BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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          |SENATE RULES COMMITTEE            |                       AB 1738|
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                                    THIRD READING


          Bill No:  AB 1738
          Author:   Chau (D)
          Amended:  6/16/14 in Senate
          Vote:     21


           SENATE JUDICIARY COMMITTEE  :  7-0, 6/10/14
          AYES:  Jackson, Anderson, Corbett, Lara, Leno, Monning, Vidak

           ASSEMBLY FLOOR  :  77-0, 5/15/14 - See last page for vote


           SUBJECT  :    Common interest developments:  dispute resolution

           SOURCE  :     California Alliance for Retired Americans
                      Center for California Homeowner Association Law
                      Conference of California Bar Associations


           DIGEST  :    This bill requires a resolution or agreement under a  
          common interest developments (CIDs) procedure for resolving  
          internal disputes between an association and a member be in  
          writing, and authorizes a member and an association to be  
          assisted by an attorney or another person at their own costs  
          during the dispute process. 

           ANALYSIS  :    

          Existing law:

          1.Establishes under the Davis-Stirling Act, the rules and  
            regulations governing the operation of a CID and the  
            respective rights and duties of a homeowners association and  
                                                                CONTINUED





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            its members.

          2.Requires associations subject to the Davis-Stirling Act to  
            provide an internal dispute resolution (IDR) process for use  
            in resolving disputes between an association and a member  
            involving their rights, duties, or liabilities under the  
            Davis-Stirling Act, under the Nonprofit Mutual Benefit  
            Corporation Law, or under the governing documents of the CID  
            or association.

          3.Provides that an association or a member may not file an  
            enforcement action in a superior court unless the parties have  
            endeavored to submit their dispute to alternative dispute  
            resolution (ADR), as specified.

          4.Specifies that the required IDR process supplements, and does  
            not replace, the requirement to submit a dispute to ADR as a  
            prerequisite to filing an enforcement action in superior  
            court.

          5.Provides that an association shall provide a fair, reasonable,  
            and expeditious procedure for resolving a dispute under the  
            required IDR process.

          6.Provides that a fair, reasonable, and expeditious IDR  
            procedure shall at a minimum satisfy all of the following  
            requirements:

             A.   The procedure may be invoked by either party to the  
               dispute.  A request invoking the procedure shall be in  
               writing;

             B.   The procedure shall provide for prompt deadlines.  The  
               procedure shall state the maximum time for the association  
               to act on a request invoking the procedure;

             C.   If the procedure is invoked by a member, the association  
               shall participate in the procedure;

             D.   If the procedure is invoked by the association, the  
               member may elect not to participate in the procedure.  If  
               the member participates but the dispute is resolved other  
               than by agreement of the member, the member shall have a  
               right of appeal to the board;







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             E.   A resolution of a dispute pursuant to the procedure,  
               which is not in conflict with the law or the governing  
               documents, binds the association and is judicially  
               enforceable.  An agreement reached pursuant to the  
               procedure, which is not in conflict with the law or the  
               governing documents, binds the parties and is judicially  
               enforceable;

             F.   The procedure shall provide a means by which the member  
               and the association may explain their positions; and

             G.   A member of the association shall not be charged a fee  
               to participate in the process.

          1.Provides that an association that does not otherwise provide a  
            fair, reasonable, and expeditious dispute resolution procedure  
            shall follow the default meet and confer procedure, which  
            consists of the following requirements:

             A.   Either party to a dispute may invoke the following  
               procedure:

               (1)    The party may request the other party to meet and  
                 confer in an effort to resolve the dispute.  The request  
                 shall be in writing;

               (2)    A member of an association may refuse a request to  
                 meet and confer.  The association may not refuse a  
                 request to meet and confer;

               (3)    The board shall designate a director to meet and  
                 confer;

               (4)    The parties shall meet promptly at a mutually  
                 convenient time and place, explain their positions to  
                 each other, and confer in good faith in an effort to  
                 resolve the dispute; and

               (5)    A resolution of the dispute agreed to by the parties  
                 shall be memorialized in writing and signed by the  
                 parties, including the board designee on behalf of the  
                 association.








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             A.   An agreement reached under this process binds the  
               parties and is judicially enforceable if both of the  
               following conditions are satisfied:

               (1)    The agreement is not in conflict with law or the  
                 governing documents of the CID or association; and

               (2)    The agreement is either consistent with the  
                 authority granted by the board to its designee or the  
                 agreement is ratified by the board.

             A.   A member may not be charged a fee to participate in the  
               process.

          This bill requires a resolution or agreement under a CIDs  
          procedure for resolving internal disputes between an association  
          and a member to be in writing, and authorizes a member and an  
          association to be assisted by an attorney or another person at  
          their own costs during the dispute process.

           Background
           
          In California, CIDs are governed by the Davis-Stirling Act.   
          Owners of separate property in CIDs have an undivided interest  
          in the common property of the development and are subject to the  
          CID's covenants, conditions, and restrictions.  CIDs are also  
          governed by a homeowners association, which is run by volunteer  
          directors that may or may not have prior experience managing an  
          association.  The Court of Appeal, Fourth Appellate District,  
          previously observed that:

          The homeowners associations function almost "as a second  
          municipal government, regulating many aspects of the homeowners'  
          daily lives."  "Upon analysis of the association's functions,  
          one clearly sees the association as a quasi-government entity  
          paralleling in almost every case the powers, duties, and  
          responsibilities of a municipal government.  As a  
          'mini-government,' the association provides to its members, in  
          almost every case, utility services, road maintenance, street  
          and common area lighting, and refuse removal.  In many cases, it  
          also provides security services and various forms of  
          communication within the community.  There is, moreover, a clear  
          analogy to the municipal police and public safety functions. . .  
          ."  In short, homeowners associations, via their enforcement of  







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          the CC&R's, provide many beneficial and desirable services that  
          permit a CID to flourish.  (Villa Milano Homeowners Ass'n v. Il  
          Davorge (2000) 84 Cal.App.4th 819, 836 [citations omitted].)

          Just as with municipal governments, homeowners associations  
          occasionally find themselves in disputes with their members.   
          The Davis-Stirling Act provides three distinct dispute  
          resolution processes that allow these disagreements to be  
          resolved at varying levels of formality.  At the most informal  
          level, the Davis-Stirling Act provides for an IDR process that  
          essentially allows members to simply and expeditiously meet and  
          confer with a director from their association.  If the member is  
          unsatisfied with the outcome of the meet and confer session, the  
          member may lodge an appeal and seek resolution from the entire  
          board of directors of the association.  The Davis-Stirling Act  
          also envisions the use of ADR for resolving disagreements  
          between members and their association.  Endeavoring to submit a  
          dispute to ADR is a jurisdictional prerequisite to bringing an  
          enforcement action in superior court.  As with many ADR  
          processes, the requirements for proceeding through ADR under the  
          Davis-Stirling Act are more formal, requiring parties to serve  
          written requests for ADR that contain a brief description of the  
          dispute.  Unless otherwise agreed to by the parties, ADR is to  
          be completed within 90 days and costs are borne by the  
          respective parties.  Finally, the Davis-Stirling Act provides  
          that any member or the association may seek to enforce covenants  
          and restrictions in the property declarations, or terms of the  
          governing documents, in superior court.

           Prior Legislation
           
          SB 752 (Roth, Chapter 605, Statutes of 2013) established the  
          Commercial and Industrial Common Interest Development Act and  
          provided for the creation and regulation of industrial or  
          commercial CIDs.

          AB 1836 (Harman, Chapter 754, Statutes of 2004) reorganized and  
          expanded the ADR processes and procedures contained in the  
          Davis-Stirling Act, and expanded the scope of the disputes to  
          which ADR processes and procedures may be applied within CIDs.   
          The bill also required associations to develop fair, reasonable,  
          and expeditious IDR processes.

          AB 2376 (Bates, Chapter 346, Statutes of 2004) required a  







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          homeowner association to provide a fair and reasonable process  
          for reviewing a request by a homeowner for a physical alteration  
          to their unit or the common area.

          AB 2598 (Steinberg, 2004) would have prohibited the use of the  
          non-judicial foreclosure process by homeowner associations  
          (HOAs) in collecting overdue assessments when the underlying  
          debt is for the failure to pay association assessments or dues.   
          The bill was vetoed by Governor Schwarzenegger.

          SB 1682 (Ducheny, 2004) would have required HOAs to offer  
          binding arbitration before placing a lien on the property or  
          before initiating foreclosure proceedings.  The bill died on the  
          Assembly Floor.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  6/17/14)

          California Alliance for Retired Americans (co-source)
          Center for California Homeowner Association Law (co-source)
          Conference of California Bar Associations (co-source)
          Educational Community for Homeowners

           OPPOSITION  :    (Verified  6/17/14)

          California Association of Community Managers
          Community Associations Institute
          Executive Council of Homeowners

           ASSEMBLY FLOOR :  77-0, 5/15/14
          AYES:  Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  
            Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,  
            Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,  
            Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,  
            Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden,  
            Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,  
            Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian,  
            Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, V.  
            Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas,  
            Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron,  
            Weber, Wieckowski, Wilk, Williams, Yamada, Atkins







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          NO VOTE RECORDED:  Donnelly, Mansoor, Vacancy


          AL/JA:e  6/17/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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