BILL NUMBER: AB 935 CHAPTERED 09/19/00 CHAPTER 522 FILED WITH SECRETARY OF STATE SEPTEMBER 19, 2000 APPROVED BY GOVERNOR SEPTEMBER 18, 2000 PASSED THE ASSEMBLY AUGUST 22, 2000 PASSED THE SENATE AUGUST 18, 2000 AMENDED IN SENATE AUGUST 7, 2000 AMENDED IN SENATE APRIL 24, 2000 AMENDED IN ASSEMBLY JANUARY 10, 2000 AMENDED IN ASSEMBLY SEPTEMBER 10, 1999 AMENDED IN ASSEMBLY MAY 6, 1999 AMENDED IN ASSEMBLY APRIL 12, 1999 INTRODUCED BY Assembly Member Brewer FEBRUARY 25, 1999 An act to amend Sections 11003.5, 11018.1, and 11018.10 of the Business and Professions Code, relating to real estate. LEGISLATIVE COUNSEL'S DIGEST AB 935, Brewer. Land sales: subdivisions. Existing law requires any person who intends to offer subdivided lands within this state for sale or lease to register and file an application for a public report with the Department of Real Estate and authorizes the Commissioner of Real Estate to regulate, investigate, and report to the public regarding specified transactions pursuant to these provisions. This bill would authorize the commissioner to include or prepare specified disclosure statements in a permit or public report on a single-site time-share project associated with other component resorts through a reservation system and pertaining to the effect of the reservation system on the purchase of an interest in the project. The bill would revise the definition of a "single-site time-share project" as it applies to these provisions, impose additional requirements on a single-site time-share project if the use of a reservation system is mandatory, and would provide that the use of a reservation system shall not be deemed to guarantee a right to use or occupy accommodations or facilities at more than the site where the interest is purchased. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 11003.5 of the Business and Professions Code is amended to read: 11003.5. (a) A "time-share project" is one in which a purchaser receives the right in perpetuity, for life, or for a term of years, to the recurrent, exclusive use or occupancy of a lot, parcel, unit, or segment of real property, annually or on some other periodic basis, for a period of time that has been or will be allotted from the use or occupancy periods into which the project has been divided. (b) A "time-share estate" is a right of occupancy in a time-share project which is coupled with an estate in the real property. (c) A "time-share use" is a license or contractual or membership right of occupancy in a time-share project which is not coupled with an estate in the real property. (d) An "exchange program" is any method, arrangement, or procedure for the voluntary exchange of the right to use and occupy accommodations and facilities among purchasers of time-share interests or other property interests. An "exchange program" does not include the assignment of the right to use and occupy accommodations and facilities to purchasers of time-share interests pursuant to a reservation system. Any method, arrangement, or procedure that otherwise meets this definition, wherein the purchaser' s total contractual financial obligation exceeds three thousand dollars ($3,000) per time-share interest shall be regulated as a multisite time-share project and shall be subject to the provisions of this article. (e) An "incidental benefit" is an accommodation, product, service, discount, or other benefit, other than an exchange program, which is offered to a prospective purchaser of a time-share interest prior to the end of the rescission period set forth in Section 11024, the continuing availability of which for the use and enjoyment of owners of time-share interests in the time-share project is limited to a term of not more than five years. (f) A "multisite time-share project" is any method, arrangement, or procedure, with respect to which a purchaser obtains, by any means, a recurring right to use and occupy accommodations or facilities in a time-share project consisting of more than one component site, only through use of a reservation system, on a nonpriority basis. The term does not include an exchange program wherein the purchaser's total contractual financial obligation does not exceed three thousand dollars ($3,000) per time-share interest or a single-site time-share project. (g) A "reservation system" is the method, arrangement, or procedure by which a purchaser of a time-share interest, (1) in order to reserve the use and occupancy of any accommodation or facility of a multisite time-share project or qualified resort vacation club for one or more use periods is required to compete with other owners of time-share interests in that multisite time-share project or qualified resort vacation club or (2) in order to reserve the use and occupancy of any accommodation or facility of a component site associated with a single-site time-share project is required to compete with other owners of time-share interests in those component sites, regardless of whether that reservation system is operated and maintained by (A) the person responsible for the operation and administration of that time-share project, (B) an exchange company, or (C) any other person. In the event that an owner of a time-share interest is required to use an exchange program as the owner's principal means of obtaining the right to use and occupy the accommodations and facilities of any time-share project, that arrangement shall be a reservation system. (h) (1) A "single-site time-share project" is a time-share project consisting of a single geographic site wherein a purchaser of a time-share interest in that site receives a recurring right to reserve, on a priority basis, the use or occupancy of accommodations and facilities at that site. A single-site time-share project may be associated with other time-share projects, or other accommodations under a contractual or membership program through a reservation system. (2) (A) A single-site time-share project shall not be deemed to be a multisite time-share project solely on the basis of the required use of a reservation system. If use of the reservation system is mandatory, the agreement for affiliation of the single-site time-share project shall provide for an initial term of not more than five years, and may further provide for automatic term renewals for additional successive terms of five years, unless at a duly noticed meeting of the membership of the association, or pursuant to an action without a meeting taken in accordance with subdivisions (a), (b), (c), and (d) of Section 7513 of the Corporations Code, a motion to terminate the reservation system affiliation agreement is approved by the membership pursuant to subparagraphs (B), (C), and (D). (B) A motion on the question of termination of a reservation system affiliation agreement may be initiated by any person specified in subdivision (e) of Section 7510 of the Corporations Code, and shall be considered by the membership not more than 120 and not less than 30 days prior to expiration of its term. (C) The quorum for any meeting of the membership to consider the termination of a reservation system affiliation agreement shall be not more than 30 percent of the voting power of the association residing in members other than the subdivider. The vote necessary to terminate the reservation system affiliation agreement in an action without a meeting or at a meeting at which a quorum is present by ballot, in person, or by proxy shall be the greater of (i) 25 percent of the voting power of the association residing in members other than the subdivider, or (ii) a majority of the voting power of the association voting at a meeting or in an action without a meeting by ballot, in person or by proxy, residing in members other than the subdivider. (D) Notwithstanding subdivision (a) of Section 7513 of the Corporations Code, an action without a meeting on the question of termination of a reservation system affiliation agreement may be taken even if prohibited by the association's articles or bylaws. (E) The cost assessed to a time-share owner or to an association of time-share owners for the reservation system that is more than 10 percent greater than the reservation system assessment for the immediately preceding fiscal year may not be levied without the vote or written assent of the same percentage of the voting power of the association set forth in subparagraph (C). SEC. 2. Section 11018.1 of the Business and Professions Code is amended to read: 11018.1. (a) A copy of the public report of the commissioner, when issued, shall be given to the prospective purchaser by the owner, subdivider or agent prior to the execution of a binding contract or agreement for the sale or lease of any lot or parcel in a subdivision. The requirement of this section extends to lots or parcels offered by the subdivider after repossession. A receipt shall be taken from the prospective purchaser in a form and manner as set forth in regulations of the Real Estate Commissioner. (b) A copy of the public report shall be given by the owner, subdivider or agent at any time, upon oral or written request, to any member of the public. A copy of the public report and a statement advising that a copy of the public report may be obtained from the owner, subdivider or agent at any time, upon oral or written request, shall be posted in a conspicuous place at any office where sales or leases or offers to sell or lease lots within the subdivision are regularly made. (c) At the same time that a public report is required to be given by the owner, subdivider, or agent pursuant to subdivision (a) with respect to a common interest development, as defined, in subdivision (c) of Section 1351 of the Civil Code, the owner, subdivider, or agent shall give the prospective purchaser a copy of the following statement: "COMMON INTEREST DEVELOPMENT GENERAL INFORMATION The project described in the attached Subdivision Public Report is known as a common-interest development. Read the public report carefully for more information about the type of development. The development includes common areas and facilities which will be owned or operated by an owners' association. Purchase of a lot or unit automatically entitles and obligates you as a member of the association and, in most cases, includes a beneficial interest in the areas and facilities. Since membership in the association is mandatory, you should be aware of the following information before you purchase: Your ownership in this development and your rights and remedies as a member of its association will be controlled by governing instruments which generally include a Declaration of Restrictions (also known as CC&R's), Articles of Incorporation (or association) and bylaws. The provisions of these documents are intended to be, and in most cases are, enforceable in a court of law. Study these documents carefully before entering into a contract to purchase a subdivision interest. In order to provide funds for operation and maintenance of the common facilities, the association will levy assessments against your lot or unit. If you are delinquent in the payment of assessments, the association may enforce payment through court proceedings or your lot or unit may be liened and sold through the exercise of a power of sale. The anticipated income and expenses of the association, including the amount that you may expect to pay through assessments, are outlined in the proposed budget. Ask to see a copy of the budget if the subdivider has not already made it available for your examination. A homeowner association provides a vehicle for the ownership and use of recreational and other common facilities which were designed to attract you to buy in this development. The association also provides a means to accomplish architectural control and to provide a base for homeowner interaction on a variety of issues. The purchaser of an interest in a common-interest development should contemplate active participation in the affairs of the association. He or she should be willing to serve on the board of directors or on committees created by the board. In short, "they" in a common interest development is "you." Unless you serve as a member of the governing board or on a committee appointed by the board, your control of the operation of the common areas and facilities is limited to your vote as a member of the association. There are actions that can be taken by the governing body without a vote of the members of the association which can have a significant impact upon the quality of life for association members. Until there is a sufficient number of purchasers of lots or units in a common interest development to elect a majority of the governing body, it is likely that the subdivider will effectively control the affairs of the association. It is frequently necessary and equitable that the subdivider do so during the early stages of development. It is vitally important to the owners of individual subdivision interests that the transition from subdivider to resident-owner control be accomplished in an orderly manner and in a spirit of cooperation. When contemplating the purchase of a dwelling in a common interest development, you should consider factors beyond the attractiveness of the dwelling units themselves. Study the governing instruments and give careful thought to whether you will be able to exist happily in an atmosphere of cooperative living where the interests of the group must be taken into account as well as the interests of the individual. Remember that managing a common interest development is very much like governing a small community . . . the management can serve you well, but you will have to work for its success." Failure to provide the statement in accordance with this subdivision shall not be deemed a violation subject to Section 10185. (d) (1) The commissioner may include a disclosure statement in a permit or public report for a single-site time-share project associated with other component resorts through a reservation system pertaining to the effect of reservation systems on the purchase of interests in those projects. (2) Notwithstanding paragraph (1), the commissioner may prepare, for each single-site time-share project, a separate disclosure statement relating to the effect of the reservation system on the purchase of an interest in that project. (3) The commissioner shall develop and use a standardized form for the disclosure permitted pursuant to paragraph (2). (4) This statement shall be in 10-point bold typeface and given to and personally signed by the subdivider or the subdivider's agent and prospective purchaser as soon as practical prior to the execution of a binding contract or agreement. SEC. 3. Section 11018.10 of the Business and Professions Code is amended to read: 11018.10. No person shall sell or lease, or offer for sale or lease in this state any interest in a multisite time-share project without first obtaining a public report covering each component site from the Real Estate Commissioner. For purposes of this section, the sale of an interest in a single-site time-share project coupled with a representation that a purchaser shall obtain a guaranteed right to use and occupy accommodations or facilities at more than one geographic site, shall be deemed to be the sale of an interest in a multisite time-share project. The required use of a reservation system in itself shall not be deemed to guarantee a right to use or occupy accommodations or facilities at more than the site where the interest is purchased.