HOA Law Blog

New Procedures Apply To The Adoption Of "Operating Rules"

The Davis-Stirling Common Interest Development Act was amended effective January 2003 by adding Civil Code Sections 1357.100 through 1357.150 which require that certain rules and regulations of an association defined in the Civil Code as "operating rules" satisfy specified criteria before that operating rule becomes effective. For certain categories of rule changes listed in the Civil Code, the board of directors of an association must give its members at least 30 days’ notice of a proposed rule change prior to adopting the rule change. The notice must include the text of the rule change and a description of the purpose and effect of the rule can; however, rules adopted for emergency purposes are exempt from the notice requirements. Once the 30 day notice period expires, the Board may adopt the proposed rule change. The Board must notify the members soon as possible after the rule has been and no more than 15 days after making the rule change. Once enacted, operating rules subject to the requirements of Civil Code § 1357.100 may be reversed by a majority of a quorum of the members if at least 5% or more of the voting power of the association petitions the board for a special meeting for the purpose of reversing an operating rule (distinguished from a common area maintenance or repair policy, for example) within 30 days after the members are notified of the enactment of the rule change. This 30 days period was adopted to allow the homeowners to challenge the rule change, but there is no requirement that the owners be told that they have the right to challenge the proposed rule.

Currently, under Section 1357.120, a rule that governs one or more of the following subjects is subject to the above procedure:

1. Use of the common area or of an exclusive use common area.
2. Use of a separate interest, including any aesthetic or architectural standards that govern alteration of a separate interest.
3. Member discipline, including any schedule of monetary penalties for violation of the governing documents and any procedure for the imposition of penalties.
4. Any standards for delinquent assessment payment plans.
5. Any procedures adopted by the association for resolution of assessment disputes.

Beginning January 1, 2005, AB 2376 adds an additional category of rules subject to the above described rule adoption procedure.  Specifically, any procedures for reviewing and approving or disapproving a proposed physical change to a member’s separate interest or to the common area will now be subject to the rule-adoption procedures set forth in Sections 1357.130 and 1357.140 of the Civil Code.

In addition, if an association’s governing documents require that an owner obtain the approval of the association before making a physical change to the owner’s separate interest or to the common area, the association must now satisfy the following requirements in reviewing and approving or disapproving a proposed change.  The requirements are set forth in newly added Civil Code Section 1378.  The minimum requirements that an association must satisfy are as follows:

1. The association shall provide a fair, reasonable, and expeditious procedure for making its decision.  The procedure shall be included in the association’s governing documents, such as the association’s rules and regulations or CC&Rs.  (Remember, pursuant to the amendment to Civil Code Section 1357.120, if this procedure is adopted as an operating rule, the procedure will be subject to Civil Code Section 1357.130 and 1357.140).  The procedure shall provide for prompt deadlines and shall state the maximum time for response to an application or an owner’s request for reconsideration by the board of directors.
2. A decision on a proposed change shall be made in good faith and may not be unreasonable, arbitrary, or capricious.
3. A decision on a proposed change shall be consistent with any governing provision of law, including, but not limited to, the Fair Employment and Housing Act, commencing with Section 12900, of Division 3 of Title 2 of the California Government Code.
4. The decision on a proposed change shall be in writing.  If an application for a proposed change is disapproved, the written decision must include both an explanation of why the proposed change is disapproved and a description of the procedure for reconsideration of the decision by the board.
5. If a proposed change is disapproved, the applicant is entitled to reconsideration by the board of the association that made the decision, at an open board meeting.  Section 1378 provides that  reconsideration of a decision is not required if the decision is made by the board of directors or a body that has the same membership as the board, at a meeting that satisfies the requirements of Civil Code Section 1363.05 (the Common Interest Development Open Meeting Act).  Section 1378 also provides that reconsideration by the board shall not require dispute resolution within the meaning of the new Civil Code Section 1363.820, described below.

New Civil Code Section 1378 is not intended to authorize a physical change that is prohibited by an association’s governing documents or governing law.

Section 1378 also requires that an association provide its members with notice of any requirements for association approval of physical changes to property on an annual basis.  The notice must describe the types of changes that would require the association’s approval and shall include a copy of the procedure used by the association to review and approve or disapprove a proposed change.

AB 2376 also amends Civil Code Section 1373 pertaining to common interest developments that are limited to industrial or commercial uses by zoning or by a declaration of covenants, conditions and restrictions.  Section 1373 exempts these types of common interest developments from compliance with certain provisions of the Davis-Stirling Common Interest Development Act such as the requirement to distribute to the members on an annual basis a pro forma operating budget.  The amendment to Civil Code Section 1373 will exempt common interest developments limited to industrial or commercial uses from compliance with Section 1378, described above. 

Effective January 1, 2005, Assembly Bill 1836 changes the current requirements and process for Alternative Dispute Resolution,  by amending the existing provisions of the Davis-Stirling Common Interest Development Act (“Act) and adding additional provisions to the Act.  This Bill was introduced to enact recommendations made by the California Law Review Commission (CLRC). This new legislation requires that associations adopt some form of Internal Dispute Resolution process, as discussed below, and it also expands the scope of the disputes to which the Alternative Dispute Resolution processes must or can be applied within community associations.

Existing law requires that certain disputes be submitted to Alternative Dispute Resolution prior to a lawsuit being filed, either by a homeowner or by the association.  This Bill establishes a two-tier process to address disputes prior to enforcement through the court system.  As of 2005, associations are required to implement an informal process by which homeowners and boards "meet and confer" to discuss their disputes.  The CLRC came to the conclusion that some association boards were not talking with homeowners regarding their disputes, and felt that by encouraging personal communication that many disputes would be resolved without court intervention.

If the dispute is not resolved through the informal “meet and confer” process, either the owner/member or the association must still submit the dispute to some form of formal Alternative Dispute Resolution (ADR) prior to filing a lawsuit in the Superior Court.

Assembly Bill 1836 amends Section 1354 of the Davis-Stirling Act to clarify that all governing documents, which include rules and regulations, Articles, Bylaws, as well as CC&Rs, may be enforced by any owner of a separate interest or by the association, or both.  This change reinforces the concept  recognized by the California Court of appeals in Beehan v Lido Isle Community Association that not all association disputes have to be enforced or resolved by the association.

As was the case prior to enactment of Assembly Bill 1836, neither associations nor homeowners are obligated to use the mandatory “meet and confer” and the ADR process for disputes involving a claim for monetary damages in excess of $5,000.00, Small Claims actions, or, except as provided in the Davis-Stirling Act, to assessment disputes.

This Bill also defines ADR as including mediation, arbitration, conciliation, or any other non-judicial procedure involving a neutral party in the decision-making process.

This new legislation also changes the requirements on how a Request for Resolution may be served.  Previously, there was some ambiguity in the law regarding whether a Request for Resolution had to be personally served.  The Court of Appeals addressed this ambiguity in the Cabrini Villas HOA case.  Realizing that it was becoming difficult for associations to comply with the ADR service requirements, the new law states that the Request for Resolution may be made by personal delivery, first class mail, express mail, fax, or any other means that would reasonably be assumed to notify the receiving party.

AB 1836 also repeals the provisions of Court of Civil Procedure 383, and adds Section 1368.3 to the Civil Code in its place.  Section 1368.3 provides that an association is entitled to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party interest without joining the individual owners in certain disputes.

AB 1836 also amends Civil Code Section 1357.120 to reflect that associations are required to adopt an internal procedure for dispute resolution and that any procedures to be adopted by the Board are subject to the notice and rule change requirements of Civil Code Sections 1357.130 and 1357.140.  This Bill also adds two new requirements to Sections 1357.130 and 1357.140 (which are the sections adopted last year which require notice to members before the Board makes a rule change and allow members of an Association to reverse a rule change, respectively.  Essentially, the amendments to Sections 1357.130 and 1357.140 require that the Internal Dispute Resolution process adopted by an association must comply with the requirements of Section 1357.100 et seq, which means that before it becomes the law of an association, it must first be distributed to the members, to allow them an opportunity to oppose the new procedure.

Associations Must Adopt a Procedure for Internal Dispute Resolution

AB 1836 requires that associations either establish their own procedures for Internal Dispute Resolution or use the procedure set forth in new Civil Code Section 1363.840.  The procedures set forth in Section 1363.840 are as follows:

1. Either the association or a homeowner may request that the other meet and confer in an effort to resolve a dispute involving their rights, duties or liabilities under the Davis-Stirling Common Interest Development Act, the Nonprofit Mutual Benefit Corporation law, or the governing documents of the common interest development.  The request must be in writing.
2. Either the homeowner receiving such a request from the association may refuse to meet and confer.  However, if the association receives such a request from a homeowner, the association must accept the homeowner’s request to meet and confer.
3. The association’s board of directors must designate a member of the board to meet and confer with the homeowner.
4. The designated member of the board of directors and the homeowner shall meet promptly at a mutually convenient time and place; explain their positions to each other and confer in good faith in an effort to resolve this dispute.
5. Any resolution of the dispute agreed to by the designated member of the board of directors and the homeowner must be memorialized in writing and signed by the designated member of the board of directors and the homeowner.

The association has the option of using the above procedure or may adopt its own process.  If the board of directors chooses to adopt its own process, the process is subject to the following:

1. The meet and confer process must be “fair and reasonable.”
2. The process must provide the right for either the association or a homeowner to invoke the process in writing.
3. The procedure must provide prompt deadlines.
4. The procedure must allow for the homeowner and the association to explain their positions and provide the right of appeal by the homeowner to the board of the association.

This new requirement of “a meet and confer” process is intended to foster communication, and that communication will not be binding on either the association or the disgruntled or rule-violating homeowner.  Assuming the agreement made through the meet and confer process is in writing, that resolution may be judicially enforceable, as long as the resolution is not in conflict with the law or the governing documents of the community association, and the agreement is either consistent with the authority granted by the Board of Directors to its designated representative or is ratified by the Board of Directors.

In developing an Internal Dispute Resolution process, Civil Code Section 1363.820(b) requires associations to “make maximum, reasonable use of available local Dispute Resolution programs involving a neutral third party, including low-cost mediation programs, such as those listed on the internet web sites of the Department of Consumer Affairs, and the United States Department of Housing and Urban Development.”

Conceivably, the meet and confer process implemented by a Board of Directors could include use of a mediation service.  However, this new law specifically states that no fee can be charged to the member for participating in the Board’s informal meet and confer process.  Should the dispute not be resolved and be subject to the formal ADR process, the cost of the ADR will be shared equally by the association and the homeowner.

AB 1836 requires that associations annually provide the members with a summary that specifically states:

Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 1369.520 of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law.

The summary must be provided “either at the time the pro forma budget required by Civil Code Section 1365 is distributed, or in the manner prescribed in Section 5016 of the Corporations Code.  The summary shall include a description of the association’s Internal Dispute Resolution process as required by Section 1363.850.”

Any new procedures adopted by the Board of Directors related to the Resolution of Disputes must comply with Civil Code Section 1357.130 and 1357.140, the procedure for enacting new rules (which, among other things, requires that the new rule or procedure be distributed to the members prior to becoming enforceable and allows members to vote to reverse a rule change).

The new laws affecting collection of delinquent assessments now require the Board of Directors of an Association to vote during an open meeting of the Board to make the decision to record a lien. S&G and Association Lien Services has developed a simple Resolution Document that details all of the steps that need to be taken during that Board meeting to ensure compliance with the California Civil Code. Just click on the link below to download the Resolution Document (REVISED January 2006)

Download bod_lien_resolution_final.pdf