BILL ANALYSIS
SENATE HOUSING & COMMUNITY DEVELOPMENT COMMITTEE
Senator Denise Moreno Ducheny, Chair
Bill No: AB 1836Hearing:June 7,
2004
Author: HarmanFiscal:No
Version: June 1,
2004Consultant:Michelle Rubalcava
COMMON INTEREST DEVELOPMENTS AND DISPUTE RESOLUTION
Background and Existing Law :
A common-interest development (CID) is a form of real
estate where 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. 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.
The Davis-Stirling Act provision relating to alternative
dispute resolutions (ADR) states that declarations of the
association shall bind all owners of separate interests in
the development. Prior to the filing of a civil action by
either an association or a homeowner solely for declaratory
relief or injunctive relief, or for declaratory relief or
injunctive relief in conjunction with a claim for monetary
damages, other than association assessments, not in excess
of five thousand dollars ($5,000), related to the
enforcement of the governing documents, the parties shall
endeavor to submit their dispute to a form of alternative
dispute resolution such as mediation or arbitration. The
form of alternative dispute resolution chosen may be
binding or non-binding at the option of the parties. Any
party to such a dispute may initiate this process by
serving on another party to the dispute a Request for
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Resolution.
The Request for Resolution shall include (1) a brief
description of the dispute between the parties, (2) a
request for alternative dispute resolution, and (3) a
notice that the party receiving the Request for Resolution
is required to respond within 30 days of receipt or it will
be deemed rejected. Service of the Request for Resolution
shall be in the same manner as prescribed for service in a
small claims action as provided in Section 116.340 of the
Code of Civil Procedure. Parties receiving a Request for
Resolution shall have 30 days following service of the
Request for Resolution to accept or reject alternative
dispute resolution and, if not accepted within the 30-day
period by a party, shall be deemed rejected by that party.
If alternative dispute resolution is accepted by the party
upon whom the Request for Resolution is served, the
alternative dispute resolution shall be completed within 90
days of receipt of the acceptance by the party initiating
the Request for Resolution, unless extended by written
stipulation signed by both parties. The costs of the
alternative dispute resolution shall be borne by the
parties.
The Davis-Stirling Act also includes provisions regarding
association management. These provisions state that
meetings of the membership of the association shall be
conducted in accordance with a recognized system of
parliamentary procedure, to provide notice to members
before an action is presented, require all meetings to be
open to the membership unless the board meets in an
executive session, requires minutes or a summary of the
minutes of a board meeting to be distributed within 30 days
of the meeting, and that a homeowner may dispute
assessments so long as the homeowner pays the amount owed
and any fees under protest while the dispute is resolved
either through an alternative dispute resolution or the
courts.
Proposed Law :
Assembly Bill 1836 enacts recommendations made by the
California Law Revision Commission regarding the
requirements and process for alternative dispute resolution
used by homeowner associations and homeowners.
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Specifically, this bill:
States that a governing document other than the
declaration may be enforced by the association against a
homeowner or by a homeowner against the association.
States that in an action to enforce the governing
documents, the prevailing party shall be awarded
reasonable attorney's fees and costs.
Requires that an association along with the homeowners
develop a fair and reasonable internal process for
handling disputes between the association and a
homeowner. This internal process would not require a
neutral third party and also exempts assessment disputes
from the internal dispute process.
Outlines the requirements for a fair and reasonable
internal dispute process. Including but not limited to:
a) Granting the right to either the association or the
homeowner to invoke the dispute procedure. Such a
request must be made in writing. In addition, if the
procedure is invoked by a homeowner the association must
participate, but if the procedure is invoked by the
association a homeowner may choose not to participate in
the procedure.
b) Stating the maximum time for the association to act on
a request for invoking the procedure. The deadline
should be a prompt deadline.
c) No fees shall be charged to a homeowner if they wish to
participate in the procedure.
Encourages an association to make reasonable use of local
low-cost mediation programs such as those listed on the
websites of the Department of Consumer Affairs and the
United States Department of Housing and Urban
Development.
Requires that a party attempt to submit their dispute to
alternative dispute resolution prior to filing suit if
they are seeking declaratory, injunctive or writ relief
or for that relief in conjunction with a claim of damages
less than $5,000.
Defines alternative dispute resolution as mediation,
arbitration, conciliation or other nonjudicial procedure
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involving a neutral third party. The form may be binding
or nonbinding at the choice of the parties involved.
Requires alternative dispute resolution prior to filing
suit for any action to enforce the Davis Stirling Act,
Nonprofit Mutual Benefit Corporation Law, or the
governing documents of the association.
Requires that in order to initiate the process of
alternative dispute resolution any party may serve all
other parties with a Request for Resolution that
includes:
a) A brief description of the dispute and a request for
alternative dispute resolution;
b) A notice that the receiving party is required to respond
within 30 days or the request will be deemed denied; and,
c) A copy of the articles enacted by this bill establishing
the process for alternative dispute resolution.
Requires a Request for Resolution to be by personal
delivery, first class mail, express mail, fax, or other
means that would reasonably be assumed to notify the
receiving party.
Provides that a court may take into account a party's
prior refusal for requested alternative dispute
resolution when determining the amount of an award in a
subsequent suit.
Comments :
1. Purpose of the bill. The author states that this bill
was introduced to enact recommendations made by the
California Law Revision Commission (CLRC) which revise the
requirements and process for alternative dispute resolution
used by homeowner associations and homeowners.
A common interest housing development is characterized by
(1) separate ownership of dwelling space coupled with an
undivided interest in the common area, (2) covenants,
conditions, and restrictions that limit use of both the
common area and separate ownership interests, and (3)
administration of common property by a homeowners
association. This structure inevitably leads to conflicts
within the development, either between the association
management and a homeowner, or between homeowners. These
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disputes typically fall into one of several categories,
such as, financial disputes, architectural controls, pet
issues, use of private space and personal interaction.
As part of its general study of common interest development
law, the CLRC found that participants in alternative
dispute resolution in CIDs reported mixed results. The
CLRC determined that this was as a result of current
structural factors that work against effective alternative
dispute resolution. For example, the relative inequality
of bargaining position between the association and an
individual homeowner, as well as, the cost of invoking a
neutral resolution process. It is the opinion of the CLRC
that the existing alternative dispute resolution mechanisms
to cope with these conflicts inherent within a CID is
limited. Therefore, the CLRC drafted a report wherein they
propose improving the current dispute resolution process
for common interest developments.
2. Two tier process created by AB 1836. Assembly Bill
1836 creates a two tier dispute resolution process that
must be followed before a party may bring an action to the
courts. The first tier is an informal internal process
which must be developed by the homeowner association and
the homeowners. This internal dispute process would seek
to encourage communication between the association and the
homeowner. This step in dispute resolution seems too basic
to have to codify but the CLRC, sponsors of the bill, feel
that most associations need these basic ground rules. This
first tier would not bind the parties to any decision
unless both parties agreed and in addition this first step
is designed to be a no cost process, since this first step
does not require the mediation by a neutral third party.
The second tier is the CLRC's recommendations to reform and
strengthen the existing alternative dispute resolution. In
particular, alternative dispute resolution is expanded to
those actions that arise out of an association's own
documents and bylaws or relevant statutes, such as the
Davis-Stirling Act and the Nonprofit Mutual Benefit
Corporation Law. Assembly Bill 1836 also requires the use
of local dispute resolution programs to the extent that it
is deemed reasonable. For example, some counties do not
have local dispute resolution programs and therefore it
would not be reasonable to mandate the use of a nonexistent
program.
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3. Concerns with the bill. The Congress of California
Seniors (CCS) along with the California Alliance for
Retired Americans have voiced some concerns with the
current version of Assembly Bill 1836. In particular, CCS
is troubled that the alternative dispute resolution
provisions outlined in the bill do not apply to assessment
disputes. CCS argues, "Assessment disputes are the precise
kind of disputes which are in desperate need of resolution.
We have collected countless examples of such disputes in
which the homeowner paid the full amount under protest,
requested alternative dispute resolution, and only after
making full payment was told by the other disputant - the
association - that no ADR mechanisms exist for resolving
the counter-claims. More often, the association (or the
debt collector acting as the association's agent) simply
ignores the homeowner's request for alternative dispute
resolution."
The sponsors of the bill, CLRC, respond that assessment
disputes were purposely carved out of AB 1836 because there
already exists a process specifically designed for
assessment disputes. That process was created in AB 2289
(Kehoe, 2002), which CCS sponsored. CLRC argues that the
process established by AB 2289 is a very detailed process
of how a homeowner can resolve assessment disputes and they
were reluctant to confuse parties as to which process
should be adhered to when dealing with assessment disputes.
CCS argues that AB 2289 has not produced the desired
results. They argue that AB 2289 (Kehoe, 2002) allows a
homeowner to meet with the board regarding an assessment
dispute privately. The process allows for the debt to be
verified and then the possibility of creating a payment
plan. The problem that is resulting is that AB 2289 did
not require that an association agree to a payment plan.
The resulting practice has been that if an association is
not pleased with the proposed payment plan, they can
legally reject it and then threaten foreclosure as a way to
make the homeowner agree to a more palatable payment plan
for the association.
CCS feels that currently there is no way to actually
resolve disputes because the association still has the
upper hand in negotiations. They argue that if assessment
disputes are added to AB 1836 this will allow the dispute
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to go to a neutral third party instead of becoming a tug of
war between the association and the homeowner.
The committee may wish to consider striking the provision
of the bill which specifically carves out assessment
disputes from the bill.
4. Double Referral. The Senate Rules Committee has double
referred this measure to the Senate Committee on Housing
and Community Development as well as the Senate Judiciary
Committee. If this measure passes out of the current
committee it must be referred to the Senate Judiciary
Committee.
Related Legislation :
AB 2376 (Bates) inter alia requires a homeowner
association to provide a fair and reasonable process for
reviewing a request by a homeowner for a physical
alteration to their unit or the common area. This bill
is also sponsored by the California Law Review
Commission. AB 2376 will be heard in this committee on
June 21.
AB 2598 (Steinberg) inter alia prohibits the use of the
non-judicial foreclosure process by homeowner
associations in collecting overdue assessments when the
underlying debt is for the failure to pay association
assessments or dues. AB 2598 is in the Senate pending
referral.
SB 1682 (Ducheny) inter alia requires homeowner
associations to offer binding arbitration before placing
a lien on the property or before initiating foreclosure
proceedings. SB 1682 is in the Assembly Judiciary
Committee.
Previous Actions :
Assembly Floor: 76-0
Assembly Judiciary: 11-0
Assembly Housing and Community Development: 9-0
Support and Opposition : (6/2/04)
Support : California Law Revision Commission (Sponsor)
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American Homeowners Resource Center
Opposition : none received