BILL NUMBER: AB 2806 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 21, 2008
AMENDED IN ASSEMBLY APRIL 8, 2008
INTRODUCED BY Assembly Member Karnette
(Coauthor: Senator Lowenthal)
FEBRUARY 22, 2008
An act to amend Section 1365 of, and to add Section 1363.002 to,
the Civil Code, relating to common interest developments.
LEGISLATIVE COUNSEL'S DIGEST
AB 2806, as amended, Karnette. Common interest developments: board
member education.
The Davis-Stirling Common Interest Development Act provides for
the creation and regulation of common interest developments. Existing
law requires the Department of Consumer Affairs and the Department
of Real Estate, to the extent existing funds are available, to
develop an online education course for the board of directors of an
association regarding the role, duties, laws, and responsibilities of
board members and prospective board members, and the nonjudicial
foreclosure process.
This bill would require the Department of Real Estate to
develop guidelines for a course on the law of common interest
developments, as specified, and to approve courses that comply with
those guidelines and that are offered at a cost of no more than $25.
The bill would , commencing July 1, 2009,
require each current member of the board of directors of an
association that is comprised solely of residential separate
interests who is serving a term of at least 12 consecutive months to
provide a statement to the board indicating whether he or she has
completed such a course an educational course
on the law of common interest developments and, if applicable,
when the course was completed. The bill , commencing July 1,
2009, would impose certain requirements on the board of an
association relating to the disclosure of information about the
completion of such a course by board members, and the amounts
budgeted for these educational costs.
Vote: majority. Appropriation: no. Fiscal committee: yes
no . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) There are more than 35,000 common interest developments in
California, comprising more than 4,300,000 dwellings. Dwellings in
those common interest developments comprise approximately one-fourth
of the state's housing stock.
(b) Common interest developments are governed by associations.
Managing an association is a complex responsibility. Association
members elect volunteer boards of directors and those directors may
have little or no experience serving in that capacity. In order to
properly discharge their duties, directors must comply with many laws
and, in so doing, must interpret and enforce those laws. Directors
must also interpret and apply the provisions of the association's
governing documents and rules. Additionally, board members may not
fully understand their rights and obligations under the law. Mistakes
and misunderstandings are inevitable and may result in serious,
costly, and divisive problems.
(c) While litigation is one form of dispute resolution, the
principal remedy for disputes should be based on a policy of
prevention. Litigation is not a positive means of resolving
association issues when the disputants are neighbors and must
maintain ongoing relationships. The adversarial nature of litigation
can disrupt these relationships, creating animosity that degrades the
quality of life within an association, shifts the focus of the
board, and increases the likelihood of future disputes. Litigation
may increase the expenses of an association, which must be paid by
its members through increased assessments. In some cases, homeowners
cannot personally afford to file or defend a lawsuit.
(d) Frequent changes in law make the law more difficult to
understand and apply while imposing significant additional costs on
associations.
(e) Education will provide association directors with a
significantly greater awareness of the laws that prescribe
association operational procedures and will better equip them to
govern an association more efficiently and prudently. Board members'
increased knowledge and proficiency in understanding the law will
provide them with the means to proactively and responsibly use a
nonjudicial approach to resolve disputes and to limit the frequency
and severity of disputes within an association.
SEC. 2. Section 1363.002 is added to the Civil Code, to read:
1363.002. (a) The Department of Real Estate shall
develop guidelines for a course on the law of common interest
developments, and shall approve courses that are submitted by
educational providers, that comply with those guidelines, and that
are offered at a cost of no more than twenty-five dollars ($25). The
course may be offered by correspondence, in person, or over the
Internet. The guidelines shall require such a course to provide
instruction, at a minimum, on the provisions of this title.
(b) Each member of the board
of directors of an association that is comprised solely of
residential separate interests who is serving a term of at least 12
consecutive months shall, in a timely manner, provide a statement to
the board indicating whether he or she has completed a
course approved pursuant to subdivision (a), an
educational course on the law of common interest developments
and, if applicable, when the course was completed.
(c)
(b) Each association shall annually disclose, in
writing, the following information to the association members:
(1) The provisions of this section.
(2) The statements provided to the board pursuant to subdivision
(b) (a) .
(3) Commencing July 1, 2009, a statement included in the ballot
materials disclosing, for each candidate, based upon the statement
provided to the board pursuant to subdivision (b)
(a) , whether he or she has completed a course
specified in subdivision (a) an educational course on
the law of common interest developments and, if so, when the
course was completed. The statement shall also specify the expiration
date of each board member's term of office, if applicable.
(d)
(c) The declarant and the developer of a common
interest development shall be exempt from the requirements specified
in subdivision (b) (a) until the board
of directors governing that development is composed of a majority of
separate interest owners.
(e)
(d) Nothing in this section shall in any way operate to
do any of the following:
(1) Remove or abrogate the board member immunities contained in
Section 1365.7, or in Section 7231.5 of the Corporations Code. The
immunities contained in those sections shall apply whether or not an
officer or director has taken the educational course specified in
subdivision (a).
(2) Enlarge or diminish the liabilities or duties of a board of
directors or an association as a result of the completion of, or
failure to complete, a course specified in subdivision (a).
(3) Invalidate the good standing of a member of an association.
(f)
(e) This section shall become operative on July 1,
2009.
SEC. 3. Section 1365 of the Civil Code is amended to read:
1365. Unless the governing documents impose more stringent
standards, the association shall prepare and distribute to all of its
members the following documents:
(a) A pro forma operating budget, which shall include all of the
following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association's reserves based upon the most
recent review or study conducted pursuant to Section 1365.5, based
only on assets held in cash or cash equivalents, which shall be
printed in boldface type and include all of the following:
(A) The current estimated replacement cost, estimated remaining
life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study is
prepared:
(i) The current estimate of the amount of cash reserves necessary
to repair, replace, restore, or maintain the major components.
(ii) The current amount of accumulated cash reserves actually set
aside to repair, replace, restore, or maintain major components.
(iii) If applicable, the amount of funds received from either a
compensatory damage award or settlement to an association from any
person or entity for injuries to property, real or personal, arising
out of any construction or design defects, and the expenditure or
disposition of funds, including the amounts expended for the direct
and indirect costs of repair of construction or design defects. These
amounts shall be reported at the end of the fiscal year for which
the study is prepared as separate line items under cash reserves
pursuant to clause (ii). Instead of complying with the requirements
set forth in this clause, an association that is obligated to issue a
review of their financial statement pursuant to subdivision (b) may
include in the review a statement containing all of the information
required by this clause.
(C) The percentage that the amount determined for purposes of
clause (ii) of subparagraph (B) equals the amount determined for
purposes of clause (i) of subparagraph (B).
(D) The current deficiency in reserve funding expressed on a per
unit basis. The figure shall be calculated by subtracting the amount
determined for purposes of clause (ii) of subparagraph (B) from the
amount determined for purposes of clause (i) of subparagraph (B) and
then dividing the result by the number of separate interests within
the association, except that if assessments vary by the size or type
of ownership interest, then the association shall calculate the
current deficiency in a manner that reflects the variation.
(3) A statement as to all of the following:
(A) Whether the board of directors of the association has
determined to defer or not undertake repairs or replacement of any
major component with a remaining life of 30 years or less, including
a justification for the deferral or decision not to undertake the
repairs or replacement.
(B) Whether the board of directors of the association, consistent
with the reserve funding plan adopted pursuant to subdivision (e) of
Section 1365.5, has determined or anticipates that the levy of one or
more special assessments will be required to repair, replace, or
restore any major component or to provide adequate reserves therefor.
If so, the statement shall also set out the estimated amount,
commencement date, and duration of the assessment.
(C) The mechanism or mechanisms by which the board of directors
will fund reserves to repair or replace major components, including
assessments, borrowing, use of other assets, deferral of selected
replacements or repairs, or alternative mechanisms.
(D) Whether the association has any outstanding loans with an
original term of more than one year, including the payee, interest
rate, amount outstanding, annual payment, and when the loan is
scheduled to be retired.
(4) A general statement addressing the procedures used for the
calculation and establishment of those reserves to defray the future
repair, replacement, or additions to those major components that the
association is obligated to maintain. The report shall include, but
need not be limited to, reserve calculations made using the formula
described in paragraph (4) of subdivision (b) of Section 1365.2.5,
and may not assume a rate of return on cash reserves in excess of 2
percent above the discount rate published by the Federal Reserve Bank
of San Francisco at the time the calculation was made.
The summary of the association's reserves disclosed pursuant to
paragraph (2) shall not be admissible in evidence to show improper
financial management of an association, provided that other relevant
and competent evidence of the financial condition of the association
is not made inadmissible by this provision.
Notwithstanding a contrary provision in the governing documents, a
copy of the operating budget shall be annually distributed not less
than 30 days nor more than 90 days prior to the beginning of the
association's fiscal year.
(5) Commencing in its first fiscal year beginning after June 30,
2009, and each fiscal year thereafter, a line item for board member
education costs. The amounts budgeted for those costs may pay or
provide reimbursement for all or a portion of the reasonable expenses
incurred by board members that are directly associated with
enrollment in a course specified in subdivision (a) of
Section 1363.002 an educational course on the law of
common interest developments . The payment or reimbursement
shall not exceed, for each board member, twenty-five dollars ($25)
for course fees and one hundred dollars ($100) for travel expenses.
(b) Commencing January 1, 2009, a summary of the reserve funding
plan adopted by the board of directors of the association, as
specified in paragraph (4) of subdivision (e) of Section 1365.5. The
summary shall include notice to members that the full reserve study
plan is available upon request, and the association shall provide the
full reserve plan to any member upon request.
(c) A review of the financial statement of the association shall
be prepared in accordance with generally accepted accounting
principles by a licensee of the California Board of Accountancy for
any fiscal year in which the gross income to the association exceeds
seventy-five thousand dollars ($75,000). A copy of the review of the
financial statement shall be distributed within 120 days after the
close of each fiscal year.
(d) Instead of the distribution of the pro forma operating budget
required by subdivision (a), the board of directors may elect to
distribute a summary of the pro forma operating budget to all of its
members with a written notice that the pro forma operating budget is
available at the business office of the association or at another
suitable location within the boundaries of the development, and that
copies will be provided upon request and at the expense of the
association. If any member requests that a copy of the pro forma
operating budget required by subdivision (a) be mailed to the member,
the association shall provide the copy to the member by first-class
United States mail at the expense of the association and delivered
within five days. The written notice that is distributed to each of
the association members shall be in at least 10-point boldface type
on the front page of the summary of the budget.
(e) A statement describing the association's policies and
practices in enforcing lien rights or other legal remedies for
default in payment of its assessments against its members shall be
annually delivered to the members not less than 30 days nor more than
90 days immediately preceding the beginning of the association's
fiscal year.
(f) (1) A summary of the association's property, general
liability, earthquake, flood, and fidelity insurance policies, which
shall be distributed not less than 30 days nor more than 90 days
preceding the beginning of the association's fiscal year, that
includes all of the following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably practicable,
notify its members by first-class mail if any of the policies
described in paragraph (1) have lapsed, been canceled, and are not
immediately renewed, restored, or replaced, or if there is a
significant change, such as a reduction in coverage or limits or an
increase in the deductible, as to any of those policies. If the
association receives any notice of nonrenewal of a policy described
in paragraph (1), the association shall immediately notify its
members if replacement coverage will not be in effect by the date the
existing coverage will lapse.
(3) To the extent that any of the information required to be
disclosed pursuant to paragraph (1) is specified in the insurance
policy declaration page, the association may meet its obligation to
disclose that information by making copies of that page and
distributing it to all of its members.
(4) The summary distributed pursuant to paragraph (1) shall
contain, in at least 10-point boldface type, the following statement:
"This summary of the association's policies of insurance provides
only certain information, as required by subdivision (f) of Section
1365 of the Civil Code, and should not be considered a substitute for
the complete policy terms and conditions contained in the actual
policies of insurance. Any association member may, upon request and
provision of reasonable notice, review the association's insurance
policies and, upon request and payment of reasonable duplication
charges, obtain copies of those policies. Although the association
maintains the policies of insurance specified in this summary, the
association's policies of insurance may not cover your property,
including personal property or, real property improvements to or
around your dwelling, or personal injuries or other losses that occur
within or around your dwelling. Even if a loss is covered, you may
nevertheless be responsible for paying all or a portion of any
deductible that applies. Association members should consult with
their individual insurance broker or agent for appropriate additional
coverage."