BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
AB 512 A
Assembly Member Bates B
As Amended July 22, 2003
Hearing Date: August 19, 2003 5
Civil Code 1
CJW:cjt 2
SUBJECT
Common Interest Developments
DESCRIPTION
This bill would set forth a process by which common
interest development associations may adopt and change
their operating rules, while giving notice and an
opportunity to comment to association members.
BACKGROUND
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
areas. Condominiums, planned unit developments,
stock cooperatives, and community apartments all fall
under the umbrella of CIDs. Currently, there are an
estimated 6 million residents living in approximately
30,000 CIDs in California.
The Davis-Stirling Common Interest Development Act provides
the legal framework for the establishment and operation of
CIDs. 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, CID homeowner associations have wide discretion
to regulate the maintenance, operation, and general
appearance of the property, and the conduct of association
(more)
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Page 2
members. However, current law does not provide a process
for the adoption of association operating rules, nor does
it provide guidance on the proper scope of such rules.
This bill would provide procedural guidelines for the
adoption and revision of CID association operating rules,
including provisions for notice and an opportunity to
comment to association members, as specified below.
CHANGES TO EXISTING LAW
1. Existing law , the Davis-Stirling Act, allows CID
associations to be managed in accordance with "governing
documents," consisting of the articles of incorporation,
initial declaration of covenants and restrictions, and
any bylaws or operating rules adopted by an association.
[Civ. Code Sec. 1350 et seq .]
Existing law requires association meetings to be
conducted in accordance with a recognized parliamentary
procedure, and requires members to be given notice of the
time and place of the meeting, and of matters to be
presented for action at the meeting. [Civ. Code Secs.
1363, 1363.05.]
Existing law further requires association meetings to be
open to the membership, except when the board meets in
executive session to consider litigation, member
discipline, personnel matters, or matters relating to the
formation of contracts with third parties. [Civ. Code
Sec. 1363.05.]
Existing law further requires the minutes, draft minutes
or summary of the minutes of a board meeting to be
distributed within 30 days of the meeting. [Civ. Code
Section 1363.05.]
This bill would add chapter and title headings to the
Davis-Stirling Act, and would declare that the headings
do not affect the scope, meaning, or intent of its
provisions.
This bill would define "operating rule," explain what
makes an operating rule enforceable, and provide
procedures for adopting, amending, or repealing operating
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Page 3
rules, as set forth in detail in Comment 2 of this
analysis.
This bill further would provide that its provisions shall
apply to rule changes commenced on or after January 1,
2004, and shall not affect the validity of prior rule
changes.
2. Existing law provides that association members shall
have access to association records in accordance with
Article 3 of the Corporations Code (which allows
corporate shareholders to inspect and copy the record of
members' names, addresses, and voting rights, and
specifies that the corporation's accounting books and
records and shall be open to inspection by members).
This bill would specify that association members shall
have access to association records, "including accounting
books and records and membership lists," and that members
shall have the same access to operating rules as they do
to accounting books and records.
This bill further would provide that a copy of the
operating rules, along with copies of other governing
documents, shall be provided by the seller of any
separate interest to the prospective purchaser.
COMMENT
1. Stated need for legislation
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. The
Commission now sponsors AB 512 as its initial effort to
reform various aspects of CID law.
(a) Chapter headings should make CID law easier to
consult and understand
During its study of CID law, the sponsor has received a
multitude of complaints about different aspects of CID
governance. It has become clear that many disputes
were winding up in court that might have been avoided
AB 512 (Bates)
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through a better understanding and use of existing law.
One simple and modest improvement would be to add
organizational headings to the Davis-Stirling Act.
According to the sponsor, CID law is perhaps unique in
the extent to which it must be read, understood, and
applied by non-lawyers (the homeowner-volunteers who
serve on association boards). At present, the
Davis-Stirling Act has no organizational framework for
easy reference. The addition of chapter and article
headings would give some rough navigational guidance
that should make the law easier to use.
(b) Architectural review provisions have been removed
from bill
In its study, the sponsor has attempted to examine the
extent to which CID governance procedures comport with
general notions of fairness and due process. In
analyzing that question, the Commission found two areas
that could be improved: architectural review, and
rulemaking. The Commission's recommendations on
architectural review have proved controversial,
however, so those provisions have been removed from AB
512 for further study.
(c) AB 512 would provide rulemaking procedures
The major remaining provisions of the bill address
rulemaking. Existing law recognizes that association
boards may adopt "operating rules," but sets forth no
statutory procedure for doing so, nor any statutory
limits on the scope of such rules. The sponsor asserts
that a decision made under a fair and reasonable
procedure is more likely to be just, and more likely to
be accepted by a homeowner, than a decision reached
under a procedure that is perceived to be unfair.
To address this issue, AB 512 would:
(i) Provide that rules and rule changes are valid
only when in writing, within the board's authority,
consistent with existing law and governing
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documents, and made in good faith and substantial
compliance with this section. (The sponsor states
that this should help educate board members about
the proper scope of rulemaking, thereby reducing the
likelihood of disputes resulting from improper
rules.)
(ii) Require basic notice and comment procedures for
rulemaking. (This would give homeowners advance
notice of a pending rule, and a chance to influence
the contents of rules before they become effective.)
(iii) Give members a limited power to reverse
problematic rule changes.
(This process, similar to a municipal referendum,
would help avoid
rules that are clearly "out of sync" with the
community's wishes.)
See Comment 2 for the specifics of these proposals.
(d) Other provisions confirm member access to various
association records
AB 512 would expressly provide that members have a
right to inspect the association's accounting books and
records, and its membership lists. Although these
rights already are provided for in the Davis-Stirling
Act, by reference to applicable sections of the
Corporations Code, the sponsor believes an express
statement of these rights will be easier for members to
understand and use.
Finally, the bill would provide that operating rules
are among the governing documents provided by a seller
of a CID unit to a prospective purchaser.
2. Proposed rulemaking procedures in detail
(a) Notice and comment
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AB 512 would define "operating rule" to mean a
regulation adopted by a CID association board regarding
the management and operation of the CID or the conduct
of association business, and would provide that a rule
is valid and enforceable only when it is (a) in
writing; (b) within the authority of the board; (c) not
inconsistent with other laws or governing documents;
and (d) adopted, amended, or repealed in good faith and
in substantial compliance with the requirements of this
article.
In addition, the bill would provide that:
(i) An association board shall provide written notice
of a proposed operating rule change to the members
at least 25 days before making the change, except in
emergency circumstances, as specified;
(ii) A decision on a proposed rule change shall be
made by the board after consideration of any
comments made by association members;
(iii) After a rule change is made, the board shall
deliver notice of the rule
change to members as soon as possible, but no later
than 15 days after
the change, except in emergency circumstances, as
specified;
(iv) Emergency rule changes shall be effective for 120
days, unless a shorter
time is specified, and an emergency rule change may
not be readopted
under specified emergency procedures;
(v) Notice given under this section shall be made in
accordance with
specified procedures, requiring delivery of
association documents to be
made either in person; by first-class mail; by
publication in an
association periodical; by any method provided in a
recorded
provision of the governing documents; or by any
other method agreed
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to by the recipient.
(b) Rule reversals
AB 512 would provide that homeowners holding 5 percent
or more of the separate interests may call a special
meeting to reverse the rule change within 30 days of
notification of the change, and that the rule change
may be reversed by majority vote when a quorum is
present (unless otherwise provided in the governing
documents), or by written ballot. A rule change
reversed under this section may not be readopted for
one year after the reversal, but this shall not
preclude the adoption of a different rule on the same
subject.
(c) Scope of application
Finally, AB 512 would provide that these notice,
comment, and revision procedures apply only to
operating rules involving (1) use of common areas or
separate interests; (2) member discipline; (3)
delinquent assessment payment plans; and (4) procedures
for resolution of payment disputes.
The procedures would not apply to rules involving (1)
maintenance of common areas; (2) specific matters, as
opposed to those of general application; (3) the amount
of regular or special assessments; (4) rule changes
required by law; or (5) issuance of documents restating
existing law or governing documents.
3. Stakeholders support bill's goals
The sponsor states that it has consulted closely with the
major stakeholders on CID issues - organizations of CID
associations and of CID homeowners - and has continued to
amend the bill to satisfy the associations' concerns
about clarity and workability, and the homeowners'
concerns about due process and member protections. The
sponsor reports that its last round of talks resulting in
the most recent amendments was "mostly successful" in
efforts to reach consensus.
In response to the most recent amendments, the
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association groups (ECHO and CAI/CLAC) have removed their
opposition from AB 512, and CAI/CLAC will support the
bill with a few additional amendments that are currently
under negotiation.
The organization most involved in these negotiations on
behalf of homeowners has been the Congress of California
Seniors. In response to the most recent amendments, the
Congress asserts that AB 512 is "a step in the right
direction," but expresses dissatisfaction with the 25-day
notice and comment period, since it does not allow an
extra 5 days for mailing the notice. Further, the
Congress asserts that the process for attempting to
reverse a rule is cumbersome.
Finally, the Congress asserts that, for rulemaking to be
truly fair, "homeowners should have the right not only to
challenge rules but also to initiate them."
Support: American Homeowners Resource Center (AHRC);
California Business Properties Association; CAI/CLAC
(if amended); Congress of California Seniors (if
amended); 1 individual
Opposition: None Known
HISTORY
Source: California Law Revision Commission
Related Pending Legislation: AB 104 (Lowenthal) (would
expand association members' access
rights to association accounting
records) (pending in Senate);
AB 1525 (Longville) (would allow
association members to display
noncommercial signs and banners on
their separate interest property) to
be heard in Senate Judiciary
Committee today)
Prior Legislation: None Known
AB 512 (Bates)
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Prior Vote: Assembly Housing and Community Development
Committee 9-0
Assembly Judiciary Committee 11-0
Assembly Floor 77-0
Senate Housing and Community Development
Committee 8-0
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