FYI - OCTOBER 1, 2003 NEW LAW ON RECORDS INSPECTION REQUESTS AB 104

This is a first in a series of FYI's intended to inform you of some new legislation that will definitely impact homeowner associations. New laws involve changes in records review, management practices, adopting rules, and signage. Owners of property in homeowner associations generally have the right to request inspection and copying of "accounting books and records and minutes of the proceedings of members and the board and committees of the board", pursuant to Corporations Code Section 8333. This is not new. However, new law is in the Davis-Stirling Act; it applies to all homeowner associations; and although it mirrors this language, it adds some interesting (and painful) conditions for HOAs, and expands current thinking since salary and employee compensation information may not be "redacted" unless it could lead to "identify theft" (indicating this information "goes public"). Read on.

Generally, and briefly, the new law provides (and my notes follow in the parentheses):

1. The association is required to make the "accounting books and records and proceedings of the association available for inspection and copying by a member of the association, or the member's designated representative." (There is no definition of "accounting books and records" of "designated representative" and it is anticipated there will be fights over this. Get legal advice if you have questions.)

2. The member of the association may "designate another person to inspection copy the records on the members behalf. The member shall make this designation in writing." (The statute does not provide any limitation as to whom the "other person" may be. If it is a realtor or buyer, be careful about what is said.)

3. The association must make these records available for inspection and copying "in the association's business office within the common interest development." (The association may require the owner to bring their own copy service, if that seems like a reasonable thing to do.)

4. If the association does not have a business office within the development, the association must make these records available "at a place that the requesting member and the association agree upon." (This could be anywhere; if there is no agreement, read on).

5. If the association and member cannot agree upon a place, or if the requesting member submits a written request directly for copies, the association "may satisfy the requirement to make the records available by mailing copies of the requested records to the member by first-class mail within 10 days of receiving the member's request". (This is a short timeline that needs to be honored. There are not specifics as to how much an association may bill the requesting member for the requested documents. However ...)

6. The association "shall inform the member of the amount of copying and mailing costs before sending the requesting documents." (I suspect there will be fights over this as well. If a management company has to put staff to the task of copying records and it takes the whole day, then the costs could be quite high, and once the documents are provided, there is no mechanism for the association to recover the costs, so it might be left with a small claims court action. Perhaps there is authority in your CC&Rs; for a "reimbursement assessment". This, again, will probably require attorney advice. And keep in mind that the 10 days is firm for providing copies by mail, and it may take some "scurrying around" within the management office of the association to comply, but it is important to do so.)

The penalties for not providing this information (and in a timely manner) are actual damages plus a fine of $500 for each occurrence. There is much more to the new law but no room to address it here. My advice: get good legal advice about how to set your policies to comply with the new law.

7. The association may redact (cover up or black out) information from these records for any of the following reasons:

* "The release of the information is likely to lead to identify theft."

* "The release of the information is reasonably likely to lead to fraud in connection with the association."

* "The information is privileged under law."

* "Except as provided by the attorney-client privilege, the association may not withhold or redact information concerning the compensation paid to employees, vendors, or contractors."

There are some protections in these bulleted items. The "identify theft" is defined as "the unauthorized use of another person's personal identifying information to obtain credit, goods, services, money, or property." The compensation information for individual employees is to be set forth by job classification and title, not the employee's name, social security, or other personalized information.

8. The records may not be sold or used for a commercial purpose, or for any other purpose that is not reasonably related to a member's interest as a member. The association may bring a legal action against a person who violates this section. (Action may be "for injunctive relief and for actual damages to the association caused the violation.")

9. The association may seek injunctive relief to stop the misuse of information given to an owner.

10. The association is entitled to recover reasonable costs and expenses, including reasonable attorney's fees, if successful in an action to stop misuse of the information.

11. The member of the association may bring an action to enforce his or her right to inspect and copy the subject records. If a court finds an association unreasonable withheld access to these records, the court "shall award the member reasonable costs and expenses, including reasonable attorney's fees, and may assess a civil penalty of up to five-hundred (500) dollars for each violation." (This could become quite a fashionable thing to do - sue associations in small claims court for withholding of records, so handle these matters delicately.)

Perhaps you recall the earlier F.Y.I. that discussed the case and association that limits the costs that associations can charge to provide minutes of meetings to actual costs, rather than administrative costs involved in digging these records out of the black hole.

.... Stay tuned, there is a lot more coming.

FYI - July 1, 2003 DISCIPLINARY HEARING REQUIREMENTS

Note that specific notice requirements are written into California law and they supersede any requirements your documents have in them unless your requirements are more protective for the homeowners than the statutory ones. At the least, the following must be provided so that the Owner has "due process" (notice of hearing and opportunity to respond) before any discipline is imposed. "Discipline" generally includes any act to fine, charge money to, suspend rights to vote or use the common area facilities, and that sort of "punishment" for actions of the Owner or his or her tenants, family members, guests or others who come onto the property because of any of these people. NOTE: [A disciplinary action is not considered effective against a member unless the above requirements are fulfilled by the Board.] The statute, Civil Code Section 1363(h) is paraphrased below, and could be adopted by the Board as an Enforcement Policy, or portion thereof (in which case it should be circulated to the Owners). POLICY RELATING TO DISCIPLINARY ACTION (INCLUDING IMPOSITION OF FINES, SUSPENSION OF MEMBERSHIP RIGHTS, ETC.) Whenever the Board of Directors is planning to meet and to consider or impose discipline upon a member, the Board shall notify the member in writing, given by personal delivery or first-class mail, at least ten (10) days prior to the meeting or hearing (15 days if notice is mailed rather than hand-delivered), the following:

* The date, time and place of the meeting

* The nature of the alleged violation for which the member may be disciplined

* A statement that the member has the right to attend and may address the Board at the meeting

* That the meeting shall be held in Executive Session unless the member requests otherwise

* A statement that if a similar or reoccurring violation of the same or similar nature occurs after the first meeting or hearing date, and a fine or some other disciplinary action is imposed for the first violation, imposition of additional fines or other disciplinary action may be imposed for subsequent violations without further hearing. If the Board, after holding or at the meeting or hearing, decides to impose discipline on a member, the Board shall provide the member a written notice of the disciplinary action to be imposed, given either by personal delivery or first-class mail, within fifteen (15) days following the action (date the decision was made).

FYI - SEPTEMBER 1, 2003 - NEWS RELEASE - CHANGES TO THE MANAGER CERTIFICATION BILL ARE SIGNED INTO LAW! NOTE ALSO THAT A NEW LAW CLASS IS OFFERED!

AB 1423 is the 2003 "cleanup bill" to AB 555 - and has been signed into law! Remember that AB 555 was the bill that became law last year, effective January 1, 2003 (see the following original FYI on this), relating to manager certification. AB 1423 contains some very critical amendments that have become law.

The basics: a manager in California who wants to call themselves "Certified Common Interest Development Manager" must satisfy certain educational requirements, or carry a certification or designation from an industry group that qualifies them. Managers who carry a designation from the California Association of Community Association Managers are "grandfathered" under this new law if they have that designation by July 1, 2003, and many Managers who have designations from CAI (Community Associations Institute), are also "grandfathered" under this new law if they have the legal training in California Common Interest Development Law, or get it before July 1, 2004, or if they have taken a comprehensive test as described in the statute. Any Managers without specific designations need to get at least 30 hours of education in management, administration and law in the area of common interest development management, and testing in those areas of education.

Classes are being offered all over the state by providers, including CAI (Community Associations Institute, which has ten state chapters) and CACM (California Association of Community Managers). There are individual providers as well, like me. To make sure the legal classes are available to managers and realtors (and any others who would like the course) throughout the state, I will teach a class anywhere in the state (a DRE approved consumer protection course,) and can provide certification for 8.0 hours of credit toward the educational requirements. My course also satisfies the legal education required by the statute.

The course is not just for managers, It is a comprehensive study of the law related to CIDs in California and is called "The Davis-Stirling Act in Plain English," and is open to board members and others who are interested. All that I need to schedule a class (during the week or on weekends) is a commitment for 10 or more people in the class (paid in advance unless agreed prior to the class), and a room in which to teach the class, and commitment for access to water, coffee, and possibly a few refreshments. I have been offered locations in Alameda, San Francisco, and Walnut Creek, California. If you are interested, send me an email - I am gathering a list of potential attendees. I can send you an information sheet, or you can go to my web site (above) for more information.

There is another very good thing in the new language for this law. Previously, homeowner associations were required to disclose in the Articles of Incorporation or any amendments thereto, and through registration with the Secretary of State, whether their "managing agent" qualified as a Certified Common Interest Development Manager. However, since the language in the statute used the words "managing agent," any association under contract with a company as the managing agent (rather than an individual) had to have a written disclosure saying that their "managing agent" was not certified as a common interest development manager, even if the qualified as "certified." As you can imagine, this created quite a stir. Now, this disclosure is no longer required. However, Managers, must disclose to associations with whom they contract or are considering contracting whether they qualify as a Certified Common Interest Development Manager after September 1, 2003 (the former date for this disclosure was July 1, 2003).

Considerable credit for these very critical amendments goes to Skip Daum (advocate and administrator) and the delegates of THE CALIFORNIA LEGISLATIVE ACTION COMMITTEE (CLAC), the California-specific legislative arm of THE COMMUNITY ASSOCIATIONS INSTITUTE, and Molly Foley-Healy of CAI NATIONAL, the nationwide organization offering educational programs, publications, legislative advocacy, and assistance to and for homeowner associations all over the country. Check out the CLAC website at CLAC.org. and the CAI national website at caionline.org. for more information on both groups.

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FYI - JANUARY 1, 2003
HOW ARE YOU GOING TO PAY FOR THE INSURANCE INCREASES THIS YEAR?

Many, many associations are facing substantial increases in insurance costs for the year 2003 (and may have already faced this in 2002). Although many associations budgeted a fairly substantial amount to plan for increases, having heard in the industry about the insurance crisis, most of those well-intentioned actions did not go far enough. I have seen many situations where the association's insurance premiums increased up to three-five times what they were last year.

Associations need to pay for the insurance premiums as they become due. Some insurance companies will provide financing which may become important if the Board does not have money that it can borrow from reserves (reasonably and prudently), or some other budget overage that can make up the increase in costs without going to the membership for approval of a special assessment. The Board of Directors needs to look at various options to cover the insurance costs. If there is a borrowing from reserves, California Civil Code requires that the Board make certain findings, document those findings within the Associations records (minutes of meeting), submit those findings to the membership in written form (Civil Code Section 1365(c) and (d)), and adopt a plan to repay the funds within one year.

If the Board of Directors needs to consider an emergency special assessment or increase in the regular assessments (by "emergency", meaning limits that cannot be achieved without a vote of the membership otherwise), then there are other documentation requirements. However, in drafting the necessary resolutions (written findings and a resolution are required for this kind of activity), the Board needs to be cognizant that emergency assessments allowed in Civil Code Section 1366(b) generally relate to maintenance and repair items. Therefore, the "preamble" for the resolution must be carefully worded to include the fact that master building coverage is included in the premiums. As for other insurance increases (i.e., liability insurance, directors and officers coverage, etc.), arguably those can be wrapped into the assessment, but they are subject to being challenged, especially if the CC&Rs do not authorize or obligate the Board to purchase the insurance.

Short of getting membership approval to pay assessments, which is not often possible when the quotes come in less than 30 days before the insurance premiums are due and the Board has to make a decision as to the renewability of the policy, the emergency assessment is an option to consider if the timing is right. If it is not right, the Board needs to look at other options, and many practitioners in the industry have discussed how to accomplish this. Some have agreed that use of the emergency assessment provision should be acceptable, but we all have to admit that it may be subject to a judicial challenge if the assessment includes sums that provide for other than the property and capital facilities. Why would you use this method then? Boards are caught between a rock and a hard place. There is a fiduciary responsibility to purchase the insurance coverage if the documents require it. This is basically a "one-time" shot though. Boards of Directors need to look very carefully to the future to determine how to deal with increased insurance premiums that aren't a "surprise." The emergency assessment provisions in the code exist for situations that were "unforeseeable," and everyone can agree, by virtue of the chatter in the news, that insurance premiums will continue to increase, likely very substantially.

If you need assistance in proposing the language for an emergency special assessment or regular assessment increase to pay insurance premiums, the cost is approximately $500 for the resolution, a proposed letter to the owners, an unanimous consent form (for taking emergency action if it is necessary), and a letter to the Board explaining the resolution. If you need assistance for making findings for borrowing from the reserves, the cost would be approximately the same, i.e., $500.00, since similar paperwork is required.