BILL NUMBER: SB 551 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 18, 2006
AMENDED IN SENATE JANUARY 23, 2006
AMENDED IN SENATE JANUARY 9, 2006
AMENDED IN SENATE JANUARY 4, 2006
AMENDED IN SENATE APRIL 18, 2005
AMENDED IN SENATE APRIL 12, 2005
AMENDED IN SENATE MARCH 29, 2005
INTRODUCED BY Senator Lowenthal
FEBRUARY 18, 2005
An act to amend Section Sections 1365 and
1373 of, to add Section 1363.7 to, and to add Chapter 11
(commencing with Section 1380.010) to Title 6 of Part 4 of Division 2
of the Civil Code, relating to common interest developments.
LEGISLATIVE COUNSEL'S DIGEST
SB 551, as amended, Lowenthal Common interest
developments: ombudsperson Interest Development Bureau
.
(1) Existing law , the Davis-Stirling
Common Interest Development Act, defines and regulates common
interest developments, which include condominiums and planned
developments. Existing law The act
requires that a common interest development be managed by an
association, and establishes requirements for association operating
rules and meetings and for the resolution of specified disputes.
This bill would, until January 1, 2011
2012 , establish in the Department of Consumer Affairs,
the Office of the Common Interest Development
Ombudsperson Bureau . The bill would
require the ombudsperson bureau to,
among other things, offer training materials and courses to common
interest development directors, officers, and owners, in subjects
relevant to the operation of a common interest development and the
rights and duties of an association or owner. The bill would require
the ombudsperson bureau to maintain a
toll-free telephone number and Internet Web site for purposes of
further providing that information and assistance, and would require
an association director or agent to meet certain requirements in that
regard. The
The bill would require the bureau, upon request and within the
limits of its resources, to investigate and assist in resolving any
dispute involving the law governing common interest developments or
the governing documents of a common interest development. The bill
would set forth applicable procedures for responding to the
investigation request, serving a written citation and administrative
fine on an association for violations of the Davis-Stirling Common
Interest Development Act and other laws governing common interest
developments, administrative review of any citation issued, and
enforcement of any order or fine contained in a citation.
The bill would impose a biennial association fee on
common interest development associations to fund the
administration of the provisions of the bill, for ,
payable upon filing specified information with the Secretary of
State. The bill would require the Secretary of State to deposit
the fee revenue in a newly created fund, the Fee Account
of the Common Interest Development Ombudsperson
Bureau Fund, which would be subject to
for the administration of these provisions upon
appropriation by the Legislature. The bill would require the
Secretary of State to develop a form for an association that is
excused from paying the fee to certify that another association has
paid the fee, as specified. The bill would provide that costs
incurred by the Secretary of State pursuant to these provisions shall
be reimbursed from the Common Interest Development Bureau Fund.
The bill would require money paid to the bureau
that is attributable to administrative fines imposed by the bureau,
or cost recovery by the bureau from enforcement actions and case
settlements, to be placed into the Penalty Account of the Common
Interest Development Bureau Fund, for the administration of these
provisions upon appropriation by the Legislature.
(2) Existing law governing common interest developments requires
the association to prepare and distribute to all of its members
certain documents, including a pro forma operating budget.
This bill would require the association to also prepare and
distribute a list of all citations issued and other enforcement
action taken against the association by the Common Interest
Development Bureau, including a description of the nature of the
issue requiring action and any fines levied against the association.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1363.7 is added to the Civil Code, to read:
1363.7. An association shall provide its members with annual
written notice of the Internet Web site address and toll-free
telephone number of the Common Interest Development
Ombudsperson Bureau established pursuant to
Chapter 11 (commencing with Section 1380.010).
SEC. 2. Section 1365 of the Civil Code
is amended to read:
1365. Unless the governing documents impose more stringent
standards, the association shall prepare and distribute to all of its
members the following documents:
(a) A pro forma operating budget, which shall include all of the
following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association's reserves based upon the most
recent review or study conducted pursuant to Section 1365.5, based
only on assets held in cash or cash equivalents, which shall be
printed in boldface type and include all of the following:
(A) The current estimated replacement cost, estimated remaining
life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study is
prepared:
(i) The current estimate of the amount of cash reserves necessary
to repair, replace, restore, or maintain the major components.
(ii) The current amount of accumulated cash reserves actually set
aside to repair, replace, restore, or maintain major components.
(iii) If applicable, the amount of funds received from either a
compensatory damage award or settlement to an association from any
person or entity for injuries to property, real or personal, arising
out of any construction or design defects, and the expenditure or
disposition of funds, including the amounts expended for the direct
and indirect costs of repair of construction or design defects. These
amounts shall be reported at the end of the fiscal year for which
the study is prepared as separate line items under cash reserves
pursuant to clause (ii). Instead of complying with the requirements
set forth in this clause, an association that is obligated to issue a
review of their financial statement pursuant to subdivision (b) may
include in the review a statement containing all of the information
required by this clause.
(C) The percentage that the amount determined for purposes of
clause (ii) of subparagraph (B) equals the amount determined for
purposes of clause (i) of subparagraph (B).
(3) A statement as to both of the following:
(A) Whether the board of directors of the association has
determined or anticipates that the levy of one or more special
assessments will be required to repair, replace, or restore any major
component or to provide adequate reserves therefor. If so, the
statement shall also set out the estimated amount, commencement date,
and duration of the assessment.
(B) The mechanism or mechanisms by which the board of directors
will fund reserves to repair or replace major components, including
assessments, borrowing, use of other assets, deferral of selected
replacement or repairs, or alternative mechanisms.
(4) A general statement addressing the procedures used for the
calculation and establishment of those reserves to defray the future
repair, replacement, or additions to those major components that the
association is obligated to maintain. The report shall include, but
need not be limited to, reserve calculations made using the formula
described in paragraph (4) of subdivision (b) of Section 1365.2.5,
and may not assume a rate of return on cash reserves in excess of 2
percent above the discount rate published by the Federal Reserve Bank
of San Francisco at the time the calculation was made.
The summary of the association's reserves disclosed pursuant to
paragraph (2) shall not be admissible in evidence to show improper
financial management of an association, provided that other relevant
and competent evidence of the financial condition of the association
is not made inadmissible by this provision.
Notwithstanding a contrary provision in the governing documents, a
copy of the operating budget shall be annually distributed not less
than 30 days nor more than 90 days prior to the beginning of the
association's fiscal year.
(b) A review of the financial statement of the association shall
be prepared in accordance with generally accepted accounting
principles by a licensee of the California Board of Accountancy for
any fiscal year in which the gross income to the association exceeds
seventy-five thousand dollars ($75,000). A copy of the review of the
financial statement shall be distributed within 120 days after the
close of each fiscal year.
(c) Instead of the distribution of the pro forma operating budget
required by subdivision (a), the board of directors may elect to
distribute a summary of the pro forma operating budget to all of its
members with a written notice that the pro forma operating budget is
available at the business office of the association or at another
suitable location within the boundaries of the development, and that
copies will be provided upon request and at the expense of the
association. If any member requests that a copy of the pro forma
operating budget required by subdivision (a) be mailed to the member,
the association shall provide the copy to the member by first-class
United States mail at the expense of the association and delivered
within five days. The written notice that is distributed to each of
the association members shall be in at least 10-point boldface type
on the front page of the summary of the budget.
(d) A statement describing the association's policies and
practices in enforcing lien rights or other legal remedies for
default in payment of its assessments against its members shall be
annually delivered to the members not less than 30 days nor more than
90 days immediately preceding the beginning of the association's
fiscal year.
(e) (1) A summary of the association's property, general
liability, earthquake, flood, and fidelity insurance policies, which
shall be distributed not less than 30 days nor more than 90 days
preceding the beginning of the association's fiscal year, that
includes all of the following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably practicable,
notify its members by first-class mail if any of the policies
described in paragraph (1) have lapsed, been canceled, and are not
immediately renewed, restored, or replaced, or if there is a
significant change, such as a reduction in coverage or limits or an
increase in the deductible, as to any of those policies. If the
association receives any notice of nonrenewal of a policy described
in paragraph (1), the association shall immediately notify its
members if replacement coverage will not be in effect by the date the
existing coverage will lapse.
(3) To the extent that any of the information required to be
disclosed pursuant to paragraph (1) is specified in the insurance
policy declaration page, the association may meet its obligation to
disclose that information by making copies of that page and
distributing it to all of its members.
(4) The summary distributed pursuant to paragraph (1) shall
contain, in at least 10-point boldface type, the following statement:
"This summary of the association's policies of insurance provides
only certain information, as required by subdivision (e) of Section
1365 of the Civil Code, and should not be considered a substitute for
the complete policy terms and conditions contained in the actual
policies of insurance. Any association member may, upon request and
provision of reasonable notice, review the association's insurance
policies and, upon request and payment of reasonable duplication
charges, obtain copies of those policies. Although the association
maintains the policies of insurance specified in this summary, the
association's policies of insurance may not cover your property,
including personal property or, real property improvements to or
around your dwelling, or personal injuries or other losses that occur
within or around your dwelling. Even if a loss is covered, you may
nevertheless be responsible for paying all or a portion of any
deductible that applies. Association members should consult with
their individual insurance broker or agent for appropriate additional
coverage."
(f) A list of all citations issued and other enforcement action
taken against the association by the Common Interest Development
Bureau, including a description of the nature of the issue requiring
action and any fines levied against the association.
SEC. 2. SEC. 3. Section 1373 of the
Civil Code is amended to read:
1373. (a) The following provisions do not apply to a common
interest development that is limited to industrial or commercial uses
by zoning or by a declaration of covenants, conditions, and
restrictions that has been recorded in the official records of each
county in which the common interest development is located:
(1) Section 1356.
(2) Article 4 (commencing with Section 1357.100) of Chapter 2.
(3) Subdivision (b) of Section 1363.
(4) Section 1365.
(5) Section 1365.5.
(6) Subdivision (b) of Section 1366.
(7) Section 1366.1.
(8) Section 1368.
(9) Section 1378.
(10) Chapter 11 (commencing with Section 1380.010).
(b) The Legislature finds that the provisions listed in
subdivision (a) are appropriate to protect purchasers in residential
common interest developments, however, the provisions may not be
necessary to protect purchasers in commercial or industrial
developments since the application of those provisions could result
in unnecessary burdens and costs for these types of developments.
SEC. 3. SEC. 4. Chapter 11
(commencing with Section 1380.010) is added to Title 6 of Part 4 of
Division 2 of the Civil Code, to read:
CHAPTER 11. Common Interest Development OMBUDSPERSON
BUREAU Pilot Project
Article 1. Definitions
1380.010. Unless the provision or context otherwise requires, the
definitions in this article govern the construction of this chapter.
1380.020. "Owner" means the owner of a separate interest.
1380.030. "Person" includes a natural person, firm, association,
organization, partnership, business trust, corporation, limited
liability company, or public entity.
Article 2. Administration
1380.100. The Legislature finds and declares all of the
following:
(a) There are more than 36,000 41,000
residential common interest developments in California,
comprising more than 3,000,000 4,300,000
dwellings. Common interest developments comprise approximately
one-quarter of the state's housing stock.
(b) Managing a common interest development is a complex
responsibility. Community associations are run by volunteer directors
who may have little or no prior experience in managing real
property, operating a nonprofit association or corporation, complying
with the law governing common interest developments, and
interpreting and enforcing restrictions and rules imposed by the
governing documents of the common interest development. Homeowners
may not fully understand their rights and obligations under the law
and the governing documents. Mistakes and misunderstandings are
inevitable and may lead to serious, costly, and divisive problems.
The Common Interest Development Ombudsperson
Bureau seeks to educate community association officers and
homeowners as to their legal rights and obligations. Effective
education can prevent or reduce the severity of problems within a
common interest development.
(c) The principal remedy for a violation of common interest
development law is private litigation. Litigation is not an ideal
remedy for many common interest development disputes, where the
disputants are neighbors who must maintain ongoing relationships. The
adversarial nature of litigation can disrupt these relationships,
creating animosity that degrades the quality of life within the
community and makes future disputes more likely to arise. Litigation
imposes costs on a common interest development community as a whole,
costs that must be paid by all members through increased assessments.
Many homeowners cannot afford to bring a lawsuit and are effectively
denied the benefit of laws designed for their protection.
(d) Anecdotal accounts of abuses within common interest
developments create continuing public demand for reform of common
interest development law. This results in frequent changes to the
law, making it more difficult to understand and apply ,
and imposing significant transitional costs on common interest
developments statewide. By collecting empirical data on the nature
and incidence of problems within common interest developments, the
Common Interest Development Ombudsperson
Bureau provides a sound basis for prioritizing reform efforts,
thereby increasing the stability of common interest development law.
(e) The costs of the Common Interest Development
Ombudsperson Bureau Pilot Project shall be borne
entirely by common interest development homeowners, through
imposition of a biennial fee.
1380.110. (a) There is in the Department of Consumer Affairs
the Office of the Common Interest Development
Ombudsperson Bureau , under the
supervision and control of the Director of Consumer Affairs.
(b) The Commencing July 1, 2007, the
Director of Consumer Affairs shall employ a Common Interest
Development Ombudsperson Bureau Chief
and other officers and employees as necessary to discharge the
requirements of this chapter. The Common Interest Development
Ombudsperson Bureau Chief shall have
the powers delegated by the director.
(c) The ombudsperson bureau shall
adopt rules governing practices and procedures under this chapter.
Any rule adopted under this subdivision is subject to the rulemaking
provisions of the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code).
(d) Information and advice provided by the ombudsperson
bureau has no binding legal effect and is not
subject to the rulemaking provisions of the Administrative Procedure
Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code).
(e) The ombudsperson bureau may
convene an advisory committee to make recommendations on matters
within the ombudsperson's bureau's
jurisdiction. A member of an advisory committee may receive per diem
and expenses pursuant to Section 103 of the Business and Professions
Code. In selecting the members of an advisory committee, the
ombudsperson bureau shall ensure a fair
representation of the interests involved.
1380.120. The Common Interest Development Ombudsperson
Bureau shall report annually to the Legislature,
no later than October 1 of each year. The report shall include all
of the following information:
(a) Annual workload and performance data, including the number of
requests for assistance received, the manner in which a request was
or was not resolved, and the staff time required to resolve the
inquiry. For each category of data, the ombudsperson
bureau shall provide subtotals based on the type
of question or dispute involved in the request.
(b) Analysis of the most common and serious types of disputes
within common interest developments, along with any recommendations
for statutory reform to reduce the frequency or severity of those
disputes.
(c) On or before January 1, 2009, the ombudsperson
2010, the bureau shall submit recommendations to
the Legislature on the following topics:
(1) Whether the ombudsperson should be authorized to enforce
common interest development law.
(2)
(1) Whether the ombudsperson
bureau should be authorized to oversee association elections.
(3)
(2) Whether the scope of application of Section
1380.230 should be narrowed or broadened.
1380.130. (a) On filing information with the Secretary of State
every two years, pursuant to subdivision (a) of Section 1363.6, an
association shall submit a Common Interest Development
Ombudsperson Fee Bureau fee . This fee is in
addition to the fee submitted pursuant to Section 1363.6. Failure to
submit the Common Interest Development Ombudsperson Fee
Bureau fee is deemed noncompliance with Section
1363.6.
(b) The Common Interest Development Ombudsperson Fee
Bureau fee shall equal the number of separate
interests within the association multiplied by the biennial fee
amount. The initial biennial fee amount is ten dollars ($10). For the
purposes of this section, "separate interest" has the meaning
provided in Section 1351.
(c) An association is excused from paying the fee for a separate
interest if another association has paid the fee for that separate
interest. An association that is excused from paying the fee for a
separate interest shall certify, on a form developed by the Secretary
of State for that purpose, that another association has paid the fee
for that separate interest. The ombudsperson
bureau may adopt, by regulation, a rule governing which
association is required to pay the fee for a separate interest that
is part of more than one association.
(d) The Common Interest Development Ombudsperson
Bureau shall increase or decrease the biennial
fee amount every two years to provide only the revenue that it
estimates will be necessary for its operation during the next
two-year period. The biennial fee amount shall not exceed twenty
dollars ($20).
(e) An assessment increase necessary to recover the fee imposed by
this section shall not be included in any calculation for purposes
of subdivision (b) of Section 1366.
1380.140. (a) Common Interest Development
Ombudsperson Bureau fee revenue
received by the Secretary of State and fee revenue received by the
Common Interest Development Ombudsperson
Bureau shall be transferred to the State Treasurer and placed
in the Fee Account of the Common Interest Development
Ombudsperson Bureau Fund, which is hereby
created. All funds in the Fee Account of the Common Interest
Development Ombudsperson Bureau Fund
shall be used exclusively for expenditures necessary for the proper
administration of this chapter, upon appropriation by the
Legislature.
(b) Money paid to the bureau that is attributable to
administrative fines imposed by the bureau, or cost recovery by the
bureau from enforcement actions and case settlements, shall be
transferred to the State Treasurer and placed into the Penalty
Account of the Common Interest Development Bureau Fund, which is
hereby created. Funds in the Penalty Account shall, upon
appropriation by the Legislature, be available exclusively for
expenditures necessary for the proper administration of this chapter.
(c) Costs incurred by the Secretary of State pursuant to this
chapter shall be reimbursed from the Common Interest Development
Bureau Fund.
1380.150. (a) This chapter shall remain in effect only until
January 1, 2011 2012 , and as of that
date is repealed, unless a later enacted statute that is enacted
before January 1, 2011 2012 , deletes
or extends that date.
(b) The Common Interest Development Ombudsperson
Bureau Pilot Project is subject to review by the
Joint Committee on Boards, Commissions, and Consumer Protection
pursuant to Division 1.2 (commencing with Section 473) of the
Business and Professions Code.
Article 3. Education
1380.200. (a) The Common Interest Development
Ombudsperson Bureau shall offer training
materials and courses to common interest development directors,
officers, and owners, in subjects relevant to the operation of a
common interest development and the rights and duties of an
association or owner.
(b) The ombudsperson bureau may
charge a fee for training materials or courses, not to exceed their
actual cost.
1380.210. The Common Interest Development Ombudsperson
Bureau shall maintain a toll-free telephone
number to provide information or assistance on matters relating to
common interest developments.
1380.220. (a) The Common Interest Development
Ombudsperson Bureau shall maintain an Internet
Web site, which shall provide all of the following information:
(1) The text of this title, the Nonprofit Mutual Benefit
Corporation Law (Part 3 (commencing with Section 7110) of Division 2
of Title 1 of the Corporations Code), and any other statute or
regulation that the ombudsperson bureau
determines would be relevant to the operation of a common interest
development or the rights and duties of an association or owner.
(2) Information concerning nonjudicial resolution of disputes that
may arise within a common interest development, including contacts
for locally available dispute resolution programs organized pursuant
to Chapter 8 (commencing with Section 465) of Division 1 of the
Business and Professions Code.
(3) A description of the services provided by the
ombudsperson bureau and information on how to
contact the ombudsperson bureau for
assistance.
(4) An analysis, prepared each year, of legislative changes to
common interest development law.
(5) Any other information that the ombudsperson
bureau determines would be useful to an association or
owner.
(b) Information provided on the ombudsperson's
bureau's Internet Web site shall also be made available in
printed form. The ombudsperson bureau
may charge a fee for the purchase of printed material, not to exceed
the actual cost of printing and delivery.
1380.230. (a) Within 60 days of assuming office as an association
director or providing services as a managing agent, an association
director or managing agent shall certify that the director or
managing agent has read each of the following:
(1) The declaration, articles of incorporation or association, and
bylaws of the association that the director or managing agent
serves.
(2) This title or, if the Common Interest Development
Ombudsperson Bureau prepares a detailed summary
of the requirements of this title, that summary.
(b) A director shall file the certification required by this
section with the ombudsperson bureau .
A managing agent shall file the certification required by this
section with the association served by that managing agent.
(c) For the purposes of this section, "managing agent" means a
person or entity who, for compensation or in expectation of
compensation, exercises control over the assets of a common interest
development. "Managing agent" does not include a regulated financial
institution operating within the normal course of its regulated
business practice.
Article 4. Dispute Resolution
1380.300. Any person may request the bureau's assistance in
resolving a dispute involving the law governing common interest
developments or the governing documents of a common interest
development. On receipt of a request for assistance the bureau shall,
within the limits of its resources, investigate the dispute, confer
with the interested parties, and assist in efforts to resolve the
dispute by mutual agreement of the parties.
1380.310. If the bureau receives a complaint alleging that an
association has violated a provision of this title, an applicable
provision of the Corporations Code, or any other statute that governs
common interest developments, it shall, within the limits of
available resources, take one of the following actions:
(a) If the complaint involves a matter that would be within the
regulatory authority of another state or federal agency, the bureau
shall inform the person who filed the complaint of the other
administrative remedies available, and may, if it appears appropriate
to do so, refer the matter to another agency for disposition.
(b) Conduct an investigation of the alleged violation.
(c) Dismiss the complaint for failure to state a violation of law.
1380.320. If the bureau determines, after investigation, that a
violation has occurred, it shall confer with the interested parties,
and attempt to remedy the violation by mutual agreement of the
parties.
1380.330. (a) If a violation cannot be remedied under Section
1380.320, the bureau shall serve a written citation on the
association.
(b) The citation shall state the provision of law that has been
violated and the facts constituting the violation.
(c) The citation shall order abatement of the violation and may
order additional equitable relief as appropriate.
(d) The citation may include an administrative fine of not more
than one thousand dollars ($1,000) per violation, to be paid by the
association to the bureau. In determining whether to impose a fine
and the amount of any fine imposed, the bureau shall consider the
size of the association, the gravity of the violation, the presence
or absence of just cause or excuse, and any history of prior
violations.
(e) The citation shall include a statement of the procedure and
the deadline to request administrative review under Section 1380.340.
1380.340. (a) Within 30 days of service of a citation, the
association served with the citation may file with the bureau a
written request for administrative review of the citation.
(b) Within 90 days of receipt of a timely request for
administrative review, the Department of Consumer Affairs shall
conduct an administrative hearing to review the merits of the
citation. The hearing is subject to the administrative adjudication
provisions of the Administrative Procedure Act (Chapters 4.5
(commencing with Section 11400), and 5 (commencing with Section
11500), Part 1, Division 3, Title 2, Government Code).
(c) The Department of Consumer Affairs shall appoint the presiding
officer, who shall be qualified as an administrative law judge. The
presiding officer may be an employee of the Office of Administrative
Hearings or of the Department of Consumer Affairs, but may not be an
employee of the bureau.
(d) A final decision reached after administrative review is
subject to judicial review under Section 11523 of the Government
Code.
1380.350. (a) An order or fine contained in a citation is not
enforceable until one of the following conditions is satisfied:
(1) The order or fine is reviewed under Section 1380.340 and is
upheld.
(2) The time to request review under Section 1380.340 passes
without review being requested.
(b) If an association does not comply with an enforceable order or
fine, the bureau may file an action in superior court to enforce the
order or fine. If, after a hearing, the court determines that the
order or fine is enforceable under subdivision (a), and that the
association has not complied with the order or fine, the court shall
issue a judgment enforcing the order or fine. The judgment is
nonappealable and has the same force and effect as, and is subject to
all the provisions of law relating to, a judgment in a civil action.