BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1836|
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THIRD READING
Bill No: AB 1836
Author: Harman (R)
Amended: 7/6/04 in Senate
Vote: 21
SENATE HOUSING & COMM. DEV. COMMITTEE : 6-0, 6/7/04
AYES: Ducheny, Hollingsworth, Alarcon, Cedillo, Dunn,
Torlakson
NO VOTE RECORDED: Ackerman, Florez, Vacancy
SENATE JUDICIARY COMMITTEE : 7-0, 7/1/04
AYES: Escutia, Morrow, Ackerman, Cedillo, Ducheny, Kuehl,
Sher
ASSEMBLY FLOOR : 76-0, 5/20/04 - See last page for vote
SUBJECT : Common interest developments: dispute
resolution
SOURCE : California Law Revision Commission
DIGEST : This bill reorganizes the alternative dispute
resolution processes and procedures contained in the
Davis-Stirling Common Interest Development Act and expands
the scope of the disputes to which alternative dispute
resolution processes and procedures must or can be applied
within common interest developments.
ANALYSIS : 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
CONTINUED
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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 (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 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 $5,000 related to the enforcement of the governing
documents, the parties shall endeavor or 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 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
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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 owned
and any fees under protest while the dispute is resolved
either through an alternative dispute resolution or the
courts.
This bill enacts recommendations made by the California Law
Revision Commission regarding the requirements and process
for alternative dispute resolution used by homeowner
associations and homeowners.
Specifically, this bill:
1.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.
2.States that in an action to enforce the governing
documents, the prevailing party shall be awarded
reasonable attorney's fees and costs.
3.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.
4.Outlines the requirements for a fair and reasonable
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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.
5.Encourages an association to make reasonable use of
local low-cost mediation programs such as those listed
on the web sites of the State Department of Consumer
Affairs and the United States Department of Housing and
Urban Development.
6.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.
7.Defines alternative dispute resolution as mediation,
arbitration, conciliation or other nonjudicial procedure
involving a neutral third party. The form may be
binding or nonbinding at the choice of the parties
involved.
8.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.
9.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:
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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.
C. A copy of the articles enacted by this bill
establishing the process for alternative dispute
resolution.
10.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.
11.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.
12.Repeals the Civil Code Section which makes alternative
dispute resolution available to a homeowner disputing an
assessment only by "paying under protest" certain
amounts. This makes alternative dispute resolution
available for assessment disputes on the same terms as
all other disputes.
13.Double-joins the bill to AB 23786 (Bates).
Comments
Purpose of the Bill . The author's office 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)
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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
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.
Two Tier Process Created by this Bill . This bill 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
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Corporation Law. This bill 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.
Related Legislation
AB 2376 (Bates) -- 2003-04 Session . 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 2598 (Steinberg) -- 2003-04 Session . 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.
SB 1682 (Ducheny) -- 2003-04 Session . Requires homeowner
associations to offer binding arbitration before placing a
lien on the property or before initiating foreclosure
proceedings.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/6/04)
California Law Revision Commission (source)
American Homeowners Resource Center
ASSEMBLY FLOOR :
AYES: Aghazarian, Bates, Benoit, Berg, Bermudez, Bogh,
Calderon, Campbell, Canciamilla, Chan, Chavez, Chu,
Cogdill, Cohn, Corbett, Correa, Cox, Daucher, Diaz,
Dutra, Dutton, Dymally, Firebaugh, Frommer, Garcia,
Goldberg, Hancock, Harman, Haynes, Jerome Horton, Shirley
Horton, Houston, Jackson, Keene, Kehoe, Koretz, La Malfa,
La Suer, Laird, Leno, Leslie, Levine, Lieber, Liu,
Lowenthal, Maddox, Maldonado, Matthews, McCarthy,
Montanez, Mountjoy, Mullin, Nakanishi, Nakano, Nation,
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Negrete McLeod, Parra, Pavley, Plescia, Reyes, Richman,
Ridley-Thomas, Runner, Salinas, Samuelian, Simitian,
Spitzer, Steinberg, Strickland, Vargas, Wesson, Wiggins,
Wolk, Wyland, Yee, Nunez
NO VOTE RECORDED: Longville, Maze, Oropeza, Pacheco
NC:cm 7/6/04 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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