BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1726|
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THIRD READING
Bill No: AB 1726
Author: Swanson (D)
Amended: 6/16/10 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 5-0, 6/29/10
AYES: Huff, Harman, Kehoe, Pavley, Simitian
NO VOTE RECORDED: Lowenthal, Ashburn, DeSaulnier, Wolk
ASSEMBLY FLOOR : 62-3, 5/10/10 - See last page for vote
SUBJECT : Common interest development elections and
meetings
SOURCE : Community Associations Institute
DIGEST : This bill provides, in certain circumstances,
for a lesser quorum in subsequent common interest
development 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
CONTINUED
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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 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:
1. 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 percent of the voting interests.
2. An increase in regular annual assessments of more than
20 percent or a special assessment exceeding five
percent of the CID's annual budget must be approved by a
vote of the members, with a quorum of 50 percent of the
voting interests.
3. Once a developer has completed construction and
marketing, a CID may delete from its governing documents
provisions giving the developer access over or across
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common areas for the purposes of completing construction
or marketing separate interests by a vote of the
membership, with a quorum of 50 percent 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 percent 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 percent
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 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:
1. 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
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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.
2. Provides that each outside election envelope, as opposed
to each inside ballot, received by an inspector of
elections shall count towards the quorum.
3. 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, this bill specifically:
1. 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.
2. 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
The bill's sponsor, 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 percent of respondents have had to conduct at least
one additional election due to failure to achieve a 50
percent 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 percent of the time when an election failed, one or
more existing directors volunteered to stay on the board.
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25 percent 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 percent appointed persons to fill
vacancies in one of every four elections; 22 percent
appointed persons to fill vacancies in up to half of the
elections; and 36 percent appointed persons to fill
vacancies in more than half of the elections.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/2/10)
Community Associations Institute (source)
Executive Council of Homeowners
OPPOSITION : (Verified 7/2/10)
California Alliance for Retired Americans
ARGUMENTS IN SUPPORT : According to the author's office,
the governing documents of many CIDs require a quorum of 50
percent 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 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.
ARGUMENTS IN OPPOSITION : Opponents believe that this
bill undermines the agreements reached in SB 61 (Battin),
Chapter 450, Statutes of 2005, to ensure that members
participate in setting CID election rules and that
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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 FLOOR :
AYES: Adams, Anderson, Arambula, Bass, Beall, Block,
Blumenfield, Bradford, Buchanan, Caballero, Carter,
Chesbro, Conway, Cook, Coto, De Leon, Emmerson, Eng,
Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani,
Gaines, Galgiani, Garrick, Gilmore, Hagman, Hall,
Hayashi, Hernandez, Hill, Huber, Huffman, Jones, Knight,
Logue, Bonnie Lowenthal, Ma, Miller, Nava, Nestande,
Niello, Nielsen, V. Manuel Perez, Portantino, Ruskin,
Salas, Silva, Skinner, Smyth, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, John
A. Perez
NOES: Tom Berryhill, Blakeslee, Lieu
NO VOTE RECORDED: Ammiano, Bill Berryhill, Brownley,
Charles Calderon, Davis, De La Torre, DeVore, Harkey,
Jeffries, Mendoza, Monning, Norby, Saldana, Solorio,
Vacancy
JJA:mw 7/2/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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