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Davis-Stirling Common Interest Development Act, 2014 – A Brief Overview

Background

Culminating ten years of work, the California Law Revision Commission (CLRC) issued its Statutory Clarification and Simplification of CID law in February 2011 (the Recommendation). The California Legislature adopted the Recommendation as AB 805, effective January 1, 2014, which restates the Davis-Stirling Common Interest Development Act (the Act). A companion bill, AB 806, also effective on January 1, makes technical conforming changes to statutes that are cross-referenced in the Act. The existing Act is found in the California Civil Code at CC §§1350-1378. The 2014 Act will be at CC §§4000-6150.

The CLRC noted that there are over 49,000 common interest developments in California, comprising 4.9 million housing units. These common interest developments are subdivisions in which:

  • A separate ownership of a dwelling space, or a right of exclusive occupancy, is coupled with an interest in common property;
  • Covenants, conditions, and restrictions limit the use of both the common area and the separate ownership interests; and
  • An owners association manages the common property and enforces rules and restrictions.

The forms of these subdivisions are condominiums, community apartment projects, stock cooperatives, and planned developments.

 

General Statutory Purposes

The general purposes of the 2014 Act are to make nonsubstantive reforms to accomplish the following:

  • Group related provisions together in a logical order;
  • Clarify ambiguous language without changing the substantive fact;
  • Divide excessively long sections into shorter sections;
  • Endeavor to standardize terminology; and
  • Implement certain “noncontroversial substantive improvements”.

The provisions of the Davis-Stirling Act concerning commercial and industrial associations remain unchanged, except that such associations are now granted the power to levy emergency special assessments without a vote of the membership, as may residential associations, curing what the CLRC considered an original oversight. CC §4202. However, there is pending legislation on this issue (SB 752), discussed near the end of this article.

 

Selected Substantive Changes in 2014 Davis-Stirling Act

The following is a summary of certain revisions made by the Act. A comprehensive and detailed explanation of the Davis-Stirling Act changes is available in the Recommendation.

1. The law supersedes the governing documents, and the relative authority of the different governing documents is set forth. CC §4205.

2. The text of proposed governing documents amendments must be distributed with the ballot. CC §5115(e).

3. Votes to reverse operating rules must comply with the secret ballot procedure. CC §4365(b).

4. An exception to the 67% membership voting requirement for grants of exclusive use common area is made for those grants necessary to accommodate a disability, and those required by law, as well as assignments of parking spaces, storage units, or other amenities, if the declaration so authorizes. CC §4600(b).

5. Notices of board meetings must be given by “general delivery” as defined in CC §4045 (see 10.b. below) rather than just by posting. CC §4920(c).

6. Self-interested directors are prohibited from voting on specified matters. CC §5350.

7. Associations may require secret ballot procedures for all elections, rather than those mandated by statute. CC §5100(b).

8. The election inspector must maintain custody of ballots for 12 months, rather than 9 months. CC §§5125, 5145.

9. All association reports are organized into (a) the annual budget report (including the operating budget and related financial disclosures) (see CC §5300) and (b) an annual policy statement aggregating all other informational disclosures (see CC §5310(a)). The association may distribute these, or give notice of their availability and then distribute them on request without cost. CC §5320. The Civil Code sections addressing these disclosures are set forth in full below, as they are key elements of the Act.

  • 5300. (a) Notwithstanding a contrary provision in the governing documents, an association shall distribute an annual budget report 30 to 90 days before the end of its fiscal year.
  • (b) Unless the governing documents impose more stringent standards, the annual budget report shall include all of the following information:
    1. A pro forma operating budget, showing the estimated revenue and expenses on an accrual basis.
    2. A summary of the association’s reserves, prepared pursuant to Section 5565.
    3. A summary of the reserve funding plan adopted by the board, as specified in paragraph (5) of subdivision (b) of Section 5550. The summary shall include notice to members that the full reserve study plan is available upon request, and the association shall provide the full reserve plan to any member upon request.
    4. A statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement.
    5. A statement as to whether the board, consistent with the reserve funding plan adopted pursuant to Section 5560, has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves therefore. If so, the statement shall also set out the estimated amount, commencement date, and duration of the assessment.
    6. A statement as to the mechanism or mechanisms by which the board will fund reserves to repair or replace major components, including assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanisms.
    7. A general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain. The statement shall include, but need not be limited to, reserve calculations made using the formula described in paragraph (4) of subdivision (b) of Section 5570, and may not assume a rate of return on cash reserves in excess of 2 percent above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made.
    8. A statement as to whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
    9. A summary of the association’s property, general liability, earthquake, flood, and fidelity insurance policies. For each policy, the summary shall include the name of the insurer, the type of insurance, the policy limit, and the amount of the deductible, if any. To the extent that any of the required information is specified in the insurance policy declaration page, the association may meet its obligation to disclose that information by making copies of that page and distributing it with the annual budget report. The summary distributed pursuant to this paragraph shall contain, in at least 10-point boldface type, the following statement: “This summary of the association’s policies of insurance provides only certain information, as required by Section 5300 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association’s insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association’s policies of insurance may not cover your property, including personal property or real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage.”
  • (c) The annual budget report shall be made available to the members pursuant to Section 5320.
  • (d) The summary of the association’s reserves disclosed pursuant to paragraph (2) of subdivision (b) shall not be admissible in evidence to show improper financial management of an association, provided that other relevant and competent evidence of the financial condition of the association is not made inadmissible by this provision.
  • (e) The Assessment and Reserve Funding Disclosure Summary form, prepared pursuant to Section 5570, shall accompany each annual budget report or summary of the annual budget report that is delivered pursuant to this article.
  • 5310. (a) Within 30 to 90 days before the end of its fiscal year, the board shall distribute an annual policy statement that provides the members with information about association policies. The annual policy statement shall include all of the following information:
    1. The name and address of the person designated to receive official communications to the association, pursuant to Section 4035.
    2. A statement explaining that a member may submit a request to have notices sent to up to two different specified addresses, pursuant to subdivision (b) of Section 4040.
    3. The location, if any, designated for posting of a general notice, pursuant to paragraph (3) of subdivision (a) of Section 4045.
    4. Notice of a member’s option to receive general notices by individual delivery, pursuant to subdivision (b) of Section 4045.
    5. Notice of a member’s right to receive copies of meeting minutes, pursuant to subdivision (b) of Section 4950.
    6. The statement of assessment collection policies required by Section 5730.
    7. A statement describing the association’s policies and practices in enforcing lien rights or other legal remedies for default in the payment of assessments.
    8. A statement describing the association’s discipline policy, if any, including any schedule of penalties for violations of the governing documents pursuant to Section 5850.
    9. A summary of dispute resolution procedures, pursuant to Sections 5920 and 5965.
    10. A summary of any requirements for association approval of a physical change to property, pursuant to Section 4765.
    11. The mailing address for overnight payment of assessments, pursuant to Section 5655.
    12. Any other information that is required by law or the governing documents or that the board determines to be appropriate for inclusion.
  • (b) The annual policy statement shall be made available to the members pursuant to Section 5320.

10. Standardized notice delivery procedures are established (individual delivery and general delivery). CC §§4040, 4045.

  • a. Individual delivery consists of first class mail, postage prepaid, registered or certified, express mail or overnight delivery, e-mail, facsimile or other electronic means if the recipient has consented in writing and delivery to a secondary address, if a request has been made.
  • b. General delivery consists of any method of delivery authorized for individual delivery, but also the following: inclusion in a billing statement or newsletter; posting in a prominent location that is accessible to all members of the association, if so designated in the annual policy statement; and inclusion in television broadcasting. If a member elects, notice of “general delivery” documents must be given by “individual delivery”.

11. Members’ payments will always be applied first to assessments before collection costs, interest, or penalties. CC §5655.

12. In due process hearings in which the association seeks reimbursement for repair of damage to the common area caused by the member or the member’s guests or tenants, the property owner is entitled to know the nature of the allegation and to dispute it. CC §5855(b).

13. The “EADR” or “Request for Resolution” process is expanded from disputes over the association’s governing documents to also include any action in which fees and costs may be awarded. CC §5925.

 

Clean-Up Legislation

On June 13, 2013, the CLRC approved a recommendation for clean-up legislation to clarify the intent of certain language in the new Davis-Stirling Act.

 

Commercial and Industrial Associations

Senate Bill 752, which is now pending in the California Legislature, would completely remove commercial and industrial associations from the new Davis-Stirling Act, create a separate stand-alone act relating solely to such entities beginning with CC §6500, and make conforming changes. At this time, SB 752 is on the consent calendar in the Senate Appropriations Committee and appears to have strong support for passage.

 

Continuing Legislative Developments

In the Recommendation, the Law Revision Commission resisted substantive policy changes, and the Legislature followed suit in enacting AB 805. However, the relentless demand for such changes to the Act continues, as evidenced by several bills that will be considered in the next session of the Legislature. These are

  • AB 968, which would simplify election procedures in smaller associations;
  • AB 1360, which would authorize the conduct of elections and other membership balloting by electronic voting; and
  • AB 746, which would prohibit smoking in multifamily dwellings, except where specifically designated.