BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 313
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Fletcher
VERSION: 5/19/09
Analysis by: Mark Stivers FISCAL: No
Hearing date: June 9, 2009
SUBJECT:
Basis for assessments in common interest developments
DESCRIPTION:
This bill prohibits a homeowners' association of a common
interest development from basing assessments on the taxable
value of the individual units unless the association currently
bases assessments on taxable value or pays property taxes on
behalf of its members.
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 interest in common area property.
Condominiums, planned unit developments, stock cooperatives,
community apartments, and many resident-owned mobilehome parks
are all CIDs. Each CID is governed by a homeowner association
according to the recorded declarations, bylaws, and operating
rules of the association. The Davis-Stirling Common Interest
Development Act provides the legal framework under which
homeowner associations operate in CIDs.
The Davis-Stirling Act requires a homeowner association to levy
regular and special assessments sufficient to perform its
obligations but prohibits the association from levying fees in
excess of the amount necessary to defray its costs. The law is
silent on the issue of what bases an association may use when
levying assessments, implying that an association may use any
reasonable basis it chooses.
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Current law provides that the covenants and restrictions in a
declaration are "enforceable equitable servitudes, unless
unreasonable." In Nahrstedt v. Lakeside Village (1994), the
California Supreme Court interpreted this provision to mean that
CID governing documents "should be enforced unless they are
wholly arbitrary, violate a fundamental public policy, or impose
a burden on the use of affected land that far outweighs any
benefit."
This bill prohibits an association of a CID from basing
assessments on the taxable value of the individual units unless
1) the association, on or before December 31, 2009 and in
accordance with the governing documents of the association,
based assessments on taxable value; or 2) the association is
responsible for paying taxes on the separate interests and only
that portion of assessments that is related to the payment of
taxes is based on taxable value.
COMMENTS:
1.Purpose of the bill . Rancho Santa Fe is a CID in northern San
Diego County that was created in the 1920s. Since its
inception, the association has used the taxable value of the
individual interests as the basis for its assessments.
According to the author, court decisions made over the years
could be interpreted to challenge the association's
long-established method of assessment. The author believes
that the Rancho Santa Fe's current practice is legal but would
like to see the law state so explicitly. Homeowners have
made significant financial decisions based on this method of
assessment. This bill protects association members from the
unintended consequences of potential lawsuits.
2.Clarifying current law . Given that counties use taxable
values, with all their imperfections, for the purpose of
levying property taxes, it is hard to imagine that an
association's use of taxable value for its own assessments
would fail any of legal tests set out in the Nahrstedt
decision. As a result, this bill's grandfathering of current
assessments based on taxable value is most likely a
clarification of existing law.
3.Rare but not unheard of . With the exception of cooperatives
that pay the tax bill for the CID as a whole and pass on each
member's share, the use of taxable values as the basis of CID
assessments is probably rare. Nonetheless, there may be
AB 313 (FLETCHER) Page 3
others besides Rancho Santa Fe among the roughly 41,000 CIDs
in California. Most of these CIDs are likely to be older and
have adopted this basis prior to the passage of Proposition 13
in 1978 that created large disparities in taxable values.
This bill ensures that associations that have used taxable
values to date may continue to do so.
4.Closing the door for the future . At the same time that this
bill grandfathers in associations that currently use taxable
values, this bill prohibits any other association from
adopting the use of taxable values in the future unless they
are simply passing through property taxes paid by the
association on behalf of members. As provided for in the
California Constitution pursuant to Proposition 13, county
assessors reassess the taxable value of a property upon sale.
As a result, owners who bought years ago generally pay much
less in taxes than neighbors who own similar homes. When
taxable value is used as a basis for general CID assessments,
longer-term homeowners pay less for common area maintenance
and amenities, even though they enjoy the same level of
benefits. While the author does not wish to affect
associations that currently use taxable values, he does wish
to equalize assessments and benefits in new CIDs.
5.Previous legislation . This bill is almost identical to AB
1955 (Plescia) of 2008. Governor Schwarzenegger vetoed that
bill, stating:
The historic delay in passing the 2008-2009 State Budget
has forced me to prioritize the bills sent to my desk at
the end of the year's legislative session. Given the
delay, I am only signing bills that are the highest
priority for California. This bill does not meet that
standard and I cannot sign it at this time.
6.Arguments in opposition . Opponents believe that establishing
a specific exemption within the Davis-Stirling Act for one or
two CIDs is bad public policy and sets a troubling precedent.
Opponents suggest that Rancho Santa Fe instead seek injunctive
relief from the court or a vote of its membership to continue
assessing its members based on assessed value.
Assembly Votes:
Floor: 75-0
H&CD: 7-0
AB 313 (FLETCHER) Page 4
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 3, 2009)
SUPPORT: Rancho Santa Fe Homeowners Association (sponsor)
California Association of Community Managers
OPPOSED: Executive Council of Homeowners