CC&Rs, LFMWC lacks any standing to enforce the provisions of the CC&Rs, and because it lacks standing, it is prohibited from enforcing violations of the CC&Rs. In addition, the Articles do not authorize LFMWC to enforce the CC&Rs. If LFMWC did attempt to enforce the CC&Rs, it exposes itself to legal risk violating its fiduciary duties, and the members of the LFMWC Board of Directors could even be held personally liable for these fiduciary duty violations.

Yes and No. Living in a temporary structure is only allowed for a period of one year, and only during construction of a permanent residence. This is according to Section 5 of the subdivision's CC&Rs, which state:

No trailer, basement, shack, garage, or other out-buildings, which are erected or maintained in the subdivision, shall at any time be use only temporarily as living quarters during construction of standard buildings. In any event trailers or mobile houses shall not remain on any lot for a period of more than one year.

For a full list of the CC&Rs, please click here.

Probably not. Any business activity which has the potential to cause any annoyance or nuisance (such as but not limited to: increased auto or foot traffic, increased shipping carrier traffic, additional noise, etc.,) is not allowed. So while a home office would not cause such an annoyance, almost any other type of business likely would. The CC&Rs Section 4, under Trade Restrictions, state:

No trade, craft, commercial or manufacturing enterprise conducted for profit shall be carried on upon any lot which may be or become and annoyance or nuisance to the adjoining properties or to the neighborhood. The Architectural Control Committee shall first approve any deviation.

If you are contemplating conducting a business within LFE, please contact the ACC for guidance and direction, and approval of any deviation.

No. Section 12 of the CC&Rs state:

No livestock, including poultry, shall be raised, kept or permitted on any of the residential property, other than ordinary domestic animals for owner’s personal use.

For a full list of the CC&Rs, please click here.

We highly recommend against it.

It is true that a modular home can be installed on any lot in California, in any neighborhood, without the possibility of discrimination based on where the home was built, so long as it conforms to the local zoning requirements and the California Building Code (CBC).

However - the roads in LFE are narrow, old, and weak. And more importantly, many of the old water pipes that still service the subdivision are under these roads. A property owner could therefore be liable for tens of thousands of dollars in repairs, for any damage to the road, trees, plants, and the water pipes, while attempting to install manufactured housing, which is very likely to occur. And if the water pipes are damaged, they can also be liable for loss of service damages from every household multiplied by every day that water service remains unavailable until repair.

Additionally, as required by our CC&Rs, all homes plans must be submitted to and approved by the Architectural Control Committee prior to commencement of any construction.

For a full list of the CC&Rs, please click here.

Yes, LFE has both landline and cellular phone service available.

The following Internet service providers are available at LFE: