BILL ANALYSIS
AB 1328
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Date of Hearing: May 13, 2009
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1328 (Salas) - As Amended: April 21, 2009
SUBJECT : Common interest developments: contracts
SUMMARY : Allows a common interest development (CID) to enter
into a contract regardless of the duration if the board of
directors reasonably determines that there may be verifiable
savings or other benefits to the homeowners association
(association). Specifically, this bill :
1)Provides the types of contracts an association can enter into
include but are not limited to those for water or energy
efficiency programs.
2)Provides that this provision applies if the governing
documents have a provision to the contrary.
EXISTING LAW :
1)Allows the board of directors of an association to meet in
executive session to consider litigation, matters relating to
the formation of contracts with third parties, member
discipline, and personnel matters or to meet with a member at
the member's request to discuss the member's payment of
delinquent assessments (Civil Code Section 1363.05).
2)Requires if a declaration of a CID does not specify the
process for amendment of the declaration, the association must
comply with the following:
a) The proposed amendment must be distributed to all the
owners by first-class mail postage prepaid or personal
delivery not less than 15 days and not more than 60 days
prior to any approval;
b) The amendment must be approved by owners representing
more than 50% of the separate interests and that fact must
be certified in writing by an officer of the association;
and
c) The amendment must be recorded in the county in which
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the CID is located.
(Civil Code Section 1355)
3)Requires an association to adopt rules for election procedures
regarding assessments legally requiring a vote, election and
removal of members of the board of directors, amendments to
the governing documents, or the grant of exclusive use of the
common area, that require the following:
a) Specify a method for selecting one to three inspectors
of elections who will determine whether a member is
entitled to vote, determine the validity of proxy votes and
receive ballots among other duties; and
b) Ballots and two preaddressed envelopes with instructions
on how to return the ballots be mailed by first-class mail
or delivered to each member of the association not less
than 30 days prior to the deadline for voting.
(Civil Code Section 1363.03)
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 Davis Stirling Act (Civil Code Section
1350 et al.) as well as the governing documents of the
association including bylaws, declaration, and operating rules.
Except when CIDs are first developed, no state agency provides
ongoing oversight to these communities.
A decision as to whether the association should enter into a
contract is made by the board of directors unless the governing
documents require the owners' approval. The Department of Real
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Estate (DRE) approves the governing documents of associations
when a CID is formed. DRE's current regulations specify that
the governing documents of an association should generally
prohibit an association from entering into a contract for longer
than one year except when the association has the approval of a
simple majority of the members constituting a quorum consisting
of more than 50% percent of the association. There are several
types of contracts that the DRE regulations allow the
association to enter into for a longer duration than one year
without the approval of the members. Contracts that are
specifically exempt by DRE regulations from a vote of the
membership include the following: a contract with a public
utility company if the rates charged for the materials or
services are regulated by the Public Utilities Commission (PUC)
and the term of the contract is for the least amount of time the
supplier will agree to, lease agreements for laundry room and
cable television equipment services which cannot exceed five
years provided that the company providing the service does not
have a direct or indirect ownership interest of 10% or more in
the association, and any contract that is for a term of three
years that the association can terminate after no longer than
one year without cause, penalty or other obligation after giving
90 days written notice to the other party.
According to the author, because the governing documents of most
associations limit the associations to contracts of one year,
except with some specific exemptions, an association is
prevented from entering into contracts for viable energy and
water efficiency programs without a vote of the membership. The
savings from energy and water efficiency programs can generally,
not be realized within one year and consequently, it is not
feasible for vendors to enter into contracts with associations.
By entering into long term contracts, service providers are able
to plan for and implement the necessary infrastructure for
effective energy and water savings. A few examples offered by
the author, of opportunities HOAs have in terms of energy or
water efficiency contracts include solar contracts for heating
pools and spas and contracts for water management control and
monitoring systems. An association could amend the governing
documents to allow the board of directors to enter into a long
term contract without the approval of the members, but that
process is costly so the author asserts a statutory fix is
necessary.
In most cases the governing documents of the association
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including bylaws, declaration, specify the process for
amendment. In many cases the governing documents may be amended
by a simple majority. Existing law requires an amendment to the
governing documents to be approved by the owners by an election
via secret ballot. The election must meet all of the
requirements of existing law including the selection of an
independent third party as the inspector of elections and that
the ballot be returned in a double stuffed envelop which does
not identify the owner in name to insure the election is secret.
AB 1328 would allow an association to enter into a contract
regardless of the duration if the board of directors reasonably
anticipates that the contract will result in verifiable savings
or other benefits. An association is not required to enter into
a longer term contract; the discretion is left up to the board
of directors to determine if the contract would result in some
form of savings or some other benefit. The benefits of the long
term contract allowed under the bill are not necessarily limited
to monetary savings. A board of directors could choose to enter
into a contract that produces "other benefits" which may for
example, meet the associations desire to reduce its energy use
but not produce a monetary savings
The committee may wish to consider the following amendments:
1)On page 2, line 5 of the bill delete "but not limited to".
This bill as currently drafted is not limited to contracts for
water or energy efficiency. As a result the association could
enter into any contract regardless of duration that would
result in verifiable savings or other benefits. This is not
consistent with the author's stated intent of the bill.
2)On page 2, line 4 and 5, delete "or other benefits". This
bill would allow the board of directors to enter into a longer
term contract if the contract produced some "other benefits"
which is not defined. Although there could be some meaningful
benefit besides a financial benefit that the board determines
meets this standard, approval of the contract is not subject
to a vote of the membership. This could result in the board
of directors making a value judgment that does not reflect the
approval of a majority of the owners in the association and
does not produce monetary savings.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Community Managers (sponsor)
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085