2006 Statute and Case Law Update: Part II

Published in the ECHO Journal, April 2007

This summary of case law and legislative developments distills the legal developments in the 2006 calendar year. In Part II—Statutory Law, the principal bills that affect operations in community associations are reviewed. The full text of the bills discussed in this article can be found on the LegInfo website. In Part I—Case Law, published in the April issue of the ECHO Journal, summaries were given of case decisions that are of importance to community associations.

Statute Law

SB 1560

In September, 2006, the California Legislature enacted “cleanup” legislation to address certain criticisms of SB 61, the election law which became effective July 1, 2006. The impact of SB 61 was described in my 2005 Statute and Case Law Update article published in March 2006. This cleanup legislation became effective on September 18, 2006, retroactive to July 1, 2006. The key changes made by SB 1560 can be summarized as follows:

1. Allows the inspector to appoint and oversee additional persons to verify signatures and to count and tabulate votes, on the condition that these assistants are independent third parties.
2. Added removal of members of the board as a category of votes that must be conducted by secret written ballot, in addition to the election of directors, amendments to the governing documents, grants of exclusive use common area property and votes on assessments.
3. Clarifies that the quorum requirements in the bylaws apply to secret ballot elections, and that each ballot received by the inspector is treated as a member present at a meeting for purposes of determining the quorum.
4. Requires cumulative voting for the election of directors by secret ballot if cumulative voting “is provided for in the governing documents.” Note that the Corporations Code permits cumulative voting unless prohibited in the bylaws. If the bylaws do not mandate cumulative voting, but do not prohibit it either, cumulative voting may be required in the secret ballot process.
5. Recognizes business entities as independent third parties who may be inspectors of election.
6. Requires that the election inspector’s determination of the closing of the polls be consistent with the governing documents.
7. Requires the inspectors to determine the tabulated results of the election.
8. Clarifies that proxies are distinct from secret written ballots, and that proxies may be used if permitted by the bylaws and meet the requirements of the governing documents. Further clarifies that the association is not required to prepare or distribute proxies as part of the election process.
9. Specifies that proxies may be revoked prior to receipt of the ballot by the inspectors.
10. Modifies the information required to be placed on the outer envelope by the voter. Specifically, the voter must sign his or her name, indicate his or her name, and indicate the address or separate interest identifier entitling him or her to vote.
11. Authorizes the inspector of election, or a designee, to verify that the member’s information and signature on the outer ballot prior to the meeting at which the ballots are tabulated. Further specifies that ballots are irrevocable once received by the inspector of elections.
12. Requires the inspectors to maintain physical custody of the ballots until nine months after the election, at which time custody is transferred to the association. The inspectors must make the ballots available for inspection if there is a recount or other challenge to the election process. Recounts must be conducted in a manner preserving the confidentiality of the vote. The ballots must be stored by the association for at least one year after custody is transferred from the inspectors.
13. Allows the election rules to provide for nomination of candidates from the floor, or by any other manner, and permits the rules to allow right write-in candidates.
14. Clarifies that an election may be conducted entirely by mail unless otherwise specified in the governing documents. However, an open meeting of the board or members is still required to count the votes.
15. Resolves conflicts between the Davis-Stirling Act and the Corporations Code by specifying that the new election law for homeowners associations controls.
16. Clarifies that an association may deliver specifically identified records requested under a Civil Code Section 1365.2 by electronic transmission or machine readable storage media as long as those records can be transmitted in a redacted format that prevents the records from being altered.

AB 2100

This new law makes material changes to the requirements for reserve studies and the disclosure of the results of the reserve studies. The annual summary of the reserves that must be included in the pro forma operating budget must now additionally include the following:

1. The current deficiency in reserve funding expressed on a per unit basis. This is determined by subtracting the amount of actual cash reserves from the estimate of the cash reserves necessary, and dividing the result by the number of residences in the community. If reserves are prorated, the proper adjustment must be made to reflect the per unit reserve deficiency.
2. The budget must disclose whether the board has determined to defer repair or replacement of any major component with a remaining life of 30 years or less. If deferral is occurring, a statement of justification is required.
3. More detail is required in the budget disclosures concerning anticipated special assessments. If a special assessment is anticipated, the disclosure must include the estimated amount, commencement date, and duration of the assessment.
4. The budget must describe the mechanism by which the board will fund reserves including assessments, borrowing, the use of other assets, deferral or alternative mechanisms.
5. Whether the association has any outstanding loans with an original term of more than one year, including the bank, interest rate, amount outstanding, annual payment, and expected payoff date.
6. A statutory form summarizing reserve funding is now mandated. The form is found at Civil Code section 1365.2.5 (see page 76 of the ECHO Community Association Statute Book. The calculation of the reserves in this form may not assume a rate of return on reserves in excess of 2% above the Federal Reserve Bank discount rate. If the reserve study reflects that special assessments will be required to meet the association’s repair and replacement obligations over the next 30 years, the approximate date and per unit amount of the anticipated special assessment must be disclosed.
7. Commencing January 1, 2009, a summary of the reserve funding plan adopted by the board must be included in the pro forma operating budget, with a disclosure to the members that the full reserve study plan is available upon request.
8. The reserve funding plan that is now required to be included in the reserve study must be adopted by the board at an open meeting. If the board determines that an assessment increase is necessary to fund the reserve funding plan, the assessment increase shall be approved in a separate action of the board. In other words, the board is still subject to the requirement for membership approval of special assessments in excess of 5% of the budgeted gross expenses (except for defined emergency assessments) or in excess of the 20% annual increase in the regular assessment.

AB 2624

This bill made a number of technical changes relating to the collection of assessments by homeowners associations through nonjudicial foreclosure. These changes follow:

1. Authorizes the foreclosure trustee to receive fees for the cost of service of either a notice of default or the decision of the board to foreclose upon a residence.
2. Clarifies the parties who received the notice of default. This is the owner of record in the association’s records, unless another person has been designated by the owner as his or her legal representative in a writing mailed to the association.
3. Requires the notice of sale in the nonjudicial foreclosure process to now include a statement that the property is being sold subject to a right of redemption. Owners have 90 days after the foreclosure sale to repurchase the property for the amount of the delinquency plus accrued foreclosure costs.
4. Specifies that the nonjudicial foreclosure procedures associated with assessment liens are privileged communications, which protect the association and its agents from certain liabilities.

AB 1881

This bill added Civil Code Section 1353.8 to the Civil Code. The new statute prohibits the architectural guidelines of a common interest development from prohibiting or including conditions that have the effect of prohibiting the use of low water-using plants as a group. Presumably this means that the landscape standards for plantings in planned developments cannot include a blanket prohibition against succulents.

AB 2210

This bill made a number of changes to the California Vehicle Code which impact towing from homeowners associations. Among these changes are the following:

1. The former separate statute concerning towing from common interest developments, Vehicle Code Section 22658.2 was repealed. Towing by common interest developments is now governed by Vehicle Code Section 22658.
2. Legislative findings were made which authorize local authorities to license and regulate towing truck companies.
3. Prohibits the immobilization of the vehicle with a device designed and manufactured for the immobilization of vehicles, except by police officers and traffic enforcement officers.
4. The signage requirements remain a precondition for towing from an association.
5. A vehicle cannot be towed unless 96 hours have elapsed from the issuance of a notice of parking violation.
6. Towing is permitted after 24 hour notice to the local traffic law enforcement agency, if the vehicle lacks an engine, transmission, wheels, tires, doors, windshield, or any other major part or equipment necessary to operate safely on the highways.
7. Tow truck operators are required to give specific written notices to the registered and legal owners of the vehicle. The association and operator are liable for storage or towing charges if there is a violation of the notice requirements.
8. A towing company may only charge one-half of the regular towing charge if the owner of the vehicle or his agent returns to the vehicle after it is coupled to the tow truck but before it is removed from the property and is in transit.
9. Charges for towing and storage are limited. The penalty for violation is four times the amount charged and is a misdemeanor. Credit cards must be accepted for payment of towing and storage charges.
10. Vehicles cannot be towed from a common interest development without first obtaining written authorization from a representative of the association, who must be present at the time of the removal and verify the alleged violation. The written authorization must include the make, model, vehicle identification number, and license plate of the vehicle, the name, signature, job title, residential or business address and working telephone number of the person authorizing the removal of the vehicle, the grounds for removal, the time when the vehicle was first observed parked at the private property, and the time that authorization to tow the vehicle was given.
11. General authorization to remove a vehicle at the towing company’s discretion cannot be delegated to a towing company except in the case of the vehicle unlawfully parked within 15 feet of the fire hydrant, or in a fire lane, or in a manner which interferes with an entrance to, or exit from, and private property. That general authorization must be in a written agreement. The towing company must take a photograph of the vehicle that clearly indicates the parking violation prior to removing the vehicle.

AB 2618

This bill amended Civil Code Section 1369.520 to clarify that the request for resolution procedure applies only to enforcement actions that are solely for declaratory, injunctive or writ relief, or for that relief in conjunction with a claim for monetary damages not in excess of the Small Claims Court jurisdiction.

Jeffrey A. Barnett is an association attorney with legal offices in San Jose. He is a member of the Legal, Central Coast and South Bay Resource Panels, the ECHO Legislative Committee and a past member of ECHO’s board of directors. He also frequently speaks at ECHO seminars and writes for the ECHO Journal.