BILL ANALYSIS �
AB 1738
Page 1
Date of Hearing: May 6, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1738 (Chau) - As Amended: May 1, 2014
SUBJECT : COMMON INTEREST DEVELOPMENTS: DISPUTE RESOLUTION
KEY ISSUE : IN THE INFORMAL DISPUTE RESOLUTION PROCEDURE BETWEEN
A HOMEOWNER'S ASSOCIATION AND A MEMBER OWNER, SHOULD BOTH
PARTIES HAVE THE RIGHT TO HAVE AN ATTORNEY OR OTHER PERSON ALSO
PARTICIPATE AND ASSIST IN ACHIEVING MUTUAL RESOLUTION?
SYNOPSIS
Existing law provides for an informal dispute resolution (IDR)
procedure intended to provide an initial opportunity for members
of homeowner associations (HOAs) to meet and confer with a board
member of the HOA to resolve any dispute and hopefully avoid
later litigation. There are no provisions in the law
specifically permitting either party to an IDR to be accompanied
by another person, including an attorney, to provide guidance
and to assist in the negotiation process. According to the
author, some HOAs have used this absence of statutory guidance
to take unfair advantage, bringing their counsel to IDR meetings
without notification, or denying the homeowner's request to have
his or her own counsel present. The author contends that an
inherently unfair situation results when the HOA has counsel at
the IDR and the homeowner has none. To address this, the bill
seeks to establish that the HOA and the member owner each have
the mutual right to have an attorney or other person also
participate in the IDR procedure, provided certain notice
requirements are first met. Under this bill, each side is
responsible for paying for its own attorney fees, if any.
Opponents of the bill, representing homeowner associations,
contend that the bill is unnecessary because existing law
already allows both sides to bring an attorney to IDR, but in
any case, the injection of attorneys into the IDR process will
drive up legal costs for the HOA, cause the procedure to become
more adversarial and contentious, and generally change the
nature of what is supposed to be only an informal meeting. This
bill was approved by the Housing and Community Development
Committee by a unanimous 7-0 vote.
SUMMARY : Allows a homeowner's association (HOA) and a member of
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an HOA the mutual right to have an attorney or other person also
participate in the informal dispute resolution (IDR) procedure
between the HOA and the member, provided certain notice
requirements are first met. Specifically, this bill :
1)Requires an IDR procedure employed by an HOA to allow the HOA
and a member, with the assistance of an attorney or other
person, if they so choose, to explain their respective
positions, and to seek to negotiate a mutually satisfactory
resolution to the dispute.
2)If either a member, an HOA, or both, intends to have an
attorney or another person participate in the IDR procedure,
the procedure shall require the member, the HOA, or both, to
provide 10 days' written notice of this intent to be given to
the other party by specified methods, including by personal
delivery, email, mail, or as otherwise provided.
3)Provides that if notice is not provided, the party not
receiving the required notice shall have the election of
postponing the procedure until the notice requirement is met.
4)Clarifies that an agreement reached pursuant to the IDR
procedure is only judicially enforceable if the agreement is
in writing.
5)Specifies that each party must pay the cost of the party's own
attorney's fees, if any.
6)Clarifies that a member shall not be charged a fee to
participate in the IDR process.
EXISTING LAW :
1)Provides minimum requirements for any IDR procedure to be
developed and employed by an HOA, and specifies requirements
for a statutory IDR procedure ("meet and confer" procedure) to
be employed by an HOA that elects not to develop its own
procedure. (Civil Code Section 5910 and 5915. All references
are to this code unless otherwise stated.)
2)Requires any IDR procedure adopted by an HOA to be fair,
reasonable, and expeditious, and to satisfy certain minimum
requirements, including, among other things:
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a) Either a member or the HOA may invoke the IDR procedure
by making a written request.
b) The procedure must have prompt deadlines and state the
maximum time for an HOA to act on a request for IDR.
c) The HOA must participate in IDR if the member invokes
the procedure, but the member may elect not to participate
if the HOA invokes IDR.
d) A resolution to a dispute pursuant to the IDR procedure
that is not in conflict with the law or governing documents
binds the HOA and is judicially enforceable.
e) The procedure must provide a means by which the member
and the HOA may explain their positions.
f) No member may be charged a fee to participate in the
process. (Section 5910.)
3)Specifies elements of an IDR or "meet and confer" procedure to
be followed if the HOA does not otherwise provide a fair,
reasonable, and expeditious IDR procedure, including the
following
a) Either party to a dispute may make a written request to
the other party to meet and confer in an effort to resolve
the dispute.
b) A member of an association may refuse a request to meet
and confer, but the HOA may not refuse a request to meet
and confer.
c) The board of the HOA shall designate a director to meet
and confer.
d) The parties shall meet promptly at a mutually convenient
time and place, explain their positions to each other, and
confer in good faith in an effort to resolve the dispute.
e) A resolution of the dispute agreed to by the parties
shall be memorialized in writing and signed by the parties,
including the board designee on behalf of the association.
f) An agreement reached under this section binds the
parties and is judicially enforceable if the agreement: (1)
is not in conflict with law or the governing documents of
the HOA and (2) is either consistent with the authority
granted by the board to its designee or is ratified by the
board.
g) A member may not be charged a fee to participate in the
process. (Section 5915.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
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COMMENTS : There are over 50,000 CIDs in the state that range in
size from three to 27,000 units. CIDs make up over 4.9 million
housing units which represents approximately one quarter of the
state's housing stock. CIDs include condominiums, community
apartment projects, housing cooperatives, and planned unit
developments. CIDs are governed by the Davis-Stirling Act as
well as the governing documents of the homeowner's association
(HOA), including the bylaws, declaration, and operating rules.
Conflicts may arise between owner-members of the CID and the
HOA's board of directors over matters like enforcement of the
operating rules or interpretation of the governing documents.
In 2004, the Legislature approved and the Governor signed AB
1836 (Harmon), Ch. 754, Stats. 2004, to require that HOAs
provide the members an informal dispute resolution (IDR) process
at no cost. AB 1836 was sponsored by the California Law
Revision Commission to make available to all owner-members and
HOAs a standard, informal process to try to resolve disputes
before they escalate into formal alternative dispute resolution
(ADR) or into litigation. If an HOA does not provide its own
customized IDR procedure, then the bill provides a statutory
"meet and confer" process that provides minimum requirements
that the HOA must follow.
Under the law, either the member or the HOA can request IDR, and
if the member requests it, the HOA must participate. If the HOA
requests IDR, however, the member may elect not to participate.
The law is written to allow great flexibility to the dispute
resolution procedure itself; it merely requires the procedure
"to provide a means by which the member and the HOA may explain
their positions." Any agreement that is reached in IDR that is
not in conflict with the law or the governing documents is
judicially enforceable.
Need for the bill: The law is silent, however, on whether a
member or the HOA can have legal counsel present at an IDR
procedure. This bill seeks to address the potentially uneven
playing field that may occur when a member-owner goes alone to
an IDR meet-and-confer and finds himself or herself facing an
HOA board member and one or more of the HOA's attorneys. The
author explains:
There are no provisions in the law specifically
permitting either party to an IDR to be accompanied by
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another person, including an attorney, to provide
guidance and to assist in the negotiation process. Some
HOAs have used this absence of statutory guidance to
unfair advantage, bringing their counsel to IDR meetings
without notification and/or denying the homeowner's
request to have his or her own counsel present. Too
often, the HOA has counsel at the IDR and the homeowner
has none, creating an inherently unfair situation - and
in some circumstances, homeowners reportedly have been
assessed to pay for the HOA's counsel. Association
covenants, conditions, and restrictions (CC&Rs) and
other rules are often difficult for a lay person to
comprehend. Having a HOA attorney versed in the CC&Rs
and the law governing HOAs at an IDR proceeding puts a
homeowner at a disadvantage when they do not also have
counsel or another knowledgeable person present.
In any negotiation over a person's home and/or living
conditions, both the homeowner and the HOA should be
allowed to have counsel or other assistance present, if
desired, and to consult with them. This bill would put
both homeowners and HOAs on a level playing field by
clearly stating that both parties in an internal dispute
resolution proceeding may have counsel present to
explain their positions.
This bill allows both a member and a HOA to have an attorney or
other person to participate and assist in IDR meet-and-confer.
Under this bill, an HOA and a member of an HOA each have the
mutual right to have an attorney or other person also
participate in the informal dispute resolution (IDR) procedure,
provided certain notice requirements are first met.
The bill also allows a member to bring an assistant that is not
legal counsel. Although there is nothing in existing law that
would prevent a member from bringing along someone to assist
them during the IDR procedure, the bill would make clear that
they can. The author contends that some members may need help
communicating their concerns to the HOA or resolving the
dispute, and that there are non-attorneys who may also be
helpful to the HOA member at the IDR, such as a housing
advocate, contractor, accountant, or a knowledgeable friend or
family member. According to the author, allowing such
participation "will assist the parties in understanding the
technical application of the CC&Rs and other rules, and present
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solutions that might not have occurred to the parties."
Notice requirements. Under this bill, if either party intends
to have an attorney or another person participate in the IDR
procedure, the procedure shall require the party to provide 10
days' written notice of this intent to be given to the other
party. The notice of intent must meet the existing notice
requirements of the Davis-Stirling Act under Sections 4035(b)
and 4040(a). If notice is not provided, the party not receiving
the required notice shall have the election of postponing the
procedure until the notice requirement is met. This rule is
intended to give both sides ample advance notice that an
attorney or other person will be accompanying the party to the
IDR meet-and-confer to avoid any surprises.
Opponents of the bill believe that this requirement should go
further and require the parties to disclose the licensure of any
additional participants, presumably to notice the other party of
the purpose for which they are attending. Although the bill
strikes a fair balance by applying the notice requirement
equally to both the owner-member and the HOA, the Committee is
unaware of any similar requirements, in either small claims
court or in state court, for generous advance notice of a person
who is to attend a hearing or meet-and-confer, or of that
person's licensure or qualifications.
Fee provisions. As discussed above, the IDR procedure was
intended to be a low-cost option for members and the HOA to
resolve disputes, and accordingly, existing law prohibits an HOA
member from being charged a fee to participate in the IDR
process. Although the participation of an attorney under this
bill may increase the cost for both sides, the bill also makes
clear that each side is responsible for paying for their own
attorney fees, if any.
ARGUMENTS IN OPPOSITION : The Community Associations Institute,
representing many homeowner associations, believes the bill is
unnecessary and cites a number of reasons for its opposition.
Among these reasons are:
(1) The bill unnecessarily injects attorneys into what
the Legislature clearly intended IDR to be when it
created the informal "meet and confer"
("member-to-member") process between an HOA member and
one other member who sits on the HOA's Board.
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(2) The bill would ruin the current no-cost "internal
dispute resolution" (IDR) process by allowing attorneys
to participate (at +/- $300/hour) which will be levied
on all other HOA home owners.
(3) The informal IDR will foreseeably and predictably
become more contentious with attorneys present.
(4) Legal counsel is already available to the member.
Nothing in current law prevents a member from seeking
legal counsel before entering IDR. In fact, nothing in
law prevents members from bringing an attorney now or
presenting their attorney's letter to aid in the IDR
deliberations.
In response to (1), the author counters that the bill is not
intended to have attorneys present in every dispute resolution
proceeding, but rather to ensure only that these meetings are
fair and productive. Proponents contend that giving the
homeowner the ability to have an attorney or other person in
assistance at an IDR meeting better ensures that the homeowner
will have guidance and support, and will not be browbeaten into
accepting an unfair agreement. In response to (2), proponents
again contend there is no requirement that the HOA must have an
attorney present, and that its board members are typically in a
strengthened position of having expertise and knowledge of the
issues and HOA rules at issue. They note that each side is
required to pay its own attorney fees, so the bill does not
require either party to incur costs that it cannot afford.
Proponents anticipate that there will be many minor matters in
IDR for which there will be no apparent need for an attorney's
assistance.
In response to (3), the proponents contend that the fact that
some of the participants may be attorneys does not necessarily
mean that the meetings will be more adversarial, only that there
will be individual participants who have a solid understanding
of the issues and the law, who can help the parties come to a
fair and workable resolution. Finally, the author acknowledges
that (4) is true, but because the law is silent on this point,
the bill simply and helpfully makes it clear that an
owner-member may bring an attorney or other person to the IDR
meeting.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Alliance of Retired Americans (CARA) (co-sponsor)
Center for California Homeowner Association Law (co-sponsor)
Conference of California Bar Associations (CCBA) (co-sponsor)
Support (if amended)
Educational Community of Homeowners (ECHO)
Oppose
Community Associations Institute (CAI)
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334