BILL ANALYSIS
SENATE HOUSING & COMMUNITY DEVELOPMENT COMMITTEE
Senator Denise Moreno Ducheny, Chair
Bill No: AB 512Hearing: June
30, 2003
Author: BatesFiscal: No
Version: June 23,
2003Consultant: Mark Stivers
COMMON INTEREST DEVELOPMENT RULES
AND ARCHITECTURAL REVIEW
Background and Existing Law :
A common-interest development (CID) is a form of real
estate in which each homeowner has an exclusive interest in
a unit or lot and a shared or undivided interest in common
area property. Condominiums, planned unit developments,
stock cooperatives, and community apartments all fall under
the umbrella of common interest developments. There were
an estimated 6 million residents living in approximately
30,000 CID's in California.
The Davis-Stirling Common Interest Development Act provides
the legal framework under which homeowner associations
operate in common interest developments. In addition to
the requirements of the act, each CID is governed by a
homeowner association according to the recorded
declarations, bylaws, and operating rules of the
association.
In general, homeowner associations have wide discretion to
regulate the appearance of individual interests and the
conduct of its members. Under current law, the
declarations of an association are enforceable as equitable
servitudes "unless unreasonable." In Nahrstedt v.
Lakeside Village Condominium Assoc., Inc ., 8 Cal. 4th 361
(1994), the
California Supreme Court opined that the "unless
unreasonable" standard means that "restrictions should be
enforced unless they are wholly arbitrary, violate a public
policy, or impose a burden on the use of affected land that
far outweighs any benefit."
Proposed Law :
AB 512
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Assembly Bill 512 establishes basic standards with respect
to operating rule changes and architectural review of
alterations to separate interests and common areas in
common interest developments. In addition, the bill
outlines optional procedures for homeowner associations to
meet those standards. Specifically, the bill:
Adds chapter and article headings to the Davis-Stirling
Act and declares that the headings to not affect the
scope, meaning or intent of the provisions.
Requires that when documents must be delivered under the
optional procedures of the bill, they shall be personally
delivered, mailed to the last known address, published in
a periodical primarily for members, broadcast on
association television, or delivered in any method
provided in recorded governing documents. In addition,
such documents may be delivered by email, fax or any
other method the recipient has specifically agreed to.
Provides that an operating rule adopted, amended, or
repealed after January 1, 2004 that relates to the use of
common areas or separate interests, member discipline, or
assessment collection procedures is only valid and
enforceable if:
? The rule is in writing.
? The rule is within the authority of the board as
conferred by law, the declarations, articles of
incorporation or bylaws.
? The rule is adopted, amended or repealed in good
faith and in substantial compliance with state
standards.
? The rule is reasonable
Requires that members receive notice and have an
opportunity to comment before rule changes are made.
Establishes an optional procedure for changing standard
rules that meets the notice and comment requirement:
? The association shall deliver the written text and
a description of the changes to members.
? There shall be a 30 day written comment period.
? The rule change shall be acted on at a board
meeting after consideration of all comments.
? Upon adoption, the association shall deliver to all
members the text and a description of the rule change,
which shall become effective on a date made public by
the board that is at least 15 days from the date of
delivery.
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Establishes an optional procedure for changing emergency
rules that meets the notice and comment requirement:
? Provides for immediate rule changes to address
imminent threats to public health or safety or
imminent risks of substantial economic loss to the
association.
? The association shall deliver to members within 15
days the text of the rule change and an explanation of
the emergency.
? Provides that such a rule is valid for 120 days and
may not be extended under emergency authority.
Provides that members owning 5 percent of the separate
interests may call a special meeting to reverse a
non-emergency rule change by delivering a written request
to the board within 30 days of notification of the rule
change. Reversal requires a majority vote of those
represented and voting at the special meeting or by
written ballot. If overturned, the rejected rule may not
be readopted for one year.
Provides access to operating rules to members and a copy
to prospective purchasers.
Provides that when approval is required for an alteration
of a separate interest, exclusive use common area, or
common area, the decision must be made in good faith and
in a fair and reasonable manner.
Establishes on optional procedure for meeting the fair
and reasonable requirement.
? The association shall provide notice to all members
for alterations to common areas and to owners within
300 feet or same building if separate interest or
exclusive use common area.
? The reviewing body shall issue a written decision
between 15 and 30 days from notice which includes a
explanation of the decision and a description of the
appeal process.
? An applicant or person who commented on the initial
decision can appeal within 15 days to the board of
directors.
? The board shall hear appeals de novo within 45
days, and any member may testify upon appeal.
? The board shall issue a written decision within 15
days of the hearing with explanation of the basis for
the decision.
? Only the decision of the board on appeal is subject
to court review.
Requires that any writ of mandate to challenge an
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association's decision on the alteration of a separate
interest, exclusive use common area or common area is
subject to alternative dispute resolution prior to
filing.
Comments :
1. Purpose of the bill . At the request of the
Legislature, the California Law Revision Commission is
examining ways in which to minimize reliance on the courts
to resolve disputes between a CID association and its
members. While the commission is working on a number of
different approaches, its initial focus is on preventing
disputes from arising by seeking to make decision making
procedures used by a community association as fair and
reasonable as possible. The commission believes that a
decision made under a fair and reasonable procedure is more
likely to be a just decision and is more likely to be
accepted by a homeowner who would dispute a decision
reached under a procedure that is perceived to be unfair.
This bill seeks to ensure fair and reasonable decisions in
two distinct arenas: association rulemaking and
architectural review.
With respect to the former, no state law prevents an
association from adopting an operating rule without advance
notice to members or member involvement. This is
problematic because operating rules can have a significant
effect on member interests.
With respect to the latter, the governing documents of many
common interest developments require approval of the
community association before a member can alter separate
interest property. For example, a homeowner might be
required to obtain the
association's 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.
The proposed law would codify that general requirement and
add an optional "safe harbor" procedure.
2. Law Revision Commission process . The Law Revisions
Commission brought the bill to the Legislature after an
exhaustive deliberative and public participation process.
The commission held initial public hearings to get input on
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where they should focus their attention, developed
tentative recommendations, and after receiving and
reviewing numerous oral and written comments, adopted a
final recommendation to the Legislature. Moreover, as the
bill works its way through the process, the commission
continues to review and respond to new comments.
3. Lots of options, few requirements . The specific
procedures outlined in this bill with respect to rule
changes and alterations of separate interests are merely
optional and provide a safe harbor. The only actual
procedural requirements in the bill are that an association
provide members with notice and an opportunity to comment
on proposed rule changes, that rules changes be subject to
referenda, and that decisions related to alterations of
separate interests and common areas be made in good faith
and in a fair and reasonable manner. The commission
adopted this approach to avoid a one size fits all solution
and in order to avoid requiring associations to alter their
procedures, potentially trapping associations that may be
unaware of the changes in the law.
For those associations who choose not to adopt the optional
procedures, however, the bill sets no specific guidance as
to what is to be considered adequate notice or adequate
public comment opportunities with respect to rule changes
or for what is to be considered a fair and reasonable
process for alterations of interests. While this maintains
flexibility and reduces costs of changing existing rules
for homeowner associations, this may also create confusion
as to exactly what is required of associations and how
existing procedures are affected. Ultimately, it may
require litigation to clarify. The committee may wish to
consider whether the optional procedures should instead be
mandatory or the default in lieu of an affirmative action
to opt-out by the association. Another alternative may be
to more clearly define the basic standards in the bill to
provide additional guidance when associations do not follow
the optional procedures.
4. Rule change referenda . The bill allows members of an
association owning 5 percent or more of the separate
interest to call a special meeting to vote on reversal of a
non-emergency rule change adopted by the associations
board. The Congress of California Seniors has suggested
that a similar percentage of homeowners should be able to
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force a vote to initiate a rule change. The Congress
believes this will promote active participation of
residents in their association and balance the powers of
the residents and the board. The Commission has rejected
this proposal based in part on the belief that individual
homeowners may not be in the best position to balance their
interests with the fiduciary and other legal obligations of
the association. The commission saw the referendum as a
compromise step. The committee may wish to consider
whether residents should enjoy initiative as well as
referendum powers.
5. Active vs. passive notice . The recent amendments to
the bill allow an association, when required to deliver
documents under the optional procedures, to publish the
documents in a periodical primarily for members or
broadcast them on association television. As opposed to
the other forms of delivery, this requires the member to
actively seek out the information, which may result in many
members being unaware of the information. The committee
may wish to consider whether such delivery is appropriate
or should at least be subject to explicit agreement by the
recipient.
6. Enforcement still lacking . Under the Davis-Stirling
Act, the only enforcement mechanisms that exist when an
association violates state law is for an individual
homeowner to bring an action in court. Similarly, the
provisions of this bill would only be enforceable in court.
Many homeowners have argued that going to court is not a
viable option for enforcement. Few homeowners have the
resources to bring an action themselves or hire an
attorney, and few of these cases would involve damages
significant enough to entice an attorney on a contingency
basis. This bill does not address the lack of
enforceability. However, the Commission continues to study
and craft recommendations on how to resolve conflicts in
common interest developments.
7. Technical amendment. 1378.070(e) strike "approving"
and insert "regarding"
Support and Opposition : (6/25/03)
Support : California Law Revision Commission (sponsor)
American Homeowners Resource Center
Opposition : Congress of California Seniors, unless amended
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