BILL ANALYSIS Ó
AB 968
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Date of Hearing: May 1, 2013
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 968 (Gordon) - As Amended: April 22, 2013
SUBJECT : Common interest developments: elections
SUMMARY : Establishes an alternative voting process for
electing the board of directors of a homeowners association
(HOA) in a common interested development (CID) with 15 units or
less. Specifically, this bill :
1)Prior to using this alternative voting process, requires an
HOA to hold an election, using the procedure outlined in Civil
Code Sections 5110, 5115, 5120, and 5125, in which a simple
majority of the members approve using the alternative voting
procedure created by this bill.
2)Requires an HOA to send a notice to each member at least 30
days prior to the meeting at which the election will be held
that includes the time, place, and the matter that will be
decided in the election.
3)Requires a quorum of the members to be present at the meeting.
4)Provides that if the governing documents of the CID allow the
use of a proxy, a proxy may be counted in establishing a
quorum.
5)Allows a candidate for elected office to be nominated prior to
the election or at the meeting where the election is held.
6)Requires votes to be cast by secret ballot, except when a
proxy is allowed.
7)Allows a vote to be cast for a write-in candidate.
8)Requires the ballots to be counted openly at the meeting at
which they were cast.
9)Requires the vote totals and results of the election to be
announced at the meeting.
10)Provides that if a vote to elect a director result in a tie
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and a quorum is still present when the tie is announced, the
members present at the meeting may vote immediately to break
the tie.
11)Allows a runoff election to be used to break the tie, unless
the governing documents provide for another method.
12)Makes elections that use this alternative voting process
subject to all of the provisions governing elections in the
Davis Stirling Act except those in Civil Code Sections 5110,
5115, 5120, and 5125.
EXISTING LAW
1)Requires an HOA to select an independent third party or
parties for an election in a CID to do all of the following:
a) Determine the number of memberships entitled to vote and
the voting power of each;
b) Determine the authenticity, validity, and effect of
proxies, if any;
c) Receive ballots;
d) Hear and determine all challenges and questions in any
way arising out of or in connection with the right to vote;
e) Count and tabulate all votes;
f) Determine when the polls close, consistent with the
governing documents;
g) Determine the tabulated results of the election; and
h) Perform any acts as may be proper to conduct the
election with fairness to all members in accordance with
the Davis Stirling Act (Act), the Corporations Code, and
all applicable rules of the HOA.
(Civil Code Section 5110)
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1)Requires an HOA to provide each owner of a separate interest
with a ballot with two preaddressed envelopes with
instructions on how to return ballots (Civil Code Section
5115).
2)Requires ballots to be mailed by first-class mail or delivered
by the HOA to every member not less than 30 days prior to the
deadline for voting (Civil Code Section 5115).
3)Prohibits voters from being identified by name, address, lot,
parcel, or unit number on the ballot (Civil Code Section
5115).
4)Requires the ballot to be inserted into the first envelope
that is sealed. That envelope is inserted into a second
envelope that is sealed. Requires the voter to sign his or her
name and address in the upper left hand corner. Requires the
second envelope to be addressed to the inspector or inspectors
of elections, who will be tallying the votes. The envelope may
be mailed or delivered by hand to a location specified by the
inspector or inspectors of elections. The member may request a
receipt for delivery. (Civil Code Section 5115)
5)Requires the ballots in an election to be counted in public at
a properly noticed meeting and allows any member or candidate
for election to witness the counting and tabulating of votes
(Civil Code Section 5120).
6)Prohibits any member of the association or employee of the
management company from opening the ballots prior to the
meeting at which they are counted (Civil Code Section 5120).
7)Makes a ballot irrevocable once it is received by the
inspector of elections (Civil Code Section 5120).
8)Requires the results of the election to be reported to the
board and recorded in the minutes of the next meeting of the
board and made available for review by the members of the HOA
(Civil Code Section 5120).
9)Requires the board to notify the members within 15 days of the
results of the election (Civil Code Section 5120).
10)Requires the sealed ballots to be in the custody of the
inspector of elections at all times or at a location
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designated by the inspector and until the time limit for
challenges for elections has expired (Civil Code Section
5125).
11)Requires the inspector of elections to make the ballots
available, upon written request, if there is a request for a
recount or challenge to the election. Requires a recount to be
done in a manner that preserves the confidentiality of the
vote. (Civil Code Section 5125)
12)Requires a quorum in an election in a CID only if so stated
in the governing documents or other provisions of law. If a
quorum is required by the governing documents, each ballot
received by the inspector of elections shall be treated as a
member present at a meeting for purposes of establishing a
quorum. (Civil Code 5130)
FISCAL EFFECT : None.
COMMENTS:
There are over 49,000 CIDs in the state that comprise over 4.9
million housing units, or approximately one quarter of the
state's housing stock. CIDs include condominiums, community
apartment projects, 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 (the Act) as
well as the governing documents of the association, including
bylaws, declaration, and operating rules. CIDs are run by
volunteer boards of directors (boards) the members of which may
have little or no experience managing real property or governing
a nonprofit association and who must interpret the complex laws
regulating CIDs. Boards must not only interpret the law, but
enforce the restrictions and rules imposed by the governing
documents and state law.
In addition to interpreting an HOA's individual governing
documents, boards and homeowners must also follow the state law
governing CIDs. The governing law has two main sources, the
Corporations Code and the Act. If an HOA is incorporated it is
typically governed by the Nonprofit Mutual Benefit Corporation
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Law. An unincorporated HOA is subject to both the general law
and on unincorporated associations, and specific provisions of
the Nonprofit Mutual Benefit Corporations Code.
Size of Associations : CIDs range in size from three to 27,000
individual units. Although some medium and large CIDs employ
community managers who are responsible for handling the
day-to-day operations of the HOA, many smaller CIDs are
self-managed. According to the 2012 California Community
Associations Statistics Report prepared by Levy & Company, CPAs,
close to two-thirds of CIDs are 50 units are less. Levy &
Company estimates that 35% of CID units in the state are 15
units or smaller. HOAs are funded entirely by the collection of
assessments from homeowners, which are used to maintain the
common area of the CID and fund the reserves. One-quarter of all
associations have annual revenue of $75,001 to
$100,000.
Purpose of this bill: This bill would allow a CID with 15
units or less to operate an election of the board of directors
in a simplified manner. Elections would be performed in a
meeting where a quorum of members is present, using secret
written ballots. The ballots would be collected and read out
loud and the winner would be declared at the meeting. Those
CIDs that have 15 units or less make up about one-third of all
CIDs in the state and would benefit from a simplified procedure
for electing the board of directors.
Existing election process: All HOAs regardless of size are
required to follow the existing election procedure. The
existing process is intended to provide anonymity to members and
involves an extensive process, including the provision of double
stuffed ballots. HOAs are required to secure an inspector of
elections to open and tally all ballots received in an election.
For small HOAs, the cost and time associated with multiple
mailings and hiring an elections inspector can be a burden to
the election process. In most cases, the governing documents of
an HOA set a quorum, or percentage of the members, that must
vote in the election to make it valid. A problem reported by
CIDs regardless of size is the challenge of getting enough
members of the HOA to participate in an election to achieve a
quorum.
This bill would establish an alternative voting process for CIDs
with 15 units or less that would allow members to vote in person
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at a properly noticed meeting. Small HOAs would not be required
to use this alternative election process, but could opt in if a
majority of the membership approves. Before an HOA could use
the alternative voting process created by this bill, it would
have to hold an election using the existing voting procedure and
get the approval of a simple majority of the members.
This bill would exempt CIDs with 15 units or less from certain
election-related provisions of the Act, listed in the bill. All
other provisions of the Act would continue to apply. For
example, homeowners could challenge an election in court within
one year of the election and the court could void the results of
the election, if they found them to violate the provisions of
this bill (Civil Code Section 5145).
Arguments in opposition: The California Alliance for Retired
Americans (CARA) and Center for California Homeowner Association
Law are opposed to this bill. CARA states that election
procedures in existing law are necessary to protect consumers
because every year board directors collect millions of dollars
in assessments from senior homeowners and then spend those
dollars via contracts on property managers, lawyers,
contractors, and other vendors. CARA believes that seniors
living in small associations need greater protections because
they "are more frequently pressured and intimidated into voting
a certain way under threat of social ostracism."
Arguments in support: The Congress of California Seniors (CCS)
supports the bill and argues that it does not negate the rights
of homeowners to challenge the results of an election. CCS
states, "There are real problems, especially for smaller HOAs,
with the complicated procedures and costs required in current
law. AB 968 could save homeowners money, insures that elections
are transparent, and does no harm to existing consumer
protections."
Committee amendment:
It is unclear if a smaller HOA would be required to conduct an
election, by the process in existing law, every time they want
to hold an election using the alternative voting procedure
created in this bill. The amendment below will clarify that an
HOA must only vote once, by the existing procedure, to opt-in to
the alternative procedure, created by this bill.
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5126. (a) Notwithstanding Sections 5110, 5115, 5120, and
5125, a common interest development with not more than
fifteen 15 separate interests may conduct an election of
directors pursuant to this section. However, in order
for a common interest development to conduct its
subsequent elections pursuant to this section, it shall
first hold an election, pursuant to the procedures set
forth in Sections 5110, 5115, 5120, and 5125, in which
its members, by simple majority vote, agree to conduct
its elections of directors under the provisions of this
section.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Community Managers
Community Associations Institute
Congress of California Seniors
Executive Council of Homeowners
Opposition
California Alliance of Retired Americans
California Consumer Affairs Association
Center for California Homeowner Association Law
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085