BILL ANALYSIS
AB 1328
Page 1
ASSEMBLY THIRD READING
AB 1328 (Salas)
As Amended May 14, 2009
Majority vote
HOUSING 5-1
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|Ayes:|Torres, Eng, Fletcher, | | |
| |Ma, Saldana | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey | | |
| | | | |
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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 to the homeowners association (HOA). Specifically,
this bill provides:
1)The types of contracts an HOA can enter into include those for
water or energy efficiency programs.
2)That this provision applies if the governing documents have a
provision to the contrary.
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 HOA. CIDs are
governed by the Davis-Stirling Act as well as the governing
documents of the HOA including bylaws, declaration, and
operating rules. Except when CIDs are first developed, no state
AB 1328
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agency provides ongoing oversight to these communities.
A decision as to whether the HOA should enter into a contract is
made by the board of directors unless the governing documents
require the owners' approval. The Department of Real Estate
(DRE) approves the governing documents of HOAs when a CID is
formed. DRE regulations specify that the governing documents of
an HOA should generally prohibit an HOA from entering into a
contract for longer than one year except when the HOA has the
approval of a simple majority of the members constituting a
quorum consisting of more than 50% of the HOA. There are
several types of contracts that DRE regulations allow the HOA 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 HOA; and, any contract
that is for a term of three years that the HOA 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
HOAs limit the HOAs to contracts of one year, except with some
specific exemptions, an HOA 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 HOAs. 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 HOA
could amend the governing documents to allow the board of
directors to enter into a long term contract without the
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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 HOA 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.
This bill would allow an HOA to enter into a contract regardless
of the duration if the board of directors reasonably anticipates
that the contract will result in verifiable savings.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0000817