BILL ANALYSIS Ó
SB 563
Page 1
Date of Hearing: June 15, 2011
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
SB 563 (Committee on Transportation and Housing) - As Amended:
May 23, 2011
SENATE VOTE : 37-1
SUBJECT : Common interest developments: meetings
SUMMARY : Requires a homeowners association (HOA) to send
notice to members two days prior to an executive session meeting
and restricts how the board of directors (board) can communicate
via electronic means. Specifically, this bill :
1)Defines an" item of business" is any action within the
authority of the board, except those actions that the board
has delegated to any other person or persons, managing agency,
officer of the association or committee of the board made up
of less than a majority of the directors.
2)Adds the following to the definition of "meeting", a
teleconference in which a majority of the members of the board
are in different locations and are connected by electronic
means through audio or video or both.
3)Requires a teleconference meeting to be conducted in a manner
that protects the rights of the members of the association and
complies with the Common Interest Development Open Meeting
Act.
4)Provides that except for meetings that are only in executive
session, the notice of the meeting of the board must identify
at least one physical location so that the members of the
association may attend and at least one member of the board
must be at the location.
5)Provides that participation of the board members in a
teleconference meeting constitutes presence at the meeting as
long as all the board members are able to hear one another and
the members of the association.
6)Requires that except for emergency meetings, a homeowners
association must notify the members of an executive session
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meeting at least two days roper to the meeting.
7)Allows notice of a regular meeting or an executive session
meeting to be made by electronic means if the member agrees
with that method of notice.
8)Prohibits a board of directors from taking action on any item
of business outside of a meeting.
9)Prohibits the board from conducting a meeting via a series of
electronic transmissions, including but not limited to email,
except for an emergency meeting if all members of the board
have consented in writing and have filed that consent with the
minutes of the meetings of the board.
EXISTING LAW
1)Provides that members of the HOA may attend a board meeting of
the HOA except with the board adjourns to executive session to
consider, litigation, contracts, member discipline, personnel
matters, or to meet with a member at the member's request
regarding payments of assessments.
2)Requires that any matter discussed in executive session to be
noted in the minutes of the immediately following meeting that
is open to the entire membership.
3)Provides that unless the time and place of the meeting is
fixed by the bylaws or the bylaws require a longer period of
notice, the HOA must notify the members of a meeting four days
prior to the meeting.
4)Requires notice of a meeting, including the agenda, to be
posted in a prominent place or places in the common area and
be mailed to any owner who has requested notification of the
board meetings by mail.
5)Allows the board president or any two members other than the
president, to call an emergency meeting of the board if there
are circumstances that could not have been reasonably foresee
that require the immediate attention and possible action of
the board.
6)Defines a "meeting" as a congregation of a majority of the
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members of the board at the same time and place to hear,
discuss, or deliberate on any "item of business" within the
board's authority except matters that may be discussed in
executive session.
FISCAL EFFECT : None.
COMMENTS :
There are over 47,000 CIDs in the state that range in size from
three to 27,000 units. CIDs make up over six 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 a HOA. CIDs are
governed by the Davis Stirling Act, as well as the governing
documents of the association including bylaws, declaration, and
operating rules. CIDs are governed by volunteer boards of
directors who are elected by the members of the HOA and are
responsible for interpreting the governing documents and state
law. Except when CIDs are first developed, no state agency
provides ongoing oversight to these communities.
HOA Meetings : HOA's are governed by volunteer boards of
directors (board), elected by the members. Many CIDs employ a
managing agent to carry out the day-to-day operations of the
HOA. The governing documents of the HOA typically direct how
frequently the board is required to meet. A meeting of the HOA
is defined as a congregation of a majority of the members of the
board at the same time and place to hear, discuss, or deliberate
on any item of business within the board's authority except
matters that may be discussed in executive session. HOA's are
required to provide four days' written notice, including an
agenda, of a meeting of the board.
Executive session : Existing law allows members of the HOA to
attend all meetings except when the board of an HOA meets in
closed-door, executive session to discuss litigation, contracts
with a third party, member discipline, personnel matters or to
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meet with a member to discuss delinquent assessments. Executive
session meetings are exempt from the definition of "meeting" and
therefore are not subject to the four-day notice requirement.
Members are not permitted to attend executive session meetings
unless they request the meeting to discuss delinquent
assessments or are subject to a disciplinary matter.
SB 563 would require the board of directors to notice executive
session meetings of the board two days prior to the meeting,
unless the meeting is for an emergency, in which case no notice
is required. Members cannot attend the executive session
meetings, but the author reasons the notice will create an
opportunity to keep members informed about what is going on in
the CID and a chance to weigh in with board members prior to the
meeting.
Electronic communications : CID can be formed as either a
corporation or a non-profit and those that are incorporated are
subject to the Corporations Code. Corporations Code Section
7211 (b) allows a board to take an action, that it is required
or permitted to take without a meeting, if all board members
agree in writing to the action. The written consent is required
to be filed with the minutes and has the same force and effect
as a unanimous vote of the board. According to the author, this
provision is used to allow boards to make decisions via e-mail
outside of a board meeting; as a result, members are not privy
to the discussion surrounding the decisions and cannot
participate in the decision-making process. SB 563 prohibits a
board of directors from taking action on any item of business
outside of a meeting and prohibits the board from conducting a
meeting via electronic transmissions except in the case of an
emergency meeting.
Purpose of the bill : According to the author, committee staff
has received a number of complaints that CIDs have used the
provision of the Corporations Code to conduct regular board
meetings via e-mail and without out the participation of member
of the association. In order to ensure open meetings and the
ability for members to participate, this bill clarifies that no
CID, whether incorporated or unincorporated, may conduct a
meeting via e-mail except in emergency situation. The bill also
clarifies that a CID board member may participate in a meeting
by telephone or video conference if at least one board member is
present at a physical location where members may attend and
speak and if the connection allows any participates in the
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meeting to hear and be heard.
Item of business : SB 563 prohibits a board from taking action
on any "item of business" outside of a meeting of the board.
"Item of business" is defined as any action, within the
authority of the board, except those actions that the board has
validly delegated to any other person, managing agent, and
officer of the association or a committee of the board made up
of less than a majority of the members. State law details
situations in which a board is directed to take specific actions
in a meeting including, for example, voting to foreclose on an
owner's unit requires specific board action. It stands to
reason, that the addition of this section may provide boards
flexibility in delegating authority to a manager, committee or
individual board member to make decisions outside of a board
meeting if the action does not require a vote of the entire
board.
Arguments in opposition : Opponents argue that there are actions
that do not rise to the level of an emergency that require board
action in between scheduled board meetings and eliminating the
option to make decisions over e-mail will make the operations of
the CID more difficult. Opponents contend that requiring notice
of executive session meetings could create confusion for
homeowners who will receive the notice but cannot attend the
meeting and may create conflict between homeowners and boards.
They also contend that additional notices will increase cost
during a time when HOAs are struggling financially as a result
of the down real estate market.
California Association of Community Managers has requested the
bill be amended to allow board members to continue to meet and
make decisions by unanimous consent under Corporations Code 7211
but require those actions to be ratified in the subsequent board
meeting. They believe that the amendment will achieve the
author's goal of transparency without creating additional costs
required by the notice.
Double referred : The Assembly Committee on Rules referred SB
563 to the Committee on Housing and Community Development and
Judiciary. If SB 563 passes this committee, the bill must be
referred to the Committee on Judiciary.
Staff comments : There are generally two schools of thought
regarding CIDs. Some view them as mini-governments with all of
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the powers and obligations as local governments. Other's view
them as corporate entities which rely upon volunteer boards that
should not be subject to the same scrutiny as local government.
This bill would apply greater transparency standards similar to
those applied to local governments.
The Committee may wish to consider if it would be appropriate to
require HOAs that maintain a web site to post notice of
executive session meetings on their website prior to the meeting
rather than requiring notice be sent to all members.
REGISTERED SUPPORT / OPPOSITION :
Support
California Alliance for Consumer Protection
California Alliance for Retired Americans
Californians Aware
Executive Council of Homeowners
Three homeowners' associations board members (Auburn, Morgan
Hill, and San Diego)
Opposition
Association for Common Sense CID Laws
California Association of Community Managers
Community Associations Institute
Four homeowners' associations (Irvine, Laguna Woods, Mission
Viejo, and Roseville)
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085