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:
- Use of the common area or of an exclusive use common area.
- Use of a separate interest, including any aesthetic or architectural standards that govern alteration of a separate interest.
- Member discipline, including any schedule of monetary penalties for violation of the governing documents and any procedure for the imposition of penalties.
- Any standards for delinquent assessment payment plans.
- 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:
- 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.
- A decision on a proposed change shall be made in good faith and may not be unreasonable, arbitrary, or capricious.
- 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.
- 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.
- 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.