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JANUARY 2004 - FYI - January 1, 2004 AB 512 is the product of a 3 year study of the Davis-Stirling Common Interest Development Act by the California Law Revision Commission. The new law adds Article headings to provisions of the DS Act. These headings do not change the scope, meaning, or intent of the Act. They are intended to clarify the sections. The new law also adds provisions the CLRC considered important for procedural fairness in rulemaking by associations. It adds requirements regarding operating rules relating to the use of the common area, the use of a separate interests, member discipline, standards for delinquent assessment payment plans, and the resolution of assessment disputes, as specified. Among other things, the new law establishes criteria for valid operating rules, requires that members have notice of a proposed rule change (before it is adopted by the Board), requires that discussion of the rule(s) take place at an open board meeting after the comment period, and establishes a procedure that allows members to petition for a vote to reverse a rule. The new law excepts common interest developments that are zoned as industrial or commercial developments. And also provides general document delivery and notice rules, to be applicable when supported in the governing documents. In sum, it micromanages rule-setting in associations and controls if there is any conflict with provisions currently in the governing documents. This causes more confusion for HOAs, but also creates more standardized practices intended to assure a fair process of rule setting. Some Associations have been accused of being discriminatory in their rule-setting practices; and following these procedures should eliminate those claims. The language of the bill is long and tedious and it amends existing sections and adds many new sections to the Davis Stirling Act. In the most simple terms, it requires that a ''Rule change'' (which is "the adoption, amendment, or repeal of an operating rule(s) by the board of directors of the association") is valid and enforceable only if all of the requirements stated in the law are satisfied. Those requirements are: (a) The rule is in writing. See the next FYI in February to find out the "good faith" requirements are for approving rules, and what is involved in the required processes and procedures for adopting rules after January 1, 2004. The days of simple "board adoption" are over.
An operating rule is defined as a rule that applies to one or more of the following subjects: (1) Use of the common area or of an exclusive use common area. These new requirements do not apply to the following actions by the board of directors of an association: (1) A decision regarding maintenance of the common area. Number 4 above helps clarify the fact that some rules will be affected by other statutes, such as existing law as to a specific annual disclosure regarding assessment collection practices found in Civil Code Sections 1365 and 1365.1. The Board of Directors must provide notice to all Owners of a written proposed rule change at least 30 days before it is to become effective. The notice shall include the text of the proposed rule change and a description of the purpose and effect of the proposed rule change. Then, the Board shall vote on the effectiveness of the proposed rule change at a meeting at the end of the notice period. ) A decision on a proposed rule change must be made at a meeting of the board of directors, after consideration of any comments made by association members. After the decision to approve the rules) is made, the Board then gives notice again to the members as to the decision of the Board. There is authority to propose an "emergency rule" under the statute without the pre-decision notice; in which case, the notice must describe the emergency. This would involve a rule change that is required to address "imminent threat to public health or safety, or an imminent risk of substantial economic loss to the Association." Any emergency rule change is effective for 120 days or less, as stated, and may not be readopted as an emergency rule, after the first time. (PS -A POLICY IN THIS AREA THAT COMPORTS ALSO WITH YOUR OWN GOVERNING DOCUMENTS WILL HELP GUIDE YOU ON A DAILY BASIS - COST IS $150.00 FOR A POLICY AND RESOLUTION FOR THE BOARD TO APPROVE IT - DOES NOT REQUIRE HOMEOWNER COMMENT PERIOD.) In the next FYI, I will outline the steps which Members can take to force the Board to put new rules to a vote to see if the members want to reverse the rule!
"Members of an association owning 5 percent or more of the separate interests may call a special meeting of the members to reverse a rule change. The prescribed method is as follows: delivery of the written request of the to the president or secretary of the board of directors, after which the board shall deliver notice of the meeting to the association's members and hold the meeting in conformity with Section 7511 of the Corporations Code. If the Board refuses to notice the meeting but adopts the rule change anyway, it is likely going to be found invalid if challenged so there is incentive to put the matter to a vote of the members. The written request has to be delivered in 30 days or less after the members of the association are notified of the rule change. After that time, the right to call for a vote on the rule apparently terminates. If the Board chooses, in lieu of calling a special meeting, the Board may distribute a written ballot to the members to vote on the rule proposed rule change and the request to reverse it. The rule change, if it is properly noticed by the Board, and the owners properly ask for a vote to reverse the rule, must be put to a vote, and may be reversed if a majority of a quorum of the members represented in a meeting or by a written mail ballot measure vote to reverse the rule or rule change. (Note that a quorum would be that defined by the Bylaws of the Association). If the Bylaws or CC&Rs require a higher proportion to reverse the rule, the statute says the higher proportion controls. If a rule change is reversed, it may not be readopted for one year after the date of the meeting to reverse the rule change (or the written ballot if the ballot was done by mail). The Board can adopt a rule on the same subject, but not one that provides the same thing as the rule that was reversed. If a rule is reversed through voting at a meeting or by mail, the Board of Directors must then provide notice of the results to the membership. See the next FYI for notice provisions addressed in AB 512 - they are different than notice provisions in many governing documents and provide many ways in which notice relating to rule-setting may be given. Notice provisions are also addressed in the new law on adopting operating rules is as follows: [By the addition of Civil Code 1350.7.] This section applies to delivery of a document "to the extent the section is made applicable by another provision of the DS Act", meaning that it applies whenever a section in the Davis Stirling Act (such as the new sections relating to adoption of operating rules) refers to it. Existing sections of the Act passed before January 1, 2004 will not refer to it because it did not exist before that time so watch for differing notice requirements for the various notices and disclosures that are required. The possible delivery methods include: (1) Personal delivery. A document may be included in or delivered with a billing statement, newsletter, or other document that is delivered by one of the methods provided above. It is important to note that an unrecorded provision of the governing documents providing for a particular method of delivery does not constitute agreement by a member of the association to that method of delivery. Keep in mind that to the extent neither the governing documents nor any other law approves notice by any of the aforesaid notice practices, you may want to look at amending the governing documents to get the authority needed to send info by fax or email to the members to save time and money. As you can see from the last 4 FYIs (on the subject of passing rules alone), its not just enough to know that a statute exists on a certain subject, you have to know the details. There are so many potential traps in the new laws.
MATERIALS BEING MADE AVAILABLE HAVE BEEN WRITTEN OVER THE YEARS AND DO NOT COVER STATUTES OR CASE LAW OR PRACTICAL ISSUES THAT AROSE AFTER THEY WERE WRITTEN. By Beth A. Grimm, Attorney. A "service oriented" attorney and member of ECHO and CAI and various other industry organizations in California and nationally, host of the website www.californiacondoguru.com; two Blogs: California Condominium & HOA Law Blog, and Condolawguru.com Blog, and author of many helpful community association publications which can be found in the webstore on her site. copyright 2004, Beth Grimm, all rights reserved
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