BILL ANALYSIS
AB 512
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Date of Hearing: May 6, 2003
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 512 (Bates) - As Amended: April 30, 2003
SUBJECT : COMMON INTEREST DEVELOPMENTS
KEY ISSUE : SHOULD VARIOUS RECOMMENDATIONS OF THE CALIFORNIA LAW
REVISION COMMISSION BE ENACTED REGARDING COMMON INTEREST
DEVELOPMENTS INCLUDING THAT OPERATING RULES AND PROPOSALS FOR
THE ALTERATION OF AN OWNER'S HOME BE TREATED AND REVIEWED BY THE
BOARD IN A FAIR AND REASONABLE MANNER?
SYNOPSIS
This bill enacts recommendations of the California Law Revision
Commission (CLRC) by requiring that operating rules and
proposals for the alteration of a member's separate interest be
treated and reviewed by the board of an association in a fair
and reasonable manner. The measure provides for optional rules
and procedures which meet this "fair and reasonable manner"
test, including, among other things, that the board allow 30
days for comment on proposed rules and provide that five percent
of members may call a special meeting to reverse a rule change,
as specified. The author's office and the CLRC have indicated
that this bill is the subject of continuing negotiations and
numerous amendments have been suggested by various groups
including the Congress of California Seniors, the Executive
Council of Homeowners (ECHO) and the Community Associations
Institute, who all support the bill if amended. Some of these
amendments are described in this analysis.
SUMMARY : Requires that operating rules and proposals for the
alteration of a member's separate interest be treated and
reviewed by the board of an association in a fair and reasonable
manner. Specifically, this bill , among other things:
Operating Rules:
1)Requires that the board of directors notify and provide
members of an association the opportunity for comment on a
proposal to adopt, amend or repeal an operating rule.
2)Establishes an optional procedure that an association may
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adopt to govern the notification and comment process for
making a rule change which provides that, among other things:
a) The board deliver to every member the text of the
proposed rule change, a description of the purpose and
effect of the proposed rule change and a deadline for
comment.
b) The board allow for 30 days following delivery of the
proposed rule change to the members to receive and consider
written comments prior to making a decision at a hearing of
the board.
3)Establishes an optional emergency procedure, subject to
specified rules, that an association may adopt to govern the
immediate adoption of a rule change to address a threat to
public safety or the imminent risk of substantial economic
loss to the association.
4)Provides that members of an association owning 5 percent or
more of the separate interests may call a special meeting to
reverse a rule change by delivering a written request to the
chair or secretary of the board of directors, subject to
certain conditions.
5)Prohibits the board of directors from readopting a rule within
one year of that rule having been reversed by a referendum of
the membership and requires that members of the association
have access to the operating rules and the operating rules be
provided to a prospective owner prior to transfer of title.
Alteration of Separate Interest :
6)Provides that any review by the board of directors of a
proposed alteration by a member of the association be reviewed
in a fair and reasonable matter.
7)Establishes an optional procedure deemed as fair and
reasonable that the board of directors may adopt when
reviewing a proposal for alteration which provides, among
other things, the following:
a) A member seeking to alter their separate interest shall
submit a written application in a form specified by the
association to be heard by the reviewing body.
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b) The reviewing body shall notify all members, as
specified and the reviewing body shall include the address
of the separate interest or location within the common area
proposed for alteration and the date after which a decision
shall be made.
c) An applicant or participating member may appeal to the
board of directors the approval or disapproval by the
reviewing body of a proposed alteration within 30 days of
the decision. However, an applicant may not commence work
during that 30-day period if any opposition was submitted
during the review process.
d) The board of directors shall within 30 days of receiving
the appeal notify members in the same manner as required
above during the original application including the time
and place where the appeal will be heard and that within 45
days of that notice the board shall meet and review "de
novo" the appeal. The board shall deliver a written
decision explaining the decision within 15 days of hearing
the appeal.
8)Adds chapter and article headings to the Davis-Stirling Act.
EXISTING LAW :
1)Requires meetings of the association to be conducted in a
recognized parliamentary procedure and to provide notice to
members of an action that will be presented for action by the
membership. (Civil Code section 1363.)
2)Requires all meetings to be open to the membership unless the
board meets in executive session to consider litigation,
member discipline, personnel matters or matters relating to
the formation of contracts with third parties. (Civil Code
section 1363.05.)
3)Requires the minutes, draft minutes or summary of the minutes
of a board meeting to be distributed within 30 days of the
meeting. (Civil Code section 1363.05.)
FISCAL EFFECT : The bill as currently in print is keyed
non-fiscal.
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COMMENTS : This bill was approved by the Assembly Committee on
Housing and Community Development on April 29, 2003, by a vote
of 9-0. In support of the measure, the author states that the
bill improves the law governing common interest developments in
several ways:
Rulemaking Procedure. Existing law recognizes that the
board of directors of a homeowners association can adopt
"operating rules" to govern the association. However, the
law does not provide a statutory procedure for doing so
or clear guidance on the proper scope of such rules. AB
512 would require that the board of directors act in good
faith and provide members with advance notice and an
opportunity to comment before adopting or changing an
operating rule. AB 512 provides an optional procedure
that would satisfy the general requirements. ?.
Architectural Review. Many common interest developments
require association approval before a member can modify
the member's property. For example, a homeowner might be
required to obtain association approval before adding a
room, choosing a color of exterior paint, or planting
flowers in a front yard. Existing case law requires that
such a decision be made in good faith and in a fair and
reasonable manner. AB 512 would write those general
requirements into the Davis-Stirling Act and would also
provide an optional procedure that would satisfy the
general requirements. Under the optional procedure, a
member would submit a written application to the
association's "reviewing body." The reviewing body would
then provide notice of the application to other members,
consider any comments submitted by members, and make its
decision. A decision of the reviewing body could be
appealed to the board of directors for rehearing. A
member would need to exhaust the internal appeal process
before seeking judicial review of the association's
decision.
Procedures Optional. AB 512 requires fairness in
association decisionmaking, but does not mandate specific
decisionmaking procedures. The bill's optional procedures
provide useful guidance (and a legal "safe harbor" for
associations that use the procedures), while allowing for
local variation. Associations come in many forms and
sizes, and a one-size-fits-all approach to decisionmaking
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would be too restrictive.
Bill Implements Recommendations of California Law Revision
Commission. This bill enacts recommendations made by the
California Law Revision Commission which for the last few years
has been conducting an ongoing review of those laws affecting
common interest developments. The CLRC notes:
The objective of the common interest development law
study is to set a clear, consistent, and unified policy
with regard to the formation and management of common
interest developments and the transaction of real
property interests located within them. The study seeks
to clarify the law and eliminate unnecessary or obsolete
provisions, consolidate existing statutes in one place
in the codes, and determine to what extent common
interest housing developments should be subject to
regulation.
When this bill was heard in the Assembly Committee on Housing
and Community Development, the Congress of California Seniors
raised concerns regarding several of the bill's provisions. In
working with the author's office and the CLRC, several of these
concerns have been addressed. However, the group indicates that
several concerns remain for which they have proposed amendment
language and the organization looks forward to continued
discussions with the author and the CLRC to address their
issues. Specifically, the group writes that their outstanding
concerns include, among others:
That homeowners have the right not only to challenge
rules but also to initiate them , that is, to use AB 512
procedures in order to propose rules to the board. Final
rule-making authority shall still rest with the board.
The ability to initiate rules is vital for new
developments, where the initial rules have been created
by the developer and then assumed by the nascent
association. When the consumer purchases a CID home,
he/she is often unaware of what rules he is agreeing to
live by.
That the timeframe be substantially shortened for the
board to respond to a homeowner who applies to the board
for a request to alter his separate interest. ? All
told, the timeframe in AB 512 is now six months, during
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which the homeowner could lose both construction and
permanent financing, should he be building a new home. ?
That AB 512 should state the obvious: that rules must
apply equally to all , that is, the board cannot make up
rules specific to one property owner. [We recall the
case of Karon Cave, the disabled property owner, whose
board fined her $500 a day for using the snowy roads
outside her home in order to exit the subdivision. She
was the only homeowner to whom this rule applied.] ?
Optional v. Mandatory Rules. This bill requires that operating
rules and proposals for the alteration of a member's separate
interest be treated and reviewed by the board of an association
in a fair and reasonable manner and then sets out rules and
procedures that meet this fair and reasonable standard. As a
result, the operating rules and procedures for alteration of an
owner's separate interest contained in the bill are optional,
not mandatory. The Executive Council of Homeowners (ECHO) has a
"support if amended" position on the bill, raising a concern
that the rules and procedures should be made mandatory. In
explaining its position, ECHO states:
ECHO firmly supports the principle of requiring the rule
making procedures in AB 512 to be mandatory. In the
interests of affording members an opportunity to be aware
of prospective rules, to have an opportunity to comment,
and ultimately to countermand the board, we think only
clearly articulated procedures, set in statute, are
appropriate.
For somewhat different reasons, ECHO urges that the
architectural review process/procedure be made mandatory,
coupled with a right of the directors of a community
association to select "alternative procedures" provided
they are fair and reasonable, respect the rights of members
and neighbors as contemplated under the procedure proposed
by the CLRC, and are not inconsistent with the CC&Rs of the
development . ? We believe superseding legislation is the
only way to lawfully fashion a major redirection of the
architectural control principles in recorded instruments.
We are very troubled by the concept of setting communities
adrift in a world where there exists no superseding
statute, yet where the new paradigm will not be reflected
in recorded CC&Rs because it is completely new. We need
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legitimacy, of either statute or recorded instrument.
Other organizations feel that the rules should not be made
mandatory as evidenced by several entities which comprise the
community of Leisure World. They write that because they are in
compliance with the intent of AB 512 they request that they be
opted out of this bill by virtue of the size of their community,
and the fact that they are a non-profit corporation that is
governed by corporation laws, statutes and the Davis-Stirling
Act.
Routine Alterations and Architectural Review. The Community
Associations Institute (CAI) has a "support if amended" position
on the bill and states on this issue:
The vast majority of architectural approvals given by an
Association are routine and are given without any type of
hearing for things such as repainting a house, re-roofing
a house or making minor landscaping changes. These
approvals should not be subject to the exhaustive process
set out in this bill. This process should also not apply
to the approval of alterations which fall within a range
of approved alterations set forth in a rule or in the
CC&Rs even through the reviewing body has the right to
see the proposal to check that the proposal does in fact
conform to what has been pre-approved by the CC&Rs or the
rules. For instance these documents may specify approved
colors for houses, approved roof materials and colors,
approved dock designs where there are private lakes and
the like. The neighbors already have notice that these
things will be allowed and should not be allowed to hold
up the routine alterations. [The bill] should contain a
definition of "Routine Alterations" which are not subject
to this procedure. ? [The bill] should provide that if
the application is for a routine alteration the review
body can approve the application without notice or
hearing.
With respect to CAI's suggestion that routine alterations be
exempted from architectural review under the bill, ECHO states:
Regarding the concept of excluding pre-approved
materials and applications (e.g., roof covering
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materials and colors, screen door models, etc.) provided
that the pre-approval process of such materials or
improvements is accomplished through the mandatory rule
making procedures which ECHO is urging. ECHO endorses
this concept. We also find merit in exempting "routine"
approvals, but only if that term is narrowly defined.
The Committee may wish to explore with the author the pros and
cons of amending the bill to exempt routine alterations -
defined narrowly - from architectural review. Both CAI and ECHO
have suggested also excluding emergency repairs, also defined
narrowly, from architectural review. The Committee may also
wish to explore such an exemption with the author.
Elimination of Appeals Where Board Also Acts As Architectural
Review Board;. On this issue, the CAI writes:
This bill should make it clear that if the Board of
Directors is the Reviewing Body that there is no appeal for
it would not make sense to take a matter back to the same
body for a de-novo hearing. In many smaller CIDs the Board
is the body that reviews architectural applications.
ECHO disagrees with this suggestion, writing:
Regarding the concept of eliminating appeals where the
board also acts as the architectural review committee, we
disagree with this concept . If a board is also the
architectural committee, we believe for the following
reasons it must be obligated to "reconsider" its decision
at the request of the applicant or a participating
neighbor:
1) Many managers perform ministerial approvals and,
therefore, such issues never get to the board.
2) No "hearing" is part of the original approval
process; a "right of reconsideration" gives applicants
and neighbors the right to meet with the board.
3) If the concept of "deemed disapproved" is to have
any meaning and to properly protect the interests of
all parties, it must always apply in the context of an
appeal to the board.
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4) If there is no right of appeal in the context of a
board/committee scheme, communities can easily
circumvent the property rights articulated in AB 512 by
co-naming the board as the committee.
Because it appears that legitimate policy reasons exist for not
eliminating appeals where the board also acts as the
architectural review committee as articulated above by ECHO, the
Committee may wish to urge the author not to amend the bill to
eliminate appeals in such instances.
Other Concerns. The California Association of Community
Managers (CACM) has indicated an oppose unless amended position
on the bill. Because CACM's letter was not available at the
time of the writing of the analysis, it is unclear what these
concerns may be.
REGISTERED SUPPORT / OPPOSITION :
Support
Community Associations Institute (if amended)
Congress of California Seniors (if amended)
Executive Council of Homeowners (ECHO) (if amended)
Opposition
California Association of Community Managers (unless amended)
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334