BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1726
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: swanson
VERSION: 6/16/10
Analysis by: Mark Stivers FISCAL: no
Hearing date: June 29, 2010
SUBJECT:
Common interest development elections and meetings
DESCRIPTION:
This bill provides, in certain circumstances, for a lesser
quorum in subsequent CID board member elections if a quorum is
not obtained for a first election, defines an executive session
as a meeting, and allows board members to participate in
meetings via telephone or video conference under specified
conditions.
ANALYSIS:
A common-interest development (CID) is a form of real estate in
which 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
all fall under the umbrella of common interest developments.
CIDs are governed by a homeowner's 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.
Under the Davis-Stirling Act, CID elections regarding
assessments, the election and removal of board members,
amendments to the governing documents, or the grant of exclusive
use of common area property must be held by secret ballot and
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overseen by an impartial inspector of elections. The act
further requires each voting member to place the unsigned ballot
into a sealed envelope and then mail or deliver this inner
envelope in an outer envelope that contains the member's name,
signature, and unit number.
As a general rule, the Davis-Stirling Act requires no particular
quorum requirement. The matter of a quorum is left to the CID's
own governing documents. For incorporated CIDs, however, the
Corporations Code sets a default quorum of one-third of the
voting power in the event that the CID's governing documents do
not contain a specific quorum. The Davis-Stirling Act contains
the following exceptions to this general rule, however:
If the HOA board has not provided members with a budget for
the fiscal year, then any increase in regular assessments must
be approved by a vote of the members, with a quorum of 50% of
the voting interests.
An increase in regular annual assessments of more than 20
percent or a special assessment exceeding 5 percent of the
CID's annual budget must be approved by a vote of the members,
with a quorum of 50% of the voting interests.
Once a developer has completed construction and marketing, a
CID may delete from its governing documents provisions giving
the developer access over or across common areas for the
purposes of completing construction or marketing separate
interests by a vote of the membership, with a quorum of 50% of
the owners who own no more than two separate interests.
The Davis-Stirling Act also allows a court, in certain
circumstances and on a case-by-case basis, to lower voting
thresholds related to amending a CID declaration. A declaration
is one of the governing documents of the CID and contains, at a
minimum, a legal description of CID and a statement that the CID
is a community apartment project, condominium project, planned
development, stock cooperative, or combination thereof. To
obtain such a court order, the declaration must require more
than 50% of all owners (i.e., 60% or two-thirds), regardless of
how many vote, to affirmatively vote for the amendment; the CID
must have conducted a vote and made a diligent effort to achieve
adequate participation; and at least 50% of the owners in each
voting class must have voted for the amendment in the election.
In such cases, the court may reduce the percentage of
affirmative votes necessary to effect the amendment.
The Davis Stirling Act also contains a section of law known as
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the CID Open Meeting Act. This law requires that CIDs, except
in emergency situations, generally provide notice of and an
agenda for board meetings at least four days in advance and only
take action at the meeting on items listed on the agenda. The
law also requires the CID, except for executive sessions, to
permit members to attend and speak at meetings of the board. A
section of the Corporations Code, however, allows boards for
incorporated CIDs to take actions without a meeting, if all
members of the board individually or collectively consent in
writing to that action. Some CID boards use this provision to
take actions via email with no participation by members.
This bill makes changes to the laws relating to CID elections
and meetings. With respect to elections, the bill specifically:
For elections of directors only, provides that if an initial
election could not be held due to the absence of a quorum, the
quorum required for a second or subsequent election is 33
percent of the association's voting power, unless the CID has
a specific provision in its governing documents reducing the
quorum for second or subsequent elections.
Provides that each outside election envelope, as opposed to
each inside ballot, received by an inspector of elections
shall count towards the quorum.
Removes the requirement that a member sign his or her name on
an outside election envelope, in addition to indicating the
member's name and unit number.
With respect to meetings, the bill specifically:
Provides that an executive session is still a meeting or part
of a meeting subject to notice and agenda requirements.
Executive sessions remain exempt from the requirement to allow
members to attend and participate.
Allows members of a board to participate in a meeting via
telephone or video conference if all board members can hear
one another and members of the association speaking on matters
before the board.
COMMENTS:
1.Purpose of the bill . According to the author, the governing
documents of many CIDs require a quorum of 50% of eligible
voters for an election to be valid. Unfortunately, member
apathy and simple inconvenience cause many people not to vote.
If a board is not elected, the existing board often remains on
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and eventually selects persons to act on the board, creating a
lack of leadership, delays in decision making, expensive
follow-up elections, and, ultimately, an undemocratic
processes for selecting board members. In order to facilitate
CID governance, this bill authorizes a reduced quorum for a
second or subsequent election of directors if a CID fails to
achieve a quorum in a first election in cases where the CID
has no existing provision to reduce the quorum for second and
subsequent elections.
2.Survey results from the sponsor . The sponsor of this bill,
the Community Associations Institute, recently conducted a
survey of its members in support of the bill. The survey of
6,789 CIDs had the following results:
78% of respondents have had to conduct at least one
additional election due to failure to achieve a 50% quorum.
The average cost for an additional election was $269 for
CIDs with fewer than 50 units, $500 for CIDs with 51-100
units, and $1,864 for CIDs with greater than 100 units.
77% of the time when an election failed, one or more
existing directors volunteered to stay on the board.
25% of the CID boards were left with vacancies when the
election failed.
When the election did not achieve a quorum, the existing
boards of directors often appointed new members to fill
vacancies. Of those CIDs that had filled vacancies after a
failed election, 42% appointed persons to fill vacancies in
one of every four elections; 22% appointed persons to fill
vacancies in up to half of the elections; and 36% appointed
persons to fill vacancies in more than half of the
elections.
1.Overriding local control . Nothing in current law prohibits a
CID from amending its governing documents to change election
rules if the members so choose. In cases where a CID's
governing documents require a single quorum for all elections
of directors, however, this bill effectively overrides those
governing documents, using state law to trump rules
democratically adopted by the members of the association.
Under this bill, the members of the association would no
longer have any say in deciding the quorum for a second or
subsequent election of directors. This runs contrary to the
local control arguments often expressed in this committee.
The committee may wish to consider whether quorum requirements
are a matter better left in the hands of CID members
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themselves.
2.Potential for abuse . As with all elections, CID elections may
involve ideologically opposed slates of candidates. To the
extent that this bill may allow a smaller number of members to
elect board members in a second election, it may provide an
incentive for a particular block of members in power to
depress or less-than-diligently encourage participation in an
initial election.
3.Alternative approach . With respect to amending a CID
declaration, current law acknowledges that achieving certain
vote thresholds can be difficult and allows a court, on a
case-by-case basis, to lower the percentage vote needed to
approve the amendment. This approach ensures that the CID has
made diligent efforts to achieve voter participation and
places a neutral, third-party in the position of evaluating
the need and justification for the lower threshold. In
addition, the court process allows members of the CID who may
oppose a lower threshold to have their day in court. This
bill contains none of these protections and instead lowers the
quorum in all cases regardless of the need for the reduction.
If the committee believes that lowering quorum requirements is
appropriate, it may wish to consider having the court approve
reductions on a case-by-case basis.
4.Open meetings . This bill clarifies that an executive session
is still a board meeting and allows board members to
participate by meetings by phone or video conference if the
connection allows all other board members and association
members to hear and be heard. The bill, however, does not
address a legal loophole that undermines the intent of the
Open Meeting Act, namely the provision of the Corporations
Code that allows board members to take actions outside of
public meetings by unanimous consent of those same board
members. In other words, a board can unilaterally decide to
have secret deliberations and votes on matters affecting the
entire association. In the last year, committee staff has
received a number of contacts from association members who
object to this practice but are powerless to stop it. The
committee may wish to consider amending the bill to prohibit a
board from taking any actions outside of a meeting except in
emergency situations.
5.Arguments in opposition . Opponents believe that this bill
undermines the agreements reached in SB 61 (Battin), Chapter
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450, Statutes of 2005, to ensure that members participate in
setting CID election rules and that incumbent board members do
not control elections. Opponents further believe that
failures to obtain a quorum are often the result of members
not receiving ballots, the CID losing ballots, or the CID
disqualifying ballots, not the result of a defect in the law.
Most importantly, opponents argue that CIDs may already change
their quorum requirements themselves. To the extent that CID
members do not support such a change, there may be good
reason. Quorum requirements should be decided by the members
of the association.
Assembly Votes:
Floor: 62-3
HCD: 9-0
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 23, 2010)
SUPPORT: Community Associations Institute (sponsor)
Executive Council of Homeowners
OPPOSED: California Alliance for Retired Americans
Two individuals