BILL ANALYSIS Ó
AB 1738
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, Chair
AB 1738 (Chau) - As Amended: April 22, 2014
SUBJECT : Common interest developments: dispute resolution
SUMMARY : Requires the informal dispute resolution (IDR)
process used by a common interest development (CID) to allow a
member and the homeowners association (HOA) to have an attorney
present if either party provides notice as specified.
Specifically, this bill :
1)Clarifies that an agreement reached as part of IDR is only
judicially enforceable if the agreement is in writing.
2)Requires an IDR process developed by an HOA to allow a member
and the HOA to have legal counsel present if they choose, to
explain their respective positions, and to seek to negotiate a
mutually satisfactory resolution to the dispute.
3)Requires the member or the HOA to give five days written
notice to the other party of their intent to bring legal
counsel.
4)Provides that, if notice is not provided by either the member
or HOA, the party that does not receive notice can elect to
postpone IDR until the notice requirement is met.
5)Provides that another person that is not legal counsel may
attend the IDR procedure and assist the member or HOA in the
procedure without prior notice.
6)Specifies that each party must pay the cost of their own legal
counsel.
EXISTING LAW
1)Requires an HOA's IDR procedure to be fair, reasonable, and
expeditious and to satisfy the following minimum requirements:
a) Allow either a member or the HOA to request IDR if the
request is in writing;
AB 1738
Page 2
b) Have prompt deadlines that state the maximum time an HOA
has to act on a request for IDR;
c) Require the HOA to participate if the member requests
IDR;
d) Allow the member discretion to participate if the HOA
requests IDR;
e) Allow that if the member participates in IDR and the
dispute is resolved other than by agreement of the member
then the member has the right to appeal to the board of
directors.
f) Provide that a resolution to a dispute that is not in
conflict with the law or governing documents binds the HOA
and is judicially enforceable.
g) Provide that an agreement reached through IDR that is
not in conflict with the law or the governing documents
binds the parties and is judicially enforceable.
h) Require the IDR procedure to provide a means by which
the member and the HOA may explain their positions; and
i) Prohibits a member from being charged a fee to
participate in the process.
(Civil Code Section
4525)
FISCAL EFFECT : None.
COMMENTS :
There are over 50,000 CIDs in the state that range in size from
three to 27,000 units. CIDs make up over 4.9 million housing
units which represents approximately one quarter of the state's
housing stock. CIDs include condominiums, community apartment
projects, housing cooperatives, and planned unit developments.
CIDs are governed by the Davis-Stirling Act as well as the
governing documents of the association including bylaws,
declaration, and operating rules.
AB 1738
Page 3
Conflicts arise between members of an HOA and the board of
directors regarding interpretation of the governing documents
and operating rules. In 2004, AB 1836 (Harmon) (2004) Chapter
754, required that HOAs provide the members an IDR process at no
cost. Either the member or the HOA can request IDR, however the
HOA cannot compel the member to participate. Any agreement that
is reached in IDR that is not in conflict with the law or the
governing documents is judicially enforceable. If an HOA does
not provide an IDR procedure then the bill created a statutory
"meet and confer" process that HOAs must follow. The bill was
sponsored by the California Law Revision Commission to give HOAs
a standard, informal process to try to resolve disputes before
they become serious.
Purpose of the bill: The law is silent on whether a member or
the HOA can have legal counsel present at an IDR procedure. In
practice, some HOAs invite a member to bring an attorney to an
IDR procedure. In other cases, an HOA may have their attorney
attend without noticing the member and deny the member's request
to have counsel. The governing documents and the Davis Stirling
Act can be difficult for a lay person to understand. In an
effort to level the playing field during IDR, AB 1738 allows
both the HOA and the member to bring legal counsel if they have
notified the other party five days before the procedure. If
either party shows up to the IDR procedure with legal counsel
and has not provided the five day notice then the other party
can choose to postpone the IDR session until the notice is
received.
AB 1738 also allows a member to bring an assistant that is not
legal counsel. The sponsor contends that some members may need
help communicating their concerns to the HOA or resolving the
dispute. Although there is nothing in existing law that would
prevent a member from bringing along someone to assist them
during the IDR procedure, AB 1738 would make clear that they
can. IDR was intended to be a low-cost option for members and
the HOA to resolve disputes. Although, having attorneys
participate may increase the cost for both sides AB 1738 makes
clear that each side is responsible for paying for their own
attorney fees.
Several organizations have requested amendments to the bill. The
committee amendments make the following substantive changes:
1)Increase the notice required from five to ten days for a
AB 1738
Page 4
member or HOA to notify the other party that they plan to
bring an attorney or another person to the IDR procedure.
2)Require an HOA or member to notify the other party if they
plan to bring someone other than an attorney to the IDR
procedure.
3)Require the notice of intent to bring either an attorney or
another person to meet the existing notice requirements of the
Davis Stirling Act.
Committee amendments:
1)On page 3, line 6 delete "legal counsel" and replace with "an
attorney"
2)On page 3, line 9, delete "legal counsel" and replace it with
" an attorney"
3)On page 3, starting on line 8, delete the following: "If
either or both parties intend to have legal counsel
participate in the procedure, the procedure shall require at
least five days written notice of this intent to be given to
the other party. If this notice is not provided, the party not
receiving the required notice shall have the election of
postponing the procedure until the notice requirement is met."
4)On page 3, line 16 delete "without prior notice"
5)On age 3, after line 16 insert the following: (3) If either a
member, an association, or both intends to have an attorney or
another person participate in the procedure, the procedure
shall require the member, the association, or both to provide
ten days written notice of this intent to be given to the
other party pursuant to the methods identified in subdivision
(b) of section 4035 and paragraphs (1) and (2) of subdivision
(a) of section 4040. If notice is not provided, the party not
receiving the required notice shall have the election of
postponing the procedure until the notice requirement is met.
6)On page 3, line 19, delete "costs" and replace it with
"attorney fees"
7)On page 3, line 19, delete "for legal counsel."
AB 1738
Page 5
8)On page 3, line 37, delete "legal counsel present" and insert
"an attorney participate"
9)On page 3, beginning on line 39 delete the following: A party
wishing to have counsel present when meeting and conferring
must provide written notice to the other party of its intent
to be represented. If this notice is not provided, the party
not receiving the required notice shall have the election of
postponing the meeting until the notice requirement is met.
10) On page 4, line 6, delete "legal counsel" and replace it
with "an attorney"
11) On page 4, line 7 delete "without prior notice"
12) On page 4, after lines 7 insert: (C) If either a member,
an association, or both intends to have an attorney or
another person participate in the procedure, the procedure
shall require the member, the association, or both to
provide ten days written notice of this intent to be given
to the other party pursuant to the methods identified in
subdivision (b) of section 4035 and paragraphs (1) and (2)
of subdivision (a) of section 4040. If notice is not
provided, the party not receiving the required notice shall
have the election of postponing the meeting until the
notice requirement is met.
13) On page 4, line 21 delete "legal counsel" and replace
with "an attorney"
Double referred : The Assembly Committee on Rules referred AB
1738 to the Committee on Housing and Community Development and
Judiciary. If AB 1738 passes this committee, the bill must be
referred to the Committee on Judiciary.
REGISTERED SUPPORT / OPPOSITION :
Support
California Alliance for Retired Americans
Conference of California Bar Associations (CCBA) (sponsor)
Executive Council of Homeowners (ECHO) (support if amended)
Opposition
AB 1738
Page 6
Community Associations Institute (CAI)
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085