BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 805 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: tORRES VERSION: 1/4/12 Analysis by: Mark Stivers FISCAL: no Hearing date: January 10, 2012 SUBJECT: Reorganization of the Davis-Stirling Common Interest Development Act DESCRIPTION: This bill moves, reorganizes, and harmonizes the provisions of the Davis-Stirling Common Interest Development Act. ANALYSIS: A common interest development (CID) is a form of real estate in which 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 all fall under the CID umbrella. A homeowner association board elected by the members governs each CID. The covenants, conditions, and restrictions (CC&Rs) that are recorded against each individual unit bind the members of the CID. In addition, associations adopt articles of incorporation, articles of association, and bylaws for the governance of the CID as well as operating rules that govern the behavior of members and their guests. Collectively, these documents are referred to as the governing documents of the association. First enacted in 1985 and amended numerous times since, the Davis-Stirling Common Interest Development Act governs CIDs. The act contains provisions that, among other things, regulate the creation and amendment of CIDs and their governing documents as well as elections, meetings, assessments, collections, fiscal matters, and dispute resolution. This bill , operative January 1, 2014, moves, reorganizes, and harmonizes the provisions of the Davis-Stirling Common Interest Development Act. The bill largely keeps the substance and language of the Davis-Stirling Act intact with only technical AB 805 (TORRES) Page 2 changes. The bill, however, makes the following substantives changes to the statute: Provides guidance on two fundamental aspects of CID governance that are not clearly addressed in current law: (1) The general supremacy of the law over a CID's governing documents, and (2) the relative authority of different types of governing documents. Requires that an association provide members with the text of a proposed amendment of the governing documents when holding an election to approve the proposed amendment. Allows a declarant, as opposed to just the original signator of the declaration, to amend the declaration. Creates a single procedure for amending the declaration. In order for a court to amend a declaration that has not received the required member approval, requires the court to find that the election was conducted in accordance with the election provisions of the Davis-Stirling Act. Clarifies that the persons who currently hold specified interests in the property, as opposed to those who held such positions at the creation of the CID, may execute an amendment or revocation of the condominium plan. Clarifies that an association may not prohibit access to an occupant, in addition to the owner, of a separate interest to his or her interest. Applies existing law governing the grant of common area to an individual member as exclusive use common area to situations in which the common area is owned by the tenants in common, not the association. Additionally exempts from the requirement that 67% of members approve a grant of common area to an individual member as exclusive use common area the following: A grant that is necessary to accommodate a disability. A grant that is required by law. The assignment of a parking space, storage unit, or other amenity, if the declaration expressly provides for its assignment. Applies the CID open meeting law to any meeting of a quorum of the board, as opposed to a meeting of a majority of members of the board. Allows greater flexibility in how a CID posts meeting notices. Prohibits a CID board member or committee member from voting on specified matters directly involving himself or herself. Requires an inspector of elections to maintain election AB 805 (TORRES) Page 3 ballots for 12 months, as opposed to nine months and then turning them over to the association for an additional three months. Reorganizes the budget and other financial information that a CID must distribute to members into three annual reports, based on subject matter. Standardizes notice delivery procedures. Requires a CID that has recorded an assessment lien in error, under any circumstances as opposed to only when discovered through alternative dispute resolution, to release the lien and reverse all costs, fees, and interest associated with the error. Requires a CID, when attempting to impose a monetary charge for damage to common area and facilities caused by a member or the member's guest or tenant, to provide the member with notice of the alleged violation and an opportunity to be heard by the board. Broadens a court's ability to weigh a party's refusal to participate in alternative dispute resolution when determining awards of attorney's fees and costs to all actions in which fees and costs may be awarded, as opposed just to actions to enforce the governing documents. Exempts non-residential CIDs from the board election procedures of the Davis-Stirling Act and applies the Corporations Code procedures. Subjects non-residential CIDs to emergency assessment setting provisions. Establishes standards for a member to deliver a document to the CID and for the CID to deliver documents and notices to members. COMMENTS: 1.Purpose of the bill . The author notes that volunteers who govern CID associations may have little experience managing real property or running a nonprofit entity. Most associations are small and do not have the resources for professional management or counsel. It is therefore important that the law governing CIDs be as understandable and easy to use as possible. Unfortunately, the existing Davis-Stirling Act is not well organized or easy to understand. These shortcomings can make it difficult for boardmembers and owners to understand their rights and obligations under the law. The author believes that this bill will make the law more user-friendly and, therefore, more effective. AB 805 (TORRES) Page 4 2.Reflects a Law Revision Commission recommendation . The California Law Revision Commission, a state entity charged with examining California law and recommending needed reforms, is the sponsor of this bill. This particular recommendation is the culmination of at least six years of review, public hearings, and exhaustive stakeholder consultation. The commission recommends that the Legislature repeal the existing Davis-Stirling Act and replace it with a new statute that continues the substance of existing law in a more logical and user-friendly form. The commission believes that the new statute will provide the following advantages for CID members who must read, understand, and apply the law: Related provisions are grouped together in a logical order. This makes relevant law easier to find and use. It also provides a clear organization to guide the future development of the law. Sections that are unclear or confusing are revised for clarity, without any change to their substantive effect. Sections that are excessively long are divided into shorter sections. To the extent practical, terminology is standardized. Various noncontroversial substantive improvements are made. 1.Legislative intent . The bill expressly states that courts should consider the bill a restatement of the Davis-Stirling Act and not a new enactment. This provision will help ensure continuity in legal decisions interpreting and applying the act and, as a result, enforcement of the law. In addition, courts consider the extensive Law Revision Commission materials leading up to this bill as evidence of legislative intent and are obligated to give great weight to these materials in construing statutes, which should further help practitioners and the courts in implementing the revised law. 2.One year deferral . The bill defers its own operative date by one year to January 1, 2014 in order to give affected persons and organizations time to adjust to the new organization of the law. 3.Double referral . The Rules Committee has referred this bill to both this committee and the Judiciary Committee. Assembly Votes: Floor: 73-0 AB 805 (TORRES) Page 5 Judic: 9-0 H&CD: 7-0 RELATED LEGISLATION: AB 806 (Torres) is a companion bill that makes cross reference changes to other statutes to reflect the movement and reorganization of the Davis-Stirling Act proposed in AB 805. The committee will also hear AB 806 at the January 10 hearing. POSITIONS: (Communicated to the committee before noon on Wednesday, January 4, 2012) SUPPORT: California Law Revision Commission (sponsor) Community Association Institute OPPOSED: None received.