Published in the ECHO Journal, December 2013
As we get closer to January 1, 2014 and the official implementation date of the new Davis-Stirling Common Interest Development Act, we know that challenges lie ahead for common interest developments and the community associations that manage them. At the same time, the Legislature recognized that pre-implementation fine tuning was appropriate and did so. This means that New Davis-Stirling has experienced “clean up” even before it has gone into effect. And in the category of major statutory changes is the new Commercial and Industrial Common Interest Development Act, which will remove all communities that are entirely commercial or industrial from Davis-Stirling altogether and make them subject to a new and wholly separate (and far more streamlined) regulatory body of law.
Other ideas to facilitate association operations were debated and, in some cases, not promoted and in others, action was carried over into next year.
Update on Legislation Affecting Common Interest Developments and Community Associations
EFFECTIVE JANUARY 1, 2014
New Davis-Stirling
At long last operative on January 1, 2014, New Davis-Stirling does not look anything like the current one. Pieces of the current law are significantly rearranged, and almost all sections have been broken up by their former subdivisions and spread out. Where you find a particular statute today isn’t where it will be as of January 1.
All sections have new numbers (now in the 4000-6999 sections of the Civil Code) and as of January 1, 2014, current statute numbers are no longer applicable. Some sections are simplified, but for the most part New Davis-Stirling does not contain new text. You will find that its language is largely recognizable, just that it is broken apart and relocated.
It is expected that clarification of the law and substantive changes will happen later, but these are not major features of New Davis-Stirling. There are some substantive changes, the most dramatic changes have to do with how notifications to and from members are to be handled and the timing of disclosures. There are new terms to learn: “general notice” and “individual notice” (both having to do with how notices are sent to members) and “notice to the association” (involving how members may deliver certain official notices to associations). Disclosures are reorganized and re-sorted and, in the case of the two major disclosure pieces (known as the “Annual Budget Report” and the “Annual Policy Statement”) now are given in a time frame that is one day shorter than budgets and disclosures can today be sent out.
Among the changes that impact all associations is a provision that requires the annual distribution of fine schedules and enforcement policies, if any, instead of just when or if a fine schedule changes. Dropped is the statutory requirement to notify members when certain types of insurance policies are cancelled and not replaced or other significant changes occur for such policies (doing so is still a best practice, however, and included in many governing documents). The ability to send disclosures and notices electronically is liberalized, though doing so still requires each member’s consent. Other small operational changes are also embedded.
Larger anticipated changes – i.e., qualitatively substantive legal changes and improvements – await further work by the California Law Revision Commission in future years.
SB 745/Senate Housing Committee Omnibus Bill: Miscellaneous Clean Up of New Davis-Stirling
After the governor signed New Davis-Stirling last year, the CLRC (which drafted it) spotted a few errors. Each year one or other of the Legislature’s Housing Committee’s brings forth a bill — called an “omnibus bill” because of its eclectic content — that addresses clean-up type needs to keep applicable law fresh and correct. One problem that the CLRC spotted was that it had inadvertent omitted in new Civil Code section 4070 the ability of owners to “deliver to the association” certain official communications by mail. As corrected in SB 745, section 4070 with still allow delivery by electronic means or personal delivery (with association assent) and add in what the Commission clearly intended — ordinary types of mail, i.e., by first class, certified or express mail, or by an overnight delivery service center.
New Davis-Stirling also helps associations determine how to deal with governing documents that conflict with each other or with the law. While clearly a conflict with the law will always defer to the law, not all governing documents contain provisions that help determine what to do when the documents themselves are internally inconsistent. At the same time, the CLRC was not entirely satisfied with the drafting approach in New Davis-Stirling and so suggested in SB 475 that the text be amended to more closely track the types of verbiage used in governing documents that do contain guidance. Rather than use the term “inconsistent” to describe the types of word problems that sometimes come up, New Davis-Stirling will be corrected as of January 1 to instead use the more direct and familiar term, “to the extent of any conflict.” The changed language affects new Civil Code section 4205. The same improvement is now made in the rule-change statute, new Civil Code section 4350.
New Davis-Stirling, at Civil Code section 4070, inaptly referred to member decision-making “at a meeting,” when in actuality most member decisions are today made using mailed secret ballots that owners return. Instead, the CLRC proposed to change section 4070 to refer to “voting in a duly held election in which a quorum [of members] is represented.” With so much detailed attention being paid nowadays to election processes, this clarifying change should help minimize disputes over what was intended.
And last, when New Davis-Stirling was signed last year, the governor also signed several bills that changed the current Act with its current numbers. SB 475 cleans up these anomalies by fully and finally placing all of 2013’s changes to the current Act and moving them into New Davis-Stirling just in time for it to all go into effect on January 1, 2014.
SB 752 (Roth): Commercial and Industrial Common Interest Development Act
As the CLRC looked at community association law generally, it was urged by some to treat wholly commercial and industrial common interest developments differently in an entirely new body of law. In response, the CLRC drafted and sponsored SB 752, which effectively removes purely commercial and industrial communities completely from the aegis of the Davis-Stirling Act.
SB 752 creates a body of law entitled the “Commercial and Industrial Common Interest Development Act,” expected to be known familiarly as the “C&I.” The CLRC was persuaded that commercial and industrial CIDs should be less-heavily regulated because of the supposed greater sophistication of owners of such property and the more limited need of the legislature to provide statutory protections for them. The CLRC believed that the correct mechanism to codify this approach is to separate these two types of CIDs entirely.
These are not (currently) new principles, as the current Act contains express exceptions for some Davis-Stirling provisions for entirely commercial and industrial communities. For example, there is no statutory requirement to obtain member votes for special assessments of any amounts, to produce and distribute budgets, or to make escrow disclosures. However, by creating an entirely separate body of law for these types of communities that simply omits the expressly-excluded provisions in Davis-Stirling, the challenge lies in knowing what isn’t in it and, moreover, how the two bodies of law will eventually diverge in many other ways.
The C&I started with a base of New Davis-Stirling and removed the current Act’s exceptions. It does not stop there, however. Major sections of New Davis-Stirling were not incorporated, among them the CID Open Meeting Act, the Voting and Election statutes, Access to Records statutes, most disclosure obligations, most rule-change statutes, architectural control processes, provisions for rental restrictions, internal and alternative dispute resolution provisions, and certain immunity statutes, and radically simplifies assessment collection procedures. The commercial and industrial exception provision in New Davis-Stirling, Civil Code section 4202 (the carryover statute from the current Act), is repealed.
Of concern is the difficulty created by a lack of a clear definition in the C&I (and, for that matter, in the current Act) of what a commercial or industrial common interest development is intended to be, so that board, members and managers of such communities will know clearly which body of law applies to their CID and which does not. The CLRC was reluctant to address this concern, because adding a definition has the potential to newly-include some communities who were not before and to newly-exclude others that were, both of which constitutes a major substantive change in the law. It is widely believed that once the C&I is enacted, efforts to define the communities that are subject to it will be proposed. Of particular concern is the fate of live/work lofts. Many are zoned entirely commercial or industrial and have residential aspects to them that are legally considered to be merely incidental to the working space in the unit. Many owners, however, consider their residences to be the primary purpose of their ownership, deserving of higher legislated protections, and therein lies the potential collision.
A further and not insignificant challenge will happen over time, as these two large bodies of law become increasingly different but still remain very similar. Knowing which body of law applies, and from there knowing what each contains or doesn’t contain to make it different from the other, will become very complicated. Current board members and managers can watch the law grow and change, while those in the future won’t have the benefit of knowing where all the differences are.
TWO-YEAR BILLS (FOR FURTHER CONSIDERATION IN 2014)
AB 968 (Gordon): New Davis-Stirling “Lite”
AB 968 was introduced this year and made it through the Assembly, but once in the Senate was set aside for further review and consideration. AB 968, as currently written, would exempt small residential or mixed use CIDs, i.e., those with 15 or fewer units or lots, from the mechanisms of conducting member votes by mailed secret ballot. As currently drafted, the bill would allow the members, on a majority vote conducted by mailed secret ballot, to agree to conduct future elections at meetings as was done before the Voting and Election statute was enacted.
Unfortunately, other areas of the law have grown around the Voting and Election statute since 2006 and so simply drafting a bill to exempt some associations from some aspects of the Voting and Election statute has its trip hazards. While the concept might be considered beneficial, implementing it correctly takes skilled drafting and an awareness of all the other provisions of law or the governing documents that might be impacted.
This bill will see more review in 2014.
AB 1360 (Torres): Electronic Voting in Director Elections
AB 1360 deals with the idea of allowing members of community associations to cast votes electronically in electing directors. This bill, like the one above, left the Assembly but met with concerns in the Senate. The bill is awkwardly drafted and is based on puzzling concepts. So, while the intent is possibly laudable, much more consideration is needed before the idea ripens.
As drafted, AB 1360 would establish a definition of an “electronic balloting service provider,” essentially an outside entity to provide such services but not well-defined, to conduct portions of director elections over the internet. As drafted, the concept is appended to existing law, but in ways that are fraught with legal concerns, ambiguities and questions.
Like AB 968, AB 1360 will be considered further in 2014.
UNAPPROVED BILLS
AB 126 (Hall): Disclosure of Email Addresses in Time Share Communities
Presumably in response to a federal court opinion affecting the western United States in which a huge timeshare association with thousands of interval owners was required to give out email addresses to a dissenting owner group, AB 126 initially would have required time share associations in California to maintain a complete list of names and addresses of all owners and to update that list every 12 months. Legislative efforts in this area are of considerable concern to non-time share communities of far smaller size, as the interests under which the court made its determination in the federal case are far different and more deserving of protection.
The bill failed in committee.
AB 749 (Levine): Smoking Prohibition
AB 749 was an effort at the state level to prohibit smoking in multi-family dwellings, defined as meaning property containing 2 or more units. More and more local cities, counties and special districts are taking up this issue, which may have been one reason why this bill filed in committee. It has been granted reconsideration for next year.
SB 391 (DeSaulnier): Recording Fee Increases to Fund Affordable Housing Programs
SB 391 was an effort to impose a $75 charge on top of a recording fee for most types of recordable documents. The charges collectively would be used to support affordable housing, administer housing programs, and related costs.
The concept of the bill was to find a reliable funding source to support affordable housing programs in the state, now that state funding for such programs has been severely curtailed in the current economic budget. While a laudable goal, the idea that a single category of citizens —those who record documents — would be tasked with the funding of such programs was considerably controversial. Community associations record many types of documents, many in the area of assessment collection, and would have been highly impacted by this concept. With far higher fees, delinquent assessment collections would have been made considerably more unaffordable and difficult to resolve, with attendant financial impacts on associations and paying members across the state.
This bill was not heard in the Appropriations Committee before the deadline to get bills to the Assembly floor and to the governor’s desk. This bill should be watched carefully next year.