BILL ANALYSIS SB 1128 Page 1 SENATE THIRD READING SB 1128 (DeSaulnier) As Amended April 7, 2010 Majority vote SENATE VOTE :33-0 HOUSING 8-0 ----------------------------------------------------------------- |Ayes:|Torres, Arambula, | | | | |Bradford, Eng, Gilmore, | | | | |Knight, Torlakson, Tran | | | | | | | | ----------------------------------------------------------------- SUMMARY : Allows a non-profit entity providing services to a common interest development (CID) under a declaration of trust to collect an assessment fee from purchasers during a transfer of title, and also provides that a non-profit entity is subject to the open records provisions of the Davis-Stirling Act (the Act). Specifically, this bill : 1) Allows a non-profit entity that provides services to a CID under a declaration of trust, if it received transfer fees prior to January 1, 2004, to continue to collect transfer fees from new members of the CID upon the purchase of property. 2) Clarifies that a non-profit entity providing services to a CID under a declaration of trust is required to provide members access to homeowner association (HOA) records upon the member's request. FISCAL EFFECT : None COMMENTS : A common interest development (CID) is a form of real property where each owner holds exclusive rights to a portion of the property typically called a unit or lot, and shared rights to portions of the property typically called the common area. Each CID is governed by a homeowner association according to the recorded declarations, bylaws, and operating rules of the association. The Davis-Stirling Common Interest Development Act (Act) provides that legal framework under which homeowner associations HOAs operate. SB 1128 Page 2 Some CIDs have created affiliated entities, called "community service organizations (CSO) or similar entities" to provide services to residents in the CID. The Act generally precludes both HOAs and CSOs from imposing any assessment, fee, or penalty in connection with a transfer of title for an individual unit except to cover the HOAs or CSO's actual costs associated with the transfer. The Act does, however, contain an exemption for CSOs that meet the following criteria: 1)The CSO was established prior to February 20, 2003 and exists to fund or perform environmental mitigation or to restore or maintain wetlands or native habitat, as required by the state or local government as an express written condition of development; or, 2)The CSO was established and received a transfer fee prior to January 1, 2004, and after January 1, 2006 it allows a purchaser to pay the transfer fee under an installment plan of at least seven years. The Act also requires that an HOA and CSO make financial documents available to individual residents. This bill is sponsored by the Golden Rain Foundation, a nonprofit corporation designated to serve as trustee of the Rossmoor community in Walnut Creek. The Rossmoor community is home to over 9,600 seniors, and is made up of seventeen affiliated CIDs. The purpose of the Golden Rain Foundation is to provide administrative service and to own and maintain major infrastructure and facilities within the developments. Currently, residents of Rossmoor pay a one-time transfer fee upon purchasing a new unit. The foundation uses this fund of transfer fees to pay for infrastructure and facilities costs, rather than increasing monthly dues for residents. The foundation follows the provisions of the Act, including those regarding transfer fees, by operating under the assumption that the foundation is considered a CSO. In 2008, the 4th District Court of Appeals in Southern California ruled in the case of Golden Rain Foundation v. Franz, that a similar foundation affiliated with Leisure World of Seal SB 1128 Page 3 Beach was not a CSO, but an HOA, and was therefore subject to the open records provisions of the Act. Given the similarities between the Seal Beach and Walnut Creek Golden Rain Foundations, the Golden Rain Foundation of Walnut Creek is now concerned that it too, might be considered an HOA rather than a CSO, and if so, its ability to charge a transfer fee could be challenged. Current law provides an exception to the prohibition of transfer fees for CSOs. This bill will expand that exception to include any "non-profit entity providing services to a common interest development under a declaration of trust" that received transfer fees prior to January 1, 2004. Rather than determine whether or not the Golden Rain Foundation is a CSO or an HOA, this bill simply broadens the terms used in the Act, so that any non-profit entity providing services under a declaration of trust must adhere to the open records provisions, and will be allowed to continue charging transfer fees if it had done so before January 1, 2004. By expanding this exception, this bill will allow the Golden Rain Foundation of Walnut Creek to continue charging transfer fees to new residents as it has done for years. Without this bill, a court could potentially deem the Golden Rain Foundation an HOA, rather than a CSO, rendering the foundation unable to charge a transfer fee. Analysis Prepared by : Celeste Parisi & Lisa Engel/ H. & C.D. / (916) 319-2085 FN: 0005341