BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 1128
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: DeSaulnier
VERSION: 4/7/10
Analysis by: Mark Stivers FISCAL: no
Hearing date: April 13, 2010
SUBJECT:
Common interest developments: transfer fees
DESCRIPTION:
This bill allows a non-profit entity that provides services to a
common interest development under a declaration of trust, if it
received transfer fees prior to January 1, 2004, to continue to
charge transfer fees to the purchasers of units within the
common interested development to which it provides services.
The bill also clarifies that such entities are subject to the
open records provisions of the Davis-Stirling Act.
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 interest in common area property.
Condominiums, planned unit developments, stock cooperatives,
community apartments, and many resident-owned mobilehome parks
are all CIDs. Each CID is governed by a homeowner association
according to the recorded declarations, bylaws, and operating
rules of the association. The Davis-Stirling Common Interest
Development Act provides the legal framework under which
homeowner associations operate in CIDs.
Homeowner associations generally fund their activities through
monthly assessments on individual homeowners. The assessments
cover not only the operating costs of the association, but also
maintenance reserves and services that the association provides
to its members. Some
CIDs have created affiliated entities, called "community service
organizations or similar entities" (CSOs), to provide services
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to residents of the common interest development. The
Davis-Stirling Act generally precludes an association or a CSO
from imposing any assessment, penalty, or fee in connection with
a transfer of title for an individual interest except to cover
the association's actual costs related to the transfer. The
act, however, contains an exemption that grandfathers in CSOs
that meet either of the following criteria:
The CSO was established prior to February 20, 2003 and exists
to fund or perform environmental mitigation or to restore or
maintain wetlands or native habitat, as required by the state
or local government as an express written condition of
development.
The CSO was established and received a transfer fee prior to
January 1, 2004, and after January 1, 2006, it allows a
purchaser to pay the transfer fee under an installment plan of
at least seven years.
The statute defines a CSO as a nonprofit entity, other than an
association, that is organized to provide services to residents
of the common interest development or to the public in addition
to the residents, to the extent community common areas or
facilities are available to the public.
Located in Walnut Creek, Rossmoor is a senior community that is
home to over 9,600 seniors. The Golden Rain Foundation of Walnut
Creek is a nonprofit corporation designated to serve as trustee
under a trust agreement benefiting the seventeen affiliated
common interest developments in the Rossmoor community. The
purpose of the foundation is to provide administrative services
and to own and maintain major infrastructure and facilities
within the developments. Currently, the residents of Rossmoor
pay a one-time transfer fee upon moving into the community,
which the foundation uses to pay for infrastructure and
facilities costs in lieu of increased assessments or monthly
dues on the residents.
Since 2004 when the CSO provisions described above took effect,
the Golden Rain Foundation of Walnut Creek has considered itself
to be a CSO and therefore eligible to continue charging a
transfer fee. In 2008, however, the 4th District Court of
Appeal in Southern California ruled in the case of Golden Rain
Foundation v. Franz, that a similar foundation affiliated with
Leisure World of Seal Beach was required to make financial
documents available to residents because the Seal Beach Golden
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Rain Foundation was an association rather than a CSO for
purposes of the Davis Stirling Act. Given the similarities
between the Seal Beach and Walnut Creek Golden Rain Foundations,
the Golden Rain Foundation of Walnut Creek is now concerned that
its ability to charge a transfer fee could be challenged.
This bill allows a non-profit entity that provides services to a
common interest development under a declaration of trust, if it
received transfer fees prior to January 1, 2004, to continue to
charge transfer fees to the purchasers of units within the
common interested development to which it provides services.
The bill also clarifies that such entities are subject to the
section of the Davis-Stirling Act requiring associations and
CSOs to make association records available to members for
inspection and copying.
COMMENTS:
1.Purpose of the bill . According to the author, by allowing the
Golden Rain Foundation of Walnut Creek to continue to charge a
one-time transfer fee to residents, this bill will ensure the
continuity of services to residents of Rossmoor. The recent
appellate court decision from Southern California raised
concerns for the Golden Rain Foundation of Walnut Creek that a
court might not find it to be a community service organization
under current law. If the court deemed the foundation to be
an association and not a community service organization, the
foundation would no longer be able to charge a transfer fee,
which would threaten the stability of Rossmoor's
infrastructure and facilities funding. The only way to
maintain funding and services would be to shift a significant
burden onto individual seniors at Rossmoor in the form of
increased dues and assessments.
2.An association or a CSO ? The Southern California appellate
court decision has thrown into question whether the Golden
Rain Foundation of Walnut Creek is a CSO or an association.
This bill clarifies the foundation's ability to continue
charging transfer fees without taking sides as to whether the
foundation is an association or a CSO generally. Just to be
safe, the bill clarifies that an entity operating under a
declaration of trust to a CID must make its records available
to members, regardless of whether a court determines the
entity to be an association, a CSO, or something else.
3.All for one and one for all . Though legally unrelated, three
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Golden Rain Foundations exist in California that are all
similar in structure: one each in Walnut Creek, Seal Beach,
and Laguna Woods. According to the sponsor, the Seal Beach
foundation applies transfer fees similar to those of Walnut
Creek, and the Laguna Woods foundation applied such fees early
in its life but has not since the mid-1990s. Under the terms
of the amended bill, all three entities, even Laguna Woods,
are allowed to charge transfer fees because they "received" a
fee prior to January 1, 2004.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 7, 2010)
SUPPORT: Golden Rain Foundation of Walnut Creek (sponsor)
Rossmoor Walnut Creek
3 individual residents of Rossmoor Walnut Creek
OPPOSED: None received.