2018 Common Interest Development & Community Association Legislative Update

By Nicholas A. Rogers, Esq.

Published: December 2017

The California legislature and executive worked together this past year to enact legislation aimed at promoting a number of legitimate government interests ranging from free speech to renewable energy. Despite the best of intentions and ideals, additional regulation creates potential for mistake and resulting liability.

AB 407 — Noncommercial Solicitation

As of January 1, 2018, AB 407 goes into effect by creating a new section of the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”). Civil Code section 4515 prohibits governing documents from preventing a member or resident from peacefully meeting with members, guests and their invites in common area to discuss matters of public interest or exercise free speech. The statute specifically permits any member or resident of a common interest development with a clubhouse or other common area space suitable for gatherings to sponsor meetings and invite the public to assemble inside the development to discuss “common interest development living, association elections, legislations, election to public office, or the initiative, referendum or recall processes.”

An association is also prohibited from charging or otherwise demanding a deposit or insurance for use of common area for such purposes, and from demanding payment of an insurance premium or deductible in the event of injury to person or property. Injunctive relief and civil penalties up to $500 for each statutory violation are available remedies to members and residents.

Implementing the statute may prove challenging in the 24-hour cable news culture where reasonable discourse is increasingly an exception to the rule of exacting political debate and civil discourse bordering on civil disturbance. In this climate, increased liability exposure arising from claims that politically disruptive events interfere with expected recreational or social use of common area is apparent. Particularly since the statute creates rights in favor of non-member residents and eliminates any obligation to secure insurance to protect the community association, its volunteer directors or officers, or management from third-party liability in the event of damage to property or person.

As such, a community association would be well served to develop a written policy contemplated by statute that permits a community association to implement reasonable time, place, and manner restrictions for use of common area for peaceful purposes. The statutory intent is to protect fundamental rights; but, it will likely create disputes and resulting litigation that tests a community association's power to develop and implement policies that regulate such rights in an effort to protect the association and membership from adverse consequences of constitutional rights of free speech and assembly we all hold dear.

AB 690 — Annual Disclosures, Community Manager Conflicts of Interest

As of January 1, 2018, AB 690 goes into effect by modifying several existing statutes while also creating two new sections of the Davis-Stirling Act. These statutory provisions create additional annual disclosure obligations regarding escrow package costs, as well as new conflict of interest disclosure obligations for community managers and their companies. The legislative goal is to educate members regarding actual costs management companies or third-party document providers charge for escrow package documents in order to increase transparency between community associations, community managers, and third-party vendors that provide services and members.

Annual Disclosures in Escrow Packages

Prior to AB 690, a community association was required, if requested in writing, to provide an itemized breakdown of documents an association would provide to the seller to give to the buyer in connection with the sale of a unit or lot. The selling owner was then entitled to select which documents to obtain and at what cost. Some sellers would not purchase all available documents because they already had certain records in their possession that could be provided to the buyer at no cost. Over time, the selection process has deteriorated and concerns have grown that selling members are solely offered to select—and purchase—disclosure documents on an “all or nothing” basis.

Effective January 1, 2018, an association's annual budget package and policy statement must include a disclosure that identifies charges for documents in an escrow package, along with an affirmative statement that notifies owners they need not buy all documents on the list. The message from the legislature is apparent; the association has an affirmative annual duty to disclose escrow package obligations to its members.

Community Managers & Conflicts of Interest

AB 690 also creates new mandatory disclosure requirements for community managers and their companies when submitting bids for management services and at the time of contract renewal. The statute requires managers and management companies to disclose: (1) any business or company they have an ownership, profit-sharing, or other monetary incentive relationship with; (2) any referral fee or monetary benefit they receive from a third-party document provider; (3) any potential conflicts of interest, including referral fees, from any business or company that provides products or services that benefit the association; and (4) any ownership interests or profit sharing arrangements it has with vendors it recommends or is used by the association.

AB 690 reflects the legitimate public policy goal and intent of the legislature to promote ethical management of community associations across the state. Increased transparency is in the best interests of every community association, their members and, quite frankly, professional managers and their companies. Volunteer boards would be well served to include contractual language that includes an affirmative obligation for management to update its disclosures that develop while the agreement is in effect.

AB 634 — Solar Energy Systems

Existing law precludes community associations from enforcing governing documents that effectively prohibit or restrict the installation or use of solar energy systems on a member's own separate interest property. Current law permits some regulation of separate interest property installations and provides guidelines to exercise an association's discretionary power to permit construction of installations in common area. These guidelines respect common ownership and non-exclusive easement rights of all owners in common area.

AB 634 establishes the right of individual members to place solar energy systems on common area roofs of multifamily residential buildings, garages, and carports. It prevents associations from establishing a general policy that prohibits installation of such systems on common area roofs, buildings, garages, or carports. Community associations are similarly precluded from requiring membership approval to install such systems.

The statute also creates guidelines for considering architectural approval of such requests that requires an applicant to notify each unit owner within the building of the application and permits the association to require applicants and all successive owners to maintain liability insurance and provide the association with a certificate of insurance within 14 days of approval and annually thereafter. Additionally, the association may impose reasonable provisions that require an applicant to submit a solar survey site prepared by a licensed contractor or registered salesperson to determine usable solar roof area and equitable allocation of usable solar roof area among all owners sharing the same roof, garage, or carport.

Suffice to say, community associations would be well served to develop written policies that memorialize the statute as tailored to their development. Particular attention should be given to the neighbor notice requirement and that protesting neighbors do not determine the outcome of the approval process.

Additional Legislation

This article does not address additional legislation effecting common interest developments that were enacted into law this past year. Bills regulating bonding of mechanics liens for individual unit or lot owners whose property is impacted by a common area mechanics lien (AB 534); clarification of association duties and obligations when an owner fails to provide annual notice of their address and extending immunities to volunteer directors serving on purely residential association boards and mixed use association boards (AB 1412); and added recording fees to promote development of more affordable housing (SB 2) are all worthy of further inquiry and discussion. A particularly noteworthy bill under further consideration in the 2018 legislative year that describes a process for both apartment building owners and condominium associations to inspect wooden balconies, decks, stair landings, and other extended improvements is also worthy of further analysis and description.

We are available to consult associations in greater detail regarding the substance of such legislation in general or as applied to a particular set of facts in your community.

Print Article

Email Article