BILL ANALYSIS
AB 899
Page 1
Date of Hearing: May 13, 2009
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 899 (Torres) - As Amended: April 1, 2009
SUBJECT : Common interest developments: disclosures
SUMMARY : Makes several changes to the Davis Stirling Common
Interest Development Act (Act) governing common interest
developments (CID). Specifically, this bill :
1)Creates the Disclosure Documents Index.
2)Requires the Disclosure Documents Index to be distributed to
the members of a homeowners association (association) in a CID
annually.
3)Requires the Assessment and Reserve Funding Disclosure Summary
to specify the assumed long-term before-tax interest rate
earned on reserve funds per year.
4)Requires the Assessment and Reserve Funding Disclosure Summary
to specify the assumed long-term inflation rate applied to
major component repair and replacement costs per year.
EXISTING LAW :
1)Requires the board of directors of a CID to cause to be
conducted, every three years, a reasonably competent diligent
visual inspection of the accessible major components of the
CID that the association is obligated to repair, replace,
restore and maintain as part of a study of the reserve
accounts required by the CID. The board must review the study
and consider and implement any necessary adjustment to the
board's analysis of the reserve account requirements. (Civil
Code Section 1365.5)
2)Requires the reserve study to be summarized in the Assessment
and Reserve Funding Disclosure Summary which must be provide
with each pro forma operating budget or budget summary (Civil
Code Section 1365.2.5).
Requires an association to annually prepare and distribute to
the owners a pro forma operating budget which must include the
AB 899
Page 2
following (Civil Code Section 1365):
a) The estimated revenue and expenses on an accrual basis;
b) Summary of the associations reserves based on the most
recent reserve of study;
c) A statement as to whether or not the board of directors
of the association has determined to defer or not undertake
repairs or replacement of any major components and a
justification for the deferral; and
d) A general statement of the procedures used to calculate
and establishment the amount of reserves needed.
FISCAL EFFECT : None
COMMENTS : There are over 41,000 CIDs in the state that range in
size from three to 27,000 units. CIDs make up over four million
total housing units which represents approximately one quarter
of the state's housing stock. In the 1990s, over 60% of all
residential construction starts in the state were CIDs. CIDs
include condominiums, community apartment projects, and housing
cooperatives and planned unit developments. They are
characterized by a separate ownership of dwelling space coupled
with an undivided interest in a common property, restricted by
covenants and conditions that limit the use of common area, and
the separate ownership interests and the management of common
property and enforcement of restrictions by an association.
CIDs are governed by the Act (Civil Code Section 1350 et al.) as
well as the governing documents of the association including the
bylaws, declaration, and operating rules. Except when CIDs are
first developed, no state agency provides ongoing oversight to
these communities.
Associations are required to distribute to the members various
disclosure documents including but not limited to a pro forma
operating budget, assessment and reserve funding summary,
assessment collection policy, and disclosure of an owner's
rights to alternative dispute resolution. The disclosure
documents that are required to be distributed to the owners are
scattered in multiple code sections throughout the Act.
Associations are also required to complete a reserve study of
the major components of the CID at least every three years. The
AB 899
Page 3
major components are defined as components in the development
that the association is required to maintain or replace with a
service life of 30 years or less. The board is required to
review the reserve study annually and determine whether
deterioration of the major components over the past year warrant
adjustment of the reserve funding. If the board determines that
an adjustment is required the regular special assessments can be
adjusted to reflect the increase necessary to meet funding
goals. Existing law requires the association to distribute an
Assessment and Reserve Funding Disclosure Summary that includes
current regular assessment per ownership interest, the
additional special or regular assessments that have been
approved by the board and or members, and an assessment by the
board of directors as to whether or not the current projected
reserve account balances will be sufficient to meet the
association's obligations. The purpose of the Assessment and
Reserve Funding Disclosure Summary is to give the association a
sense of what is needed to fund the reserves necessary to
maintain the community.
The purpose of this bill is to provide clarity and transparency
for association boards of directors and owners of separate
interests relative to the many disclosures required within the
Act. AB 899 would create an index of the disclosure documents
in the Act and would further require the index to be distributed
to the owners of each separate interest. Additionally this bill
would require that the Assessment and Reserve Funding Summary
specify the annual interest rate earned on the reserve funds per
year and the assumed long-term inflation rate to be applied to
major component repair and replacement costs each year.
Arguments in support :
Western Center on Law & Poverty and the California Rural Legal
Assistance Foundation writes in support, "many statewide housing
assistance programs require a specified percentage of affordable
units with income limits, resale controls and timeframes. While
mortgage costs are tightly controlled based on the homeowner's
income association fees are no similarly limited. In some cases
increases have resulted in low-income homeowners either losing
their home or paying a very high percentage of their income to
remain in their home. AB 899 will provide more information to
the homeowners regarding the financial assumptions upon which
association decisions will be made. By providing greater
information all homeowners, but particularly lower income
AB 899
Page 4
homeowners will be better able to judge if assessments are
likely to increase."
Committee amendments:
The author has agreed to take the following amendments:
1)On page 5, lines 18 and 20, change "annum" to "year".
2)On page 3 after the disclosure document insert, "the
Disclosure Documents Index may be distributed pursuant to
Civil Code Section1350.7." This section allows the
association to distribute documents electronically if the
owner agreed to that method of delivery.
REGISTERED SUPPORT / OPPOSITION :
Support
Executive Council of Homeowners (sponsor)
California Rural Legal Assistance Foundation
Western Center on Law & Poverty
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085