BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: sb 752
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: roth
VERSION: 2/22/13
Analysis by: Mark Stivers FISCAL: no
Hearing date: April 16, 2013
SUBJECT:
Commercial and industrial common interest developments
DESCRIPTION:
This bill separates the laws governing commercial and industrial
common interest developments (CIDs) from the laws governing
residential CIDs and generally makes the operational provisions
of current law inapplicable to commercial and industrial CIDs.
ANALYSIS:
A CID is a real property development that includes all of the
following: (1) separate ownership of a lot or unit coupled with
an undivided interest in common property, (2) covenants,
conditions, and restrictions that limit use of both the common
area and separate ownership interests, and (3) management of
common property and enforcement of restrictions by a community
association. Condominiums, planned unit developments, stock
cooperatives, community apartments, and many resident-owned
mobilehome parks all fall under the CID umbrella. While most
CIDs are residential, CIDs can also comprise industrial or
commercial properties.
The Davis-Stirling Common Interest Development Act is the main
body of statutory law that governs CIDs in California. The law
includes both foundational provisions that relate to the
establishment and definition of the CID property form and
operational provisions that regulate the ongoing operation of
the managing association. Current law exempts commercial and
industrial CIDs from a few specific provisions of the act but
generally treats commercial and industrial CIDs the same as
residential CIDs.
This bill separates the laws governing commercial and industrial
CIDs from the laws governing residential CIDs and generally
makes the operational provisions of current CID law inapplicable
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to commercial and industrial CIDs. Specifically, the bill:
Makes the Davis-Stirling Act inapplicable to commercial and
industrial CIDs and creates a new Commercial and Industrial
Common Interest Development Act.
Carries over the provisions of the Davis-Stirling Act to the
Commercial and Industrial Common Interest Development Act
except for the following provisions from which the bill
exempts commercial and industrial CIDs:
Declaration requirements related to location of the
property in an airport influence area or in the
jurisdiction of the San Francisco Bay Conservation and
Development Commission.
The requirement that the association allow for at least
one type of fire retardant roof covering material that
meets legal requirements in a very high fire severity zone.
Award of reasonable attorney's fees and costs to the
prevailing party in an action to enforce the governing
documents.
The authority for the association to petition the court
for an order reducing the percentage of the affirmative
votes necessary for an amendment of the declaration.
Provisions regulating changes to the association's
operating rules.
Owner protections against association policies
prohibiting rental of units.
The requirement for the association to prepare and
disclose a budget.
The requirement to conduct association meetings with a
recognized parliamentary procedure.
Member rights of access to association records.
Rules regarding member discipline.
The right of owners in a joint association to attend
meetings and access records of the joint association.
The requirement for the association to provide a
document disclosure index.
Rules related to campaigns, elections, and open
meetings.
The requirement that members owning at least 67% of the
separate interests approve granting exclusive use of any
portion of the common area to an individual owner.
Disclosure requirements relating to the qualifications
of association managers and requirements relating to how
managers handle association funds.
The requirement for the association to adopt a fair,
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reasonable, and expeditious procedure for resolving
disputes.
The requirements that the association provide budgets
and insurance coverage information, disclose reserves and
reserve deficits, and conduct reserve studies that account
for future repair needs.
The requirement for the association annually to disclose
its policies and practices in enforcing lien rights or
other legal remedies for assessment defaults.
Requirements relating to how the board reviews financial
statements and makes transfers and payments out of
reserves.
Limits on assessment increases without a vote of the
membership.
Limits on late charges and interest charges on
delinquent assessments.
The prohibition against an association imposing
assessments that exceeds the amount necessary to defray
costs.
The prohibition on levying assessments based on the
taxable value of the separate interests.
The right of owners to request dispute resolution and to
request a payment plan for delinquent assessments.
An owner's right to pay delinquent assessments under
protest.
The requirement for the association to credit any
payments first towards delinquent assessments and only
thereafter to the fees and costs of collection, attorney's
fees, late charges, or interest.
The requirement for the association to send notices
regarding delinquent assessments to a second address
provided by an owner.
Prohibitions on the use of foreclosure for delinquent
assessments that are less than 12 months delinquent and
less than $1800, as well as the conditions on the use of
foreclosure for greater or older delinquent assessments,
including an owner's right of redemption.
The requirement for a selling owner to provide a buyer
with various association documents and for the association
to provide those documents upon request.
The prohibition on the association charging fees in
connection with a transfer of title.
The requirement that a party engage in alternative
dispute resolution before filing an enforcement action in
court.
Rules relating to association approval of architectural
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changes.
Allows an association to amend its governing documents without
the approval of owners solely to correct any cross-references
to the Davis-Stirling Act.
States that the new act shall not invalidate a document, other
than a governing document, or action taken before January 1,
2014, if the document or action was proper under the law
governing CIDs at the time the document was prepared or the
action taken.
Updates numerous cross-references to the Davis-Stirling Act in
other codes.
COMMENTS:
1.Purpose of the bill . According to the sponsor, the California
Law Revision Commission (CLRC), the available legislative
history indicates that the Davis-Stirling Act originally was
intended to govern only residential property, with no
expectation that it would apply to commercial or industrial
property. When it later became apparent that the act also
applied to nonresidential developments, AB 2484 (Hauser),
Chapter 123, Statutes of 1988, limited that application by
generally preserving the foundational provisions of the act
(i.e., those that relate to the establishment and definition
of the CID property form) while making inapplicable to
commercial and industrial CIDs the operational provisions
(i.e., those that regulated the ongoing operation of the
managing association). Since then, the Davis-Stirling Act has
more than tripled in size, mostly through the addition of
numerous new operational provisions. Many of those provisions
appear to have been designed specifically for homeowners. For
the most part, the Legislature does not appear to have
considered whether those new provisions were necessary or
beneficial to commercial or industrial property owners.
Based on the same policy of preserving foundational provisions
and exempting commercial and industrial CIDs from operational
provisions that guided AB 2484, the CLRC completed an analysis
of the Davis-Stirling Act and made three general
recommendations:
The law governing commercial and industrial CIDs should
be separated from the law governing residential CIDs. This
will prevent any new laws enacted to benefit residential
owners from being inadvertently applied to commercial and
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industrial developments.
The existing foundational provisions of the
Davis-Stirling Act should continue to apply to commercial
and industrial CIDs. These provisions are necessary for
any CID, regardless of type.
Most of the existing operational provisions of the
Davis-Stirling Act should be made inapplicable to
commercial and industrial CIDs. These provisions are not
strictly necessary for all CIDs. They appear to have been
added to the Davis-Stirling Act to benefit residential
property owners without separate consideration of their
effect on commercial or industrial property owners.
This bill enacts those recommendations.
1.Following the policy rationale from AB 2484 . The bill
analyses of AB 2484 in 1988 describe the thinking behind
exempting commercial and industrial CIDs from the operation
provisions of the Davis Stirling Act. According to the
analyses, commercial and industrial CIDs are "business
endeavors in which the parties engage the services of
attorneys, accountants, management companies, and developers."
Unlike owners in residential CIDs, owners in commercial and
industrial CIDs are "well-informed" and "governed by other
provisions of commercial law." Provisions that are designed
to help homeowners understand the consequences of purchasing a
home in a CID are not needed by purchasers of units in
commercial or industrial developments.
Moreover, "the operational needs of commercial and industrial
CIDs are different than the needs of residential [CIDs]."
Provisions that define the basic property ownership and
governance structure for CIDs are needed by commercial and
industrial CIDs and do not unduly burden those CIDs.
Regulatory requirements designed to protect residential owners
are unnecessary and unduly burdensome for business owners in
commercial and industrial CIDs, "interfere with commerce, and
increase the costs of doing business."
2.Substantive amendments to consider . The CLRC has done a very
thorough review of the provisions that it thinks should apply
to commercial and industrial CIDs. Moreover, the CLRC process
allows for significant public participation, and committee
staff is not aware of any opposition or concerns that
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interested parties have raised in connection to the final
product. Nonetheless, the committee may wish to consider
changes in one or more of the following areas:
Registration requirement. Current law requires all CIDs to
register with the Secretary of State and pay a $30 fee to do
so. This requirement was put in place to create the
infrastructure to support a CID ombudsperson program, which
has never been enacted. To some extent it was also created to
inform the Legislature on the number of CIDs in California
(the data is unreliable as many CIDs do not register) and to
allow for the state to send educational materials to CIDs
(which it has not). As a result, it is not clear what purpose
the registration requirement serves. While the Legislature
may ultimately wish to consider repealing the requirement as
it applies to all CIDs, at a minimum the committee may wish to
exempt commercial and industrial CIDs from this requirement.
Usury exemption. Article XV of the California Constitution
prohibits usury (i.e., exorbitant interest rates). The Davis
Stirling Act exempts CIDs from these provisions of the
Constitution and instead caps interest rates on delinquent
assessments and collection costs at an annual interest rate of
12%. This bill exempts commercial and industrial CIDs from
the 12% statutory cap on CID interest rates but does not
restore the application of the constitutional limits, in
effect allowing a commercial or industrial CID to apply any
rate of interest it chooses. The committee may wish to
consider restoring the constitutional protections against
usury.
Pets. The Davis Stirling Act requires a CID to allow owners
to keep at least one pet subject to reasonable rules and
regulations. The CLRC generally has treated property use
right provisions of the act as foundational and carried them
over to the new act covering commercial and industrial CIDs.
Arguably, this provision on pets, however, is only of
significance to residential CIDs. The committee may wish to
consider exempting industrial and commercial CIDs from these
provisions while grandfathering in any owners in commercial
and industrial CIDs who currently have pets.
3.Technical amendments .
Delete subdivision (b) from Section 6756 and consolidate
the rest of the section.
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Restore the provision stating that an owner shall not be
liable for any charges, interest, or costs of collection
for an assessment payment if it is determined the
assessment was paid on time to the association. Currently,
the bill maintains this language only in a required notice,
not in actual legal language.
1.Double Referral . The Rules Committee has referred this bill
to both this committee and the Judiciary Committee.
POSITIONS: (Communicated to the committee before noon on
Wednesday, April 10,
2013.)
SUPPORT: California Association of Community Managers
California Business Properties Association
Mar West Real Estate
OPPOSED: None received.