BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1328|
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THIRD READING
Bill No: AB 1328
Author: Salas (D)
Amended: 7/15/09 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 6-4, 7/7/09
AYES: Lowenthal, DeSaulnier, Kehoe, Pavley, Simitian, Wolk
NOES: Huff, Ashburn, Harman, Hollingsworth
NO VOTE RECORDED: Oropeza
ASSEMBLY FLOOR : 48-29, 6/2/09 - See last page for vote
SUBJECT : Common interest developments: length of
contracts for
water or energy efficiency programs
SOURCE : California Association of Community Managers
DIGEST : This bill allows a homeowners association of a
common interest development to enter into a contract of up
to five years for a water or energy efficiency program
under specified conditions, and requires the board of the
homeowners association, prior to approving a multiyear
contract, provide notice of the duration of the contract on
the agenda for any meeting at which the contract will be
discussed or voted upon.
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
CONTINUED
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interest in common area property. Condominiums, planned
unit developments, stock cooperatives, community
apartments, and many resident-owned mobilehome parks all
fall under the umbrella of common interest developments.
CIDs are governed by a homeowners' association (HOA). The
Davis-Stirling Common Interest Development Act provides the
legal framework under which common interest developments
are established and operate. In addition to the
requirements of the act, each CID is governed according to
the recorded declarations, bylaws, and operating rules of
the association, collectively referred to as the governing
documents.
When a new CID is created, the Department of Real Estate
(DRE) must approve the original governing documents. DRE's
regulations for CIDs generally set a one-year limit on the
length of contracts unless a longer length is approved by a
vote of the members, though the regulations do allow
certain types of contracts, such as those related to
insurance, laundry room equipment, cable television, and
burglar and fire alarms to last between three and five
years without a vote. In addition, the regulations allow
for general contracts of up to three years without a vote
if the association may terminate the contract without
penalty after one year. The governing documents for all
new CIDs start off with these provisions. Once the
developer has sold the last of the units in the CID,
however, the members may amend these DRE-required
provisions of the governing documents in accord with the
bylaws of the CID. While older CIDs may predate and are
therefore not subject to these regulations, the governing
documents of at least some of these older CID's, if not
most, contain a prohibition on contracts of more than one
year without a vote.
This bill allows an HOA, regardless of whether the
governing documents state otherwise, to enter into a
contract of up to five years for a water or energy
efficiency program under the following two conditions:
1. The board of the homeowners association (board)
reasonably anticipates that the contract will result in
verifiable savings to the HOA.
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2. In the event that the developer still has representation
on the board, the supplier is not an entity in which the
developer has a direct or indirect ownership interest of
10 percent or more.
3. Requires the board, prior to approving a multiyear
contract, provide notice of the duration of the proposed
contract on the agenda for any meeting at which the
contract will be discussed or voted upon.
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 percent 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 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. 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
percent 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
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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
percent 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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/15/09)
California Association of Community Managers (source)
Hollister Ranch
OPPOSITION : (Verified 7/15/09)
Community Associations Institute
Walnut House Cooperative
ARGUMENTS IN SUPPORT : According to the author's office,
the governing documents in some CIDs have a provision
limiting the duration of all contracts to one year. The
problem is that savings from viable energy and water
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efficiency programs cannot be realized within one year, and
it may not be practical to install the necessary
infrastructure for only one year. Consequently, it is not
feasible for vendors to enter into contracts with these
CIDs. While it may be possible for these CIDs to amend
their governing documents or to submit the longer contract
to a vote of the membership, the process is costly, so a
statutory fix is the most efficient way to accomplish this
goal. This bill allows HOAs to enter into contracts in
excess of one year in order for them to take advantage of
energy and water efficiency technologies, results in
savings to the HOAs and the homeowners whose assessments
pay the costs of the HOA. It is estimated that efficiency
programs can reduce water and/or energy costs by
approximately 50 percent.
ARGUMENTS IN OPPOSITION : The Community Associations
Institute states in opposition, "Ordinarily we advocate for
board discretion and authority to make decisions but AB
1328's policy would expose association owners to damages
brought about by long term board mistakes . This can create
a flurry of litigation as owners will most certainly seize
upon a board's decision claiming that it did not utilize
proper methods to estimate savings, failed to notify the
members or have open board discussions on topic before
entering into a contract, and may cause the association
members to pay unanticipated and unbudgeted legal fees in
addition to actual, future and liquidated damages for early
termination of the contract(s)."
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Blumenfield, Brownley,
Buchanan, Caballero, Charles Calderon, Carter, Chesbro,
Coto, Davis, De La Torre, De Leon, Eng, Evans, Feuer,
Fletcher, Fong, Fuentes, Hall, Hayashi, Hernandez, Hill,
Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, Nava, John A. Perez, Portantino, Price,
Ruskin, Salas, Saldana, Skinner, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Yamada,
Bass
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Blakeslee, Conway, Cook, DeVore, Duvall, Emmerson,
Fuller, Gaines, Garrick, Gilmore, Hagman, Harkey, Huber,
Jeffries, Knight, Logue, Miller, Nestande, Niello,
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Nielsen, V. Manuel Perez, Silva, Smyth, Tran, Villines
NO VOTE RECORDED: Block, Furutani, Galgiani
JJA:do 7/15/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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