BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 899
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Torres
VERSION: 6/17/09
Analysis by: Mark Stivers FISCAL: No
Hearing date: June 23, 2009
SUBJECT:
Common interest development disclosures
DESCRIPTION:
This bill creates an index of disclosures required of common
interest developments, allows e-mail distribution of these
disclosures, and requires a common interest development to
include in the existing reserve funding summary the assumed
interest rate earned on reserves and the assumed rate of
inflation for the repair and replacement of major components.
ANALYSIS:
A common interest development (CID) is a form of real estate
where each homeowner has an exclusive interest in a unit or lot
and a shared or undivided interest in common area property.
Condominiums, planned unit developments, stock cooperatives,
community apartments, and many resident-owned mobilehome parks
are all CIDs. Each CID is governed by a homeowner association
(HOA) according to the recorded declarations, bylaws, and
operating rules of the association. The Davis-Stirling Common
Interest Development Act provides the legal framework under
which homeowner associations operate in CIDs.
Current law requires an HOA to provide its members with a
variety of disclosures relating to the budget, financial
condition, and policies of the association. In general, an HOA
may deliver documents to a member via fax or e-mail if the
member has agreed to that method of delivery.
One of the required disclosures is the assessment and reserve
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funding disclosure summary. Among other things, this disclosure
informs members whether or not the HOA's reserves to repair or
replace major components at the end of their useful life are
fully funded. If not, the summary must estimate the percentage
of necessary reserves that will be available at the end of the
current fiscal year and after five years and identify the amount
and timing of assessment increase of special assessment that
would be necessary to fully fund the reserves.
This bill :
Creates an index of 14 separate disclosures that an HOA must
provide to its members and requires an HOA to distribute the
index to those members who request it.
Allows an HOA to distribute any of these 14 disclosures via
e-mail if the recipient has agreed to that method of delivery.
With respect to any document that an HOA distributes via
e-mail, fax, or other electronic means, provides that the
agreement of the member shall be obtained in conformance with
a specified provision of the Corporations Code.
Requires an HOA to include in the assessment and reserve
funding disclosure summary the assumed interest rate earned on
reserves and the assumed rate of inflation for the repair and
replacement of major components.
COMMENTS:
1.Purpose of the bill . According to the author, the intent of
this bill is to provide clarity and transparency to both CID
board members and owners relative to the many disclosures
required within the Davis-Stirling Act and to facilitate the
electronic distribution of documents. By citing all the
required disclosures in one place, HOAs will be less likely to
omit a disclosure, and owners will know what to expect. This
bill also seeks to provide better information to owners
relating to reserve funding by requiring that the assessment
and reserve funding disclosure summary specify the assumed
interest rate earned on the reserve funds and the long-term
inflation rate assumed for the costs of major component repair
and replacement.
2.Unclear provision . This bill amends the section of the
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Davis-Stirling Act that describes acceptable methods for
delivering documents to members of an HOA. It is not at all
clear, however, what the amendment does. It is apparently the
author's intent to provide HOA's with guidance on how to
obtain the consent of members needed to deliver documents
electronically, but the language does not directly speak to
methods of obtaining consent. Instead, the section
cross-references a section of the Corporations Code that does
not directly identify methods of obtaining consent but does
cross-reference another federal statute, the Electronic
Signatures in Global and National Commerce Act. To the extent
that this federal statute already applies to California
corporations as a result of 2004 amendments to the
Corporations Code, the committee may wish to consider an
amendment to redraft the language of this bill to more
directly require that any consent obtained by an incorporated
HOA must comply with the federal Electronic Signatures in
Global and National Commerce Act. With respect to
unincorporated HOA's, which tend to be much smaller, the
committee may wish to maintain the current, more flexible
language of the Davis-Stirling Act.
3.Technical amendment . In the section creating the index of
required disclosures, this bill provides that an HOA may
distribute any of the disclosures via e-mail with a member's
consent. Facilitating the electronic transmission of
documents can reduce costs and paper and be more user-friendly
for members. At a minimum, this provision more appropriately
belongs, however, in the existing section of law describing
acceptable methods for distributing certain documents. It may
also be beneficial to expand this existing section of law to
apply generally to all CID documents unless more specific
requirements apply elsewhere.
Assembly Votes:
Floor: 78-0
H&CD: 4-2
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 17, 2009)
SUPPORT: Executive Council of Homeowners (sponsor)
California Rural Legal Assistance Foundation
Western Center on Law & Poverty
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OPPOSED: None received.