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The past year has seen a dramatic focus on the new elections and voting law SB 61 (Battin) that went into effect on July 1, 2006. The serious legal concerns that arose out of that legislation, however, made it plain to everyone that implementation across the state would be confusing and a patchwork of efforts if this inordinately unclear statute were not clarified. As a result, at the beginning of this year, the legislature immediately began to move “clean-up” legislation to fix last year’s SB 61 even before it went into effect.
The same was true for last year’s bill AB 1098 (Jones) to afford members broad access to association books and records, though not to the same degree. We have little experience yet with the effects of AB 1098, possibly because of the intense focus of boards and managers on getting election and voting rules in place and amending bylaws to align with the new statute. Clean-up legislation was also introduced for AB 1098, largely to correct an unintended provision that every association prepare interim accounting reports to one particular accounting method, accrual accounting.
As usual, the legislature had its eye on other more “operational” aspects of associations. As you’ll see in this article, this year’s palette of bills affecting CIDs addressed such varied subjects as budget and reserves disclosures, towing of unauthorized vehicles, and drought-tolerant plants.
Last, but certainly not least, the long-sought concept of state agency assistance for association boards and members this year made it all the way to the governor’s desk. While the governor did ultimately veto AB 770 (Mullin), deeming it “not needed at this time,” efforts will continue to be made to demonstrate that such assistance is essential and that community associations are too significant an element of California housing to leave them any longer.
Last year, we pointed out what we feared would be significant costs to associations from last year’s legislation. Worries in that regard have turned out to be unfortunately accurate, as associations have spent and will continue to spend sizable sums to pay for new bill compliance.
Signed Into Law (Effective September 18, 2006)
SB 1560 (Battin)
Elections and Voting
Access to Records/Record Keeping
Governor Schwarzenegger signed SB 1560 on September 18, at which time it immediately went into effect.
Voting and Elections: SB 1560 clarifies a number of procedural and operational aspects of voting and elections that arose from its predecessor, SB 61. Among the changes:
- Requires an association to allow cumulative voting in the “secret ballot” processes of Civil Code section 1363.03 if cumulative voting is authorized in the governing documents.
- Clarifies that except for the open meeting to count ballots, the secret ballot process can be done entirely outside of a meeting if the governing documents permit.
- Clarifies that secret ballots can be counted to establish a quorum of members for purposes of member action.
- Clarifies that nomination procedures must be consistent with the bylaws, including now inapposite “nominations from the floor.” Invites and encourages bylaw amendments to delete such a procedure to allow for fair and effective elections before the annual meeting.
- Allows inspectors of election (1 or 3) to appoint and oversee additional independent third parties to assist with signature verification and ballot tabulation.
- Affirmatively adds the removal of directors to the list of subjects that must be conducted by the mailed secret ballot process.
- Clarifies that quorums are only required for secret ballots if required in the governing documents or in state law. Invites and encourages sensible bylaw amendments to address quorums.
- Clarifies what has been known for years, that proxies (to the extent they will ever be used again) may not be counted as ballots. Clarifies that no association is obligated to prepare or issue proxies to comply with the terms of Civil Code section 1363.03.
- Allows the inspector(s) of election to qualify information on outer envelopes before the open meeting at which ballots are tabulated (but reiterates that inspectors may not open any envelopes, outer or inner, or count ballots before such open meeting).
- Clarifies that, once the inspectors receive a ballot, that ballot may not be revoked.
- Clarifies that, when the board “publicizes” the results of the voting, those results must be as “tabulated.” In other words, the results of the election must give details of the voting.
- Requires the inspectors of election to retain ballots for 11 months after the election, at which time they are turned over to the association. The association may destroy the ballots 12 months after the election.
- Clarifies that the secret ballot process does not apply to votes cast by delegates.
Access to Records/Record Keeping: SB 1560 also clarifies certain aspects of record keeping and member access, specifically:
- Corrects an unintentional requirement regarding accounting methods for interim financial reports. Provides that such reports can be prepared by either the accrual or modified accrual method of accounting. Cash accounting is not listed, thus is not permitted.
- Provides that an association is not liable to any member or any third party who might be damaged by the failure to redact information from association records that leads to identity theft (unless the failure was negligent or worse). Affords virtually no additional protection to associations.
Signed Into Law (Effective January 1, 2007)
AB 2100 (Laird)
Reserve Funding Plans
Interested Directors/Financial Conflicts of Interest
(Reserve Funding Plans/New Budget Statements: AB 2100 is yet another attempt to improve disclosure of the financial health of an association’s reserves. In case there has ever been any confusion, the new provisions will affirmatively require not simply a reserve study but a reserve funding plan over the 30 year span of the reserve study. A summary of the reserve funding plan is required to be disclosed beginning January 1, 2009, with specified statements. Again, many associations are already doing this.
Effective January 1, 2007, the budget will be required to contain an expression of current reserve funding shortfalls on a per unit/lot basis, to more specifically explain the impact on unit/lot equity. A further new budget disclosure will be a required board statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component and its justification. The board will also be required to state in the budget whether the association currently has any outstanding loans, the name of the lender, the interest rate, the balance, annual payment, and maturity date of the loan.
The reserve-funding plan must indicate how the association plans to fund the annual contribution to meet the association’s obligation for the repair and replacement of all identified major components. If the board decides that an assessment increase will be needed, that decision must be made separate from (and thus not embedded within) the resolution adopting the reserve funding plan.
Interested Directors/Financial Conflicts of Interest: In an added provision, AB 2100 incorporates into the Davis-Stirling Common Interest Development Act the existing for-profit corporate provisions relating to interested directors and board approval of contracts or transactions that have a direct or indirect financial benefit to a director. We find it puzzling that the reference is to the for-profit section of the law rather than to the nonprofit mutual benefit section of law.
Signed Into Law (Effective January 1, 2007)
AB 1881 (Laird)
Water Conservation
Signed by the governor on September 28, 2006, AB 1881 provides that architectural rules in CIDs may not permit an association to preclude an owner from installing “low water-using” plants “as a group.” A call to the author’s office resulted in the following explanation: the term “as a group” is intended, albeit unclearly, to mean that low water-using plants could not be prohibited generally as a category of plant material. The author’s office is unaware of any specific definition of “low water-using plants” in state law.
Taken as a whole, it would appear the intent of this law is to override architectural guidelines and allow owners to install some extent of plant material that promotes water conservation.
Signed Into Law (Effective January 1, 2007)
AB 2210 (Goldberg)
Towing
This new law repeals the separate towing statute in the California Vehicle Code designed expressly for towing from CIDs. It places many more consumer-protection requirements on towing company and tow truck operators. It requires specific written authorization from the association to the tow company for tows and the presence of an association representative during tows. Some additional notification responsibility could fall on the association, which it likely will be able to delegate to the tow company. However, liability for the towing company’s failure to make such notifications will or could fall back on the association. In certain circumstances, an association will be liable for two times the towing charge if it fails, upon request of the vehicle owner, to explain the basis for its authority to have towed the vehicle.
Vetoed by the Governor (September 22, 2006)
AB 770 (Mullin)
Creation of the Office of CID Ombudsperson
As noted earlier in this article, Governor Schwarzenegger vetoed AB 770. That, for the first time, such a concept made it entirely through the legislature is of itself reason for celebration.
Whether one appreciates or deprecates the idea of state agency regulation of community associations, the reality is that regulation is here, in the form of one-size-fits-all legislation. The Office of CID Ombudsperson would go far to resolve the dilemma and lead to better, more positive bills for community living.
The governor hinged his veto message in part on the belief that provisions in Senator Ducheny’s SB 137, the assessment collection bill that went into effect in January 2006 will promptly result in the creation of a state-created website of information about assessment collection and associations. Unfortunately, SB 137 only required that website if funds are available. AB 770, on the other hand, directly funded educational, data collection, website and other informational services, providing more assurance that state assistance to association leaders and members would have been available soon.
Sandra Bonato is an association attorney in the Alamo office of the law firm of Berding & Weil. She is a member of the ECHO Legislative Committee and a frequent speaker at ECHO seminars.
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