BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 752
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          Date of Hearing:   June 19, 2013

               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
                                   Ed Chau, Chair
                     SB 752 (Roth) - As Amended:  April 18, 2013

           SENATE VOTE  :   37-0
           
          SUBJECT  :   Commercial and industrial common interest  
          developments

           SUMMARY  :   Establishes the Commercial and Industrial Common  
          Interest Development (CID) Act to govern the regulation of  
          commercial and industrial CIDs within the Davis Stirling Common  
          Interest Development Act.     Specifically,  this bill  :   

          1)Makes the Davis Stirling Common Interest Development Act  
            inapplicable to commercial and industrial CIDs and creates a  
            new Commercial and Industrial Common Interest Development Act.

          2)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:

             a)   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.

             b)   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.

             c)   Award of reasonable attorney's fees and costs to the  
               prevailing party in an action to enforce the governing  
               documents.

             d)   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.

             e)   Provisions regulating changes to the association's  
               operating rules.









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             f)   Owner protections against association policies  
               prohibiting rental of units.

             g)   The requirement for the association to prepare and  
               disclose a budget.

             h)   The requirement to conduct association meetings with a  
               recognized parliamentary procedure.

             i)   Member rights of access to association records.

             j)   Rules regarding member discipline.

             aa)            The right of owners in a joint association to  
               attend meetings and access records of the joint  
               association.

             bb)            The requirement for the association to provide  
               a document disclosure index.

             cc)            Rules related to campaigns, elections, and  
               open meetings.

             dd)            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.  

             ee)            Disclosure requirements relating to the  
               qualifications of association managers and requirements  
               relating to how managers handle association funds.

             ff)            The requirement for the association to adopt a  
               fair, reasonable, and expeditious procedure for resolving  
               disputes.

             gg)            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.
           
             hh)            The requirement for the association annually  
               to disclose its policies and practices in enforcing lien  
               rights or other legal remedies for assessment defaults.









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             ii)            Requirements relating to how the board reviews  
               financial statements and makes transfers and payments out  
               of reserves.

             jj)            Limits on assessment increases without a vote  
               of the membership.

             aaa)           Limits on late charges and interest charges on  
               delinquent assessments.

             bbb)           The prohibition against an association  
               imposing assessments that exceeds the amount necessary to  
               defray costs. 

             ccc)           The prohibition on levying assessments based  
               on the taxable value of the separate interests.

             ddd)           The right of owners to request dispute  
               resolution and to request a payment plan for delinquent  
               assessments.

             eee)       An owner's right to pay delinquent assessments  
               under protest.  

             fff)       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.

             ggg)       The requirement for the association to send  
               notices regarding delinquent assessments to a second  
               address provided by an owner.

             hhh)       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.
             iii)       The requirement for a selling owner to provide a  
               buyer with various association documents and for the  
               association to provide those documents upon request.  

             jjj)       The prohibition on the association charging fees  
               in connection with a transfer of title.









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             aaaa)      The requirement that a party engage in alternative  
               dispute resolution before filing an enforcement action in  
               court.

             bbbb)      Rules relating to association approval of  
               architectural changes.  

             cccc)      The requirement to register with the Secretary of  
               State and pay a $30 fee. 

          1)Prohibits new owners in commercial and industrial CIDs from  
            keeping at least one pet subject to reasonable rules and  
            regulations but grandfather's those owners who had pet's prior  
            to January 1, 2014. 

          2)Allows an association to amend its governing documents without  
            the approval of owners solely to correct any cross-references  
            to the Davis Stirling Act.

          3)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.  

          4)Updates numerous cross-references to the Davis Stirling Act in  
            other codes.

           EXISTING LAW  

          1)Specifies that select provisions of the Davis Stirling Common  
            Interest Development Act do not apply to commercial and  
            industrial CIDs (Civil Code Section 1373).

          2)Establishes the Davis Stirling Act which authorizes, defines,  
            and regulates CIDs (Civil Code Section 1350 et. al.).    

           FISCAL EFFECT  :   None. 

           COMMENTS  :  

          CIDs are characterized by a separate ownership of dwelling space  
          coupled with shared interest in a common area. They are  
          restricted by covenants and conditions that limit the use of  
          common area and the separate ownership interests and the  








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          management of common property and enforcement of restrictions by  
          a homeowners association. The Davis Stirling Act is the state  
          law that authorizes the creation of CIDs and defines and  
          regulates their activities.  CIDs can be either residential,  
          commercial, or industrial.  This bill would create a separate  
          statutory framework for commercial and industrial CIDs and  
          largely apply only the foundational provisions of the Davis  
          Stirling Act with a limited application of key operational  
          provisions. 
           
           The sponsor of this bill, the California Law Revision Commission  
          (CLRC), reviewed the legislative history of the Davis Stirling  
          Act and determined that the intent of the legislature was to  
          apply only certain provisions of the Davis Stirling Act to  
          commercial and industrial CIDs. The history of the Davis  
          Stirling Act supports the view that the Legislature viewed  
          commercial and industrial CID owners as more sophisticated and  
          better able to protect their interests than residential owners.   
          Two years after the Davis Stirling Act was adopted Civil Code  
          Section 1373 was created to exempt commercial and industrial  
          CIDs from provisions of the Davis Stirling Act that were seen as  
          unnecessarily burdensome and costly. However, as the Davis  
          Stirling Act was amended over the years and expanded to triple  
          its original size, the distinction between residential and  
          commercial and industrial CIDs was not maintained. 

          The CLRC is tasked with studying CIDS and recommending reforms  
          to improve their governance. Based on the legislative history of  
          commercial and industrial CIDs the CLRC made the following three  
          recommendations which are embodied in SB 752: 

                 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  
               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  








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               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.

          SB 752 would create a separate act governing commercial and  
          industrial CIDs, known as the Commercial and Industrial Common  
          Interest Development Act. The proposed Act would apply only to  
          commercial or industrial CIDs and would have no effect on  
          residential or mixed use CIDs which would continue to be  
          governed by the existing Davis Stirling Act. The new Act would  
          continue all of the foundational provisions of the Davis  
          Stirling Act or those provisions that authorized and define the  
          property ownership form of CIDs.   Those provisions are needed  
          by all CIDS regardless of type. For the most part the new Act  
          would not continue the operation provision of the Davis Stirling  
          Act or those regulatory provisions that impose mandates or  
          restrictions relating to CID governance. 

          As part of the process of preparing their recommendation, the  
          CLRC held public meetings and received comments which they  
          responded to via amendments.  As a result, there is no  
          opposition to this measure. 
           
          Double referred  :  If SB 752 passes this committee, the bill will  
          be referred to the Committee on Judiciary.
           






          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Law Revision Commission (sponsor)
          California Association of Community Managers
          California Business Properties Association
          Mar West Real Estate Inc., Tustin
           
            Opposition 
          
          None








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           Analysis Prepared by  :    Lisa Engel / H. & C.D. / (916) 319-2085