NEW CIVIL CODE SECTIONS
Civil Code § 1350.7 - Document Delivery
Section 1350.7, added to the Civil Code, specifies methods of delivery of documents which the Association needs to be aware when delivering documents to its members. The following methods are included in the section: (1) personal delivery; (2) first class mail, with postage prepaid; (3) fax or other electronic means, provided that the member recipient has agreed in advance to the method; (4) by publication in a periodical distributed primarily to members of the association; (5) television programming broadcast by the Association to its members; (6) by a method set forth in the association’s recorded documents; or (7) by any method of delivery to which the member recipient has agreed.
Practice Pointer: Choose a method of delivery that works best for the Association and that saves the most money; however, be sure the delivery method is consistent with this new statute and the Association’s governing documents.
Civil Code § 1353.5 - Display of United States flag by owner on or in owner's separate interest or within exclusive use common area
Section 1353.5 states that except as required for the protection of the public health or safety, no declaration or other governing document shall limit or prohibit the display of a United States flag by an owner on or in the owner’s separate interest or within the owner’s exclusive use common area. The section further defines the phrase “display of the flag of the United States.” Finally, this section provides that in any action to enforce this section, the prevailing party shall be awarded reasonable attorneys fees and costs.
Practice Pointer: When redrafting any governing documents, the Association should be sure that language relating to the display of the United States flag should not be any more restrictive than what is stated in this statute.
Civil Code § 1353.6 – Signage
Section 1353.6 states that the governing documents, including the operating rules, may not prohibit posting or displaying of non-commercial signs, posters, flags, or banners on or in an owner’s separate interest, except as required for the protection of public health or safety or if the posting or display would violate a local, State or Federal law. For purposes of Section 1353.6, a non-commercial sign, poster, flag, or banner may be made of paper, cardboard, cloth, plastic, or fabric, and may be posted or displayed from the yard, window, door, balcony, or outside wall of the separate interest, but may not be made of lights, roofing, siding, paving materials, flora, or balloons, or any other similar building, landscaping, or decorative component, or include the painting of architectural surfaces. However, Section 1353.6 does permit an Association to prohibit non-commercial signs and posters that are more than nine (9) square feet in size and non-commercial flags or banners that are more than fifteen (15) square feet in size.
Practice Pointer: The broad language of Section 1353.6 is going to enable owners to display a wide variety of signage upon their separate interests. An Association needs to be careful when defining non-commercial versus commercial signage. Section 1353.6 will serve to greatly expand the toehold created by Section 1353.5.
Civil Code § 1357.100 – “Operating Rule Defined”
Section 1357.100 is added to the Civil Code to define the term “operating rule” as: a regulation adopted by the board of directors of an association that applies to the management, operation, or conduct of business of the association. A “rule change” is defined as: the adopting, amendment or repeal of an operating rule.
Civil Code § 1357.110 - “Operating Rule” Requirements
Section 1357.110 is added to the Civil Code to specify the requirements necessary for an operating rule to be valid and enforceable. The requirements are: (1) the rule must be in writing; (2) the rule must be within the authority of the board of directors as granted by law, the CC&Rs, articles of incorporation and/or bylaws; (3) the rule must be consistent with governing law and the association’s governing documents; (4) the rule must be adopted, amended or repealed in good faith and in compliance with the Civil Code; and (5) the rule must be reasonable.
Practice Pointer: If an Association desires to enact a new rule or modify an existing rule, it must now comply with the guidelines of this new statute.
Civil Code § 1357.120 - Approved subject matters; board action to propose a rule change; special meetings of the members to reverse a rule change
Section 1357.120 is added to the Civil Code to set forth certain subject to which 1357.130 and 1357.140 (dealing with notice of proposed rule changes and reversal of rule changes) will and will not apply. Sections 1357.130 and 1357.140 will only apply to an operating rule that relates to one or more of the following subjects: (1) use of common area or exclusive common area; (2) use of separate interest, including architectural/aesthetic standards; (3) member discipline; (4) delinquent assessment payment plans; and (5) assessment dispute resolution procedures. Sections 1357.130 and 1357.140 do not apply to the following actions by the board of directors of an association: (1) maintenance of common area; (2) specific matters not intended to be generally applied; (3) setting of regular or special assessments amounts; (4) rule changes required by law; and (5) documents issued by the association which merely repeat existing law or terms within the governing documents.
Practice Pointer: Be aware of what operating rules are subject to this statute as the categories cover a wide range of topics.
Civil Code § 1357.130 - Proposed rule change by board action; notice; meeting
Section 1357.130 is added to the Civil Code in order to specify certain requirements for operating rules adopted, amended, or repealed. These requirements include requiring that rules adopted amended or repealed be provided in writing to the members at least 30 days before enactment. Notice requirements include: the full text of the proposed rule change and a description of the purpose and effect of such rule. The board must then take into account comments from the membership at a board of directors meeting prior to making rule changes. Furthermore, a notice of adoption must be delivered to the members within 15 days of adopting. In the event the board decides to enact an immediate rule change due to an emergency situation, notice to the members is not required. Emergency rule changes are effective for at least a 120 day period, and may not be readopted under this subdivision. All notice requirements must comply with the delivery methods set forth in section 1350.7.
Practice Pointer: In the event the Association needs to reverse a currently enacted operating rule, it can call a special meeting and vote to reverse such rule – the Association must follow the rules in this statute to call the special meeting and reverse the operating rule. Also, in adopting new rules an Association needs to carefully follow the new procedures set forth in Section 1357.130 in order to ensure the validity of any new rules.
Civil Code § 1357.140 - Special meeting of members to reverse a rule change; notice; voting requirements; effect of approved reversal.
Section 1357.140 is added to the Civil Code to specify which members are entitled to call a “special meeting,” what requirements they must satisfy to call such a meeting, and what is required to reverse a rule. This section allows members constituting ownership of 5% or more of the separate interests of the association to call a special meeting to reverse a rule change. This section only applies to operating rules covered by section 1357.120. Any such request for a special meeting must be in writing and must be delivered to the board of directors within 30 days of notice of the rule change.
In addition, this Section specifies that upon request for a special meeting, the board must comply with Corporations Code Section 7511 with respect to noticing and holding the special meeting, and may distribute written ballots to the members for voting. In order to reverse rule changes, the affirmative vote of a majority of the required quorum is necessary, or the affirmative vote or written ballot as required by the CC&Rs or bylaws, if a greater percentage is required.
The results of a membership vote must be distributed to the members within 15 days. If a rule change is reversed, that rule change may not be re-adopted for one year from date of reversal. Emergency rule changes are not subject to this section.
Practice Pointer: There is no requirement to publicize this section when distributing a proposed rule change to the membership, so it behooves an Association not to do so. However, at the same time, Associations should be aware of this Section when drafting and circulating proposed rule changes.
Civil Code § 1357.150 - Applicability of article to changes commenced before and after January 1, 2004
Section 1357.150 is added to the Civil Code in order to provide that the rule changes made after January 1, 2004 fall within Sections 1357.100 to 1357.150
Civil Code § 1363.6 - Association information statements submitted to Secretary of State; penalty for non-compliance.
Section 1363.6 was added by the Legislature to require each Association within California, whether incorporated or unincorporated, to submit to the Secretary of State, on a form and for a fee not to exceed $30 a whole litany of information concerning the Association and the Development. Section 1363.6 is intended to assist with the identification of common interest developments within the State of California. Section 1363.6 requires that the information be updated by the Association on a biennial basis. On and after January 1, 2006, the penalty for an incorporated association’s non-compliance with the initial or biennial filing requirements of Section 1363.6 shall be suspension of the Association’s rights, privileges, and powers as a corporation and monetary penalties, to the same extent and in the same manner as suspension and monetary penalties imposed pursuant to Section 8810 of the Corporations Code.
Practice Pointer: Each Association should work with either their Professional Property Manager or legal counsel to make sure that they are in full compliance with Section 1363.6 and that the appropriate information is being supplied to the Secretary of State along with the appropriate fees.
Civil Code § 1365.2 - Right to inspect and copy association books, records and minutes of proceedings; restriction on use.
Section 1365.2 requires an Association to make the accounting books and records as well as minutes of proceedings available for inspection by a member of the Association or by a member’s representative. The Association shall make the accounting books and records and the minutes of proceedings available for inspection and copying in the Association’s business office within the common interest development. If the Association does not have a business office within the development, the Association shall make the accounting books and records and minutes of proceedings available for inspection and copying at a place that the requesting member and the Association agree upon. Importantly, Section 1365.2 permits the Association to withhold or redact information from the accounting books and records and the minutes of proceedings for any of the following reasons:
- The release of the information is reasonably likely to lead to identity theft.
- The release of the information is reasonably likely to lead to fraud in connection with the Association.
- The information is privileged under law.
Section 1365.2 goes on to provide that except as protected by the attorney-client privilege, the Association may not withhold or redact information concerning the compensation paid to employees, vendors, or contractors. Finally, Section 1365.2 provides that a member of an Association may bring an action to enforce the member’s right to inspect and copy the accounting books and records and the minutes of proceedings of the Association. If the Court finds that the Association unreasonably withheld access to the accounting books and records and the minutes of proceedings, the Court shall award the member reasonable costs and expenses, including reasonable attorneys’ fees, and may assess a civil penalty of up to Five Hundred Dollars ($500.00) for each violation.
Practice Pointer: While new Civil Code Section 1365.2 does not change the law dramatically from what Associations were previously required to produce, it does have some new twists in the form of allowing third parties to inspect the documents on behalf of a member, allowing the Association to withhold or redact certain information to protect both owners and the Association, and providing a member with the ability to recoup his or her attorneys’ fees as well as civil penalties if an Association is wrongfully withholding certain documents from production. The bottom line is that an Association needs to work closely with its Professional Property Manager and legal counsel to balance all of these interests and make sure that the appropriate documents are being produced, but at the same time make sure the related interests of the owners and the Association are being protected.
Civil Code § 1368 - Sale or title transfer; provision of specified items to prospective purchasers; copies; fees, etc.
Section 1368 was amended after considering AB 512 and AB 106 (see below). These revisions pertain to an association’s ability to impose or collect assessments, penalties or fees in connection with the transfer of title or other interest.
An association may not impose such charges unless: (1) the charge is in an amount not to exceed the association’s actual costs to change its records, and (2) the amount may not exceed the association’s reasonable costs to prepare and reproduce the documents required to be provided to prospective purchasers. This section further sets forth entities to which these amendments do not apply, such as community service organizations or similar entities (defined in subdivision (c)(3) of this section). The amendments to section 1368 do not expand or diminish the authority of an association or its agent to charge reasonable fees for providing information and documents pursuant to existing law.
Practice Pointer: Be careful not to impose a penalty or fee that involves the transfer of title, or a fee or penalty that does not apply to all homeowners at the Association, unless both conditions mentioned in this statute are satisfied. In other words, Associations should not look to transfer fees as a potential source of income to offset other unrelated Association costs.
AB 210 (Koretz) - PENDING
Smokers Beware… there is a legislative bill being proposed that would make the drifting of tobacco smoke into the interest of any other person actionable. AB 210 specifically provides that the “drifting, wafting, or blowing of tobacco smoke into the interest of any other person in a common interest development is a nuisance.” This Bill would further prohibit the smoking in the common areas of “multifamily residential homes.” One in violation of the provisions of this Bill may have fines and penalties imposed by their HOA, property management company, landlord, or manager.
AB 512 (Bates) - ENACTED (See Civil Code § 1357.120 et seq.)
Rules Must Be Fair… Taking effect on January 1, 2004, AB 512 would add certain requirements for associations to follow when making rules and decisions. These requirements would apply among other things to the operating rules for the use of the common area, the use of a separate interest, and member discipline. The purpose of this Bill is to provide procedural fairness in the decision making and rulemaking by associations.
AB 104 (Lowenthal) - ENACTED (See Civil Code § 1365.2)
No More Secrets… AB 104 (codified as Civil Code § 1365.2) will require an Association to make the accounting books and records as well as minutes of proceedings available for inspection by a member of the association or by a member’s representative. While similar to the current Corporations Code requirements, this bill specifies the procedural requirements of inspection. For example: AB 104 states that “a member of the association may designate another person to inspect and copy the accounting books and records and the minutes of proceedings on the member's behalf. The member shall make this designation in writing.” This bill also sets forth that in the event this information is unreasonably withheld from a member, that member can bring action to enforce the right to inspect and may recover reasonable costs and expenses. This bill was effective January 1, 2004.
AB 1423 (Dutra) - ENACTED (See Business and Professions Code § 11502)
Managers Going Back to School? AB 1423 which recently passed, revises the requirements to be classified a “certified common interest development manager.” Effective July 1, 2003, in order to become a “certified common interest development manager” a person must complete at least 30 hours in specified coursework and will be tested for competence in common interest development areas such as: management issues, personnel issues, legal documents, and financial issues.
AB 1525 (Steinberg) - ENACTED (See Civil Code § 1353.6)
No Prohibition on Freedom of Speech. AB 1525 extends a recent Bill passed, which prohibits the governing documents of an association of a common interest development from prohibiting the display of a flag in or on an owner’s separate interest. This Bill further prohibits the governing documents from prohibiting the display of non-commercial signs, posters, flags or banners. A common interest development may only prohibit the display of such if it is in the interest of public safety, if such display exceeds specific sizes, or if the posting would violate a local, state, or federal law. AB 1525 will be effective as of January 1, 2004.
AB 1086 (Laird) - ENACTED (See Civil Code § 1368)
Limiting Collection of Transfer Fees. AB 1086 amends Civil Code Section 1368 which sets forth the obligations of a seller in a common interest development to provide information to the buyer of a unit or a lot in common interest development. AB 1086 made changes indicating that neither an association nor a community service entity may enforce or collect any assessment, penalty, or fee in connection with a transfer of title or any other interest except for the Association’s actual costs of changing the records and the “reasonable costs to prepare and reproduce” items requested by an owner in conjunction with Civil Code Section 1368 disclosure requirements. This Bill will also be effective as of January 1, 2004.
AB 752 (Plescia) - PENDING
Additional Insured Endorsements in Construction Defect Claims. AB 752, introduced in February 2003 proposes to add Insurance Code §11580.04. This Bill is an attempt to overturn existing case law-effectively making it against public policy to require an “entire or complete” defense and indemnification of named additional insured. This is a legislative attempt to overrule the holding of Presley Homes, Inc. v. American States Insurance Company (2001) 90 Cal.App.4th 571, which held that regardless of the expectation of the parties to the insurance contract, the insurers duty to defend developer under an additional insured endorsement extends to the entire action not just those specific claims arising out of the work of the inured subcontractor.