BILL ANALYSIS �
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1738|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 1738
Author: Chau (D)
Amended: 7/3/14 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 7-0, 6/10/14
AYES: Jackson, Anderson, Corbett, Lara, Leno, Monning, Vidak
ASSEMBLY FLOOR : 77-0, 5/15/14 - See last page for vote
SUBJECT : Common interest developments: dispute resolution
SOURCE : California Alliance for Retired Americans
Center for California Homeowner Association Law
Conference of California Bar Associations
DIGEST : This bill requires a resolution or agreement under a
common interest developments (CIDs) procedure for resolving
internal disputes between a homeowners' association
(association) and a member be written and signed by both
parties, and authorizes a member and an association to be
assisted by an attorney or another person at their own costs
during the dispute process.
Senate Floor Amendments of 7/3/14 clarify that a written
resolution or agreement must also be signed by both parties in
order to be binding and judicially enforceable.
ANALYSIS :
CONTINUED
AB 1738
Page
2
Existing law:
1.Establishes under the Davis-Stirling Act, the rules and
regulations governing the operation of a CID and the
respective rights and duties of an association and its
members.
2.Requires associations subject to the Davis-Stirling Act to
provide an internal dispute resolution (IDR) process for use
in resolving disputes between an association and a member
involving their rights, duties, or liabilities under the
Davis-Stirling Act, under the Nonprofit Mutual Benefit
Corporation Law, or under the governing documents of the CID
or association.
3.Provides that an association or a member may not file an
enforcement action in a superior court unless the parties have
endeavored to submit their dispute to alternative dispute
resolution (ADR), as specified.
4.Specifies that the required IDR process supplements, and does
not replace the requirement to submit a dispute to ADR as a
prerequisite to filing an enforcement action in superior
court.
5.Provides that an association shall provide a fair, reasonable,
and expeditious procedure for resolving a dispute under the
required IDR process.
6.Provides that a fair, reasonable, and expeditious IDR
procedure shall at a minimum satisfy all of the following
requirements:
A. The procedure may be invoked by either party to the
dispute. A request invoking the procedure shall be in
writing;
B. The procedure shall provide for prompt deadlines. The
procedure shall state the maximum time for the association
to act on a request invoking the procedure;
C. If the procedure is invoked by a member, the association
shall participate in the procedure;
CONTINUED
AB 1738
Page
3
D. If the procedure is invoked by the association, the
member may elect not to participate in the procedure. If
the member participates but the dispute is resolved other
than by agreement of the member, the member shall have a
right of appeal to the board;
E. A resolution of a dispute pursuant to the procedure,
which is not in conflict with the law or the governing
documents, binds the association and is judicially
enforceable. An agreement reached pursuant to the
procedure, which is not in conflict with the law or the
governing documents, binds the parties and is judicially
enforceable;
F. The procedure shall provide a means by which the member
and the association may explain their positions; and
G. A member of the association shall not be charged a fee
to participate in the process.
1.Provides that an association that does not otherwise provide a
fair, reasonable, and expeditious dispute resolution procedure
shall follow the default meet and confer procedure, which
consists of the following requirements:
A. Either party to a dispute may invoke the following
procedure:
(1) The party may request the other party to meet and
confer in an effort to resolve the dispute. The request
shall be in writing;
(2) A member of an association may refuse a request to
meet and confer. The association may not refuse a
request to meet and confer;
(3) The board shall designate a director to meet and
confer;
(4) 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; and
CONTINUED
AB 1738
Page
4
(5) 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.
A. An agreement reached under this process binds the
parties and is judicially enforceable if both of the
following conditions are satisfied:
(1) The agreement is not in conflict with law or the
governing documents of the CID or association; and
(2) The agreement is either consistent with the
authority granted by the board to its designee or the
agreement is ratified by the board.
A. A member may not be charged a fee to participate in the
process.
This bill requires a resolution or agreement under a CIDs
procedure for resolving internal disputes between an association
and a member to be in writing and signed by both parties, and
authorizes a member and an association to be assisted by an
attorney or another person at their own costs during the dispute
process.
Background
In California, CIDs are governed by the Davis-Stirling Act.
Owners of separate property in CIDs have an undivided interest
in the common property of the development and are subject to the
CID's covenants, conditions, and restrictions. CIDs are also
governed by an association, which is run by volunteer directors
that may or may not have prior experience managing an
association. The Court of Appeal, Fourth Appellate District,
previously observed that:
The associations function almost "as a second municipal
government, regulating many aspects of the homeowners'
daily lives." "Upon analysis of the association's
functions, one clearly sees the association as a
quasi-government entity paralleling in almost every case
the powers, duties, and responsibilities of a municipal
government. As a 'mini-government,' the association
CONTINUED
AB 1738
Page
5
provides to its members, in almost every case, utility
services, road maintenance, street and common area
lighting, and refuse removal. In many cases, it also
provides security services and various forms of
communication within the community. There is, moreover, a
clear analogy to the municipal police and public safety
functions." In short, homeowner associations, via their
enforcement of the CC&R's, provide many beneficial and
desirable services that permit a CID to flourish. (Villa
Milano Homeowners Ass'n v. Il Davorge (2000) 84 Cal.App.4th
819, 836 [citations omitted].)
Just as with municipal governments, associations occasionally
find themselves in disputes with their members. The
Davis-Stirling Act provides three distinct dispute resolution
processes that allow these disagreements to be resolved at
varying levels of formality. At the most informal level, the
Davis-Stirling Act provides for an IDR process that essentially
allows members to simply and expeditiously meet and confer with
a director from their association. If the member is unsatisfied
with the outcome of the meet and confer session, the member may
lodge an appeal and seek resolution from the entire board of
directors of the association. The Davis-Stirling Act also
envisions the use of ADR for resolving disagreements between
members and their association. Endeavoring to submit a dispute
to ADR is a jurisdictional prerequisite to bringing an
enforcement action in superior court. As with many ADR
processes, the requirements for proceeding through ADR under the
Davis-Stirling Act are more formal, requiring parties to serve
written requests for ADR that contain a brief description of the
dispute. Unless otherwise agreed to by the parties, ADR is to
be completed within 90 days and costs are borne by the
respective parties. Finally, the Davis-Stirling Act provides
that any member or the association may seek to enforce
covenants, and restrictions in the property declarations, or
terms of the governing documents, in superior court.
Prior Legislation
SB 752 (Roth, Chapter 605, Statutes of 2013) established the
Commercial and Industrial Common Interest Development Act and
provided for the creation and regulation of industrial or
commercial CIDs.
CONTINUED
AB 1738
Page
6
AB 1836 (Harman, Chapter 754, Statutes of 2004) reorganized and
expanded the ADR processes and procedures contained in the
Davis-Stirling Act, and expanded the scope of the disputes to
which ADR processes and procedures may be applied within CIDs.
The bill also required associations to develop fair, reasonable,
and expeditious IDR processes.
AB 2376 (Bates, Chapter 346, Statutes of 2004) required an
association to provide a fair and reasonable process for
reviewing a request by a homeowner for a physical alteration to
their unit or the common area.
AB 2598 (Steinberg, 2004) would have prohibited the use of the
non-judicial foreclosure process by associations in collecting
overdue assessments when the underlying debt is for the failure
to pay association assessments or dues. The bill was vetoed by
Governor Schwarzenegger.
SB 1682 (Ducheny, 2004) would have required associations to
offer binding arbitration before placing a lien on the property
or before initiating foreclosure proceedings. The bill died on
the Assembly Floor.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 7/23/14)
California Alliance for Retired Americans (co-source)
Center for California Homeowner Association Law (co-source)
Conference of California Bar Associations (co-source)
OPPOSITION : (Verified 7/23/14)
California Association of Community Managers
Community Associations Institute
Educational Community for Homeowners
ARGUMENTS IN SUPPORT : The author writes:
The Davis-Stirling Common Interest Development Act sets out an
IDR procedure to be utilized by the parties in resolving a
dispute between a member(s) and a Homeowner Association Board
prior to the initiation of formal Alternative Dispute Resolution
CONTINUED
AB 1738
Page
7
or civil litigation. There are no provisions in the law
specifically permitting either party to an IDR to be accompanied
by another person, including legal counsel, to provide guidance
and to assist in the negotiation process. Some associations
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/her own counsel present. Too often, the association 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
association's counsel. Association CC&Rs covenants, conditions,
and restrictions and other rules are often difficult for a lay
person to comprehend. Having a homeowner association attorney
versed in the CC&Rs and the law governing association's at an
internal dispute resolution proceeding puts a homeowner at a
disadvantage when they do not have counsel or another
knowledgeable person present.
AB 1738 will enhance protections for homeowners undergoing IDR
between themselves and an association. The bill allows both the
homeowner and the representative of association to have someone
- including an attorney, fair housing advocate, or anyone else -
assist them during an IDR proceeding. If either party intends
to have someone assist them in the IDR proceeding, they must
provide a 10-day advanced written notice to the other party
pursuant to the methods identified in subdivision (b) of Civil
Code Section 4035 and subdivision (a) of Civil Code Section
4040. 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. The bill further
specifies that agreements reached through this IDR process
should be in writing and clarifies that each side shall pay the
costs of their own attorney. AB 1738 will ensure that
homeowners are given an equal playing field when a dispute
arises between them and an association by allowing both the
homeowner and the association to have someone assist them during
an IDR proceeding.
ARGUMENTS IN OPPOSITION : Writing in opposition, former
Assemblyman Lawrence W. Stirling, states:
I have reviewed Assemblyman Chau's AB 1738 and unfortunately
believe that, although well intended, it unnecessarily
CONTINUED
AB 1738
Page
8
complicates the intent of Senator Tom Harmon's AB 1836 which was
sponsored by the trustworthy, objective and deliberative body
known as the California Law Revision Commission. Because
disputes were becoming more difficult and costly to resolve as
the parties were headed toward litigation, a more personal and
less formal process was needed. Thus, IDR was designed to allow
member-to-member discussions in a non-threatening atmosphere and
without "lawyering up."
To my knowledge as the author of the Davis-Stirling Act, and
both a Superior Court Judge and mediator, IDR has been a great
success. But, AB 1738 would load up the process with formal
notifications, deadlines, disclosures and costs to all
homeowners. In essence, it makes the less formal process akin
to the rigid ADR process in statute that is required in order to
proceed to litigation.
ASSEMBLY FLOOR : 77-0, 5/15/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Harkey, Roger Hern�ndez, Holden,
Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, John A.
P�rez, V. Manuel P�rez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Donnelly, Mansoor, Vacancy
AL:e 7/29/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED