2017 was one of the most active legislative years for Community Associations in recent memory. Perhaps it was the Governor’s “official” end of the drought that left State lawmakers with time to micromanage our communities on issues from free speech to solar; from new disclosure obligations to recording fees. Now that the dust has settled, we are left with the following legislation for our communities to adjust to in the coming year.
SB 2 (Sen. Toni Atkins) Building Homes and Jobs Act
(Imposes a $75.00 fee on recorded real estate transition documents (excluded commercial and residential sales) to provide funds for affordable housing.)
Under the guise of funding affordable housing throughout the State, beginning January 1, 2018, SB 2 imposes a $75 fee on every real estate instrument, paper or notice required or permitted by law “per each transaction, not to exceed $225 per transaction.” The fee does not apply to documents recorded in connection with a real estate sales transfer. The fee does attach to grant deeds, deeds of trust, abstracts of judgement, notices of default and liens and releases of liens. In other words, this law will impact community association assessment collection by adding to the fees an association is charged for recorded documents, fees which ultimately will be passed on to the delinquent owner.
The author of SB 2 describes the bill as establishing a vital ongoing funding source for affordable housing. The law requires the funds collected be deposited into the Building Homes and Jobs Trust Fund to be allocated to affordable housing programs and to local governments for affordable housing and homeless related programs according to the criteria and formulas set forth in the law.
SB 407 (Sen. Bob Wieckowski) – Non-Commercial Solicitation
(Protects certain rights of speech, assembly and solicitation in community associations, free of charge to the resident)
SB 407 adds Civil Code Section 4515 to the Davis-Stirling Common Interest Development Act to protect community association members’ and residents’ ability to 1) peacefully assemble or meet; 2) invite public officials, candidates and homeowners representatives to the community to speak on matters of public interest; and 3) canvass and petition the members, residents and board about, or distribute or circulate information about common interest development living, association elections, legislation, election to public office, or the initiative referendum or recall process. The law effectively renders void governing document provisions that prohibit a member or resident from engaging in the above activities.
In addition, this law carves out a resident’s right to use common area facilities for an assembly or meeting about the above topics (if not otherwise in use) without being required to pay a fee, make a deposit, obtain liability insurance, or pay the premium or deductible on the association’s insurance policy in order to use the common area for the above purposes. Finally, SB 407 imposes a civil penalty of $500 for each violation of the statute.
The concerns about this legislation are several. While it does not allow an owner or resident to invite the general public into the community, the law does subject a community’s residents to being approached, petitioned, and provided flyers on any number of subjects. Many residents will see this as an invasion of their privacy or right to quiet enjoyment. Up until now, residents enjoyed a level of privacy in their communities, free from canvassing or petition on legislative or political issues. Many will find this law offensive. Moreover, although the law limits canvassing, petitioning, distributing and circulating to reasonable hours and in a reasonable manner, it seems to leave an association with relative little authority to regulate the activities protected by this bill. Finally, it is problematic that the law carves out an exception from paying common facility rental fees as long as the use is for a purpose protected by this statute, when other residents may be required to pay a fee for other personal uses. In this way, the law requires the association (and other members) to subsidize a member’s use of a common area facility as long as it is being used to address common interest development living, association elections, legislation, election to public office, or the initiative referendum or recall process.
AB 634 – (Asm. Susan Eggman)
(Provides for solar energy systems on multi-unit common area roofs and carports)
AB 634, like much environmentally-based legislation that came before it, renders void and unenforceable any governing document provision that prohibits the installation or use of a rooftop solar energy system on a common area roof (in which the owner resides, or on an adjacent garage or carport assigned to the owner as exclusive use.) In other words, this bill allows an owner of a unit in a multi-unit condominium building to install solar panels on the common area roof, provided he meets the criteria for doing so.
AB 634 amends Civil Code 714.1 and Civil Code Section 4600, and adds Civil Code Section 4746 to the Davis-Stirling Act to pave the way for an owner to place solar panels on the common area roof. The amendments to the Civil Code not only prohibit any general policy or provision that prohibits rooftop solar installations on multi-unit condominium roofs, but also, they carve out an exception to the 2/3 membership approval requirement of Civil Code Section 4600. Under this bill, like with electric vehicle charging stations, membership approval shall not be required to install and use a solar energy system on a common area roof provided the requirements of Civil Code 4746 are met.
New Civil Code Section 4746, (similar to Section 4745 governing electric vehicle charging stations), contains specific requirements the solar installing owner must meet including, 1) notifying each owner in the building; and 2) maintaining owner’s liability insurance. Further, Civil Code Section 4746 allows an association to impose additional reasonable restrictions that require a solar site survey to determine usable solar roof area and equitable allocation of usable solar roof area among all owners sharing the same roof or area. Such restrictions also can require the owner and successive owners of the unit to be responsible for 1) damage caused by the installation, maintenance of, repair, removal and replacement of the system; 2) costs of maintaining repairing and replacing the system, and restoring the common area; and 3) disclosing to prospective buyers the existence of the system and the responsibilities stated above.
It should be noted that AB 634 does allow an association to impose, per Civil Code Section 714.1, reasonable provisions that restrict installation in common areas, require maintenance, repair or replacement of roofs, or require installers to indemnify or reimburse the association for loss or damage caused by the installation, maintenance or use of the solar energy system.
The concerns presented by this legislation are many, not the least of which is that it allows for a taking of common area by an individual owner without a membership vote. But the one saving grace is the feasibility study to determine usable solar roof area and equitable allocation of roof area. Should the study determine either that the roof area is not feasible for a solar energy system, or that equitable allocation is not possible, the Association would be able to deny the installation.
Other concerns presented by the legislation are that the bill allows an owner to place solar panels on a common area roof without adequate protections for the association or its members from property damage, voiding roof warranties, water leaks, and resulting damage. Further, the law does not require adequate insurance and indemnity requirements to protect residents and the association from liability and damage. And perhaps most concerning is that the bill lacks a clear, reliable procedure for determining whether a common area roof is suitable for a solar energy system, opening an association to owner disputes and possible lawsuits. The law is vague as to the method of determining proper allocation of common area roof space among all owners. In all likelihood, a roof allocation mandate is unworkable in a multi-unit condominium property with limited roof space.
AB 690– Manager Disclosures
(Requires disclosure regarding conflicts of interest, document referral fees and copy costs)
Existing manager disclosure law (Business and Professions Code Section 11504) requires a common interest development manager to disclose annually to a board of directors 1) whether the manager is a certified community association manager and the professional association that certified the manager; 2) their primary office; and 3) whether the manager has an active real estate license. In addition, existing law requires that prior to entering into or renewing a contract, the manager disclose whether their fidelity insurance covers the association’s current year’s operating and reserve funds. Finally, existing B & P Code Section 11504 states that this code section may not preclude the manager from providing the information required by Civil Code Section 5375 (requiring certain prospective management disclosures). In other words, compliance with B & P 11504 should not preclude compliance with the Civil Code Section.
AB 690, however, takes the managers disclosure obligation a step further and now mandates the disclosures required by Civil Code Section 5375. In addition, AB 690 addresses undisclosed manager conflicts of interest by adding to the Civil Code Section 5375 disclosure items “(d) any business in which the manager has an ownership interest or profit sharing arrangement; and (e) whether the manager receives a referral fee or other monetary benefit from a third-party provider of disclosure documents. Further, this bill adds Section 5375.5 to the Civil Code which defines conflict of interest to read “(a) any referral fee or other monetary benefit that could be derived from another business that provides services to the association; or, (b) any ownership interest”. In other words, if a manager operates a construction company that services an association, and that manager profits from that construction work, the manager must disclose this relationship. AB 690 clearly is intended to inform potential association clients of the manager’s existing business relationships or incentives that may present conflicts of interest.
Finally, AB 690 amends Civil Code Section 4530 regarding the escrow documents to be disclosed as listed in Civil Code Section 4525 and 4528. This code section allows the seller to purchase some or all of the documents required to be disclosed to a prospective purchaser “but shall not be required to purchase all of the documents listed.” AB 690 also adds subsection (b) (12) to the Civil Code 5300 Annual Budget Report requiring an association to disclose a completed copy of its Document Disclosure Summary Form pursuant to Civil Code 4528 so that the actual fee for copies of certain requested documents is stated.
AB 1412 Liability Protection for Mixed-Use Developments
(Allows notices be sent to owner’s last address of record; provides liability protection for mixed-use
The 2016 legislative session brought us Civil Code Section 4041 requiring owners annually to provide an address for purposes of receiving notices from the association. The existing statute required the property address to be used in the event the owner failed to provide a mailing address. This created a dilemma for management companies who may have had actual knowledge that an owner lived off-sight, yet that owner did not provide the annual disclosure. This required the manager to send mail to the property address even though that manager knew the owner did not reside there. AB 1412 corrects this by allowing the manger to use the last known address on record with the association, if provided. Otherwise, association mail will be sent to the on-site property address.
AB 1412 also addresses a gap in director and officer liability protection that arose in Civil Code Section 5800 with the rapid development of mixed-use condominium projects. Existing law protected, from personal liability, officers and directors of exclusively residential developments. This left an officer or director of an association property that happened to have a commercial component exposed to personal liability. AB 1412 amends Civil Code Section 5800 to protect officers and volunteer directors of both residential and mixed-use developments from personal liability in excess of insurance limits. AB 1412 further defines volunteer officer or director to require that for protection in a mixed-use development, that officer or director must be a tenant of a residential separate interest or an owner of no more than two separate interests and whose ownership consists only of residential separate interests.
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Matt D. Ober, ESq., CCAL of Richardson|Ober, represents community associations throughout Southern California with offices in Costa Mesa, Pasadena, and Riverside.