By Cyrus Koochek and David Swedelson, Community Association Attorneys, SwedelsonGottlieb
It is a fact of community association governance that at some point, every community association board of directors will likely have the need to levy a fine on a member. Most associations have adopted a schedule of monetary penalties or fine policy setting forth the fines that the board will impose in the event there is a violation of the governing documents. Whether an association plans to amend or adopt a new or revised fine policy, or do nothing at all with its current fine policy, all associations must now comply with changes in the new Davis-Stirling Act (effective January 1, 2014) relating to fines.
Former California Civil Code Section 1363(f) provided that if an association adopts or has adopted a policy imposing any monetary penalty, the Board must distribute the policy to all members via first class mail or personal delivery when the schedule is first adopted or when revised. The former code section was ambiguous and some believed that it did not require that the board disclose/distribute the fine policy on a yearly basis. The code just required that the board distribute any fine policy it did adopt/revise at that time. Thus, for example, if an association did not revise its fine policy for 10 years, some interpreted the former code section to say that there was no obligation to distribute it to the members regularly. This led to some confusion and disagreements.
That has all changed. Effective January 1, 2014, new California Civil Code Section 5850 now requires that if an association has a fine policy, the association must distribute the fine policy in the association’s annual policy statement, meaning at least on a yearly basis regardless of whether an association makes changes in their fine policies or not. Interestingly, new Civil Code Section 5850 seems not to recognize that a change in a fine policy constitutes an operating rule change that would be distributed via general delivery (unless individual delivery is requested by a member); Section 5850 states that any revisions to the policy made after the disclosure of the policy in the annual policy statement may (not must) be included in a supplement sent individually to all association members. We find this a bit strange, maybe an oversight.
Notwithstanding the foregoing, we believe that California community associations must distribute, by general notice, fine policies upon adoption or revision, because any change or adoption of a fine policy is deemed an operating rule change pursuant to new Civil Code Section 4355. In light of the change in the law, it is crucial that associations are aware of and comply with the annual policy statement requirement regarding fine policies; otherwise, the association could be the one ending up with a fine.
There are some nuances that may impact an association’s ability to levy an appropriate fine. So, if your association does not now have a fine policy or an enforcement policy (and we recommend both), we suggest that you confer with an experienced community association attorney.
David Swedelson and Cyrus Koochek are condo lawyers and HOA attorneys. Contact them via email: firstname.lastname@example.org