I recently spoke to the Inland Empire Chapter of CAI regarding the upcoming changes to California’s Common Interest Development Act, or the Davis-Stirling Act, which takes effect on January 1, 2014. In preparation for that presentation, it became clear that despite the numerous resources available regarding the revised Act, many people are still concerned and wonder how the new law will impact their community association. The good news is that there is no reason to panic. The revisions to the Davis-Stirling Act were designed to be non-controversial. As a result, the substantive changes to the law are relative few in number and small in impact. In addition, there are some advantages to revising the Davis-Stirling Act. The current version of the Act has several “issues.” Sections which are logically related to each other are not located near each other in the Act making locating all the relevant sections difficult and confusing. Also, several sections are excessively long and complicated making them hard to read. The revisions to the Act make several changes which address the current version’s short comings. These include changes which group related provisions in a more logical order, long sections are divided into shorter, easier to read sections, more consistent terminology is used throughout the Act, and governance procedures are standardized. That does not mean there aren’t some disadvantages, however. The most significant of which is that those of us who deal with the Davis-Stirling Act will have to learn all over again what code sections contain various provisions due to the complete renumbering of the Act.
While a board may want to consider amending the governing documents, there is no legal requirement to do so. However, the new law (Civil Code section 4235) allows a board to amend the governing documents to update references to various sections of the Davis-Stirling Act by a board vote, allowing boards to avoid a member vote to amend the CC&Rs in this limited circumstance.
The following highlights the changes to the Act which we find to be the most significant. There are some additional changes which are not addressed in this article because few will ever come across them (such as the change in who can sign an amendment to a condo plan), but the changes you are most likely to encounter are covered.
- Notice and Delivery – One of the most significant changes in the Davis-Stirling Act is how an association can give “notice” to its members. New Civil Code section 4045 allows for “general notice” to be given by (1) first class mail; (2) email, facsimile, or other electronic means upon receipt of written consent to receive notice in that fashion; (3) inclusion in a billing statement, newsletter or other document Continued…
Posted in Governance, News, Pending legislation.
– March 12, 2013
One of the most difficult choices a board makes when preparing an association’s annual budget is whether to increase assessments to fund the association’s reserve account, or to keep assessments low and delay funding the reserve account until a later day, if at all. The reasons boards may under fund reserves are varied. It may be as innocent as the reality that association is having difficulty collecting assessments and all the money collected is necessary to meet operating expenses, or it may be a misguided desire by the board to artificially keep assessments low in fear that the members will not support an increase in order to fund the reserve accounts. After all, it can be a so easy to make the choice to keep assessments low. Raising assessments, even if it is necessary to fund reserve accounts, is rarely a popular decision. It is much easier to put off funding the reserve account, keep assessments low and keep the members happy, at least in the short term. However, failing to properly fund reserves is rarely, if ever, a good decision for the board to make. While some boards rely on what is a technically accurate statement that associations in California are not legally required to fund reserve accounts that is a dangerous and often short sided understanding of reserve accounts, and their importance to the financial health of the association. Whatever the cause, failing to fund reserve accounts pursuant to a plan developed in conjunction with the reserve study can place the association’s financial health at risk. So much so, that the California Department of Real Estate recently took the extraordinary step of issuing a consumer warning for underfunded homeowners associations.
Failing to properly fund reserve accounts results in a significantly increased likelihood of large special assessments, possibly in the thousands or tens of thousands of dollars to pay for necessary repairs. In addition, underfunded reserves can lead to lower property values within the association as buyers become wary of properties which are likely to be subject to large special assessments. Lastly, failing to properly fund reserves may make the properties in the community ineligible for federal loans issued by Freddie Mac and Fannie Mae, reducing the market of potential buyers, further reducing property values.
While the DRE consumer warning is not the only reason that boards should take steps to ensure they are properly funding reserve accounts, it highlights the importance of doing so. The risks in failing to fund reserves are too great to be ignored. Boards should heed the DRE warning and use their best efforts to start properly funding that reserve account piggy bank.
Posted in Governance, Operations, Reserves.
– October 22, 2012
AB 2273 has been signed into law by Governor Jerry Brown. The bill requires foreclosing parties to record a sale within 30 days of the sale. This will benefit associations since it now requires public notice as to who owns the property, and where they may be contacted so that associations can properly invoice all owners for assessments.
In addition, AB 2273 shortens the time for foreclosing parties to notify associations that they are the new owners. However, in order to take advantage of this aspect of the new law, associations will have to have recorded a “Request for Notification” prior to the property receiving a notice of default. Where an association has recorded a “Request for Notification,” the foreclosing party must notify the association within 15 days after the date of sale.
All California community associations should contact their legal counsel to make sure that a proper “Request for Notification” has been recorded so that the association can receive the benefits that the new law provides. This will greatly help to ensure that associations receive notice of foreclosure, and the identity of the new owner, as soon as possible so that assessments can be charged to the proper party.
Congratulations to CAI, who sponsored the bill, and worked hard to get it passed for the benefit of all California community associations!
Posted in News, Operations, Pending legislation.
– September 10, 2012
Governor Brown recently signed AB 805 and AB 806 into law.
AB 805 takes effect on January 1, 2014, and comprehensively reorganizes and recodifies the Davis-Stirling Common Interest Development Act. The bill also revises and recasts provisions regarding notices and their delivery, standardizes terminology, establish guidelines on the relative authority of governing documents, and establish a single procedure for amendment of a common interest declaration. The bill also establishes an express list of conflicts of interest that may disqualify members of a board of directors of an association that manages a common interest development from voting on certain matters. The bill also, among other things, revises provisions related to elections and voting, establish standards for the retention of records, and broadens the requirement that liens recorded by the association in error be released.
AB 806 deletes all of the existing cross-references to the Davis- Stirling Act in other code sections and replaces them with the new code sections created by AB 805.
Stay tuned for more details on what specific new changes the new law brings for community associations. While we are sure the signing of the new bill will raise some questions, there are no earth shattering changes, and managers and boards can rest assured that the changes are manageable. We will be preparing a guide to the new Davis-Stirling Act to help managers and boards understand the new law. Make sure to stay tuned to HOABrief.com, or sign up for our email newsletters to stay current on laws impacting California community associations.
Posted in Governance, News, Operations, Pending legislation.
– August 20, 2012
Of all the various issues boards deal with, one of the issues that comes up time and again are meeting minutes. What are they? What should be in them?
Incorrectly kept minutes can get a board in trouble. They can invalidate proper board actions, lead to claims for defamation or support claims for breach of fiduciary duty. So how should minutes be taken? What should go into the minutes and what should you leave out?
First of all, it is important to understand the purpose of meeting minutes. Minutes are meant to be an outline of what happened in a meeting. They serve to ensure that the decisions and actions resulting from a meeting are not lost or forgotten. They should include not only reference to motions that passed, but also to motions that were proposed even if they were not ultimately adopted by the board.
Once you understand that minutes serve as a record of ACTION taken, it should become clear that minutes are not a verbatim transcript of what was said in a meeting. Minutes should be as concise as possible. What the board did should be included, such as it reviewed a report and then made a decision, but not the discussion that or debate that led to the decision. Keep in mind that the minutes can often be used as a tool against the board and association in litigation. Keep the minutes short and to the point.
What should you include in the minutes?
Posted in Governance.
– August 13, 2012