BILL ANALYSIS AB 899 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 899 (Torres) As Amended June 26, 2009 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |78-0 |(May 28, 2009) |SENATE: |33-0 |(August 24, | | | | | | |2009) | ----------------------------------------------------------------- Original Committee Reference: H & C D. SUMMARY : Makes several changes to the Davis-Stirling Common Interest Development Act (Act) governing common interest developments (CID) including creating the Disclosure Document Index. The Senate amendments add the following provisions to the Assembly version of the bill to require: 1)An agreement between an association and a homeowner in a CID to provide documents via e-mail to conform to Corporations Code Section 20. 2)The Assessment and Reserve Funding Disclosure Summary to specify the fiscal year for which the summary applies. AS PASSED BY THE ASSEMBLY , this bill made several changes to the Act governing CID which: 1)Created the Disclosure Documents Index. 2)Required the Disclosure Documents Index to be made available to members of a homeowners association (association) annually upon request. 3)Allowed the Disclosure Document Index to be distributed to members of an association upon request via multiply means of delivery including electronic transmission. 4)Required the Assessment and Reserve Funding Disclosure Summary to specify the assumed long-term before-tax interest rate earned on reserve funds per year. 5)Required the Assessment and Reserve Funding Disclosure Summary AB 899 Page 2 to specify the assumed long-term inflation rate applied to major component repair and replacement costs per year. FISCAL EFFECT : None COMMENTS : There are over 41,000 CIDs in the state that range in size from three to 27,000 units. CIDs make up over four million total housing units which represents approximately one quarter of the state's housing stock. In the 1990s, over 60% of all residential construction starts in the state were CIDs. CIDs include condominiums, community apartment projects, and housing cooperatives and planned unit developments. They are characterized by a separate ownership of dwelling space coupled with an undivided interest in a common property, restricted by covenants and conditions that limit the use of common area, and the separate ownership interests and the management of common property and enforcement of restrictions by an association. CIDs are governed by the Act as well as the governing documents of the association including the bylaws, declaration, and operating rules. Except when CIDs are first developed, no state agency provides ongoing oversight to these communities. Associations are required to distribute to the members various disclosure documents including, but not limited to, a pro forma operating budget, assessment and reserve funding summary, assessment collection policy; and, disclosure of an owner's rights to alternative dispute resolution. The disclosure documents that are required to be distributed to the owners are scattered in multiple code sections throughout the Act. Associations are also required to complete a reserve study of the major components of the CID at least every three years. The major components are defined as components in the development that the association is required to maintain or replace with a service life of 30 years or less. The board is required to review the reserve study annually and determine whether deterioration of the major components over the past year warrant adjustment of the reserve funding. If the board determines that an adjustment is required the regular special assessments can be adjusted to reflect the increase necessary to meet funding goals. Existing law requires the association to distribute an Assessment and Reserve Funding Disclosure Summary that includes current regular assessment per ownership interest, the additional special or regular assessments that have been approved by the board and or members, and an assessment by the AB 899 Page 3 board of directors as to whether or not the current projected reserve account balances will be sufficient to meet the association's obligations. The purpose of the Assessment and Reserve Funding Disclosure Summary is to give the association a sense of what is needed to fund the reserves necessary to maintain the community. The purpose of this bill is to provide clarity and transparency for association boards of directors and owners of separate interests relative to the many disclosures required within the Act. AB 899 would create an index of the disclosure documents in the Act and would make the index available upon request of the owners of each separate interest. Additionally, this bill would require that the Assessment and Reserve Funding Summary specify the annual interest rate earned on the reserve funds per year and the assumed long-term inflation rate to be applied to major component repair and replacement costs each year. Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0001880