Debra L. Sheppard & Associates, Attorney-At-Law, Los Angeles

 

 

 

Debra L. Sheppard & Associates, Legal Resources, Los Angeles818-676-0848
dsheppard@sheppard-law.com

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NEW LAWS IN 2014 AFFECTING HOMEOWNERS ASSOCIATIONS

The following new laws affect common interest developments/homeowner associations directly
or indirectly. They are effective on January 1, 2014, unless otherwise stated.


CALIFORNIA STATUTES
1. COMMERCIAL AND INDUSTRIAL COMMON INTEREST DEVELOPMENTS
The Governor signed Senate Bill 752 into law, providing commercial and industrial common
interest developments with their own statutory laws. The new law can be found in Civil Code Sections
6500 through 6876. The new law essentially mirrors the residential common interest act, except that all
or part of the following Sections of the new Davis-Stirling reorganized Act are omitted because the
legislature decided that they were enacted to relate primarily to residential associations: 4040(Individual
Notice), 4045 (General Notice), 4076 (Annual Budget Definition), 4078 (Annual Policy Statement
Defined), 4090 (Board Meeting Defined), 4105 (Community Apartment Project Defined), 4110
(Community Service Organization Defined), 4148 (General Notice Defined), 4155 (Item of Business
Defined), 4158 (Managing Agent Defined), 4177 (Reserve Accounts Defined), 4178 (Reserve Account
Requirements Defined), 4210 (Statements Assessments), 4255 (Notice of Airport in Vicinity), 4275
(Petition to Reduce Percentage of Votes Required for Amendment of Declaration), 4355-4370 (Reversal
of Rule Changes), 4525-4545 (Transfer Disclosures), 4575-4580 (Transfer Fees), 4625(Restrictions on
Transfer of Exclusive Use Common Area and Remedies), 4625 (Transfer of Community Apartment
Project), 4740 (Rental Restrictions), 4765 (Physical Modification of Separate Interest), 4820
(consolidation of associations), 4900-4955 (Board Meeting), 5000 (Parliamentary Procedure at Member
Meeting), 5100-5145 (Member Election), 5200-5240 (Record Inspection), 5300-5320 (Annual Reports),
5375-5385 (Managing Agent), 5500 (Duties of Board as to Accounting), 5510-5520 (Use of Reserve
Funds), 5550-5580 (Reserve Planning), 5605 (Limitation on Increases in Assessments), 5610 (Emergency
Assessments), 5615 (Notice of Increase in Assessments), 5625 (Levies on Separate Interests Based on
Taxable Value), 5658 (Payment Under Protest), 5665 (Payment Plans), 5670 (Dispute Resolution), 5673
(Decision to Record Liens Made by Board), 5705 (Dispute Resolution), 5715 (Nonjudicial foreclosure),
5720 (Limitation on Foreclosure of Assessment Liens), 5730 (Notice in Annual Policy Statement), 5800
(Protection of Volunteer Officers and Directors in Residential Communities), 5810 (Notice of Changes
in Insurance Coverage), 5855 (Due Process for Disciplinary Proceedings), 5900-5920 (Internal Dispute
Resolution), 5925-5965 (Alternative Dispute Resolution), 5975 (Attorney’s Fees Omitted).

In summary, the new Commercial and Industrial Common Interest Development Act eliminates
those provisions of the Davis Stirling Act that require Member reversal of rule changes, internal and
alternative dispute resolution, transfer disclosures, transfer fee regulation, restrictions on transfer of
exclusive use common area, rental restrictions, Board Meeting provisions, Member Meeting provisions,
Election provisions, Record Inspection provisions, Annual Reports, requirements regarding managing
agents, reserve fund requirements and plans, limitation on assessment increases, emergency assessments,
payment plans, payment under protest of assessments, and the liability provision relating to Volunteer
Board Members and Officers. The new Act will enable the legislature to enact new laws that relate
specifically to business associations which include small office condominiums, retail, and industrial
developments.

2. DAVIS STIRLING ACT REORGANIZED: Read DAVIS STIRLING ACT CROSSREFERENCE>>

Assembly Bill 805 amends the Davis Stirling Act and reorganizes it into Civil Code Sections 4000
to 6150. Besides renumbering the Code Sections, the legislature made the following changes to existing
law:
A. ANNUAL DISTRIBUTIONS TO MEMBERS:
Sections 5300 through 5320 creates new requirements for the annual distributions. Section
5300 requires an ANNUAL BUDGET REPORT which includes the operating budget, the annual
insurance disclosure and the assessment and reserve funding disclosure summary form. Time of
distribution is the same (30-90 days before beginning of next fiscal year). Section 5310 requires an
ANNUAL POLICY STATEMENT including a summary of the dispute resolution procedures and
assessment collection policy. Additional disclosures required are the name and address of the person
authorized to receive official communications for the association, the location designated for posting
general notices, and the written enforcement policy and schedule of fines. Section 5850 requires
annual distribution of the schedule of fines. The time of distribution is the same (30-90 days before
the beginning of the next fiscal year).
If the Board wants to post notice of meetings in the Common Area, that manner of giving notice and
the location must be included in the Annual Policy Statement. Do it now for 2014.


B. REIMBURSEMENT ASSESSMENTS:
The Board will now have to provide notice and a hearing to Members prior to levying a
reimbursement assessment. (Section 5855)


C. DELIVERY AND NOTICE TO MEMBERS:
(1) GENERAL DELIVERY (Section 4045) allows a document to be delivered by
first class mail, postage prepaid, registered or certified mail, express mail, or overnight delivery by
an express carrier with the document addressed to the recipient on the association’s books, inclusion
in a billing statement or newsletter, posting in a prominent place accessible to all Members,
including in broadcast television programming. NOTICE OF BOARD MEETINGS CAN BE
PROVIDED BY ANY OF THESE MEANS (Section 4920) A Member may request delivery of all
notices by Individual Delivery.


(2) INDIVIDUAL DELIVERY (Section 4040) requires the annual disclosures to be
delivered by the following means: by first class mail, postage prepaid, registered or certified mail,
express mail, or overnight delivery by an express carrier with the document addressed to the
recipient on the association’s books, inclusion in a billing statement or newsletter, posting in a
prominent place accessible to all Members, including in broadcast television programming or by email,
if the Member consents.


D. BOARD MEETINGS: The Bylaws can be amended to make the quorum any desired
number of directors rather than a majority. Action by the Board must be approved by a majority of
a quorum of directors. This can result in a smaller number of Board Members approving action
items or a larger number doing so. (Section 4090)


E. INCONSISTENCY BETWEEN LAW AND GOVERNING DOCUMENTS: The law
prevails. (Section 4205)


F. WHICH GOVERNING DOCUMENT CONTROLS: The CC&Rs will control over the
Articles, the Articles will control over the Bylaws, and the CC&Rs, Bylaws and Articles will control
over the Rules. (Section 4205) Senate Bill 745 changes the language in the statute from
inconsistency between the documents or the law to “to the extent of any conflict” between the
documents or the law.


G. MEMBER VOTES TO REVERSE RULE CHANGES: Section 4365 makes clear that
Member votes to reverse rule changes are to be conducted pursuant to Secret Ballot procedures.


H. AMENDING THE GOVERNING DOCUMENTS TO INCLUDE NEW STATUTORY
REFERENCES. Pursuant to Section 4235, the Board of Directors can amend the governing documents
without a membership vote by resolution of the Board showing the correction.


I. CONFLICTS OF INTEREST (Section 5350(b). A Directors or Member of a Committee may
not vote on matters concerning their own discipline, their own assessments relating to damage to the
common area, their own payment plan request, a foreclosure of their own lien, review of their own
architectural modification application, or a grant of exclusive use to that Director or Committee Member.
Any other provisions of law relating to conflicts of interest remain in effect.
J. REQUESTS IN WRITING. Section 5260 requires the following requests be delivered in

writing to the association, pursuant to Section 4035:
(1) Change of the Member’s information in the membership list;
(2) Add or remove a secondary address for individual notices to the Members pursuant
to Section 4040;
(3) Individual delivery of general notices to the Member;
(4) Opting out of membership list pursuant to Section 5220;
(5) A request for a full copy of annual budget report or annual policy statement pursuant
to Section 5320;
(6) A request to receive all reports in full pursuant to Section 5320(b) or a request to
cancel a previous request to receive all reports in full.


K. RECORD INSPECTION. Section 5200(11) adds governing documents to the list of
documents included in “association records” which may be inspected.
L. EXCLUSIVE USE OF COMMON AREA. Section 4600(b)(3) exempts from approval by
67% of the Members a grant of exclusive use common area to accommodate a disability, to assign a
parking space, storage unit, or other amenity designated in the declaration for assignment but not assigned
by the declaration to a specific separate interest, and to comply with governing law.
M. BALLOTS FOR PROPOSED AMENDMENTS. Section 5115 now requires the text of
proposed amendments to the governing documents must now be included with the Ballot to vote on the
proposed amendments.


N. BALLOT CUSTODY AND TIME TO FILE A CIVIL ACTION FOR VIOLATIONS.
Section 5145 allows an action to be filed for violations of the Member Election laws within one year.
As a result, Section 5125 now requires that Ballots be retained by the Inspector of Elections for one year
instead of nine months.
Senate Bill 745 was approved by the Governor to clean up and amend Sections of the new Davis-
Stirling Act. Notable provisions are:
A. DELIVERY TO AN ASSOCIATION. Section 4035 was amended to include as a method
of delivery to an Association delivery by first-class mail, postage pre-paid, registered or certified mail,
express mail, or overnight delivery by an express service center.


B. BOARD MEETINGS. Section 4090 was amended to allow either a Board Member or a
person to be designated by the Board (such as the manager) to be present at the location where Members
may attend to hear the Board transact business.
Section 4920 was amended to provide that if the governing documents require a longer
period of notice for Board Meetings, that notice period shall control. Association managers should
review the Bylaws to see if the notice requirements are longer than 4 days for open session Board
Meetings and 2 days for executive session Board Meetings. If the notice requirements are longer in the
Bylaws, the Board should consider amending the Bylaws with a homeowner vote.
C. MEMBER ELECTIONS. Section 4070 was amended to change approval by Members at a
“meeting” to “election” to ensure that the Secret Ballot procedure shall be used.
D. BILLING DISCLOSURES. Section 4528 was amended to revise the form for billing
disclosures and Section 4530 was amended to prohibit cancellation fees for requests for documents if no
work was performed prior to the request for cancellation.


3. INSURANCE.
Senate Bill 251 has been passed and allows insurers, with the consent of the policyholder, to
provide notice of Workers’ Compensation insurance, earthquake insurance, liability, casualty and
automobile insurance electronically instead of by mail. The insurer must be able to prove that the
policyholder received the electronic communication.


4. MANAGERS OF COMMUNITY ASSOCIATIONS
Senate Bill 822 in part amends Section 7026.1 of the Business and Professions Code relating to
contractors and provides that the term “contractor” or “consultant” does not include a common interest
development manager, as defined in Section 11501, and a common interest development manager is not
required to have a contractor’s license when performing management services, as defined in Section
11500(d).


5. TRANSFER DISCLOSURE STATEMENT REVISED (Effective July 1, 2014)
Senate Bill 652 amends the Civil Code Section 1102.6 residential Transfer Disclosure Statement
form for the Seller of residential property to provide notice to purchasers of construction defects effecting
the separate interest and/or the common area that are not in litigation. Specifically, the amendment
includes pre-litigation procedures and enhanced protection agreements provided by the builder to the
Seller. The purpose of this amendment is to allow purchasers to be aware of defects and to know whether
the defects have been repaired so that duplicate claims are not made against the builder relating to the
same property. At the present, a Seller could receive a cash settlement from the builder and not disclose
whether the nature of the defect to the purchaser or whether it has been repaired.
LAWS WHICH WILL BE CARRIED OVER AND CONTINUE TO BE UNDER CONSIDERATION IN
2014


1. ELECTION OF DIRECTORS IN ASSOCIATIONS WITH NO MORE THAN SIX SEPARATE
INTERESTS
Assembly Bill 968 to add Section 5126 to the Civil Code, would, notwithstanding other election

requirements in the Civil Code, allow associations with no more than six separate interests to vote for
Directors using a simplified procedure replacing the double envelope procedure and to dispense with
appointing an Inspector of Elections. This bill has become a two year bill to be considered again in 2014.


2. ELECTRONIC BALLOTING BILL
Assembly Bill 1360, which would allow associations to conduct elections and other membership
voting by electronic voting, has become a two year bill, which will be considered by the legislature next
year.
This newsletter is published by Debra L. Sheppard & Associates, A PLC as a service to board members, property managers, and others
with an interest in community association law and related matters. All information provided is of a general nature and not intended nor
represented to replace professional, specialized, legal advice. Copyright 2013 by Debra L. Sheppard & Associates, A PLC. All rights
reserved. Reproduction in any other publication is forbidden without express written permission of the copyright owner.

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Debra L. Sheppard & Associates

21243 Ventura Boulevard, Suite 123
Woodland Hills, CA  91364

818-676-0848
info@sheppard-law.com

 

Debra L. Sheppard & Associates, Attorney-At-Law, Los Angeles