BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1738| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 AB 1738 Page 2 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; AB 1738 Page 3 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. AB 1738 Page 4 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 AB 1738 Page 5 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 AB 1738 Page 6 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 AB 1738 Page 7 NO VOTE RECORDED: Donnelly, Mansoor, Vacancy AL/JA:e 6/17/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****