HOA Law Blog

(a) This section shall be known and may be cited as the Common Interest Development Open Meeting Act.

(b) Any member of the association may attend meetings of the board of directors of the association, except when the board adjourns to executive session to consider litigation, matters relating to the formation of contracts with third parties, member discipline, personnel matters, or to meet with a member, upon the member's request, regarding the member's payment of assessments, as specified in Section 1367 or 1367.1. The board of directors of the association shall meet in executive session, if requested by a member who may be subject to a fine, penalty, or other form of discipline, and the member shall be entitled to attend the executive session. As specified in paragraph (2) of subdivision (k), a member of the association shall be entitled to attend a teleconference meeting or the portion of the teleconference meeting that is open to members, and that meeting or portion of the meeting shall be audible to the members in a location specified in the notice of the meeting.

(c) Any matter discussed in executive session shall be generally noted in the minutes of the immediately following meeting that is open to the entire membership.

(d) The minutes, minutes proposed for adoption that are marked to indicate draft status, or a summary of the minutes, of any meeting of the board of directors of an association, other than an executive session, shall be available to members within 30 days of the meeting. The minutes, proposed minutes, or summary minutes shall be distributed to any member of the association upon request and upon reimbursement of the association's costs for making that distribution.

(e) Members of the association shall be notified in writing at the time that the pro forma budget required in Section 1365 is distributed, or at the time of any general mailing to the entire membership of the association, of their right to have copies of the minutes of meetings of the board of directors, and how and where those minutes may be obtained.

(f) Unless the time and place of meeting is fixed by the bylaws, or unless the bylaws provide for a longer period of notice, members shall be given notice of the time and place of a meeting as defined in subdivision (k), except for an emergency meeting or a meeting that will be held solely in executive session, at least four days prior to the meeting. Except for an emergency meeting, members shall be given notice of the time and place of a meeting that will be held solely in executive session at least two days prior to the meeting. Notice shall be given by posting the notice in a prominent place or places within the common area and by mail to any owner who had requested notification of board meetings by mail, at the address requested by the owner. Notice may also be given, by mail or delivery of the notice to each unit in the development or by newsletter or similar means of communication, or, with the consent of the member, by electronic means. The notice shall contain the agenda for the meeting.

(g) An emergency meeting of the board may be called by the president of the association, or by any two members of the governing body other than the president, if there are circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board, and which of necessity make it impracticable to provide notice as required by this section.

(h) The board of directors of the association shall permit any member of the association to speak at any meeting of the association or the board of directors, except for meetings of the board held in executive session. A reasonable time limit for all members of the association to speak to the board of directors or before a meeting of the association shall be established by the board of directors.

(i) (1) Except as described in paragraphs (2) to (4), inclusive, the board of directors of the association may not discuss or take action on any item at a nonemergency meeting unless the item was placed on the agenda included in the notice that was posted and distributed pursuant to subdivision (f). This subdivision does not prohibit a resident who is not a member of the board from speaking on issues not on the agenda.
(2) Notwithstanding paragraph (1), a member of the board of directors, a managing agent or other agent of the board of directors, or a member of the staff of the board of directors, may do any of the following:
(A) Briefly respond to statements made or questions posed by a person speaking at a meeting as described in subdivision (h).
(B) Ask a question for clarification, make a brief announcement, or make a brief report on his or her own activities, whether in response to questions posed by a member of the association or based upon his or her own initiative.
(3) Notwithstanding paragraph (1), the board of directors or a member of the board of directors, subject to rules or procedures of the board of directors, may do any of the following:
(A) Provide a reference to, or provide other resources for factual information to, its managing agent or other agents or staff.
(B) Request its managing agent or other agents or staff to report back to the board of directors at a subsequent meeting concerning any matter, or take action to direct its managing agent or other agents or staff to place a matter of business on a future agenda.
(C) Direct its managing agent or other agents or staff to perform administrative tasks that are necessary to carry out this subdivision.
(4) (A) Notwithstanding paragraph (1), the board of directors may take action on any item of business not appearing on the agenda posted and distributed pursuant to subdivision (f) under any of the following conditions:
(i) Upon a determination made by a majority of the board of directors present at the meeting that an emergency situation exists. An emergency situation exists if there are circumstances that could not have been reasonably foreseen by the board, that require immediate attention and possible action by the board, and that, of necessity, make it impracticable to provide notice.
(ii) Upon a determination made by the board by a vote of two-thirds of the members present at the meeting, or, if less than two-thirds of total membership of the board is present at the meeting, by a unanimous vote of the members present, that there is a need to take immediate action and that the need for action came to the attention of the board after the agenda was posted and distributed pursuant to subdivision (f).
(iii) The item appeared on an agenda that was posted and distributed pursuant to subdivision (f) for a prior meeting of the board of directors that occurred not more than 30 calendar days before the date that action is taken on the item and, at the prior meeting, action on the item was continued to the meeting at which the action is taken.
(B) Before discussing any item pursuant to this paragraph, the board of directors shall openly identify the item to the members in attendance at the meeting.
(j) (1) The board of directors shall not take action on any item of business outside of a meeting.
(2) (A) Notwithstanding Section 7211 of the Corporations Code, the board of directors shall not conduct a meeting via a series of electronic transmissions, including, but not limited to, electronic mail, except as specified in subparagraph (B).
(B) Electronic transmissions may be used as a method of conducting an emergency meeting if all members of the board, individually or collectively, consent in writing to that action, and if the written consent or consents are filed with the minutes of the meeting of the board. Written consent to conduct an emergency meeting may be transmitted electronically.
(k) As used in this section:
(1) "Item of business" means any action within the authority of the board, except those actions that the board has validly delegated to any other person or persons, managing, agent, officer of the association, or committee of the board comprising less than a majority of the directors.
(2) "Meeting" means either of the following:
(A) A congregation of a majority of the members of the board at the same time and place to hear, discuss, or deliberate upon any item of business that is within the authority of the board.
(B) A teleconference in which a majority of the members of the board, in different locations, are connected by electronic means, through audio or video or both. A teleconference meeting shall be conducted in a manner that protects the rights of members of the association and otherwise complies with the requirements of this title. Except for a meeting that will be held solely in executive session, the notice of the teleconference meeting shall identify at least one physical location so that members of the association may attend and at least one member of the board of directors shall be present at that location. Participation by board members in a teleconference meeting constitutes presence at that meeting as long as all board members participating in the meeting are able to hear one another and members of the association speaking on matters before the board.

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. 

2005 - 2006 ANNUAL DISCLOSURE CHECKLIST FOR COMMUNITY ASSOCIATIONS

NOT LESS THAN 30 DAYS NOR MORE THAN 90 DAYS PRIOR TO THE BEGINING OF THE FISCAL YEAR:

 Pro Forma Operating Budget Civil Code § 1365(a)
The association must distribute its operating “pro forma” budget within the “60-day window” to retain its ability to unilaterally increase assessments. If this requirement is not met, the members must approve any increase to the regular assessments.

The budget must contain the following:
• an estimate of revenue and expenses on an accrual basis;
• a summary of the reserves printed in bold type;
• with respect to construction or design defect cases, the summary must also include a separate line
item for:
(1) funds received from compensatory damage awards or settlements; and
(2) expenditure or disposition of funds, including amounts for direct/indirect costs of repair of
defects (If the association is required to have a CPA conduct a review of its financial
statements, the above information may instead be contained in such review);
• a statement as to whether the board anticipates the levy of one or more special assessments; and
• a basic description of the procedures used to calculate the reserves.

 Summary of Pro Forma Operating Budget Civil Code § 1365(c)
(Alternative to Above) The association may distribute a summary of the operating budget in lieu of the pro forma budget.

The summary budget must give members notice that:
• the complete budget is available for review at the association’s business office or other
suitable location within the development; and
• copies of the complete budget will be provided upon request at no charge to a member within
five (5) days of the request.

These notices must be printed in at least 10-point bold type on the front page of the summary.

 Assessment and Reserve Funding Disclosure Summary
The association must distribute an Assessment and Reserve Funding Disclosure Summary in the form prescribed by Civil Code Section 1365.2.5. This disclosure requires more than just a description of the amount of reserves and/or the association’s budget contributions. Disclosure of, among other things, the components being reserved for, their anticipated remaining life and how much money is currently in reserves allocated to that component must be disclosed.

 Assessment Increases Civil Code § 1366(d)
Notice of an assessment increase or special assessment must be provided by first-class mail to members not less than thirty (30) nor more than sixty (60) days before the increase or assessment is due. Note: Even if the budget shows the increased assessments, prepare and distribute a general notice.

 Assessment Collection Policy Civil Code § 1365(d)
Members must receive a description of the policies and practices which the association will apply to enforce payment of assessments. The failure to adopt and distribute this assessment collection policy may affect an association’s ability to collect delinquent assessments.

This notice usually describes:
• how, when and under what conditions the association will record and foreclose upon assessment liens;
• the nature and amount of late charges, interest and collection costs; and
• owners’ rights to demand Internal Dispute Resolution (“IDR”) and Alternative Dispute Resolution (“ADR”) at different times during the collection process.

 Secondary Addresses Provided by Owners
The association shall notify owners of their right to submit secondary addresses to the association for purposes of collection notices. Upon receipt of a written request by an owner identifying a secondary address for purposes of collection notices, the association shall send additional copies of any notices required by Section 1367.1 of the California Civil Code to the secondary address provided. The owner’s request shall be in writing and shall be mailed to the association in a manner that shall indicate that the association has received it. The owner may identify or change a secondary address at any time, provided that, if a secondary address is identified or changed during the collection process, the association shall only be required to send notices to the requested secondary address from the point that the association receives the request.

WITH THE BUDGET SUMMARY, OR IN ANY GENERALY MAILING DURING THE YEAR:

 Notice of Right to Minutes of Board Meeting Civil Code § 1363.05(d)
On an annual basis, the association must notify members of their right to receive copies of the minutes from board of directors’ meetings (which does not include executive session meeting minutes).
The notice should state:
1. that members have the right to receive approved minutes, an unapproved draft, or a summary of the minutes within thirty (30) days of a board meeting upon member’s request and upon reimbursement of association’s costs to distribute minutes; and
2. how and from whom those minutes may be obtained.

 Arbitration/Mediation of CC&Rs Disputes Civil Code § 1369.510 et seq.
Annually, the association must distribute a summary of Civil Code Section 1369.510 et seq. to its members.

Section 1369.510 et seq. provides, in part:
• An owner or the association must first offer arbitration, mediation or conciliation prior to litigating an action to enforce the governing documents, in seeking injunctive or declaratory relief, or injunctive or declaratory relief plus damages of up to $5,000 (other than assessments);
• thirty (30) days in which the responding party may accept or reject ADR

Civil Code §1369.590 requires that associations annually provide members with a summary of the ADR 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.”

 Insurance Coverages Civil Code § 1365(e)
The association must distribute to the members a summary of its property, general liability, earthquake, flood and fidelity insurance policies. The summary should also state:
• the name of the insurer and the type of insurance; and
• the policy limits and deductibles, if any.

To the extent the above information is contained on the policy’s declaration page, that page can be distributed in lieu of the summary.

The summary or declaration page must include the statement provided in Civil Code Section 1365(e)(4). This statement must be in at least 10-point boldface type.

Notice of a lapse, cancellation or non-renewal of any policy or of any change in policy shall be provided to the members by first-class mail as soon as reasonably practicable.

Within Sixty (60) days prior to beginning of fiscal year:

 Notice of Assessments, Foreclosures and Payment Plans Civil Code §1365.1
The association must distribute the notice specified in Civil Code Section 1365.1 pertaining to assessments, the association’s rights of foreclosure, payments of assessments and meetings and payment plans concerning a delinquent assessment.

WITHIN 120 DAYS AFTER THE CLOSE OF EACH FISCAL YEAR

 Review of Financial Statement Civil Code § 1365(b)
For any fiscal year in which the association’s gross income exceeds $75,000, a review of its financial statement must be prepared by a licensed California accountant and distributed to members within 120 days after the close of each fiscal year.

 Notice of Right to Receive Annual Report Corporations Code § 8321
For any fiscal year in which the association’s gross revenues are at least $10,000, it must prepare an annual report within 120 days after the end of the association’s fiscal year and notify members on an annual basis of their right to receive this report. The association must provide the report at its own expense to any member submitting a written request for a copy of the report.

The annual report must contain:
• a year-end financial statement;
• a notice stating where records of the association members’ names and addresses are stored; and
• disclosure of transactions with interested parties and of indemnification agreements.

The association must attach either the accountant’s report, if an independent accountant has reviewed or audited the financial statement, or a certificate by an officer indicating that the statement was prepared without review or audit.

MISCELLANEOUS DISCLOSURES

 Schedule of Monetary Penalties Civil Code § 1363(g)
Associations which impose fines on members for violating governing documents or association rules must distribute a schedule of the monetary penalties via first class mail or hand-delivery when the schedule is adopted or revised (recommended annually).

 Escrow/Sale of Unit Civil Code § 1368(a) and (b)
Within ten (10) days of written request from an owner, an association must provide the owner (or owner’s agent/escrow) with a copy of various documents and information so that the owner may satisfy certain disclosure obligations to a prospective buyer. Among the documents and information to be provided by the selling owner is a statement of unpaid fines and other monetary penalties, as well as a copy or summary of any notices of alleged violations of the governing documents that remain unresolved at the time of making the disclosure to the prospective buyer.

 Disclosure of Construction Defect Issues Before Suit Civil Code § 1368.5, § 1375(k)(1)(E)
Thirty (30) days before an association files a lawsuit for construction defects, it must provide notice to all owners of the defect issues, schedule a members meeting to discuss the claims and the available options, including any settlement offer from the builder, as referenced in California Civil Code Section 1375(k)(1)(E).

 Disclosure of Construction Defect Settlement Civil Code § 1375.1
Upon settling a construction defect claim with the builder, the association must so inform the members as soon as reasonably practicable, of the following:
(1) disclose what will be repaired;
(2) estimate when the defects will be repaired; and
(3) disclose any defects that may not be repaired.

 Reserve Fund Transfer Civil Code § 1365.5(d)
When an association uses or transfers any funds from its reserve account to fund litigation, it must notify the members of the transfer and of the availability of an accounting in the next available mailing to the membership.

 Litigation Expenses Civil Code § 1365.5(d)
Unless the association’s governing documents impose more stringent standards, the association shall prepare an accounting of the litigation expenses on at least a quarterly basis. The accounting shall be made available for inspection by members at the association’s office.